Anticipatory repudiation occurs if one of the contract participants repudiates the contract when the time is due. This Buzzle article will help you in understanding anticipatory repudiation with examples.
Quick Snippet
Teva Pharmaceutical Industries recently filed a claim for anticipatory breach of contract against the city. Apparently, the agreement stated that the confidential records of the company would be turned over to the city solely on the condition that they would not be made public.
The term ‘repudiation’ in the law of contracts means that one of the parties ‘unconditionally refuses’ to perform the stated contractual duties. When this happens, the opposition has the right to claim that this party has legally breached the contract. In fact, the refusal occurs just prior to fulfilling the contract. The legal definition of anticipatory repudiation states that it is a breach of contract by one of the parties involved. In a contract, both the parties are expected to fulfill certain duties and adhere to certain policies. When one of them refuses to do so exactly when the performance is due, anticipatory repudiation is said to occur. The concepts are elaborated in the paragraphs below.
The Underlying Theory
- A contract is a mutual agreement between two parties, where both the parties are expected to fulfill the delegated tasks.
- It may so happen that one of the parties refuses to perform them (for whatever reason). If and when this happens, the contract is considered broken.
- This unconditional refusal to fulfill the tasks is termed as repudiation. When this occurs, the other party can file a claim for the damages.
- This is called anticipatory repudiation, and sometimes, anticipatory breach of contract.
- Technically, there are three types of repudiation – a positive refusal, reckless actions, and third party transfer.
- When the opposing party positively denies performing what was due to them, it is called a positive refusal.
- Also called ‘express repudiation’, this type states that the repudiation must be clear and precise, that is to say, a mere, informal statement will not do the trick.
- The refusal must be clearly expressed and directed at the other party.
- If any of your actions have violated the contract, it comes under the reckless action category.
- This happens when you have intentionally or unintentionally done anything that you were not supposed to do, as per the agreement.
- The last one is ‘third party transfer’, which is generally more outlined in property dealings.
- Here, while fulfilling a real estate contract, the breaching party transfers the property to a third party not involved in the contract.
What to Do?
- When an anticipatory breach occurs, the injured party needs to act on some remedies to cover up the losses.
- The Uniform Commercial Code (UCC) contains legal rules and regulations regarding the sale of goods. It suggests a method to deal with anticipatory breach.
- Accordingly, if you feel the other party is going to breach the contract, you can request an ‘adequate assurance of performance’ of the contract.
- Until then, you can put a halt to your own obligations towards the contract.
- After a month, if the other party does not respond, the contract is repudiated.
- Then, according to the prescribed UCC rules, the damages should be measured.
- The remedies to cover the damages depend on the contract, it could range from a heavy payment to termination.
Examples
Example I
- Consider a simple example, like the sale of goods.
- Let’s say, the buyer and seller enter into an agreement under which the buyer agrees to buy goods from the seller at a price of USD 2,000.
- At the time of sale, the buyer does not turn up, instead, he informs the seller that he does not want to go ahead with the deal.
- By the standard definition, the buyer has repudiated the contract, since he has blatantly and positively refused to buy the goods when he was supposed to do so.
Example II
- Consider a contract between a movie star and a movie producer.
- By means of the contract, the star is supposed to give dates for a particular 3-month period for the producer’s movie.
- But when the time approaches, the star does not show up, instead, through the media, the producer gets to know that the star is in some other part of the world, for personal reasons.
- Keeping the personal part aside (for whatever reason), it can be stated that the star has violated the contract, by means of the second type of repudiation.
- He has not bothered to inform the producer about why he cannot come for the shoot, instead, his reckless actions have spoken for his irresponsible behavior.
- Legally, the producer now has a right to claim a payment for the breach that has occurred.
Example III
- Suppose that two parties get involved in a contract where only a financial transaction is to take place.
- In such a case, if one party feels that the other will not pay, they cannot demand for ‘adequate assurance of performance’.
- They have to wait until the due date for the payment has lapsed.
- If, after that, the other party has disappeared or has refused to pay, an anticipatory breach can be stated.
Example IV
- Say, an event manager and his catering supplier have a contract.
- The contract states that the caterer should provide the food on the appropriate day for the event, before 5 p.m.
- A few days before the event, the caterer refuses to comply with the contract.
- The event manager can file for anticipatory breach and demand a payment for the damages.
- However, for such instances, the injured party could use the clause of ‘mitigating damages’.
- This clause states that the party has a chance to act swiftly and reduce their losses before it is too late. That is why, in certain cases, the repudiation is done earlier.
- In the above case, the event manager can act quickly and hire another caterer to supply food at a short notice. That means, he has still managed to make a success of the event (even though a hurried one), and his losses are not as extensive as they could have been, had the caterer repudiated the contract at the opportune time.
- This has been a clever move by the caterer, since the money damages of the claimed lawsuit that the manager would file against him would be considerably lesser.
Points to Remember
- Repetitive though it may seem, it is vital that you never forget this point: An anticipatory breach can be considered if and only if the other party unconditionally and positively states that it will not perform the duties assigned. A mere expression of doubt cannot qualify for a breach.
- If the repudiation has occurred some time before the contract fulfillment and the injured party has had time to minimize the damages, they should do so immediately.
- If they do not do so, the lawsuit they claim will not pay them all the damages, since they had the time to reduce some.
- Anticipatory repudiation is valid for those bilateral contracts, where both the parties have not yet performed the duties.
- A repudiation by the breaching party can be retracted, as long as the innocent party has not changed anything.
The instances depict a rough idea of why it is vital that one should not break a contract, however small. This conduct damages the refusing party’s reputation, causes extensive losses to the other party, creates a mistrust, and is a blatant violation of professional ethics. The concept of anticipatory repudiation is meant to be for the injured party, not the breaching party.