Understanding anticipatory repudiation

When Delaware businesses enter into contracts, they are required to perform their contractual duties. However, when the other party either clearly states that it no longer intends to perform its duties under the contract or acts in such a way that it is clear that the duties will not be performed, an anticipatory repudiation has occurred. When an anticipatory repudiation of the contract occurs, the other party can terminate the contract and might be entitled to pursue damages.

What is anticipatory repudiation?

Under the Uniform Commercial Code, an anticipatory repudiation occurs when one contracting party either indicates that it does not intend to perform its future contractual duties or acts in such a way that the other party can clearly understand that those duties will not be performed. When a party expressly repudiates a contract, it is considered to be a contract breach. While contract law normally requires that the obligations are due or passed before a breach can occur, there is an exception for anticipatory repudiation.

Under applicable business law, an anticipatory repudiation can occur in one of the following ways:

• The contracting party states that it will not perform its future obligations under the contract.

• The contracting party acts in such a way to demonstrate its unwillingness to perform its future obligations.

• The contracting party acts in such a way that it demonstrates its inability to perform its future obligations.

Even though the time for the obligations to be performed has not arrived, a party’s anticipatory repudiation of the contract is considered to be a breach of contract. This frees the other party to terminate the contract and to pursue damages for its losses through a breach of contract claim.