Anticipatory Breach

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An anticipatory repudiation, often referred to as an anticipatory breach of contract, occurs when one party to a contract declares that they will not fulfill their responsibilities under the agreement. Words or deeds can both indicate that the party won't uphold his or her share of the bargain as agreed. 

An anticipatory breach might put an end to the counterparty's obligation to fulfill its obligations and provide the counterparty with cause to file a lawsuit.

An anticipatory breach can occur in different ways, such as:

• The party expressly declares that they will either not perform the contract or will perform it in a manner that is inconsistent with what was agreed upon.
• The contract's subject matter is sold or destroyed, for example, rendering it impossible or impractical for the other party to implement the agreement.
• The party fails to provide adequate assurance of performance when requested by the counterparty who has reasonable grounds to doubt the party's ability or willingness to perform.

The counterparty who receives an anticipatory breach has several options, such as:

• Accepting the breach and terminating the contract, enabling the counterparty to file a claim for damages and pursue other remedies.
• A performance and delaying filing a lawsuit for damages until after the performance.
• Requesting sufficient performance assurance and postponing delivery of the assurance until it is received.
• Ignore the breach and carry on with the contract, which can prevent the counterparty from subsequently claiming damages.

The counterparty asserting an anticipatory breach shall do its best efforts to limit its damages, including, without limitation, by obtaining a substitute performance from a third party or ceasing any payments or obligations to the breaching party.

An anticipatory violation of a contract requires a specific, unambiguous purpose to breach the agreement. The presumption or suspicion that the other party will not perform cannot be the only basis for the anticipated breach. Depending on the type of contract, the type of breach, and the applicable law, different conditions may apply to an anticipatory breach.