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How does anticipatory repudiation affect business contracts?

On Behalf of | Aug 6, 2021 | Business Law

Businesses around the globe rely on contracts for a variety of purposes. Often, if a party to a business contract cannot fulfill its obligations, the other party suffers immediate and ongoing harm. While there may be some advantages to allowing an entity to breach a contract, business owners often must take steps to protect their financial and legal interests.

Contract breaches are not always a surprise. Regularly, one party to a bilateral contract notifies the other that it is either unwilling or unable to comply with the terms of the contract even before its due date. If this happens, business owners have some options pursuant to the anticipatory repudiation provision of the Uniform Commercial Code.

Await performance

Circumstances sometimes change. Despite not being able to fulfill the contract earlier, a contracting party may come through in a commercially reasonable time. Accordingly, the aggrieved party may simply await performance.

Take advantage of breach remedies

The aggrieved party may also use anticipatory reputation to take advantage of breach remedies in the contract or available under law. This may be true even if the aggrieved business has notified the contractor that it intends to wait for performance under the terms of the contract.

Stop performance

After receiving word of an anticipated breach, the aggrieved party may stop its performance of the contract. This option is typically available both when awaiting performance and taking advantage of breach remedies.

Because most businesses must eventually contend with an anticipated breach, it is critical to have a strategy for dealing with one. Ultimately, though, to preserve professional relationships, business leaders may have to respond to each anticipated breach differently.