What is Anticipatory Breach of Contract (Anticipatory Repudiation)?

If you have entered into any kind of formal agreement, you should know about anticipatory breach of contract, also known as anticipatory repudiation.

An anticipatory breach occurs when a party to a contract displays an intention to break its terms. This allows the other party (or parties) to initiate legal action and seek remedies right away instead of waiting for a breach to take place.

Anticipatory repudiation can protect your interests, whether you are the one declaring it or on its receiving end. However, knowing the rules and your rights and responsibilities is crucial to making the most of it.

What Is Anticipatory Breach of Contract?

Anticipatory breach definition: An anticipatory contract breach occurs when a party to a contract – a work contract, a provision of services agreement, or another formal agreement – demonstrates an intention to break the agreement. This gives other parties grounds to begin immediate legal action and seek remedies such as payment.

Benefits of Anticipatory Breach of Contract

“Anticipatory breach of contract” is a mouthful of a term and may sound like a complicated legal concept, but, in reality, it is fairly straightforward. Essentially, it serves to protect both parties to an agreement.

If you are on the receiving end of an anticipatory breach, you do not have to wait for the other party to stop fulfilling its contractual obligations to seek remedies. This helps save time and can potentially mitigate your losses.

Conversely, by declaring an anticipatory breach yourself, you give the other party an opportunity to cut its losses. If they were to sue you after you commit a breach, you might end up paying a lot more in damages.

What Is Anticipatory Repudiation of Contract?

Anticipatory breach of contract is often discussed alongside another legal term: anticipatory contract repudiation. The meaning, however, is the same.

Anticipatory repudiation discharges the repudiating party’s obligations under a contract. The anticipatorily repudiated contract enables the other party to seek legal remedies in court. So, anticipatory breach and anticipatory repudiation are synonyms.

When Does Anticipatory Breach of Contract Take Place?

Anticipatory breach of contract takes place when one party indicates an unconditional refusal to perform its contractual obligations. As a result, the contract is considered breached or broken.

An anticipatory breach gives the other party the right to claim a breach of contract and seek compensation through legal means.

You should note a few things here:

Anticipatory Breach of Contract Example Scenarios

The best way to illustrate how this works is through an anticipatory breach example. Here are the main types of anticipatory breach and how they unfold in practice:

Express Repudiation

Express repudiation involves a positive and unconditional refusal to perform under the contract, such as, “I regret to inform you that XYZ Inc. is no longer able to deliver the materials as originally agreed.”

Ambiguous and qualified statements, such as, “Unless our Chinese supplier ships more parts by the end of the month, I won’t be able to deliver all 300 units,” do not count (except in certain limited circumstances, as we will see below). The repudiation must be clear and directed at the other party.

Repudiation Through Actions

Anticipatory repudiation need not be verbal. An action that makes it impossible for a party to perform its obligations is enough to constitute a breach.

For instance, imagine that you take out a business loan and are supposed to pay it back using the proceeds from your enterprise. However, things do not go as planned. Your business is far less successful than you had hoped, and you end up taking even more debt to stay afloat.

This makes it impossible to pay back your original loan and will likely be considered a repudiation even without a direct refusal to perform.

Repudiation via Property Transfer

If the agreement is for the sale of property, repudiation can occur when one party transfers or agrees to transfer the property to someone else.

For example, if you sign a contract to buy a condo but a week later find out that the owner has sold it to her uncle, this will repudiate the original contract even if you never heard back from the other party.

Repudiation of Contracts for the Sale of Goods

The Uniform Commercial Code (UCC) is a law that sets out the rules governing the sale of goods. Among other things, it prescribes a special procedure for handling anticipatory repudiation.

Under the UCC, if you believe that the other party will not fulfill its obligations, you can demand “adequate assurance of performance” and suspend your performance until it is provided. If the other party does not give assurance within 30 days, the contract is officially repudiated.

In such cases, a qualified repudiation is enough to suspend performance until the other side provides assurances.

Here is a practical example.

In January, ABC Corp. orders ten 3D printers from Print Inc. The buyer is supposed to pay $5,000 on February 1 and receive the printers by March 1.

