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Anticipatory Breach of Contract and When to File Suit in California

July 01, 2013

Posted in Business Litigation

Anticipatory BreachUnder California Civil Jury Instructions (CACI) 324 – Anticipatory Breach, contracts can be broken even before the performed services are scheduled to transpire. Plaintiffs, then, have remedies for what is known as an ‘anticipatory breach of contract.’

However, before you can initiate a valid lawsuit your claim must be justified by meeting the burden of proof required to sustain your allegations. This requires the advice of an experienced business litigation attorney, and a better understanding on your part of the subject matter of your claim, the requirements to meet the claim, and any additional legal options that may available to you.

What is an anticipatory breach?

An anticipatory breach is when a contract is considered ‘broken’ because of the refusal of one party to perform their commitment as part of said contract, even if the performance of the commitment isn’t scheduled to happen until a specified date in the future. In other words, if the other party has made it very clear that they won’t be able to meet their future obligations then you have the foundation for an anticipatory breach of contract claim.

This is also referred to as ‘repudiation.’ It occurs when one party to an agreement has, by some means, articulated that they cannot – or will not – be performing their portion of the agreement. In effect, they have retracted their promise and unlawfully ended a binding contract under California Breach of Contract Laws.

Three Types of Repudiation

Before you go further, be knowledgeable about the type of repudiation you’re accusing the breaching party of because – again – you will have to prove your claim in a court of law. Be certain that your claim falls into one of the three recognized categories. This not only guarantees that you have cause to file suit, but also that your litigating attorney’s argument will be carefully customized to the distinctive elements of your claim and the precise details of your evidence and claim.

Precise Words – Also known as ‘express repudiation,’ you’ll have the strongest claim if you can prove that the adverse party stated very clearly and directly that they would not be performing their portion of the agreement. It must be obvious and clear-cut that they intend to sever the contractual arrangement and it must be expressed directly to you; this can be accomplished through an email, phone call, Skype conference, in person encounter, or some other form of direct communication.

Implicating Actions –The second type of repudiation occurs when the actions and conduct of the adverse party allude to the fact that they are going to fail to meet their contractual obligations. This can get complex, so it undeniably helps to have professional representation.

As an example, let’s say that you and colleague have partnered to launch his innovative software company to foreign markets. As an investor, you’ll have significant stock in the company, but will be a silent partner – with no participation in the management or daily operations.  As part of the agreement, the breaching party will be the Managing Partner and must provide quarterly progress and budget reports in order to retain your financial support.

Regrettably, as soon as the venture is launched, you find the Managing Partner to be acting in fiscally irresponsible ways, misusing your funds and otherwise behaving in a way that is inconsistent with the terms of your agreement. Reasonably, you’re doubtful of the Managing Partner’s ability to provide the budget and reports or generate the profit necessary to perform his contractual obligations satisfactorily. In this instance, his actions speak louder than words – or paper – and may be grounds for an anticipatory breach of contract initiated through implicating actions.

Change of Hands – A final type of repudiation strictly concerns the sale of real property. This is a familiar matter these days with the real estate industry gaining strength and ‘fix ‘n flip’ and foreclosure properties exchanging investor hands frequently.

As a brief example, a contract can be repudiated when a party who has implemented a sales contract with you for the purchase of a small vineyard in Northern California has sold the property to their cousin, instead, rendering your sales contract broken. In this event, you may have cause for an anticipatory breach of contract complaint.

Additional Options

If you’re hesitant to file suit anticipatorily, your other option is to wait for the agreed-upon performance date – in other words, give the adverse party sufficient time, under the terms of the agreement, to attempt to meet their obligations. If they don’t perform by the contractual date, your case would become a standard breach of contract and you could effectively organize and formulate your argument with your business litigation attorney.

A preferable option, particularly for suppliers of goods, is to request adequate assurance from the breaching party that they will be able to perform.  Under the U.C.C. § 2-610, Anticipatory Repudiation, the buyer has the right to demand some form of reassurance that the contractual obligations will be met by a certain deadline.

As an example, if you’re the buyer of a product from a manufacturing company in China and you have reasonable grounds to believe they’re not going to be able to perform the shipment, you can stop all performance by both parties – essentially suspending the contract – until you receive proof from the seller that your shipment will arrive on time.

I know this is a lot to take in, but the significance of this knowledge is that if you appreciate what’s required to make an anticipatory breach of contract claim, and you believe that you meet the elements required to file suit, then you’ll be well prepared to discuss your claim with an attorney.

Please contact the Law Offices of Tony T. Liu to examine your case with an experienced and professional California trial attorney.