Anticipatory Breach of Contract and Your Business

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Anticipatory Breach of Contract and Your Business
Business Law

No matter what type of business you operate, you likely have multiple contracts with various third parties, all of which are subject to an anticipatory breach of contract. These contracts may include customers or clients, employees, vendors, suppliers, subcontractors, and other business partners or associates. Since a contract breach is always possible, you should be aware of your options in the event of an anticipatory breach of contract.

We have a wealth of experience handling commercial litigation cases and representing clients in various industries. An Arizona commercial attorney at Provident Law® can advise you of your legal rights if facing a potential anticipatory breach of contract situation. Together, we can determine the best strategy for preemptively handling this situation.

Understanding Anticipatory Breach of Contract

Anticipatory breach of contract occurs when one party to a contract shows an intention to break some terms of the contract. In this situation, the non-breaching party may be able to proactively initiate legal action and seek remedies instead of waiting for a breach to occur. Taking immediate action in this situation can help protect the interests of your business, save time, and minimize your losses in the event of a breach. However, it also can benefit the breaching party by decreasing the amount of damages for which the party may be responsible.

Elements of an Anticipatory Breach of Contract

Not every non-performance of a contract amounts to an anticipatory breach of contract. To prove an anticipatory breach of contract, you must prove the following elements:

  • The existence of a legally binding contract;
  • A direct statement, action, or inaction by one party to the contract that they will not perform one or more terms or conditions of the contract;
  • The statement, action, or action that constitutes the anticipatory breach occurs before the performance of the relevant term or condition of the contract becomes due;
  • The non-breaching party suffers or will suffer a loss due to the anticipated breach of contract; and
  • The non-breaching party would have been able and willing to perform its obligations under the contract had the other party complied with it.

Common Types of Anticipatory Breach of Contract

Anticipatory breach of contract can be either oral or written. A party to a contract also can demonstrate an intent to breach a contract purely through actions or omissions. Some common instances of anticipatory breach of contract include the following:

  • Express repudiation, or a clear and direct statement that a party no longer will comply with one or more terms of the contract;
  • Repudiation through actions, such as failing to provide services or deliveries of goods as they become due under the contract;
  • Repudiation through property transfer, which involves a party transferring property to a third party, even after that party has agreed to transfer the property to you, or vice versa; and
  • Repudiation of contracts for the sales of goods, or demanding assurance of performance when you believe that the other party cannot perform the contract; your obligations under the contract are suspended until you receive assurance, and if you do not receive it within 30 days, the contract is repudiated.

Remedies for the Non-Breaching Party

Remedies for the non-breaching party in an anticipatory breach of contract claim can be financial and non-financial. In terms of financial remedies, the non-breaching party can seek compensatory damages for the losses suffered because of the other party’s repudiation of the contract. Punitive damages may also be an available remedy in extreme cases where the repudiating party deliberately and maliciously repudiated the contract.

Non-monetary remedies in an anticipatory repudiation case can include rescission or termination of the contract. Rescission completely cancels the contract and removes all obligations of either party to perform any of the terms and conditions of the contract. The non-breaching party also can seek a refund of any funds paid to the other party. Alternatively, the non-breaching party can seek specific performance, particularly when monetary damages, such as in a real estate sales contract, may be difficult to discern. Specific performance requires the repudiating party to perform their obligations under the contract.

Furthermore, A.R.S. Sec. 47-2A402 provides specific remedies for anticipatory breach of contract in connection with lease contracts. This situation occurs when the performance of obligations under the lease is not yet due, and the loss of performance of the lease will substantially impair the value of the lease contract to the other. These remedies include awaiting retraction of repudiation and performance by the repudiating party, demanding assurance of future performance, or resorting to any right or remedy upon default.

Contact Us for Assistance with Your Commercial Law Issue Today

The commercial lawyers at Provident Law® have over 200 years of combined legal experience representing clients in commercial matters and we are experienced in efficiently and economically resolving commercial disputes. Our goal is to build a long-term relationship with you as we work together to proactively address and solve your most complex legal problems in the areas of commercial litigation, business law, and more. Contact a commercial lawyer today by calling (480) 388-3343 or reach out to us online to set up a time to see what we can do for you.

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