Understanding anticipatory breaches

On Behalf of | Jan 30, 2024 | Business Disputes, Business Litigation |

An anticipatory breach, also known as anticipatory repudiation, occurs when one party to a contract indicates that they will not fulfill their contractual obligations. It can happen through an explicit declaration of intending not to perform or actions that render performance impossible. As a business owner, it’s crucial to understand how to respond to such a breach to protect your interests.

Owners can recognize the signs

There are often signs or messaging that show they could or will breach. These include:

  • A clear statement from the other party that they will not honor the contract
  • Even if the partner doesn’t say something, their actions can make it clear that they will not be able to or intend to perform their obligations.
  • Financial difficulties or other changes in circumstances suggest non-performance.

Legal remedies available

Those who recognize the signs have several legal remedies at their disposal:

  • Affirmation of the contract: You may hold the party to their contractual obligations and insist on performance or seek damages for non-performance.
  • Termination of the contract: You may also elect to treat the contract as terminated, thereby excusing you from your obligations and enabling you to seek damages.

Preparing for the breach

Here are five common measures employed when facing an anticipatory breach:

  1. Document the breach: Keep records of all communications indicating the other party’s intent not to perform. Note any actions that suggest an inability to fulfill contractual duties.
  2. Communicate with the other party: A smart early step is to address the issue directly, seek to understand the reasons behind the breach and explore potential resolutions.
  3. Review your contract: Examine the contract for any clauses that pertain to breaches, predetermined remedies, and rights if they breach.
  4. Consider the options: Weigh the pros and cons of affirming the contract versus terminating it and how it would impact your business.
  5. Mitigate your damages: Take reasonable steps to reduce the losses resulting from the breach, and document your mitigation efforts to support any future legal claims.

Get legal guidance

Be sure to consult with an attorney with experience drafting and enforcing contracts before the end of the process. They can help the client weigh their options and determine if specific measures or legal action are necessary to mitigate the damages. While anticipatory breaches can be frustrating and cost clients money, they can navigate these challenges to find a viable solution that serves their best interests.