Omar Bennett
An anticipatory breach of contract, also known as an anticipatory repudiation, occurs when a party to a contract indicates, either through words or actions, their intention to not fulfill their contractual obligations before the performance is due. This gives the counterparty grounds for beginning legal action. The intent to break the contract must be an absolute refusal to fulfill the terms for it to qualify as an anticipatory breach. For example, if a company orders a certain number of computers with specific hardware requirements, and the supplier provides computers that do not meet those requirements, this would constitute an anticipatory breach.
| Characteristics | Values |
|---|---|
| Definition | An action that shows one party's intention to fail to fulfill its contractual obligations to another party |
| Other names | Anticipatory repudiation, repudiatory breach |
| Legal action | The counterparty may begin legal action immediately rather than waiting until the terms of a contract are actually broken |
| Obligations of the counterparty | Make every effort to mitigate their own damages if they wish to seek compensation in court |
| Obligations of the non-breaching party | Wait for a commercially reasonable period of time to see if the other party will retract its anticipatory reputation |
| Obligations of the non-breaching party | Make a demand for performance or future performance |
| Obligations of the non-breaching party | Resort to remedies |
| Obligations of the non-breaching party | Act swiftly to avoid incurring unnecessary costs or expenses |
| Example | Architects halt all work on the first project and commit all their resources to a new project with a different developer |
| Example | A party repudiates the contract two weeks before the start of work |
| Example | A party announces they won't pay |
| Example | A party insists on delegating their performance to another company |
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What You'll Learn
Clear and unequivocal refusal to perform
A clear and unequivocal refusal to perform is a crucial aspect of anticipatory breach, also known as anticipatory repudiation. This occurs when a party to a contract indicates, either through words or actions, an absolute refusal to fulfil its contractual obligations. The intent to break the contract must be clear, straightforward, and directed at the other party. For example, simply expressing doubt or ambiguity, such as stating that certain conditions may prevent them from delivering goods, does not constitute an unequivocal refusal. Instead, a statement like "I will not be delivering the apples as promised" is a clear indication of intent.
In the case of Nett Labs v. iDeal, for instance, an anticipatory breach could be argued if iDeal supplied computers with specifications different from those stipulated in the contract, indicating an inability or unwillingness to meet the agreed-upon terms.
To establish a clear and unequivocal refusal, the following criteria must be met:
- Definite Refusal: The breaching party must unconditionally refuse to perform their contractual obligations. A mere expression of doubt or uncertainty is insufficient.
- Vocal or Written Confirmation: While not necessary, explicit statements or written confirmation of the intention to breach the contract can provide strong evidence of a clear and unequivocal refusal.
- Actions or Inactions: Anticipatory breach can also be derived from the conduct of the breaching party. For example, if they take actions that make it impossible to meet deadlines or fulfil obligations, it could indicate an anticipatory breach.
- Failure to Perform: Failure to perform any obligation in a timely manner can result in a breach. However, if the only remaining obligation is monetary payment, the non-breaching party must typically wait until the due date has passed to claim a breach.
It is important to note that parties claiming an anticipatory breach must make every effort to mitigate their damages if they wish to seek compensation in court. This could include halting payments to the breaching party and seeking alternative solutions, such as engaging a third party to fulfil the original contract.
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Inability to perform
An anticipatory breach of contract occurs when a party demonstrates its intention to breach the contract. This can be shown through words or actions, indicating an outright refusal to perform its obligation. This gives the counterparty grounds to begin legal action, without waiting for the terms of the contract to be broken.
For instance, if architects halt all work on a project and commit their resources to another project, they would be unable to fulfil the initial contract, constituting an anticipatory breach.
In the case of an anticipatory breach, the non-breaching party has two options: they can either treat the breach as an anticipatory repudiation, terminate the contract, and seek legal action; or they can continue with the contract, waiting until the time for performance has expired. If they choose the latter, they may recover the present value of the future amount due, minus any costs saved as a result of the breach.
It is important to note that expressions of doubt by the repudiating party may not be enough to constitute an anticipatory breach. However, they can indicate a prospective inability to perform, allowing the innocent party to suspend their performance and demand assurances.
If a contract does not allow unilateral termination, the repudiating party may not be able to relieve themselves of their obligations and may face legal consequences for breach of contract.
