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When a Party Indicates An Intention Not To Honour The Contract


Introduction

If a party to a contract indicates it is not going to perform its obligations under the terms, it has committed an anticipatory breach of a contract. In such circumstances, the innocent party may: i) be able to treat the contract as repudiated; or ii) elect to reject the repudiation, treat the contract as continuing and wait until performance is due to see if rendered or the contract is breached.

Accepting the Anticipatory Breach

Broadly, an indication by a party that it will breach a future material obligation provides the innocent party with the same rights as an actual breach of the obligation. This means that the innocent party may treat the contract as repudiated.

Accepting the anticipatory breach will end the contract and the parties are discharged from future obligations. However, the innocent party will be able to sue for damages.

Rejecting the Anticipatory Breach

The innocent party may reject the anticipatory breach and hold the other party to the terms of the contract. In this instance, the innocent party will also be under a continuing obligation to perform the contract. If it opts to reject, the innocent party may be able to sue for specific performance (ie an order of the court for the repudiating party to perform its obligations).

Comment

The innocent party should consider whether damages will be sufficient before deciding whether to accept or reject the anticipatory breach. If not sufficient, the anticipatory breach might best be rejected and the innocent party then sue for specific performance.

This should not be relied upon for legal advice. If you would like any further information or advice please email richard@clariclegal.co.uk.

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