Know Your Rights: Understanding Anticipatory Contract Breaches
When one party to a contract fails to live up to its end of the bargain, this is called a breach. There are different types of contract breaches recognized in Texas law. One of the more common is an anticipatory breach. Below, our Dallas business law attorneys explain what qualifies as an anticipatory breach, and what you can do as the affected party in response.
Repudiating the Contract
The basic idea behind an anticipatory breach is that a party indicates it will not perform its obligations under the contract. This indication can be oral, in writing, or through action, but it generally must be unconditional and unambiguous. In other words, if the party qualifies its repudiation in any way–e.g., “We won’t follow through if x happens,” that would not constitute repudiation.
An anticipatory breach can still occur even without a direct statement from the breaching party. Let’s say your company entered into a contract to purchase a piece of commercial real estate. Before closing, the seller turns around and transfers the property to a third party. This action clearly repudiated the sales contract with your company, thus qualifying it as an anticipatory breach, even if the seller never directly told you he was reneging on the deal.
Along similar lines, if you contract for services and the other party simply never shows up without explanation, that would constitute an anticipatory breach. For example, a company hires a vendor to cater an event. On the date and time specified in the contract, the caterer is nowhere to be found. The company could then sue the caterer for anticipatory breach.
There are also situations in which anticipatory breach occurs due to the impossibility of performance. This often happens with business loans. For example, if a business owner borrows money to start a business, then struggles to keep its doors open, an anticipatory breach may be in the offing. Eventually, the borrower repudiates the loan (his contract with the lender) because he lacks the cash to make the payments.
Remedies for Anticipatory Breach
In a contract for goods, the Texas Uniform Commercial Code provides a detailed set of rules for dealing with an anticipatory breach of contract. When repudiation occurs, the aggrieved party has several options. He can wait a “commercially reasonable time” to see if the other party will change its mind and perform. Alternatively, the aggrieved party may suspend its own performance under the contract until it receives “adequate assurance of performance.” In any event, if the breaching party remains in non-compliance after 30 days, the contract is officially repudiated as far as the UCC is concerned.
For any kind of anticipatory breach, not just those involving goods, the non-breaching party may sue for damages. When it comes to proving damages, the court may look at whether or not the non-breaching party took reasonable steps to “mitigate” the damages. Consider the earlier hypothetical scenario involving the caterer who failed to show up. Let us modify the situation slightly: The caterer informs the company three weeks before the event that it is repudiating the contract. This gives the company more than enough time to hire another caterer. In doing so, this potentially mitigates any damages owed by the caterer.
Speak to a Texas Business Law Attorney Today
Bennett, Weston, LaJone & Turner, P.C. is a full-service business and commercial law firm that can assist your business with a variety of contract issues. Call us at (214) 691-1776 or toll-free at (888) 991-1776 to schedule a confidential initial consultation with a member of our Dallas legal team today.