After certain contracts are made, circumstances may arise that make it difficult or impossible for one of the parties to meet its obligations. The person or entity that is unable to fulfill its promise before performance is due may declare an intention not to perform under the contract. In essence, one side signals to the other through words or actions that it is going to breach the contract. An anticipatory breach, also referred to as repudiation, raises a host of intricate legal issues and often leads to litigation. Here is what you need to know if you encounter this situation.
What is a Repudiation?
A repudiation is a unilateral termination of an agreement. Some contracts allow this, in which case the repudiation will simply end the contract. However, if a contract does not give either party the right to terminate an agreement on its own without cause or notice to the other side, the repudiating party may not relieve itself of its obligation to perform and may face being sued for breach of contract before performance is even due. A repudiation arises from an unmistakable communication indicating that one of the parties is unable or refusing to perform its contractual obligations. The communication may take the form of an affirmative statement or writing that performance will not happen or some other conduct that renders it virtually unable to perform.
What are the available remedies?
Repudiation of a contractual obligation by a party before performance is due immediately entitles the non-breaching party to seek damages for the impending breach without the need to tender its own further performance or provide its ability to perform under the contract. The doctrine of anticipatory breach gives the non-defaulting party the right to sue without having to wait for the time of performance to arrive. Thus, when faced with this scenario, the non-repudiating party has two practical options:
- It can elect to treat the repudiation as an anticipatory breach, terminate the contract, and sue for damages without having to wait for the performance due date to arrive; or
- It can continue to treat the contract as valid and wait until the repudiating party’s time for performance has expired.
The rationale behind this concept is to give the innocent party the benefit of avoiding the futile rendering of its own performance and having to needlessly wait until the breach actually occurs before bringing suit. Forcing the innocent party to wait until the actual breach, which in some instances could take years, is unfair and potentially prejudicial because memories naturally fade over time and critical evidence may be lost in the lag between when the repudiation occurs and when performance is due. In terms of damages, the non-breaching party may recover the present value of the future amount due minus the costs reasonably saved as a result of the other party’s breach.
What are the limitations to the anticipatory breach doctrine?
The doctrine is ordinarily restricted to cases involving bilateral contracts, that is, when each party’s respective obligations under the contract is dependent on the other side’s fulfillment of its promise. New York courts have often limited the doctrine to personal service contracts and agreements for the sale or manufacture of goods. Anticipatory repudiation has also been applied to contracts for the sale of real property and to real estate leases. It does not apply to contracts for the period payment of money only, such as for money owed under an insurance policy.
Choose Levy Goldenberg LLP
If you are a party to a contract and the other side expresses an inability or outright refusal to perform its obligation, you will need an experienced and knowledgeable attorney to advise you of your rights. The same holds true if you are unable to fulfill your duties under the contract. Levy Goldenberg LLP, New York’s leading commercial litigation and business law firm is well-versed in the area of anticipatory breach. Contact us today to discuss your case.