A contract is an agreement between two or more parties to perform or not perform specific acts. The contract creates a legal obligation for each party to fulfill their side of the contract. A breach of contract occurs when a party does not fulfill its part of the agreement. This breach can occur in numerous ways. One way is called an anticipatory breach.
An anticipatory breach, also known as anticipatory repudiation, happens when one party realizes the other party will likely not fulfill the terms of the contract. The first party, called 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.
Courts have recognized three types of repudiations in contract law:
1) When a party makes a definite and unconditional refusal before a contract obligation is due that they will not perform their promise. This statement of refusal must be clear and unambiguous.
2) The party commits an action that makes it impossible for the other party to perform their obligation owed under the contract.
3) The subject matter in the transaction is no longer available. For example, the house that was to be sold in the contract transaction was transferred or sold to another party that was not part of the original contract. This makes a clear indication that when the contract due date arrives, the party selling the house would not be able to perform his or her promise.
An anticipatory breach usually happens when one party notices that the other party has stopped following the terms of the contract. For example, an employee may stop showing up for work. This can lead to their employer believing that they do not intend to fulfill their part of the employment contract, and the employer can anticipatory repudiate the employment contract.
Yes. The non-breaching party can sue the breaching party for damages even though the non-breaching party is technically the one to put an end to the contract. The specific damages that the non-breaching party will receive depend on the circumstances surrounding the breach. Typically, damages include money. A judge can award the non-breaching party to complete the specific performance or an injunction.
It is also possible for the party who repudiated the contract to retract their repudiation and perform. However, this must occur before the contract performance date has occurred and if the other party has not made a material change in reliance of the repudiation.
Yes. Courts generally want the non-breaching party to wait a reasonable amount of time before suing. This gives the other party time to fulfill its side of the bargain. A reasonable amount of time varies from jurisdiction to jurisdiction. Also, an anticipatory breach may be withdrawn in certain circumstances if the non-breaching party changes their mind.
Anticipatory breach is a very tricky area of contract law. To understand more about an anticipatory breach and whether you are able to engage in one based on the other party’s actions, contact a business attorney.
Last Modified: 01-09-2017 10:54 AM PSTLaw Library Disclaimer
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