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Failure to inform about non-performance
An anticipatory breach of contract occurs when a party indicates, either through words or actions, that they do not intend to fulfil their contractual obligations. This indication can be explicit or inferred from conduct. For example, if a company CEO tells a reporter that they might not be able to fulfil their orders, this could constitute an anticipatory breach.
In the case of an anticipatory breach, the non-breaching party's obligations under the contract are not discharged. They must wait until the performance is due before suing the breaching party. However, they can suspend their own performance under the contract and demand adequate assurance of performance from the other party. If the other party fails to provide this assurance within a reasonable time, usually not exceeding 30 days, the contract is considered repudiated.
It is important to note that anticipatory breach does not apply if the only remaining obligation under the contract is for one party to pay the other. In such cases, the party seeking payment must wait until the due date for payment has passed before taking legal action.
Parties claiming an anticipatory breach should make every effort to mitigate their damages if they wish to seek compensation in court. This could include halting payments to the breaching party and immediately seeking alternative solutions, such as a third party to fulfil the contractual duties.
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Express repudiation
Anticipatory breach, or anticipatory repudiation, occurs when a party demonstrates its intention to break a contract. Express repudiation is a form of anticipatory breach where a contracting party indicates, either through words or actions, that they do not intend to fulfil their contractual obligations. This indication must be an absolute and positive refusal to perform, and cannot be based on assumptions or ambiguous statements. For example, a statement like "I will not be delivering the apples as promised" is an express repudiation, whereas a statement like "Unless this drought breaks, I won't be able to deliver the apples" is not sufficient.
In the case of Vaswani v Italian Motors, a car seller's conduct was held to be repudiatory when they demanded more money for a sale than the agreed price, forcing the buyer to lose their deposit. This was despite the demand for a higher price being made in good faith due to an increase in the supply price of the car during the order period.
It is important to note that anticipatory breach or repudiation does not require vocal or written confirmation. Failure to perform any obligation in a timely manner can result in a breach. Additionally, the intent to break the contract must be clear and unequivocal, arising from either words or conduct.
Once a party has indicated their intention to break the contract, the counterparty can immediately claim a breach of contract and seek legal remedies, such as payment. The counterparty must also make every effort to mitigate their own damages if they wish to seek compensation in court. This may include halting payments to the breaching party, seeking a third party to perform the original contract duties, or suspending their own performance under the contract until adequate assurance of performance is provided by the breaching party.
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Failure to perform in a timely manner
An anticipatory breach of contract occurs when a party demonstrates its intention not to fulfil its contractual obligations. This can be communicated through words or actions, and failure to perform any obligation in a timely manner can result in a breach.
For instance, if a company orders a specific number of goods from a supplier, and the supplier fails to deliver the goods within the agreed time frame, this could constitute a breach of contract. In such a scenario, the company could claim an anticipatory breach and seek legal remedies, such as compensation.
It is important to note that the intention to break the contract must be an absolute refusal to fulfil its terms. This means that a mere assumption or ambiguous statement is not sufficient. For example, if a supplier indicates that they “might” have difficulty fulfilling an order due to unforeseen circumstances, it does not necessarily constitute an anticipatory breach. However, if the supplier unequivocally states that they "will not" be able to deliver the goods as promised, it would likely meet the threshold for an anticipatory breach.
In the context of services, anticipatory breach can occur when a service provider indicates that they will not be able to perform the agreed-upon services within the specified time frame. For example, if a construction company enters into a contract to renovate an office building by a certain deadline, and they subsequently commit their resources to another project, making it impossible to meet the original deadline, this could constitute an anticipatory breach.
It is worth mentioning that the non-breaching party may have certain obligations, such as mitigating their damages by seeking alternative solutions or halting payments to the breaching party. Additionally, in some cases, the non-breaching party may need to wait until the performance was due before taking legal action, especially if the remaining obligation under the contract is monetary payment.
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Frequently asked questions
An anticipatory breach of contract occurs when a party to a contract indicates, either through words or actions, their intention to not fulfill their contractual obligations before the performance is due.
An anticipatory breach of contract can be constituted by a clear and unequivocal refusal to perform, or by the inability to perform. A positive and unconditional refusal must be made to the other party, for example, "I will not be delivering the apples as promised".
The non-breaching party may choose to terminate the contract or affirm it, depending on the specific circumstances of the case. They can also make a demand for performance or future performance and pursue all remedies available under the terms of the bargain-for agreement.
