Anticipatory Breach

Terms:


Repudiation of a Contract:
A party to a contract’s words or actions that indicate unequivocally that he will not perform on the contract.

Anticipatory Breach of Contract:
A breach of contract caused by a party’s unequivocally repudiating the contract, i.e. indicating that he will not perform when performance is due.

Prospective Inability to Perform on a Contract:
Where one party expresses doubt as to whether he will perform on a contract.


The repudiation of a contract is where one party to a contract informs the other party that he will not perform his duties under the contract.

If the repudiation comes before the time established for performance, the innocent party can consider this an anticipatory breach and he is then excused from holding himself ready to perform.

Repudiation can take place either by direct communication, implied communication or actions. For example:

  1. George, the owner of Babe’s Baseball Memorabilia, and Mickey, the owner of a signed Ted Williams baseball bat, enter into a contract under which George agrees to buy the bat from Mickey for $5,000. The contract calls for Mickey to bring the bat to George’s store on April 1st, at which point, they will exchange the bat for the contract price. On March 20th, George calls Mickey and tells him that he will not buy the bat from Mickey. By virtue of this direct communication, Mickey can consider George in anticipatory breach of the contract and is no longer required to bring the bat to George’s store on April 1st.
  2. George, the owner of Babe’s Baseball Memorabilia, and Mickey, the owner of a signed Ted Williams baseball bat, enter into a contract under which George agrees to buy the bat from Mickey for $5,000. The contract calls for Mickey to bring the bat to George’s store on April 1st, at which point, they will exchange the bat for the contract price. On March 20th, George calls Mickey and tells him that he will not buy the bat from Mickey unless Mickey throws in a signed Ty Cobb baseball as well. In this case, George is insisting on terms that are not part of the original contract and Mickey, in turn, can consider this an anticipatory breach.
  3. George, the owner of Babe’s Baseball Memorabilia, and Mickey, the owner of a signed Ted Williams baseball bat, enter into a contract under which George agrees to buy the bat from Mickey for $5,000. The contract calls for Mickey to bring the bat to George’s store on April 1st, at which point, they will exchange the bat for the contract price. On March 20th, Mickey sells the bat to Lou instead. By virtue of this action, George can consider Mickey in anticipatory breach because Mickey is no longer able to perform on his contract with George.

Please note that in order for anticipatory breach to exist, the breaching party must unconditionally refuse to perform. An expression of doubt that he will perform is not enough to constitute anticipatory breach. However, expressions of doubt may constitute a prospective inability to perform, in which case, the innocent party can suspend his performance and demand assurances of performance. For example:

George, the owner of Babe’s Baseball Memorabilia, and Mickey, the owner of a signed Ted Williams baseball bat, enter into a contract under which George agrees to buy the bat from Mickey for $5,000. The contract calls for Mickey to bring the bat to George’s store on April 1st, at which point, they will exchange the bat for the contract price. On March 20th, George calls Mickey and tells him that he may not be able to get the money together to buy the bat. This is not an anticipatory breach because George has not unconditionally refused to perform. However, Mickey can consider this a prospective inability to perform, in which case, he is not required to bring the bat to George until George either gets the money together or gives Mickey assurances that he will be able to raise the money.

Please note that the repudiating party may retract his repudiation before the time set for performance as long as the innocent party has not accepted the repudiation or relied to his detriment on the repudiation. See Clavan v. Herman, 131 A. 705 (Pa. 1926). For example:

On March 1st, Ramon Garcia and the Red Sox enter into a contract under which Garcia agrees to play for one season and the team agrees to pay Garcia $500,000. On March 15th, the team informs Garcia that they will not honor the contract. On March 20th, Garcia signs a contract with the Los Angeles Dodgers. At this point, the Red Sox no longer have the right to retract their repudiation because Garcia has accepted their repudiation. Had Garcia not signed a contract with the Dodgers, the Red Sox could have retracted their repudiation, in which case, Garcia would still be obligated to play for the team.

The general rule regarding damages in cases of anticipatory breach is that the innocent party has a duty to mitigate (minimize) the damages he suffers due to the breach. If the innocent party fails to mitigate damages, he will not be entitled to the damages he could have avoided. For example:

On March 1st, Ramon Garcia and the Red Sox enter into a contract under which Garcia agrees to play for one season and the team agrees to pay Garcia $500,000.

On March 15th, the team informs Garcia that they will not honor the contract. On March 20th, the Dodgers offer Garcia a contract to play for them for one season for $250,000. Garcia decides that he would rather sit on his couch for a season and collect damages from the Red Sox than actually have to play so he turns the offer down. In this case, Garcia will not be able to collect the full $500,000 from the Red Sox. Garcia has a duty to mitigate the damages caused by the Red Sox’s breach and he had an opportunity to do so by signing a contract with the Dodgers. By refusing to mitigate his damages, Garcia is no longer entitled to the damages he could have avoided. Since he could have avoided $250,000 of the $500,000 in damages he suffered, he will only recover the $250,000 he could not have avoided.