Contracts are necessary to order your affairs and accomplish tasks in your personal and professional life. When deals fall apart, either because you cannot perform as promised or because the other party backs out unexpectedly, it can significantly impact your life.
What Is an Anticipatory Breach of Contract?
An anticipatory breach of contract is when someone indicates that they will not follow through on a contract. In essence, it is a breach of contract before the time for performance has arisen. A party may commit an anticipatory breach of contract if they know they cannot or will refuse to perform their obligations under the deal when the time comes.
For example, a buyer may cancel the order after the cancellation period but before they receive the goods from the seller if they know they can’t afford the purchase anymore. In many anticipatory breach of contract cases, the decision to break the contract may be strategic. Nonetheless, they can still cause the other party to incur damages through no fault of their own.
Why Does an Anticipatory Breach of Contract Happen?
An anticipatory breach of contract is a type of breach of contract or failure to follow through on one’s obligations under a written or oral promise. Another term for an anticipatory breach is an anticipatory repudiation. Some breaches occur at the time of performance, such as someone refusing to turn over the keys to the house at the designated time to do so under the real estate agreement.
In contrast, an anticipatory breach is when someone says they cannot or will not do what they promised to do when the time comes. The breaching party may experience a substantial change in circumstances and be unable to perform.
Instead of surprising the other party on the closing date, they decide to give them advance notice. Whether it occurs before, at, or after the time for performance, any time a party does not do what they promised to do, they may be held responsible for damages to the other party.
What Are Common Examples of an Anticipatory Breach of Contract?
Anticipatory breaches may occur in various commercial, residential, and personal settings. One anticipatory breach of contract example is if the buyer loses their job and no longer qualifies for the financing required to purchase a house. The buyer may inform the seller of this change in circumstances before the closing date to limit the potential losses. In another case, a commercial seller may experience manufacturing delays and inform the buyer that they cannot fulfill their order in time.
What Damages Can You Receive for an Anticipatory Breach of Contract?
For example, in most real estate transactions, the parties typically agree that the earnest money or deposit serves as the damages for most breaches. In complex commercial transactions, calculating damages may not be as straightforward if there is an anticipatory breach.
In calculating the appropriate measure of damages, the court may look at the total value of the contract minus the expected losses incurred up until the anticipatory breach occurred.
The idea is that the breaching party should only have to pay damages for expenses reasonably connected to the violation rather than damages the other party expected to pay if the contract had gone to plan. If the seller had to find a replacement buyer, the court may award the seller the difference between what the seller would have made under the original contract and what they gained under the new agreement.
Another factor the courts consider is whether the non-breaching party took steps to minimize the damages they experienced because of the breach. If the non-breaching party incurs damages because of their own conduct versus as a natural consequence of the other party’s breach, the court typically reduces the recovery the party receives.
Contact the Experienced Contract Attorneys at Bensinger Legal Services
We understand how frustrating it can be when agreements don’t go according to plan. We help parties minimize their losses, successfully resolve contractual disputes, and maximize the compensation they receive.
Aaron Bensinger strongly believes that everyday people in Ohio deserve a fair opportunity to be heard when things go wrong. He uses his legal knowledge and experience to help advocate for those who suffer damages because of someone else’s conduct.