Anticipatory repudiation
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Anticipatory Repudiation
This entry contains information applicable to United States law only.
The unjustifiable denial by a party to a contract of any intention to perform contractual duties, which occurs prior to the time performance is due.
This form of breach, also known as anticipatory breach of contract, occurs when one party positively states that he or she will not substantially perform a contract. The mere assertion that the party is encountering difficulties in preparing to perform, is dissatisfied with the bargain, or is otherwise uncertain whether performance will be rendered when due is insufficient to constitute a repudiation. Another type of anticipatory breach consists of any voluntary act by a party that destroys, or seriously impairs, that party's ability to perform the contract.
The remedies available to the nonrepudiating party upon an anticipatory repudiation entail certain obligations. If the nonrepudiating party chooses to ignore the repudiation and proceeds with his or her performance, the duty to mitigate damages — which imposes on the injured party an obligation to exercise reasonable effort to minimize losses — mandates that the nonrepudiating party not perform if the consequence of performance would be to increase the damages. In addition, this duty requires, where applicable, the procurement of a substitute performance.
If the nonrepudiating party implores or insists that the other party perform, this demand, in and of itself, does not divest the nonrepudiating party's right to damages. The presence or absence of a breach of contract depends solely upon the repudiating party's actions. The prevailing view is that the nonrepudiating party may pursue any remedy for breach of contract, even though he or she has informed the repudiating party that he would await the latter's performance.
The nonrepudiating party also possesses the option to do nothing and to commence an action for breach after the time for performance. Under the majority view, such an action can be instituted without tendering the nonrepudiating party's performance or even alleging or proving that the party was ready, willing, and able to perform. The nonrepudiating party must demonstrate, however, that he or she would have been ready, willing, and able to perform but for the repudiation.
In regard to the law of sales, the Uniform Commercial Code (UCC), a body of law governing commercial transactions by the states, provides that anticipatory repudiation entails the right of one party to a contract to sue for breach before the performance date when the other party communicates the intention not to perform. The repudiation can, however, be retracted before the performance date if the nonrepudiating party has not acted on the basis of the repudiation. Some jurisdictions direct the injured party to await the performance date before instituting an action.
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Anticipatory repudiation
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Anticipatory repudiation, also called an anticipatory breach, is a term in the law of contracts that describes a declaration by the promising party to a contract, that he or she does not intend to live up to his or her obligations under the contract.[1]
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Repudiation and retraction
When such an event occurs, the performing party to the contract is excused from having to fulfill his or her obligations. However, the repudiation can be retracted by the promising party so long as there has been no material change in the position of the performing party in the interim. A retraction of the repudiation restores the performer's obligation to perform on the contract.
If the promising party's repudiation makes it impossible to fulfill its promise, then retraction is not possible and no act by the promising party can restore the performing party's obligations under the contract. For example, if A promises to give B a unique sculpture in exchange for B painting A's house, but A then sells the sculpture to C before B begins the job, this act by A constitutes an anticipatory repudiation which excuses B from performing. Once the sculpture has left A's possession, there is no way that A can fulfill the promise to give the sculpture to B.
The question arises as to why any party would want to provide notice of anticipatory breach. The reason is that once the performing party is informed of the anticipatory breach, a duty is then created for the performing party to mitigate damages as a result of the breach. Another situation where anticipatory repudiation can occur is where a party has reason to believe the other party is not going to perform and requests reasonable assurances that the other party will perform (see UCC 2-609(1)). If such reasonable assurances are not given, it will constitute anticipatory repudiation, for which the performing party has various remedies, including termination. However, anticipatory repudiation only applies to a bilateral executory contract with non-performed duties on both sides. Additionally, the repudiation must be unequivocal.
Measuring damages
UCC 2-713(1) tells us to measure damages at the time when the buyer learned of the breach. This is easy with a one transaction sale (e.g. a widget at my door step on X date), but when do you learn of the breach in an anticipatory repudiation? There are three main views:
- When the buyer learns of the repudiation
- When the buyer learns of repudiation plus a commercially reasonable time
- UCC 2-610(a) gives this indication, you would be waiting at your risk if we determined the market price at the time you learn of repudiation.
- UCC 2-723(1) would indicate this, but it would be superfluous with 2-713 so 2-713 must have something other than the plain meaning.
- (1) If an action based on anticipatory repudiation comes to 2-723 trial before the time for performance with respect to some or all of the goods, any damages based on market price (Section UCC 2-708 or Section UCC 2-713) shall be determined according to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.
- This is the majority view: when repudiation is accepted or within a commercial reasonable time
- Time of performance, when the trail that occurs after the time of performance
- This is different than the plain reading for UCC 2-713.
See also
References
- ^ Which might entitle the other party to claim damages. International principle: Trans-Lex.org
External links
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West's Encyclopedia of American Law
West's Encyclopedia of American Law. Copyright © 1998 by The Gale Group, Inc. All rights reserved.
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