A buyer and a seller enter into an agreement. They agree that the buyer will buy 1,000 bushels of corn from the farmer for $10 a bushel, for a total price of $10,000. They agree that the buyer will pay $10,000 to the seller now, and the seller will deliver the 1,000 bushels of corn to the buyer on or before August 31, 2021. If the buyer pays the seller $10,000, and on August 31, 2021, the seller refuses to deliver any of the bushels of corn to the buyer, the seller has breached the contract, and the buyer can sue the seller for breach of contract.
- Anticipatory Breach.
However, what is the legal situation the buyer finds himself in if, on July 31, 2021, the seller tells the buyer that he will not deliver any bushels of corn to the buyer by August 31, 2021 or at any time? What can the buyer do, if anything, once the seller has so informed him? Must he wait until August 31, 2021, to confirm that the seller has not performed as agreed, before he can sue the seller? The answer is no, the buyer may sue the seller immediately, based on the seller’s “anticipatory” breach of contract.
In California, under this scenario, the buyer may sue for anticipatory breach of contract at any time on or after July 31, 2021. He may do so because the seller has expressly repudiated the contract.
A party to a contract may sue the other party for anticipatory breach of contract if the other party either expressly, or by implication, repudiates the contract. This repudiation may be based on the other party’s unwillingness to perform the contract, or on his inability to perform the contract. Thus, in the situation described above, if the seller told the buyer on July 31, 2021 that he deeply regrets that he will be unable to deliver any of the bushels of corn promised to the buyer, but he is simply unable to perform, that is an anticipatory breach of contract.
- The Non-Breaching Party’s Options.
The buyer in this situation, and in any situation involving an anticipatory breach of contract by the other party, has multiple options. The first option, as in the example above, is for the buyer to wait until August 31, 2021, and then sue the seller if the seller has not had a change of heart, or has not been able to make the necessary arrangements to perform. Then, upon the seller’s nonperformance on August 31, 2021, the buyer may sue the seller for breach of contract.
Another option the buyer has is to sue the seller, as in the example above, at any time on or after July 31, 2021, seeking damages. For instance, if the buyer is able to find another seller who will sell him 1000 bushels of corn, at a higher price of $20 per bushel, delivery to be made on or before August 31, 2021, the buyer can purchase the 1000 bushels of corn from the second seller, paying $20,000, and then sue the original seller for his damages. In that case, his damages are the additional $10,000 the buyer is required to pay the second seller that he would not have been required to pay the first seller had the first seller performed his obligations under the contract.
- Nullification of Repudiation.
In some cases, a party to the contract will repudiate the contract, whether due to unwillingness or inability to comply, and then later change his mind, or later find himself able and willing to perform, prior to the date performance is due under the contract. In that event, if the other party to the contract has not changed his position to his detriment in reliance on the initial repudiation, the repudiation is nullified, and the other party may not sue for breach of contract.
In the above example, what would be the buyer’s options in the event (1) he is able to purchase 500 bushels of corn for delivery by the second seller on or prior to August 31, 2021, at $20 a bushel, and (2) prior to August 31, 2021, the first seller informs the buyer he has changed his mind, or is now able to perform his obligations under the contract, and is ready and willing to deliver the 1000 bushels of corn to the buyer at the agreed-upon time and agreed-upon price. In that event, the buyer is under no obligation to accept the first seller’s reversal of his repudiation, because the buyer has relied on the repudiation to his detriment by entering into an agreement to purchase some of the bushels of corn he needs from a second seller, but at a greater price than the price under his initial contract with the first seller.
However, in this example, the buyer is required to “mitigate” his damages, and the first seller has offered the buyer a way to do that. If the buyer has no need for more than 1000 bushels of corn he can agree to purchase 500 bushels of corn from the first seller for the agreed-upon $10 per bushel. He has no obligation to pay for the initial agreed-upon 1000 bushels, because he has purchased 500 bushels of corn based on the first seller’s initial repudiation, and now only needs 500 more bushels of corn. If the first seller delivers 500 bushels of corn to the buyer at $10 per bushel, the buyer still has the right to sue the first seller. In this example, the buyer’s damages of the additional $10 per bushel he was required to pay the second seller for 500 bushels of corn, totals $5000.
- Application Only to Two-Way (Bilateral) Contracts.
The doctrine of anticipatory breach applies only in the event of a bilateral (i.e., two-way) contract. A bilateral contract is one in which both parties agree to do something for the other. In the above example, the buyer and seller agree that the buyer will pay $10,000 to the seller for 1000 bushels of corn delivered by the seller to the buyer. That is a bilateral contract, because both the buyer and the seller agree to do something for the other. A unilateral contract is one in which one party makes an offer to the other party which the other party is not required to perform, but which he may perform, and if he does, the first party will have to fulfill his obligations under the proposed agreement.
For example, if a homeowner agrees to pay a painter $10,000 if the painter will paint the homeowners house, the painter is not obligated to paint the homeowner’s house. If he doesn’t paint the homeowner’s house, the homeowner is not obligated to pay the painter. In a unilateral contract such as that described, the concept of anticipatory breach does not apply, because one of the parties, in this example, the painter, is not obligated to do anything. Consequently, there is no contract for him to repudiate.
The Law Office of William J. Tucker is familiar with contract principles, and provides free initial phone consultations to individuals and companies who have issues, concerns or questions about these subjects. Feel free to Schedule an Appointment.