Contracts are the foundation of most business deals. However, contractual agreements are not always honored.
What happens when one party signals that they won’t fulfill their end of the agreement before the deadline arrives? This is known as an anticipatory breach of contract, and it can create serious legal and financial risks.
Below are some key points to consider.
Types of anticipatory breaches
There are two main types of anticipatory breach of contract:
- Express repudiation: This is when a party clearly states that they will not perform their obligations. For example, a supplier might tell a retailer they will not deliver goods as agreed.
- Implied repudiation: This occurs when actions make it obvious that a party will not perform, even if they don’t say so directly. For example, selling goods promised to someone else may signal an intent to breach.
Consequences for businesses
The non-breaching party can take action as soon as the anticipatory breach occurs. It is not necessary to wait until the actual deadline. Common consequences of anticipatory breaches include:
- Financial losses
- Business disruption
- Damaged relationships
Fortunately, anticipatory breaches can often be resolved, minimizing these consequences.
Possible ways to resolve the breach
Below are some common ways to address an anticipatory breach:
- Demand assurance: You can ask the other party to confirm in writing that they still intend to perform. If they refuse, you may treat the contract as breached.
- Terminate the contract: If the breach is clear and serious, you can end the agreement and seek damages.
- Negotiate a settlement: If maintaining the relationship is important, both sides may agree to revised terms.
If these resolutions are not possible, you can pursue damages for breach of contract in court.
Anticipatory breaches can be complex, but acting quickly can reduce the consequences. If you are dealing with a contract breach, seeking legal guidance can help you find the best remedy.