An anticipatory breach is a term used when one party will likely fail to fulfill its contractual obligations. Business partners must recognize the signs and understand how to protect your company’s interests. Also known as anticipatory repudiation, common signs can include such actions as explicit refusal to honor the agreement, inability to perform, communication delays or even announcement of intent. Unlike a regular breach, vocal or written confirmation is unnecessary; failure to perform timely obligations can constitute a breach. Leadership and staff’s ability to recognize signs of anticipatory breaches can empower your company to take proactive steps.
Strategies for addressing potential breach
A business can take several key steps when faced with an anticipatory breach. Generally speaking, responding in a way that safeguards your company’s position while maintaining as much leverage as possible is critical.
- Engage in dialogue: Reach out to the breaching party to understand their position. Sometimes, the two sides can avert the breach through negotiation or finding a mutually acceptable compromise.
- Document everything: Keep meticulous records of all communications and actions related to the breach. This evidence is crucial if the dispute escalates to litigation.
- Consider a replacement contract: If the original agreement is no longer tenable, you may find it beneficial to negotiate a replacement contract that better reflects the current circumstances.
- Demand assurance: In some instances, it may be appropriate to demand a written performance guarantee from the potentially breaching party. This step may encourage them to adhere to their contractual duties.
Preparing for potential litigation
Anticipatory breaches often lead to formal business disputes. To prepare for potential litigation:
- Consult legal counsel: Seek advice from an attorney experienced in contract law and business litigation. They can guide you through the process and help you assess your options.
- Evaluate damages: Assess the breach’s financial impact on your company. Consider lost profits, additional costs and reputational damage.
Balancing revenue and business partnerships
While pursuing legal remedies, remember that maintaining fruitful business partnerships may be desirable. Strive to balance the need to collect revenue with preserving relationships. Still, after exploring dispute resolution methods, such as mediation or negotiation, to avoid irreparable harm to the partnership, it may be necessary to litigate. By effectively understanding and addressing these breaches, decision makers can protect your company’s interests and maintain successful partnerships.
