An anticipatory breach is a phenomenon wherein one party to a contract communicates that they cannot, will not or otherwise have no intention of meeting their contractual obligations. Essentially, this kind of breach happens prior to whenever expectations of actual performance are supposed to manifest.
Notice of anticipatory breach allows another party to take legal or remedial action before the breach fully materializes. For business owners, identifying these early warning signs can mean the difference between minimizing losses and facing significant financial or operational setbacks.
Explicit communication of non-performance
One of the most prevalent indications of an anticipatory breach is when the other party explicitly states that they will not meet their contractual obligations. This could be through:
- A written notice
- A verbal declaration
For example, a vendor might inform a business that they cannot fulfill their end of the bargain due to production issues.
Sometimes, there may not be any communication, but actions can speak louder than words. The other party can take steps that clearly demonstrate their unwillingness to perform. For instance, a contractor may divert resources to another project or fail to meet critical milestones.
Failure to provide assurances
Suppose a business owner expresses concerns about the other party’s ability to perform, but the other party fails to issue sufficient assurances. The business owner should have good reasons to suspect an anticipatory breach. The other party may start avoiding calls, emails or meetings when they have no intentions of honoring the contract. Silence or evasiveness often suggests an underlying issue they are reluctant to disclose.
A pattern of delays or failure to meet agreed-upon milestones can indicate that a party is struggling to fulfill their obligations. If a contractor continually fails to meet deadlines without a valid reason, it may be a sign that they are heading toward a complete breach.
Third-party reports or rumors
In some cases, third-party reports or industry rumors can provide early warnings of an anticipatory breach. For instance, if a business owner hears that a supplier is shutting down operations or a client is facing legal troubles, it’s worth investigating whether the contract is at risk.
Anticipatory breaches can pose significant risks to businesses, but identifying early warning signs can help mitigate potential damage. By staying vigilant, maintaining clear communication and taking proactive measures, business owners can protect their interests and maintain greater stability in their operations.