A contract is an agreement made between two or more parties with conditions to either perform or not perform specific acts. The contract creates a legal obligation for each party to fulfill their own requirements of the contract.
A breach of contract occurs when a party does not fulfill its part of the agreement. There are numerous ways in which this type of breach can happen. One of those ways is what is referred to as an anticipatory breach.
What is an Anticipatory Breach?
An anticipatory breach, which is also known as anticipatory repudiation, happens when one party to the contract realizes that the other party will most likely not fulfill the terms of their agreement. The first party, or the non-breaching party, can then choose to terminate the contract in anticipation of the breaching party’s failure to fully perform under the contract.
The courts have recognized at least three different types of anticipatory repudiation in contract law, which includes:
- When a party tells the other party to the contract that they will not be performing their side of the bargain before their contract obligation is even due. Their refusal must typically be made in a definitive and clear manner, so that the other party is on explicit notice. If their statement of refusal is not clear or comes off as ambiguous, however, then it might not be considered anticipatory repudiation.
- If the party commits an action that makes it impossible for the other party to perform their obligation owed under the contract, then it may be considered anticipatory repudiation.
- An action for anticipatory repudiation may also exist when the subject matter of the contract or transaction is no longer available.
- For example, if a house was supposed to be sold as part of the terms under a contract transaction, but was then transferred or sold to another party that was not a party to the original contract. This would be a clear indication that when the contract due date arrives, the party selling the house would not be able to perform their original promise to that first party.
How Does an Anticipatory Breach Happen?
An anticipatory breach typically occurs when one party notices that the other party has stopped following the terms of their contract.
For instance, an employee may stop showing up for work. This can lead their employer to believe that they do not intend to fulfill their side of the employment contract. Thus, the employer can anticipate repudiation of the employment contract and sue for damages, or alternatively, replace that employee.
Can the Non-Breaching Party Sue?
In an anticipatory breach situation, the non-breaching party will be allowed to sue the breaching party for damages, even though the non-breaching party is technically the one putting an end to the parties’ contract.
The specific damages that the non-breaching party can receive will depend on the circumstances surrounding the breach. Typically, the damages for an action based on anticipatory repudiation usually involve an award for monetary damages.
In addition, the judge may also decide to award the non-breaching party an injunction or equitable remedy, such as specific performance, which would compel the breaching party to fulfill their side of the bargain.
Lastly, it is also possible for the party who repudiated the contract to retract their repudiation and perform instead. There are two requirements that must be satisfied, however, before the breaching party can retract their repudiation.
First, the retraction must occur before the contract performance date has passed, and second, the non-breaching party must not have made a material change in their position already based on their reliance on the breaching party’s actions demonstrating anticipatory repudiation.
Do I Have to Wait Before I Can Sue for Breach of Contract?
Although it is not required by the law, courts generally prefer that the non-breaching party wait a reasonable amount of time before suing for breach of contract due to an anticipatory repudiation scenario.
The length of time that a court considers to be “reasonable” typically varies from state to state since it is based on the separate statutes enacted by each state.
Also, an anticipatory breach action may be withdrawn in certain circumstances if the non-breaching party changes their mind to sue. This could be for a variety of reasons, such as if the breaching party decided to finally perform and the non-breaching party found the performance sufficient enough not to sue.
Again, these reasons can vary for a number of reasons, such as the preferences of the individual parties, the state law involved, the terms of the parties’ contract, and the facts pertaining to a specific case.
Should I Talk to an Attorney about a Possible Anticipatory Breach?
A breach of contract action based on a claim for anticipatory repudiation can be very difficult to prove. As demonstrated by the second category listed above, sometimes there is not even definitive evidence for a non-breaching party to use in order to prove that an anticipatory breach occurred.
Therefore, if you are a party to a contract where anticipatory repudiation might occur, then you should contact a local business attorney for further assistance. An attorney in your area will be able to determine whether or not you have a case, and if so, what you can do about it to either prevent it from happening or how to recover for your losses.