1. Cancellation as a remedy for breach of contract is only available where the parties have incorporated a right to cancel in their contract, or where the breach is of a sufficiently serious nature to justify cancellation.
  2. The contract may expressly state that if one of the parties breaches terms of the contract or fails to perform within the agreed time, the other party is entitled to cancel the contract, sometimes after notice to cure the breach. If such clause is in place, the innocent party is entitled to cancel the contract on any breach, no matter how trivial it is, unless the court refuses to enforce cancellation for being contrary to public policy.
  3. Where the breach is failure to perform according to the strict terms of the contract, the enquiry is whether the breach is of a material or vital nature to the performance of the contract as a whole so that the innocent party cannot reasonably be expected to abide by the contract and only rely on a damages claim.
  4. If the breach is failure to perform timeously an obligation that must, expressly or impliedly be performed within a specific time, the breach justifies cancellation. Time would be of the essence, for example, in the case of speculative contracts or contracts for the sale of goods which continually fluctuate in value or for instance where seasonal fashions have to be delivered in time for on-sale.
  5. If time is not of the essence or not contractually stated to be of the essence, the innocent party can make it so by giving notice demanding performance within a specified time which is reasonable in the circumstances.
  6. In certain circumstances, the absence of cancellation as a right and the provision for damages as the remedy for breach may indicate that the parties did not intend the contract to be terminable on breach. This is generally the case where the parties intended the contract to endure for a specific time or in perpetuity, or they have an ongoing relationship.
  7. When the breach consists of repudiation, the innocent party must accept repudiation before cancelling the contract. Repudiation is a situation where one party, without lawful grounds, indicates to the other party in words or by conduct an unequivocal intention not to be bound by the contract (or material terms) or to perform their obligations.
  8. If the contract sets a procedure for cancellation, that procedure must be complied with or an intended cancellation will not be effective. For example, a contract may provide that the innocent party is required to notify the other party of the breach and afford the latter a period of time to remedy the breach. An appointed method and address for any notice must be used.
  9. Once the contract has been cancelled, each party is relieved of future obligations to perform. The parties are still liable to perform obligations due and enforceable prior to cancellation.
  10. If the innocent party acts in such a manner that a reasonable person in the position of the defaulting party would conclude that the innocent party has elected to abandon the right to cancel, then such right may be lost. For example, where the innocent party acts in a way that is incompatible with cancellation or fails to exercise the right to cancel within a reasonable time.