Contracts Quick Tip: Anticipatory Repudiation and Demand for Adequate Assurances 

 

What happens when two parties have a contract and one of those parties tells the other that they intend to not perform their end of the bargain? Anticipatory repudiation, or anticipatory breach, is a legal concept that allows for action before such a breach occurs. It’s a complex legal concept, and it can be difficult to know when the appropriate grounds exist to invoke anticipatory repudiation. 

Questions about anticipatory repudiation and demands for adequate assurances arise frequently on law school exams as well as the bar exam. Keeping a few basic principles in mind will help you analyze whether one contracting party’s pre-performance conduct gives the other party a remedy. 

Anticipatory Repudiation in a Contract 

A breach of contract is any failure to render full performance when due. However, this rule does not always force a contracting party to wait until performance is due to have a remedy. Rather, both the common law and the Uniform Commercial Code (UCC) give contracting parties a remedy before a breach has occurred for what is called an anticipatory repudiation. 

When analyzing a potential anticipatory-repudiation issue during your exam prep or on an actual exam, there are two key questions to keep in mind: 

1. Did one party clearly and unequivocally communicate, before its performance became due, that it could not or would not perform? 
2. Did the repudiating party retract its anticipatory repudiation? 

 
What Constitutes Clear and Unequivocal Communication? 

An anticipatory repudiation occurs when one party clearly and unequivocally communicates, before that party’s performance has become due, that it is unwilling or unable to perform. Mere expressions of doubt, uncertainty, inquiries, or requests that the other party consider modifying the contract are not anticipatory repudiations. 

In an anticipatory repudiation situation, the nonrepudiating party has an immediate claim for breach of contract. The nonrepudiating party does not have to wait until the repudiating party’s performance is due in order to terminate the contract and treat it as breached. 

Commonly, an anticipatory-repudiation fact pattern might involve one of the contracting parties attempting to back out of the deal or being unable to perform fully in some way.   

Can a Repudiation Be Retracted?  

The answer is yes, under certain circumstances. If the repudiating party retracts in a timely manner, then the nonrepudiating party must proceed as if the repudiation had not occurred. If a repudiation is retracted, then the nonrepudiating party cannot terminate the contract or treat it as breached. 

A retraction requires the repudiating party to put the nonrepudiating party on notice that the repudiating party intends to perform after all. The retraction may be done through words or conduct. For example, the repudiating party may retract by beginning or resuming its contractual performance. 

However, an anticipatory repudiation may not be retracted if, before the retraction, the nonrepudiating party has either materially changed position on the repudiation or indicated that they consider the repudiation to be final.  

Keeping track of the timeline, then, becomes critically important in correctly analyzing a question of anticipatory repudiation. In spotting potential final anticipatory repudiations, keep an eye out for facts indicating that the nonrepudiating party has secured substitute performance. This is one way the nonrepudiating party might materially change position relative to the repudiation and thereby make the repudiation final and nonretractable. 

The Right to Demand Adequate Assurances  

The law gives an uncertain party some tools short of terminating the contract and treating it as breached. Contract law provides that if a party has reasonable grounds for insecurity that the other party will not perform, they have the right to demand adequate assurances. If they do not receive adequate assurances within a reasonable amount of time (usually 30 days), they are entitled to suspend their performance. Let’s unpack this a bit more. 

Under both the common law and the UCC, when a party has reasonable grounds to believe that the other party will breach the contract, the party may suspend their own contractual performance and demand adequate assurances that performance will be forthcoming. Reasonable grounds might come, for example, from the other party’s words or conduct that they are not certain they can perform or that their performance might be delayed past a contractual due date. 

Issues regarding demands for adequate assurances commonly arise on facts that do not meet the clear and unequivocal standard required for an anticipatory repudiation. If you find yourself concluding that a party has not anticipatorily repudiated a contract, analyze further to see whether that party’s conduct has given the other contracting party reasonable grounds to believe a breach is forthcoming. 

In general, assurances are adequate if they would prompt a reasonable person in the aggrieved party’s position to believe that the other party will perform. 

If the other party does not provide adequate assurances within a reasonable time, then the aggrieved party may proceed as though there had been an anticipatory repudiation. 

Need More Clarity? 

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