Contract affirmation is the decision to continue with a contract despite potential breaches. It requires one party to let go of their right to cancel the contract.
This is a guide for commercial business owners and managers to provide an in-depth understanding of the concept of contract affirmation within UK law.
It will explain the circumstances under which a contract can be affirmed, the legal implications of affirmation, and how businesses and individuals can navigate these situations. You’ll also learn about the risks and strategies involved in affirming a contract.
We’ll also explain why seeking legal professional advice can help you navigate the process of contract affirmation. Our lawyers are experts in all elements of contract affirmation. Contact us today for a free case assessment to discuss your requirements.
What is contract affirmation?
Contract affirmation is the intention to continue with a contract. The state of contract affirmation may be triggered by a breach of contract, or misrepresentation that allows the innocent party to rescind the contract under its terms.
Affirmation treats a contract as valid, and the party that affirms a contract party gives up their right to annul it. Both parties will then continue to act as if the contract had been valid originally.
Contract affirmation can only occur when both parties are fully aware of the facts.
It often occurs when there is a repudiatory breach of contract – a serious breach of contract that can deprive the other party in a contract of the full benefit of the contract. Repudiatory breaches give the innocent party the right to terminate the contract and claim damages or affirm the contract.
There are other common scenarios in which affirmation occurs. We’ll cover these in more detail later.
What is the difference between contract affirmation and waiver?
There is a key difference between contract affirmation and a waiver that you should be aware of if you’re considering affirming a contract.
With a waiver you withdraw your rights to take further action and let the breach go.
A contract affirmation, on the other hand, sees you give up your right to claim damages for losses caused by a breach, however, you lose the right to terminate the contract.
Contract affirmation and UK law
In common law, a contract can be terminated for a repudiatory breach.
In White V Carter, the judge established the ‘legitimate interest’ principle. This indicates that an innocent party may not be able to affirm a contract “if it can be shown that a person has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages”.
Another instructive case law example saw an employment tribunal strike off a senior employee’s claim that he needed to give more notice to his employer following a disagreement with his line manager.
The employee who had worked for the same company for more than 20 years resigned following a disagreement. His contract required him to give three months' notice, however, he proceeded to give seven, citing that he needed more time to find a new job due to financial reasons.
The dispute was brought before a tribunal where it was struck out. The judge stated that by giving more notice than required, the employee had affirmed his employment contract.
When does contract affirmation occur?
Affirmation of a contract typically occurs when:
Affirmation following a repudiatory breach – to reiterate a repudiatory breach is a breach of contract so serious that it deprives the other party (the ‘innocent party’) of the full benefit of the contract. In a contract, the terms may expressly state what makes a breach repudiatory. Before terminating a contract, it’s essential to be confident that the contract can be repudiated
Affirmation after misrepresentation – once a contract has been affirmed after a statement was misrepresented in a contract, you can no longer claim misrepresentation. It is important not to affirm a misrepresentation unless you’re happy to withdraw your rights
Affirmation in employment contracts – affirmation occurs commonly in employment contracts as indicated by the case law example above
What are the legal consequences of affirming a contract?
The main legal consequence of affirming a contract is the loss of the right to terminate it. Suppose you believe you have the legal grounds for termination and you wish to pursue contract termination. In that case, you should be careful not to lose your right of termination by affirming contractually, or under common law.
When a breach has occurred, you have two choices:
Terminate the contract
Affirm it to keep it in place
When either action has been taken, the other option can no longer be exercised.
Other legal consequences of affirming a contract include:
A party cannot withdraw the notice of termination once given
A contract cannot continue after it has been terminated
The right to repudiatory breach is lost under affirmation
When repudiatory breaches occur, the innocent party has the right to accept the repudiatory breach and seek damages. If they waive the right to terminate the contract, they can treat the contract as continuing and seek damages.
When a contract is affirmed it influences the calculation and availability of damages. After affirming following a breach, the damages are calculated based on the loss suffered due to the breach, as the contract continues. So, damages are calculated on the difference between the actual performance and the performance that was promised, this is adjusted for any mitigation efforts by the innocent party.
Recission of a contract is a remedy when the benefit from a contract is removed. In recission, a contract is treated as if it was never made.
When contract recission takes place:
Specific performance is a remedy in contract law that requires a party to perform a specific act set out in the contract. It is used when no other remedy, such as damages, will compensate the innocent party.
When the right to terminate arises, the innocent party needs to decide what they want to do.
When deciding whether to affirm or terminate, there are some important factors to consider when faced with a potential repudiatory breach.
You may choose not to affirm a contract if you can give the party in breach the opportunity to perform the contract in qualified and conditional terms, or they continue performance while you have an express right to terminate.
Whether you choose to terminate a contract depends on your relationship with the other party. If you have a right to terminate, but have good relations with the other party and a longstanding commercial relationship you may choose to affirm the contract. The other party may have a short-term problem, or they could be a key supplier, so you cannot afford to lose the relationship with them.
It's also important to remember the difference between an affirmation and a waiver. You may choose to affirm as you’re aware that you lose the right to terminate, however, you can still claim damages for any losses caused by the breach.
A case law example shows that a party doesn’t have to accept a repudiation and terminate a contract, even if could be considered unreasonable not to. In White and Carter (Councils) Ltd v McGregor advertising contractors, an advertising contractor agreed with an owner of a garage to display adverts on the garage for three years. On the same day of the agreement, the garage owner wrote to the contractors noting a misunderstanding and expressing a desire to cancel the contract.
The advertising contractors refused to cancel. In an appeal, the House of Lords indicated that they were entitled to refuse the cancellation, carry out the contract and claim full price.
It’s important to make the right decision about when to terminate or affirm as taking the right option protects your interests, legally and commercially.
Risks of unintentional affirmation
Contracts can be beset by pitfalls that can lead to disputes, legal liabilities and damage to business operations when not carefully drafted.
By accepting a repudiatory breach accidentally and allowing a contract to continue, you will lose your right to terminate the contract.
If a decision on whether to affirm or terminate takes too long, the law will consider a contract to be affirmed, even if this was not a deliberate decision by the innocent party.
A lack of clear language and contract terms can lead to unintentional affirmation. This can be drawn from poorly drafted termination triggers – the specific set of circumstances that allow a contract to be terminated. When termination triggers are unclear, two parties can have different interpretations, resulting in costly time-consuming litigation.
Dispute resolution mechanisms should be clear too. Otherwise, disputes can drag on and parties may launch time-consuming and expensive litigation. Parties should be aware of what their rights are when the other party breaches them. Without clear dispute resolution steps, and escalation procedures, conflicts can be intensified.
Can a contract be partially affirmed?
When there is no express clause to the contrary, an innocent party may rescind part of a contract. Exclusion and arbitration clauses may remain.
What should I do if I suspect a breach but want to preserve my options?
You should seek legal advice if you suspect a breach, but want to know what your best options are.
Remember, if you wait too long you could unintentionally affirm a contract, so it is best to act quickly.
Why choose Lawhive for contract disputes
At Lawhive, our contract affirmation solicitors have expertise in handling complex contract disputes.
Thanks to our online platform, we offer cost-effective legal solutions compared to traditional law firms. Contact us for a fixed fee quote for contract affirmation legal services.
Legal services for contract affirmation
Our expert contract solicitors can help you draft a contract to ensure it is clear, addresses your needs and is legally enforceable.
Additionally, a solicitor can help you ensure you don’t affirm a contract unintentionally.
Contact Lawhive today for expert legal advice for a free case assessment.