What Happens When a Party to a Contract Fails to Comply With a Contract and the Other Party Still Has Obligations Under the Contract?
When a Party to a Contract Fails to Abide By the Terms of the Contract, Such Conduct Is Known As a Repudiation of the Contract. Upon Repudiation Any Other Parties to the Contract May Then Sue For Breach or Choose to Accept the Repudiation As a Termination of All Remaining Obligations.
Understanding Repudiation of Agreement Principles
In the situation where a party to a contract breaches the contract or clearly shows an intention to breach the contract, such conduct is known as a repudiation. Upon a repudiation, the other party, or parties, to the contract may elect to sue for harm resulting from the breach, if any, or choose acceptance of the repudiation and discharge of all remaining obligations.
What constitutes as a repudiation of contract was explained very well within the case of Brown v. Belleville (City), 2013 ONCA 148 wherein it was said:
 A repudiatory breach or an anticipatory repudiation of contract does not, in itself, terminate or discharge a contract. In Guarantee Co. of North America v. Gordon Capital Corp., 1999 CanLII 664 (SCC),  3 S.C.R. 423, at para. 40, the Supreme Court explained:
Contrary to rescission, which allows the rescinding party to treat the contract as if it were void ab initio, the effect of a repudiation depends on the election made by the non-repudiating party. If that party treats the contract as still being in full force and effect, the contract “remains in being for the future on both sides. Each [party] has a right to sue for damages for past or future breaches” (emphasis in original): Cheshire, Fifoot & Furmston’s Law of Contract (12th ed. 1991), by M.P. Furmston at p. 541. If, however, the non-repudiating party accepts the repudiation, the contract is terminated, and the parties are discharged from future obligations. Rights and obligations that have already matured are not extinguished. Furmston, supra, at pp. 543-44.
See also Canada Egg Products, Ltd. v. Canadian Doughnut Co. Ltd., 1955 CanLII 90 (SCC),  S.C.R. 398, at pp. 406-7; Place Concorde East Limited Partnership v. Shelter Corp. of Canada Ltd., 2006 CanLII 16346 (ON CA),  O.J. No. 1964 (C.A.), 270 D.L.R. (4th) 181, at para. 49.
 In his leading textbook, The Law of Contracts (Toronto: Irwin Law Inc., 2005), John D. McCamus refers to the election right of the innocent party on repudiation as an option to disaffirm or affirm the contract. Disaffirmation of the contract, in this sense, constitutes an election to terminate the contract in the face of the non-innocent party’s repudiation of the contract. In the applicable authorities, it is frequently said that an election to disaffirm the contract is an ‘acceptance’ or ‘adoption’ of the repudiation. On this view, an election to affirm the repudiated contract constitutes rejection or denial of the repudiation and a decision to treat the contract as subsisting and on-going.
 Professor McCamus puts it this way, at p. 654:
[I]n the context of a repudiatory breach of an agreement, the victim of the breach is entitled either to affirm or disaffirm the agreement and, in either event, pursue remedies for breach of contract. Similarly, in the context of anticipatory repudiation, the effect of the repudiation is to confer an option upon the innocent party either to disaffirm or affirm the contract. Thus, although the innocent party is entitled to disaffirm the agreement immediately and sue, that party may prefer to affirm the agreement and encourage or insist upon performance by the repudiating party or, more passively, simply wait and see whether the repudiating party does in fact eventually refuse to perform his or her contractual obligations when they fall due. [Citations omitted.]
 It appears to be settled law in Canada that where the innocent party to a repudiatory breach or an anticipatory repudiation wishes to be discharged from the contract, the election to disaffirm the contract must be clearly and unequivocally communicated to the repudiating party within a reasonable time. Communication of the election to disaffirm or terminate the contract may be accomplished directly, by either oral or written words, or may be inferred from the conduct of the innocent party in the particular circumstances of the case: McCamus, at pp. 659-61.
 In American National Red Cross v. Geddes Bros. (1920), 1920 CanLII 6 (SCC), 61 S.C.R. 143, rev’g 47 O.L.R. 163 (S.C. (A.D.)), the Supreme Court of Canada addressed the means by which the adoption of a repudiation may be effectively communicated. Sir Louis Davies said, at p. 145:
The question then, it seems to me, in every such case must be whether under the proved facts adoption of one party to a contract of its repudiation by the other party may be inferred from the proved facts, or whether an actual notice of acceptance or adoption must be given by the party receiving notice of the repudiation to the party repudiating.
It seems to me from reading the authorities that such an actual notice of acceptance or adoption is not necessary but that adoption may be reasonably inferred from all the circumstances as proved.
 In American National, Davies C.J. concluded, at p. 147, that a direct communication to the repudiating party of the election to disaffirm the repudiated contract is not essential “where facts proved allow of a fair inference of acceptance of renunciation [repudiation in this context] being drawn”. This view was endorsed by a majority of the Supreme Court in Kamlee Construction Ltd. v. Town of Oakville (1960), 1960 CanLII 431 (SCC), 26 D.L.R. (2d) 166, at 182.
 More recently, in White v. E.B.F. Manufacturing Ltd., 2005 NSCA 167, 239 N.S.R. (2d) 270, at para. 91, Saunders J.A. of the Nova Scotia Court of Appeal accepted the following description of what constitutes ‘acceptance’ of repudiation, set out in Chitty on Contracts, 28th ed. (London: Sweet & Maxwell, 1999), Vol. I, at p. 25-012:
Where there is an anticipatory breach, or the breach of an executory contract, and the innocent party wishes to treat himself as discharged, he must “accept the repudiation.” It is usually done by communicating the decision to terminate [to] the party in default although it may be sufficient to lead evidence of an “unequivocal overt act which is inconsistent with the subsistence of the contract ... without any concurrent manifestation of intent directed to the other party” ... Acceptance of a repudiation must be clear and unequivocal and mere inactivity or acquiescence will generally not be regarded as acceptance for this purpose. But there may be circumstances in which a continuing failure to perform will be sufficiently unequivocal to constitute acceptance of a repudiation. It all depends on “the particular contractual relationship and the particular circumstances of the case.” [Emphasis added.]
On its own, a repudiatory breach, or anticipatory repudiation, by a party to a contract fails to terminate or discharge a contract; however, the party to the contract that is without repudiatory breach may choose to sue for the breach or may opt to accept the repudiation and thereby terminate the contract and discharge the parties from further obligations.Learn More About
Repudiation of Agreement