Anticipatory Breach of Contract
When we enter into a contract, perhaps to acquire goods or maybe even services, there may be occasions when a person who has entered into a contract realises that the other party has no intention of fulfilling their obligations that were agreed when the contract was created. This may become apparent long before the term of the contract expires. This is known as anticipatory breach of contract.
An anticipatory breach of contract (also known as an anticipatory repudiation) occurs when one party who has entered into a contract indicates that they will not carry out their contractual obligations. This can be through their words or actions and they demonstrate that the party will not perform their obligations that were promised when the contract was created.
The innocent party can then claim breach of contract and they can pursue legal action for damages, demand that the other party reassures they will perform their obligations under the contract, or it could result in part or all of the contract being terminated.
Repudiation of a Contract Explained
When a repudiation of a contract occurs, it is essentially a breach that clearly evidences one of the parties have failed to live up to the terms of the contract and they have no intention to be bound by essential terms contained within the contract.
Where the breach applies to a fundamental term of the contract, the innocent party can claim breach of contract and effectively bring the contract to an end.
There are many instances when an anticipatory breach of contract can occur including:
- Where one of the parties who entered into the contract renunciates their liabilities and has no intention of being bound by the contract demonstrated through their actions
- If it is no longer possible to perform their obligations of the contract due to their actions
However, any failure to perform under a contract whether this is a part failure or full failure would not constitute an anticipatory breach of contract. This is because a breach can only occur after performance of the contract should have taken place. If for example, the contract was for 12 months, the breach cannot be claimed until after the 12th month. It can however be dealt with under the normal breach of contract law.
It can be very difficult and troublesome to prove that the action of one party who entered into the contract would make it impossible for them to fulfil their obligations under the contract.
Proceeding to Court
If the issue proceeds to court and they are deciding whether an anticipatory breach of contract has occurred, they will look at impossibility and determine whether a renunciation may have led to an anticipatory breach.
In essence, this means that an act carried out by one party may not necessarily result in an impossibility occurring that would prevent them from fulfilling the terms of the contract, but it may demonstrate that they didn’t have a clear intention of performing their obligations which is referred to as renunciation.
Renunciation is the main element that should be proved to demonstrate that there has been an anticipatory breach of contract. There are four things that should be considered when deciding whether there has been a renunciation of the contract which could be classed as an anticipatory breach.
- If any of the parties who entered into the contract clearly refused to perform their contractual obligations
- Where the refusal to carry out the terms in the contract are absolute. Renunciation of the contract cannot be on the proviso that certain things happen, or certain actions are taken
- When deciding whether there has been a refusal to perform contractual obligations, the situation should be applied to whether the same thing would happen if any reasonable person in the same position would do
- The conditions of the renunciation must be dealt with when the contract is terminated. The history of the transaction should also be taken into consideration.
Losses for Anticipatory Breach
If it can be established that an anticipatory breach of contract has occurred, the law states that swift action should be taken to mitigate any potential losses, expenses or associated costs that would result from a failure to fulfil the terms of the contract.
When the innocent party fails to mitigate their damages as far as they possibly can, they won’t be able to claim full compensation. While there are some who will immediately try to limit their losses, others decide to wait. This is because they want to see whether the other party will fulfil their obligations under the contract or whether they will continue with their repudiation.
If the repudiating party does start to fulfil their obligations, then you will have no grounds to pursue legal action, but you can decide to suspend your own performance of the contract under provisions outlined in sellers’ rights.
If you need any assistance with an anticipatory breach of contract or you are not sure whether one has occurred, it is important that you seek the appropriate legal advice.
About the Author
This article was written by a member of the Expert Answers team and posted by Lloyd Barrett, Admin & Customer Services Manager for online advice service Expert Answers. Expert Answers provides legal advice to users in the UK who post a question on their secure platform.