The next time you review a contract that refers to a “breaching party” and a “non-breaching party” in the ‘Termination for Breach’ section, keep in mind a recent California case Power Technology v. Tessera. In that case, Tessera had breached the parties’ contract. Powertech was also in breach of the contract as it had stopped paying royalties. When Powertech tried to terminate, the court decided Powertech was not itself a “non-breaching party” and therefore couldn’t terminate the agreement.
The clause at issue read: “Either party may terminate this Agreement due to the other party’s breach of this Agreement…however, the non-breaching party may terminate this Agreement if such breach is not cured or sufficiently mitigated (to the non-breaching party’s satisfaction) within sixty (60) days of notice thereof.”
If you already have this formulation in your contracts, the obvious take-away is to make sure that you are not in breach of the agreement before you try to terminate it. If you are drafting a new contract or amending an existing one, an easy fix would be to the change the words “the non-breaching party” to “the other party.”