Anticipatory Repudiation Flashcards
Options for non-repudiating party after indication that repudiating party may not perform
When one party makes an indication that they may not perform their duties, the non-repudiating party has three options:
- (a) wait and see if the other party breaches and sue for breach;
- (b) treat it as an anticipatory repudiation;
- (c) request adequate assurance.
When has a party repudiated?
A party has anticipatorily repudiated a contract when, before performance is due, the party:
- (a) makes an unequivocal and definite statement that he will commit a total breach, or
- (b) engages in any conduct that renders that party unable to perform its duties.
A repudiation must show a party’s intent to commit a total breach. Mere expression of doubt as to his willingness to perform is not enough to constitute a repudiation. It cannot come from a third party, it must come directly from the repudiating party. A good faith dispute is not necessarily a repudiation.
Rights of non-repudiating party after repudiation
After repudiation, the non-repudiating party may:
- (a) suspend performance;
- (b) terminate the contract and sue for breach; or
- (c) continue to treat the contract as valid and wait for the time of performance before bringing suit.
When does a party’s right to retract a repudiation terminate?
The general rule is that the repudiating party has the right to retract its repudiation at any time before performance is due. The right of retracting terminates when the non-repudiating party:
- (a) gives notice that it chooses to treat the contract as rescinded or terminated;
- (b) treats the anticipatory repudiation as a breach by bringing suit; or
- (c) materially changes its position in reliance on the repudiation.
Rule for request for adequate assurance
The process for requesting adequate assurance breaks down into three sub-issues:
(1) Are there reasonable grounds for insecurity?
* A party has reasonable grounds for insecurity if there is a reasonable belief that the other party will breach. The belief must have been formed after formation, and cannot be based on facts that the party knew at formation. Grounds for insecurity may be indirect.
(2) Was there a demand for adequate assurance of performance?
* If a party has reasonable grounds for insecurity, the party may suspend performance and demand adequate assurance of performance. Under the common law, the demand may be in any form. Under the UCC, the demand must be in writing. If there are no reasonable grounds for insecurity, suspending performance will constitute a breach.
(3) Has the other party provided adequate assurance, or has the party repudiated?
* If assurance is given, the contract carries on. If not, the other party can treat the contract as repudiated. Adequacy of assurance is a question of fact. When the demanding party receives the assurance, he must decide if it solves the problem. A mere reaffirmation of performance is unlikely to be adequate.
