When one party communicates an intention to break its contractual promises, that is referred to as ‘anticipatory breach’. The communication is made before performance is required by the contract, and as such, the promise-breaking is expected, or ‘anticipated’. In essence, anticipatory breach is promising to break a promise.
Anticipatory breach may happen for a variety of reasons. Some scenarios where it might arise include:
- A company signs a contract promising to purchase parts from a supplier, but then goes bankrupt and can no longer continue to purchase as required.
- A contract is signed by two parties and a better offer comes along afterwards.
- Breaching the contract and fighting the resulting lawsuit is still cheaper than continuing to honour the promises.
What are the elements of Anticipatory Breach?
Anticipatory breach is not a breach of contract per se, but the expectation of one. It is not the breakup itself, but rather the “we need to talk” that comes before. The precise moment that this occurs depends on whether the communication is open or implied. In any event, the intention to not honour the promise(s) is either:
- Expressed openly, and is clear, certain, and unequivocal.
- Implicit, and is shown by the promise-breaker’s behaviour.*
*In this case, actions rather than spoken communication, demonstrate the unwillingness to honour the contract.
Crucially – for a judge to decide that anticipatory breach has occurred, the effect on the other party must be significant; it must be substantial. Mere disappointment in the job done, or if the work was accomplished in a way other than expected, is not enough.
We are not concerned with how the contract was fulfilled, only that it was. The anticipatory breach must significantly deprive the other side of the expected benefits that were promised by the contract.
How Anticipatory Breach Unfolds
It is possible to sue the other party for committing an anticipatory breach. To understand the legal logic, we must quickly note the history behind it. It used to be the case that a party could sue only if he/she was prepared to fulfill his/her own contractual obligations. In other words, if the plaintiff (the person who is suing) was not prepared to do his part, a lawsuit was impossible. In time, judges realized that it made no sense that the plaintiff should have to remain ready to perform – to live up to the agreement just to sue the other party for failing to.
Today, a plaintiff has two choices.
- He/she can sue the moment anticipatory breach occurs,
- He/she can ignore the anticipatory breach and continue to treat the contract as “alive”, choosing to sue when an actual ‘breach of contract’ occurs, i.e. once the moment to perform arrives and the promise remains unfulfilled.
Under the first scenario, the other person must treat the promise as broken. The contract is treated as terminated and a lawsuit can result at that moment.
On the other hand, under the second scenario, the contract can remain in place and effective until the promised acts are not completed. The moment that happens, the plaintiff can sue for breach of contract.
In both cases, the typical result is financial compensation for the guiltless party.
Legal Cases that Dealt with Anticipatory Breach
An older English case was important in defining anticipatory breach. This was the case of “Hochster v. De la Tour”, in which one man hired another to accompany him through Europe as his courier/valet. Less than a month before their scheduled departure, the defendant said that he changed his mind and would no longer need his services. The plaintiff sued. In response, the defendant said that the lawsuit was too early since the date of the scheduled departure had not arrived. The judge ruled that it made no sense for the plaintiff to prepare and remain ready for a trip that would never happen.
In this case, it is important to note what is meant by “remain ready”. In many cases, preparing or continuing to honour a contract involves expenses, i.e. filling orders, ordering parts, making plans, purchasing tickets, etc. Judges realized that it was unfair and completely useless to require the plaintiff to live up to his part of the bargain if the other individual had completely abandoned it.
Another English case, Frost v. Knight, involved a man breaking off his promise to marry a woman. Here too, the judge decided that the plaintiff (the person suing), in this case, the woman, was permitted to sue. The logic in this case was that the woman should be permitted to get on with her life as quickly as possible, considering that the man had no intention to honour the contract.
What is the Significance of Anticipatory Breach?
In the cases mentioned above, the judges recognized that people enter personal and business relationships for shared benefit. That is the purpose of contract law. Anticipatory breach is, as stated, the unfortunate promise that things will fall apart. More importantly, it can have enormous legal consequences. When relationships sour, or will, there can be enormous costs.
If anticipatory breach occurs, there may be shockwaves that affect many others. This is clear when we remember how intertwined businesses can be. Let’s imagine a contractor who is building a home.
- A timber company sells wood to a distributor.
- The distributor sells wood to a home improvement store.
- The home improvement store sells to the contractor who needs wood to build a home.
Each link in the chain depends on a promise being kept. One broken promise or the indication that the promise will be broken can send the entire chain into chaos. As more and more individuals are affected, they may be entitled to sue the initial person who committed the anticipatory breach, even if there was no immediate contact with him/her. In other words, there may be dire, unforeseen consequences for the promise-breaker.
Anticipatory breach, while not technically a breach itself, is still treated as one, by the other party to a contract, and the judge.