On January 15, Print Inc. emails ABC Corp. that they may have trouble filling the order if their supplier does not ship certain parts by mid-February. This gives ABC Corp. the right to demand assurance and withhold the payment. As they do not hear back from Print Inc. by mid-February, ABC Corp. terminates the contract.

Repudiation When Only Payment Remains

Things get slightly trickier here. The standard rules on repudiation do not apply if the only outstanding obligation is for one party to make a payment to the other. In such cases, the payee must wait until the payment due date has passed before claiming anticipatory breach.

For example, consider a hypothetical scenario in which you agree to provide landscaping services to your neighbor, and they agree to pay you on a specific date. You fulfill your obligations under the contract. Then, five days before the payment becomes due, your neighbor tells you they cannot pay. Because the only remaining obligation under the contract is the payment, you must wait five days before suing for breach.

Now, consider the same scenario but with a twist.

The terms of the contract are the same. You start work as agreed, but a couple of days later, your neighbor informs you that they cannot make the payment. This time, you do not have to wait until the payment is past due to seek a remedy because you have not completed your obligations yet.

Elements of Anticipatory Repudiation

Not every failure to perform under a contract amounts to an anticipatory breach. The following elements must all be present:

1. A Contract for Performance

To start, two or more parties need to enter into a contract for performance.

2. Indication of Non-Performance

Next, one of the parties must indicate – through words, actions, or omissions – that it will not perform its obligations under the agreement.

3. Performance Not Yet Due

Repudiation must occur before performance is due. If it occurs after performance is due, this amounts to a breach of contract, not anticipatory repudiation.

If you need a breach of contract definition, it is a violation of a contractual obligation, usually by failing to perform or interfering with another party’s performance. Note that breach of contract defenses may apply per Florida contract law statutes.

4. Loss and Causation

The non-breaching party must suffer a loss as a direct result of the repudiation. This could be monetary loss or not receiving services as agreed.

5. Ability and Willingness to Perform

Last but not least, the non-breaching party has to show that it would have been able and willing to fulfill its obligations under the contract had it not been for the repudiating party’s breach.

Anticipatory Breach of Contract Remedies

Once an anticipatory repudiation discharges a contract, the non-breaching party has a right to seek remedies in court. Non-monetary remedies include:

Rescission

The first option is to rescind or cancel the contract. Rescission terminates all obligations under the agreement and enables the non-breaching party to claim a refund of any payments made. This can be a good choice if you want to avoid protracted litigation and can easily find someone else to provide the services or products you need at little to no extra cost.

Specific Performance

Specific performance compels a contractual party to perform its obligations. This can be a suitable alternative where monetary damages may not be adequate compensation, such as in cases involving unique or rare items or when the value is hard to gauge.

Anticipatory Damages

Monetary remedies for anticipatory repudiation include:

Compensatory Damages

Compensatory or actual damages is a sum of money awarded to compensate the non-breaching party for financial or property loss. The exact amount depends on the type and scale of losses suffered.

Punitive Damages

Punitive or exemplary damages are granted above and in addition to actual damages suffered. The court may award punitive damages where the repudiating party has committed reckless or malicious acts.

Mitigation of Damage

It is important to keep in mind that most courts require the non-breaching party to act promptly to prevent avoidable costs or expenses. You cannot sit around and let the situation deteriorate.

For instance, in the landscaping example above, if your neighbor repudiates a week before you start work, you could try to find another client, reducing or even preventing any loss you could have suffered as a result of the breach.

We Can Help with Florida Anticipatory Breach of Contract Cases

Florida anticipatory repudiation law is complicated. If you are involved in an anticipatory breach of contract in Florida, you need an experienced lawyer by your side to ensure that you get the maximum compensation available to you.

Our attorneys have your back. Contact Cueto Law Group today.

Final Thoughts on Anticipatory Repudiation

Contractual relationships can be complicated. It is not uncommon for one or more parties to refuse to perform their obligations. Knowing the rules on anticipatory breach and partnering with an experienced contract law attorney is the best way to protect your interests in the long run.