Businesses enter a contract with good faith, expecting the other party – often a business partner – to fulfill the responsibilities laid out. That is why negotiating a contract requires a strategic approach in such a way that business owners can ensure that the elements of the contract are fulfilled.
Notwithstanding the agreement, the other party sometimes fails to meet their obligations, and one example is anticipatory breach of contract.
WHAT IS AN ANTICIPATORY BREACH OF CONTRACT?
Anticipatory breach of contract occurs when one of the parties demonstrates, either through its words or its actions, that it does not intend to comply with one or more of its obligations in the contract. An easy example is if a landlord and tenant have a one-year lease agreement, and the tenant informs the landlord after six months that they have no intention of paying the last six months of rent.
Anticipatory breach might give business owners some time to mitigate their damages and obtain the services needed from another source. However, businesses should not overlook any type of breach of contract case.
That is why it is important that business owners know they can take legal action.
WHAT CAN BUSINESS OWNERS DO?
Business owners have a few options when it comes to an anticipatory contract breach. They can:
- Take immediate action: The aggrieved party can immediately claim a breach of contract and seek remedies such as payment. They do not need to wait until the end of the term of the contract.
- Extend the terms: In cases where the other party informs the business of the failure to meet a deadline, it might be possible to renegotiate the contract. Businesses might favor this option to avoid litigation. It also allows them to maintain a profitable business relationship.
- Delay legal action: There is another option in cases of an anticipatory breach of contract – though it involves a significant amount of risk. California precedent determines that business owners can wait until an actual breach of contract, whether material or partial, occurs and then file a claim against the violating party.
These situations can be complex, but if business owners understand the options available to them, they can effectively navigate these cases and reduce risks.