As a small business owner, you likely deal with contracts all the time. That is, you may regularly execute leases, purchase agreements or fulfillment contracts. When you enter into a contract in good faith, you expect all parties to honor its terms. If someone does not do so, your organization may sustain damages.
While you do not have to be a lawyer to understand the terms of an agreement, you should know about anticipatory repudiation. According to the Uniform Commercial Code, anticipatory repudiation allows the non-breaching party to protect its interests when the other party does not perform. Obviously, knowing about a future breach as soon as possible makes sense for any organization. Here are three ways anticipatory repudiation may arise:
If a party does something to make it impossible to comply with the terms of the contract, you may assume a breach is imminent. For example, if your organization orders widgets from a supplier, you expect timely delivery. But, if the supplier sells the facility and halts production, you may assume it is not possible for the supplier to comply with the contract.
Sometimes, relations between parties to a contract deteriorate. If someone tells you he or she refuses to comply with the terms of the agreement, you can probably anticipate a forthcoming breach. Words are not necessary, though. On the contrary, a party may also refuse to comply with the terms of a contract through his, her or its actions.
Finally, something may happen to frustrate completion of the contract. Said another way, something may change the terms of the agreement. If so, one or both parties may be unwilling to comply with the provisions in the original agreement.
If you have a small business, you must rely on other parties and contracts. When breaches occur, you need to know about them as quickly as possible. With anticipatory repudiation, you may be able to protect your organization’s interests.