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When are you facing an anticipatory breach of contract?

On Behalf of | Nov 30, 2023 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

What people typically refer to as “breach of contract” is an actual breach of contract. A person or party has failed to deliver on or live up to a valid provision in a contract they signed. You can certainly hold someone liable for an actual breach of contract. However, in the meantime, that breach may have caused considerable harm and financial loss.

You can (and should) seek to recover damages via a breach of contract suit. However, you may be able to prevent an actual breach if you can see it coming with an anticipatory breach. What is that?

An anticipatory breach (sometimes referred to as “anticipatory repudiation) of a contract occurs when a party does or says something (or fails to) that demonstrates it will breach the contract. You can take legal action for an anticipatory breach, but you need to know when that’s possible.

What is required before you can take action for an anticipatory breach?

You can’t generally just assume that a party will breach a provision in the contract based on early performance. There has to be a reasonable indication that they won’t be able to fulfill one or more of their obligations or they have to tell you they won’t. 

Let’s use a simple example. Say you’ve hired a painting business to repaint the interior of your new business location. You need it completed in time to set up for your grand opening. However, the painting business owner keeps postponing meetings to even choose the colors. He won’t give you a timetable for the work. He keeps saying he’s running late with another project, but he’ll get yours finished in time. It’s likely too early to claim an anticipatory breach. 

If it gets to be a week before the opening and the painter has taken on another new project that’s taking precedence over yours, that’s likely an anticipatory breach if there’s no way they can do a quality paint job at the price you’ve agreed to on time.

It’s important to see what you can legally do to prevent even an anticipatory breach, let alone an actual breach, as well as when it’s appropriate to take legal action if warranted. Your primary goal, however, is to prevent or lessen any potential damages. A well-crafted contract can help you do that. Experienced legal guidance throughout the process of drafting, negotiating and enforcing a contract is critical.