anticipatory repudiation

Definition of anticipatory repudiation

Further reading

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]

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:

1. When the buyer learns of the repudiation
2. When the buyer learns of repudiation plus a commercially reasonable time
   1. 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.
   2. 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.
   3. (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.
   4. This is the majority view: when repudiation is accepted or within a commercial reasonable time
3. Time of performance, when the trail that occurs after the time of performance
   1. This is different than the plain reading for UCC 2-713.

References

1. Which might entitle the other party to claim damages. International principle: Trans-Lex.org