Anticipatory repudiation, also known as “anticipatory breach” takes place when a contract is made and one party stops acting in accordance with the contract, which leads the other party to believe that the breaching party has no intention of fulfilling the requirements as stated in the contract. The breaching party simply has to give other party the impression that they do not intend on completing the contract through actions, or in-actions, such as refusing to accept payment, or failing to create an ordered item. To explore this concept, consider the following anticipatory repudiation definition.
Definition of Anticipatory Repudiation
- A breach of contract caused by a party’s refusing to honor the contract, i.e. indicating that he will not perform the duties or actions as set forth in the contract
What is Anticipatory Repudiation
Anticipatory repudiation is a law that gives the innocent party to a contract the right to bring a lawsuit against the breaching party before the actual breach even occurs. If it becomes clear at any point that the promising party is unable or unwilling to fulfill the contract terms by the set deadline, the innocent party can file a lawsuit. This enables the innocent party to start the proceedings as soon as possible to recover damages. There are three main types of anticipatory repudiation, and while not all three have to be in place for a person to file a lawsuit, it does occasionally occur.
- Notice. One party to a contract tells another, by verbal or written notice, that he will not fulfill the terms of the contract.
- Action. The actions of one party to a contract make it obvious that he will not, or cannot, fulfill the terms of the contract.
- Transfer of Assets. Objects or assets necessary to fulfill the contract are sold to a third party or otherwise disposed of.
Proving Anticipatory Repudiation
Filing a lawsuit claiming that a party breached the contact is not enough on its own. The person or entity filing the lawsuit (the Plaintiff) must prove that the promising party (the Defendant) did not, or could not, fulfill the terms of the contract. In proving anticipatory repudiation, the Plaintiff must provide the circumstances of the breach, as well as show that he suffered damages as a result. In the event the breaching party indicates it will indeed uphold the terms of the contract in a timely manner, or reimburses the Plaintiff for the delay, the lawsuit for anticipatory repudiation may be cancelled.
Examples of Anticipatory Repudiation
Example 1: John owns a large fleet of classic cars and decides to sell one of the cars to Bob. John and Bob enter into a contract in which Bob agrees to purchase the car for $50,000 on January 1st. On December 29th, Bob calls John to say he will not be able to come up with the entire purchase price of $50,000 by the set date. Since direct communication took place, John can reasonably determine that Bob is in anticipatory repudiation, or will breach the contact, releasing him from his duty to hold the vehicle. John can now sell the car to another party, or file a lawsuit against Bob for breaching the contract.
Example 2: John owns a large fleet of classic cars and he decides to sell one of the cars to Bob. John and Bob enter into a contract in which Bob agrees to purchase the car for $50,000 on January 1st. On December 29th, Bob calls John to say he has changed his mind regarding the purchase price for the car, asking John to throw in a set of aftermarket rims valued at $3,000. In this case, Bob is insisting on additional items that were not part of the original contract, and is therefore considered to be in anticipatory repudiation. In this case, John can bring a lawsuit against Bob for the breach of contract, or he can choose to sell the car to another person.
Related Legal Terms and Issues
- Breaching party – Person or entity who has not upheld their part as stated in a legal contract
- Contract – Written or oral agreement made up by two or more parties. Once signed by all parties, the terms of the contract are enforceable by law.
- Damages – Physical or monetary loss caused by something or someone. This is also known as “harm, destruction, or loss.”
- Direct Communication – Two or more parties communicate directly with each other, rather than using a third party to relay a message. Such communication may be verbal, written, or electronic.
- Innocent Party – The party who unintentionally became part of a disputed matter.