What are your options when dealing with an anticipatory breach?

On Behalf of | May 5, 2021 | Business Law |

New York businesses enter various contracts each day. Many times, these contracts are seen through to their conclusions, and both parties deliver without a hitch. However, sometimes a business may have to deal with an anticipatory breach of contract.

What is an anticipatory breach of contract?

Business and commercial law defines an anticipatory breach of contract as one party stating that they will not fulfill their contractual responsibilities before the contract expiration date. Contrary to what one might think, it’s not necessary for a business to wait until the contract expires to act upon the anticipatory breach. Rather, a business has three different options.

Compensation consideration

The first option when an anticipatory breach of contract comes up is to simply ask the breaching party for compensation. This compensation may be a refund of the payment for the contract, or it could be the fee that it would cost the non-breaching party to hire a third party to complete the contract on short notice.

Cancellation

Your business can simply opt to cancel the contract with the other party. In this event, you create a formal amendment to the contract showing that each party is agreeing to the cancellation of it. If there was any payment made to the breaching party, the payment should be returned to the non-breaching party.

No reaction

In the event that no funds were transferred to the breaching party, your business can opt to not react to the anticipatory breach. You’ll simply let the contract expire on its normal date. This type of reaction is common for businesses that have long-standing relationships with one another.

An anticipatory breach of contract is not something that your business will have to deal with on a regular basis. However, it’s vital to understand what your options are in the event that it does happen. This way, you can act quickly to determine what your best route forward would be.