Contract Breach: Anticipatory Breach (Repudiation)

Contracts can be broken at any time if one party signals that it is unable or unwilling to fulfill its responsibilities

Any contract can be regarded broken ("breached") if one party unconditionally refuses to perform as promised under the contract, regardless of when that performance is meant to occur. A contract's "repudiation" refers to this unequivocal refusal.

When one party to a contract implies that it will not meet its contract obligations—either by words or actions—the other party might claim a breach of contract (failure to perform under the contract) and seek remedies such as payment. An anticipated breach of contract is a term used to describe this situation. Continue reading to understand more about repudiation and anticipatory breach of contract.

When Does Repudiation Occur?

When it comes to contract law, courts often recognize three sorts of repudiation:

The other party is given a firm and unequivocal refuse ("express repudiation"). "I'm not going through with the deal," the other party must essentially inform you. A qualified or ambiguous refusal is insufficient. (For example, "I won't be able to deliver the fruit till the drought ends.") The rebuke must be unequivocal, direct, and directed at the other party. ("I will not be bringing the fruit as promised," for example.)

An action renders the performance of the other party impossible. When it comes to rebuke, deeds speak louder than words. Let's say a couple was meant to pay off two debts with the proceeds from their business. Instead, the pair ran the company into the ground, racking up numerous extra debts and rendering repayment of their original loans impossible. Their rash and voluntary conduct amounted to a rejection of the loan agreements.

The property that is the subject of the transaction is sold to a third party. When a contract for the sale of property is breached, repudiation occurs when one party transfers (or agrees to transfer) the property to a third party. For example, if you signed a contract to buy a house and then find out that the other party sold it to his brother, your contract has been repudiated (even if you never heard a word about it from the other party).

Contracts for Sale of Goods - Special Rules

A method for dealing with anticipatory breach is prescribed by the Uniform Commercial Code (UCC), which governs the sale of goods. You have the right to demand "sufficient guarantee of performance" of the contract if you have cause to suspect the other party will not fulfill its commitments. You have the option of deferring your own contract performance until the assurance is received. If the other party fails to comply with your assurance request within 30 days, the contract is officially terminated ("repudiated").

EXAMPLE

Daniel placed an order with Compco in April for 100 PCs. On May 1, he is expected to pay $50,000 and receive the machines on July 1. "Unless chip manufacturing accelerates," Compco's CEO tells a television reporter on April 29, "Comco may have difficulties filling its summer orders." Daniel seeks Compco's promise and refuses to pay the $50,000 due on May 1. Daniel ends the contract when Compco fails to answer to Daniel's request for assurance by the end of the month.

As you can see, a qualified repudiation ("Compco may have difficulty filling its summer orders") is enough to put the contract on hold, at least until the other side gives the needed assurances. Many observers have suggested that these requirements for obtaining and delivering assurance should apply to all contracts, not just those governed by the UCC.

Repudiation: Can You Take It Back?

A party may repudiate a contract and then withdraw the repudiation if the opposing party has not made a "material change" in their position as a result of the repudiation.

EXAMPLE

Mary is expecting 100 cases of cauliflower from Peter. Peter's tractor breaks down, and he informs Mary that he will be unable to fulfill the order. Mary strikes up a fresh cauliflower arrangement with Sam right away. Peter buys a new tractor two days later and informs Peter that he can fulfill the request. But it's too late to recant the rebuke because Mary relied on it when negotiating his new contract with Sam (a "material change" in his position).

When Only Payment Remains

The criteria stated in this section don't apply if the sole contract obligation left is for one party to pay money to the other, which may appear to be an odd oddity. In these situations, the party requesting payment must wait until the payment's due date has passed. (If one party has cause to suspect they will not be paid, there is no claim of anticipatory breach.)

EXAMPLE

Sam agrees to give David $2,000 on June 1 if David steam cleans his houseboat. On May 15, David completes the steam cleaning on time, and Sam informs David that he is unable to pay her. Because the only contract duty left is payment, David will have to wait until June 1 to file a breach of contract lawsuit.

EXAMPLE

The following are the same facts as before: Sam agrees to give David $2,000 on June 1 if David steam cleans his houseboat. This time, David begins work, but within an hour, Sam informs her that he is unable to pay her. Because David hadn't finished her steam cleaning, he didn't have to wait until June 1 to suit for breach (her obligation). She has the right to sue for anticipatory breach of contract.

The Non-Breaching Party's Duty to Mitigate

Another aspect of anticipatory breach is that if one party breaches the contract, most courts expect the other party to act quickly to prevent incurring excessive charges or expenses. This is known as "mitigating damages," and it basically implies that you can't just sit around and wait for things to become worse. This also explains why some parties refuse to fulfill their obligations under a contract: It allows the opposite party additional time to lessen their losses, perhaps lowering the amount of money damages granted in a breach of contract action. In our houseboat example, if Sam cancels two weeks before David begins work, she may be able to locate another client to fill that slot, limiting or even wiping out whatever damages she may have been able to collect from Sam as a result of the breach. It's essentially a "no harm, no foul" situation if David can make up the money with another work.

​​Yoel Molina, Esq. (AKA “Mo”)

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