In some cases, it may become apparent to one party to a contract that the other contractual party has no intention of performing its contractual obligations – even though the time period for performance of the contract has yet to expire.
In such cases, the innocent party may be able to treat the contract as repudiated on the grounds of anticipatory breach of contract.
What is repudiation of contract?
A repudiatory breach of contract is a serious fundamental breach which goes to the very core of the contract. It effectively deprives the innocent party of the substantial benefit of the contract.
If there is a repudiatory breach, the innocent party is entitled accept the breach of the contract and repudiate (end) the contract, or continue the contract. In either case, the innocent party can claim damages for breach of contract.
When will an anticipatory breach of contract occur?
An anticipatory breach of contract occurs where:
- There has been a renunciation by a party of their liabilities under the contract, ie. an intention to no longer be bound by the contract as shown by their words or conduct;
- It is impossible for the party in breach to perform its obligations under the contract due to its actions.
The innocent party must have a subjective belief that the other contractual party will breach the contract to succeed in a claim based on anticipatory breach.
Would a failure to perform the contract constitute an anticipatory breach of contract?
A failure to perform the contract, in whole or in part, will not constitute an anticipatory breach of contract. This would constitute an actual breach of contract, not an anticipatory breach.
When will it become impossible for contractual obligations to be performed?
It is often difficult to prove that the actions of one contractual party make it impossible for it to perform the contract. An example is where one party contracts to sell goods to another party, but instead decides to sell them onto a third party. This could mean it will be impossible to sell them to the other contractual party, however, it is possible for the seller to buy the goods back from the third party and then honour the terms of the original contract.
Each case will be decided on its facts. If there is no anticipatory breach, there may be a renunciation leading to anticipatory breach of the contract. This means that an act by one contractual party may not create an impossibility of performing the contract but it may show a clear intention not to perform their obligations under the contract (renunciation).
For more information on:
- When will a party have renunciated its liabilities under the contract?
- What are the remedies for anticipatory breach?