Anticipatory Breach: Everything You Need to Know
An anticipatory breach of contract is when one party in a contract indicates that he or she will not perform his or her contractual obligations.3 min read
2. What Constitutes an Anticipatory Breach of Contract?
3. Can Parties Take Back an Anticipatory Breach of Contract?
4. Mitigation of Losses for the Non-Breaching Party
Updated October 27, 2020:
An anticipatory breach of contract, also known as an anticipatory repudiation, is when one party in a contract indicates that he or she will not perform this or her contractual obligations. Words or actions can both show that the party will fail to hold up his or her end of the contract as promised. This enables the aggrieved party to claim a breach of contract. In this event, this party can seek damages, suspend his or her part of the contract, or demand reassurance of performance.
What Constitutes an Anticipatory Breach of Contract?
There are several situations that apply to an anticipatory breach of contract. However, the breach must come in a straightforward and clear manner directed at the other party of the contract. It must also be an unconditional and positive refusal made to the other party. This doesn't require vocal or written information but takes place either through actions, direct communication, or any implied communication by the aggrieved party. Some of these situations include:
- Any action that makes it impossible for a party to hold up his or her contractual obligations.
- The transfer of property from one of the parties to a third party. This could include a sale, a potential sale, a merger, or anything else that changes the repudiating company's contractual obligations.
- Refusal to follow through on a contract, whether written, vocalized, or implied.
It's important to note that an expression of doubt isn't always enough to constitute an anticipatory breach of contract. This may still lead to the same actions of the non-breaching party, even if an action, direct communication, or implied communication hasn't taken place. This is because an expression of doubt may still result in a lack of performance or failure to hold up contractual obligations. Like any other type of repudiation, the compliant party may choose to suspend his or her end of the contract, demand reassurance, or begin the process of mitigating damages, monetary or otherwise.
It is up to the contractually compliant party to demand assurance of the contract. However, under the Uniform Commercial Code, he or she may also suspend his or her side of the contract until satisfied with the repudiatory party's performance.
Can Parties Take Back an Anticipatory Breach of Contract?
In some instances, parties can renege on their anticipatory breach of contract. This typically means the repudiating party hasn't made a change in his or her day-to-day operations or lacked a fulfillment of the contract. The party may also take back his or her anticipatory breach of contract if the other party hasn't accepted or claimed a lack of performance or breach of contract. This also includes the breaching party changing his or her stance before the time for performance set out in the contract. Performance refers to any payment or delivery of goods or services.
Mitigation of Losses for the Non-Breaching Party
When an anticipatory breach of contract occurs, the law requires the compliant party to act quickly to avoid potential losses, costs, or expenses that would take place as a result of the failure to fulfill a contract. This is also known as mitigating damages. When the innocent party doesn't try to mitigate damages to their fullest, he or she won't have the ability to get full restitution.
This duty to minimize damages is a basic rule that outlines how much the innocent party can receive if the case goes to court. Any repudiatory act gives the non-breaching party plenty of time to minimize damages in the eyes of the law. If he or she fails to do so, it's his or her own fault. The breaching party isn't held responsible if the other party doesn't take action as soon as possible.
Although the aggrieved party should immediately try to limit his or her losses, some choose to wait. This enables him or her to see whether the other party will actually deliver on his or her repudiation or whether he or she decides to follow through on his or her contractual obligations. This can come from misinterpretations on the part of the non-breaching party. If the repudiating party still follows through, there's no legal recourse that can result. However, the non-breaching party can also choose to suspend his or her own performance, whether payment or something else. This is in accordance with provisions based on the seller's rights.
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