Anticipatory Breach

Updated on April 5, 2024
Article byRutan Bhattacharyya
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Anticipatory Breach Of Contract?

Anticipatory breach of contract refers to an action showing a party’s intention not to fulfill their contractual obligation before the prespecified date. This action ends the other party’s responsibility to fulfill the duties mentioned in the contract. Moreover, it gives that party the grounds to initiate legal action.

Anticipatory Breach

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A party must straightforwardly direct the breach in a straightforward manner toward the other party involved in the contract. It does not require written or oral communication. That said, it must occur through direct/implied communications or actions by the dissatisfied party. A few types of this breach are express repudiation, repudiation through property transfer, and repudiation if only payment remains.

Key Takeaways

  • Anticipatory breach refers to a breach of contract that involves a party indicating their intention not to meet the contractual obligations before the preset date. It allows a party to take legal action against the breaching party.
  • There are multiple consequences of anticipatory repudiation. For example, the non-breaching party can claim a refund and avoid protracted litigation.
  • The distinguishing factor between the anticipatory breach and actual breach is that in the latter’s case, a party clearly states their intention to not fulfill their contractual responsibilities on the preset date, not before it.

Anticipatory Breach Of Contract Explained

Anticipatory breach refers to the ability of a party involved in a contract to reject their contractual obligations prior to the date mentioned in the agreement. If a party carries out this action, the counterparty can go to court. Parties claiming anticipatory repudiation must spare no effort to minimize their losses or damages if they wish to go to court for compensation.

One must note that by declaring this breach, the counterparty can take legal action immediately instead of waiting until the other party actually breaks the contract’s terms. Also, individuals must remember that expressing doubt might not be adequate to constitute this type of breach. As noted, the other party must explicitly state or refuse to honor the contractual obligations before the pre-established date.

A party repudiating a contract on the basis of another party’s predicted breach may withdraw or retract their repudiation any time before the performance of the other party is due unless that party has already canceled the contractual agreement, specified that the breach is final, or materially altered their position.

In the case of contracts involving the sale of products, the contract becomes due at the time of the goods’ delivery or the forthcoming installment.

Per common law, a party can retract the repudiation even after the other party’s performance becomes due in an installment agreement.   

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Elements

The elements of an anticipatory breach are as follows:

  • A Bilateral Contract: Generally, this type of breach cannot occur in the case of a unilateral contract.  
  • The Performance Of the Repudiating Party Not Yet Due: One must note that repudiation must take place before the party’s performance becomes due. If it takes place once performance becomes due, it is not an anticipatory repudiation but a breach of contract.
  • Repudiation: The repudiating party must indicate via actions, omissions, or words that they cannot or will not perform the contractual obligations mentioned in the agreement.
  • Willingness And Ability To Perform: The non-repudiating party must be able to show that it can and is willing to fulfill the obligations mentioned in the agreement, if not for the breach of the repudiating party.
  • Repudiation Treated As A Breach: The non-repudiating party must treat the repudiation as a contract breach.
  • Causation And Loss: The non-breaching party has to incur a loss owing to the repudiation’s direct result. The loss may include not getting services as agreed or monetary loss.

Types

Let us look at some types of anticipatory repudiations:

  • Express Repudiation: This involves an unconditional and positive refusal to perform the contractual obligations.
  • Repudiation Through Property Transfer: If two parties enter into a contractual agreement for property sale, repudiation can take place when one party agrees to transfer or transfers the asset to another person.
  • Repudiation Via Actions: This type of breach doesn’t have to be verbal. Any action making it impossible for a party to carry out the contractual obligations sufficiently constitutes a breach. 
  • Repudiation When Only The Payment Remains: The standard rules concerning repudiation are not applicable if the remaining obligation is for a party to pay another party involved in the agreement. In these cases, the payee needs to wait until the payment’s due date passes before claiming the anticipatory reputation.

Examples

Let us look at a few anticipatory breach examples to understand the concept better.

Example #1

Per documents acquired by MySA, Black Rifle Coffee Co. is dealing with a lawsuit filed against it by an Ohio consulting firm named Strategy & Execution over one of its ready-to-drink beverage collections.

The reports suggest that the strategic management firm is suing for an anticipatory breach and/or a breach of contract, and refusal to make payments to sales agents, in addition to a court disclosure that the firm is entitled to royalty payments during the agreement’s initial term.

According to the complaint, the unpaid royalties are continuing to grow and will surge to a substantial amount in the future. One has to wait to find out what actions will be taken against the military-focused coffee business if the allegations are proven correct.

Example #2

Suppose Sam availed of a business loan, and he was supposed to repay it utilizing the proceeds generated from his enterprise. That said, things did not go according to his plan. His business was significantly less successful than he had hoped. Moreover, he ended up taking on more debt to remain afloat.

As a result, he couldn’t repay the initial loan, which in turn, was considered an anticipatory breach of contract even without Sam’s direct refusal to fulfill his loan obligation. 

Remedies

The remedies or consequences of anticipatory repudiations are as follows:

  1. Specific Performance: This compels a party involved in a contract to fulfill the obligations. This is a suitable alternative in cases where any kind of monetary damage might not be sufficient compensation, for example, in scenarios involving rare or unique items or in cases where gauging the value is challenging.  
  2. Rescission: Rescission ends all obligations mentioned in the contract and allows the non-repudiating party to request a refund of the payments made (if any). This is a suitable choice if one wants to steer clear of protracted litigation.
  3. Anticipatory Damages: Anticipatory damages may include the following:
  • Punitive Damages: Exemplary or punitive damages are provided in addition to the actual damages a party suffers. A court may grant punitive damages if the breaching party committed a malicious or reckless act.
  • Compensatory Damages: Actual or compensatory damages refer to funds awarded as compensation to the non-repudiatory party for property or financial loss. One must note that the exact amount depends on the scale and type of losses the party suffers.  
  • Damage Mitigation: Individuals must remember that the majority of the courts need the non-repudiatory party to take the necessary actions promptly to prevent avoidable expenses or costs. One must not wait, letting the situation worsen.

Anticipatory vs Actual Breach Of Contract

People new to the field of law may find the concept of anticipatory and actual breaches of contract confusing. Here is the main difference between anticipatory breach and actual breach:

Anticipatory Breach Of ContractActual Breach Of Contract
It takes place when a party declares before the predetermined date that they do not intend to complete the responsibilities mentioned in the agreement.This takes place when a party involved in a contract refuses to fulfill their financial obligation on the predetermined date. Alternatively, they may perform their duties partially.

Frequently Asked Questions (FAQs)

1. Is anticipatory breach an affirmative defense?

Yes, it is an affirmative defense. Suppose a person suing the other party involved in a contract canceled the agreement or exited the deal before the latter could fulfill their responsibilities. In that case, they are able to raise this defense.   

2. What is an implied anticipatory breach?

It materializes when a party does something that makes the succeeding performance of the contractual undertaking impossible.

3. What are the benefits of an anticipatory breach?

Such an action can be advantageous for both parties involved in an agreement. If individuals are on this type of breach’s receiving end, they do not have to keep waiting for the other person to stop meeting their obligations. Moreover, one must remember that it can mitigate losses, and seek remedies, for example, payment, instantly.

4. What is an anticipatory repudiation of the sale of goods?

If a repudiating party believes that the other party involved in a contract with them will not meet their contractual obligations, then they can ask for assurance that the latter will carry out their duties specified in the contract under the UCC or Uniform Commercial Code.

This has been a guide to what is Anticipatory Breach. Here, we explain its examples, comparison with actual breach, its elements, types, and remedies. You can learn more about it from the following articles –

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