anticipatory breach of contract

When a party to a contract conducts itself in a manner, which indicates that it does not intend to perform the contract or does not consider itself bound to perform the contract in accordance with its terms, that party is in anticipatory breach of contract.

Anticipatory Breach of Contract - What is sufficient?

This intention may be evidenced by communicating that:

1. access to property required by the innocent party to perform will be refused;
2. goods will not be supplied when the time to deliver goods arrives;
3. it is unable or incapable of performing the contract;
4. it intends to perform in a way inconsistent with the terms of the contract; or
5. the defaulting party wishes to impose terms on performance where there is no legal basis to do so.

Where the threat not to perform is not sufficiently serious having regard for the terms of the contract, the innocent party will be left to claim damages for the expected breach, rather than being entitled to terminate; this is consistent with the principles of repudiatory breach of contract.

Rights on Anticipatory Breach

If the anticipated breach is sufficiently serious the innocent party will be entitled to terminate the contract before the time for performance arrives and give rise to a right to claim damages. Alternatively, the innocent party is entitled to wait for the time for performance to arrive and elect to terminate the contract at that time and sue for damages.

This latter course provides the defaulting party to change its position in the intervening period and perform when it is required to. In the event that the party threatening not to perform does perform in accordance with the terms of the contract, the right to terminate is lost.