Anticipatory Repudiation (Contracts) - Explained
When one Party Signals a Future Breach, the Other Party May Take Action
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What is anticipatory repudiation?
Anticipatory repudiation is the ability to repudiate (reject ones obligation) under a contract based upon the other party's conduct. Any activity by a party that reasonably makes the other party believe that she is going to breach the contract, allow the other party to repudiate the contract in anticipation of the other party's breach.
The party can make a statement indicating that she intends to breach the contract. She can engage in conduct that makes it extremely unlikely that she will be able to perform the contract without significant hardship or loss.
Further, one party may seek assurance of performance based upon some reasonable evidence or belief that the other party will not perform. If the other party fails to respond to the request, then it can give rise to anticipatory repudiation.
Under common law and the UCC, when a party has reasonable grounds to believe that the other party will fail to perform their obligations under the agreement, she can demand an assurance from the party that she will indeed perform.
Under the UCC, this demand must be in writing. If reasonable, that party can suspend her performance until the other party provides the necessary assurances. If a party fails to provide the requested assurances within a reasonable time, this may constitute repudiation of the contract.
Under the common law, the anticipatorily repudiating party can sue the breaching party for damages and she is discharged under the contract. If a contract is for the sale of goods, the party can suspend performance, notify the other party, and await performance by that party. After a reasonable period of time, the aggrieved party can sue for breach.
A party who repudiates a contract based on the other party's anticipated breach may retract or withdraw her repudiation at any time before the other party's performance is due, unless the other party has cancelled the contract, materially changed her position, or otherwise indicated the repudiation is final.
In a contract for the sale of goods, the time when the contract is due would be the time of delivery of the good(s) or the next installment.
Under the common law, the repudiation can be withdrawn even after the time when the party's performance is due in an installment contract.
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