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What should business owners know about an anticipatory breach?

On Behalf of | Dec 10, 2020 | Business and Corporate |

As many business owners might know, they can take legal action claiming an anticipatory breach of contract if they have reason to believe the other party will not fulfill their obligations under the contract.

This allows businesses to seek damages proactively and help decrease the significant harm that a breach of contract can cause. While business owners should understand that they have this option, it is even more critical that they understand the details of this type of breach before they move forward.

Three things all business owners must know

Even if California business owners suspect that another party might not uphold their obligations, they should pause and evaluate the situation before filing an anticipatory breach claim. After all, the other party might be a regular colleague, whether they are a supplier or a business partner. Business owners may want to retain the relationship while also protecting their business.

Therefore, there are a few things that business owners should consider about these claims:

  1. These cases can be difficult to prove: Unlike other types of contract breaches, business owners might not have evidence of the damage caused to their business. It is anticipatory, and usually, before any kind of breach or damage has occurred. Therefore, the situation must meet many conditions for courts to consider it an anticipatory breach of contract. This can make it difficult to prove the claim is valid.
  2. There are varying forms of this breach: The court identifies an act as an anticipatory breach – or a repudiation of a contract – if the other party states they intend not to fulfill their obligations or acts in a way that makes it impossible for them or the business to fulfill their responsibilities. This type of breach can also occur if the other party transfers the service or products discussed in the contract to a third party.
  3. Business owners have a duty to mitigate: If business owners worry the other party will breach the contract, then they must make a reasonable effort to reduce the damages that breach might cause.

Additionally, there is one other thing that business owners must know. In the event of an anticipatory breach of contract, they can take steps to negotiate with the other party and potentially revise the terms of their agreement. This can help to preserve the business relationship and avoid a complex dispute.