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What is an anticipatory contract breach?

On Behalf of | Mar 3, 2024 | Business Formation |

In many cases, a contract breach happens at a specific time. Maybe a parts supplier is supposed to make a delivery at noon on Friday. But when that time rolls around, they don’t show up for the shipment, costing your business a lot of money in lost productivity.

An anticipatory contract breach is essentially where the other party knows that this is going to happen in advance and notifies you. Maybe your parts supplier can already tell on Wednesday that they’re not going to have the inventory to make the delivery on Friday. They could tell you in advance, which ends your responsibility to perform any related duties – such as providing payment.

When do you start the legal process?

There are some advantages to an anticipatory breach. As a general rule, if you’re going to seek legal action after a contract is breached, you have to wait until it is officially breached to do so. With some contracts, this could mean a delay of weeks or even months before action can be taken.

With an anticipatory breach, however, you can start this process right away. Even if the other party technically still has a month to fulfill the contract, they have already told you that they refuse to do so or are unable to do so. You can then begin to take action as if the contract was already breached, even though that has not happened yet.

Situations like this can be very complex, and the financial impact on your business can be substantial. It is very important to understand exactly what legal options you have and when you can use them.