Anticipatory breach: overview, definition and example
What is anticipatory breach?
Anticipatory breach happens when one party to a contract clearly indicates—through their words or actions—that they will not fulfill their contractual responsibilities. This allows the other party to take immediate action, such as seeking legal remedies or terminating the agreement, without waiting for the breach to actually happen. It’s essentially a warning sign that the contract won’t be completed as promised.
Why is anticipatory breach important?
Anticipatory breach is significant because it gives the non-breaching party the ability to address the situation proactively, rather than waiting for the contract to fail outright. This can save time and money by allowing them to seek alternative solutions or compensation immediately. For businesses, understanding anticipatory breach is critical in managing risks and ensuring that contracts are enforceable.
It also protects the non-breaching party from being left unprepared when the other party decides to back out of their obligations.
Understanding anticipatory breach through an example
Suppose a construction company agrees to build a warehouse for a retail client by a specific deadline. Halfway through the project, the construction company informs the client that they won’t be able to complete the work due to financial issues. This is an anticipatory breach because the construction company has clearly communicated that they won’t meet their contractual obligations.
In response, the retail client can terminate the contract and hire another construction company to finish the project. Additionally, the client could seek damages for any extra costs incurred, such as higher rates from the new contractor or losses due to the delayed warehouse completion.
An example of an anticipatory breach clause
Here’s how a clause addressing anticipatory breach might look in a contract:
“If either party provides written notice or otherwise indicates an intent to not fulfill its obligations under this Agreement prior to the due date for performance, the other party shall have the right to terminate this Agreement immediately and seek appropriate legal remedies for damages caused by the breach.”
Conclusion
Anticipatory breach allows businesses to act quickly when a contract is at risk of being broken. By addressing the issue before it fully unfolds, the non-breaching party can reduce losses and find alternative solutions without waiting for the breach to happen.
Including clear terms in your contracts about how to handle anticipatory breach ensures that you’re protected and prepared for potential issues. It’s a proactive way to safeguard your interests and minimize disruptions to your business operations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.