Anticipatory breach of contract occurs when a signatory to a contract indicates that they either cannot or will not fulfill their contractual obligations before the agreement’s due date for performance. This scenario can pose significant challenges for businesses who count on the performance of contract terms in order to remain operational.
With that said, not all anticipatory breach scenarios unfold under the same circumstances and, therefore, a company’s response to any particular breach scenario should be tailored to the situation at hand.
Addressing an anticipatory breach
An anticipatory breach can be explicit or implied. An explicit breach occurs when the breaching party directly communicates their intent not to perform their contractual duties. An implied breach arises from actions or circumstances that clearly indicate the party will not perform as agreed.
If you are a business owner and you either suspect or are notified of an anticipatory breach, it’s time to thoroughly assess the situation. Determine the specifics of the breach, the obligations that will not be met and the potential impact on your business operations.
You’ll then want to confirm that the breach is going to truly affect performance of the contract terms at issue, and that it’s not a misunderstanding or a temporary issue. If it is going to be a consequential concern, it’s time to consider your options. Potential courses of action include:
- Suspending performance: Depending on the situation, you may choose to suspend your own performance under the contract until the issue is resolved.
- Terminating the contract: If the breach is significant and it’s clear that the other party will not perform, you may decide to terminate the contract and potentially seek damages for any losses incurred.
- Negotiating a resolution: In some cases, it may be possible to negotiate a resolution with the breaching party. This could involve amending the contract terms, extending deadlines or reaching a settlement that avoids litigation.
- Pursuing legal action: If negotiations fail and the breach has caused significant harm, you may need to pursue legal action.
Dealing with anticipatory breach of contract requires a strategic approach unique to the situation at hand. Seeking personalized legal guidance is a good way to get started.