An Anticipatory Breach is a breach of contract which entitles the promisee to terminate the agreement. This occurs before the time selected for the promisor’s performance.
A breach of contract is a legal cause of action and a type of civil wrong. A binding agreement is not honoured by one or more of the parties to the contract by non-performance or interference with the other party’s performance. A person receiving a promise is a promisee. A person making the promise is the promisor. In law, performance is an act of doing that is a requirement of the contract.
Furthermore, the promisee’s contract termination is justified if the promisor’s words or conduct, or the promisor’s actual position, give rise to a repudiation of obligation or indicate that the promisor was wholly and finally disabled from performing the contract.
A repudiation of obligation is an action demonstrating that one party to a contract refuses to perform a duty.
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Key takeaways
Simply, an anticipatory breach of contract is an action that shows one party’s intention to fail to fulfil its contractual obligations. It becomes clear that one party cannot or will not complete their part of the agreement. The party wronged has two options:
- They can accept the contract by ignoring the anticipatory breach and hold the other party to their side of the contract.
- They can accept the repudiation, terminate the contract and claim damages.
For the wrongly done party, a key issue they face is the mitigation of losses. If a party chooses not to terminate the contract before the time arises for its performance, they have no obligation to mitigate their loss resulting from the failure of the repudiating party. To the contrary, if they do terminate the contract before the time for performance, they have an immediate requirement to mitigate their loss.
An example of an anticipatory breach
Say a shop owner contracts a builder to build a new counter for the shop by a specific deadline. Something that is not a ground for an anticipatory breach is the shop owner not being pleased with the latest results. The builder may just be behind schedule while continuing to work on the project at hand.
However, if the builder took actions that made it impossible to meet the deadline, it would constitute an anticipatory breach. For example, the builder may halt all work on the new counter, and commit all their resources to a new project with a new shop. This would disable them from fulfilling the initial contract.
Hopefully, this provides an idea of what an anticipatory breach is. However, real situations may be a lot more complicated. Sometimes business owners may not identify that an anticipatory breach. The requirements for anticipatory breaches can vary. It is a good idea to contact an attorney before taking action.
This area of contract law can be quite complex and difficult to understand. If you find you and your business in a situation that needs legal help feel free to contact Lawpath today. Our expertise will be able to provide in-depth legal advice catered to your needs regarding anticipatory breaches.
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