Here's How To Use Repudiation To Minimize Your Losses From A Contract Breach

Posted on: 6 July 2017

It's commonly believed one party can't take action against another party for breach of contract until the liable party actually fails to fulfill his or her obligations as outlined by said contract. However, this isn't always true. One party can declare another party in breach of the contract using a legal method called repudiation when it becomes clear the other party can't perform as agreed, even though the due date for completion may not have passed yet. Here's more information about this tort and how it can help you.

The Power of Repudiation

Officially called anticipatory breach, as noted previously, repudiation lets you declare another party in breach of the contract the moment you obtain evidence the individual or company won't fulfill the terms as agreed. While this evidence may come in a variety of forms, it generally falls into one of three categories:

  • Direct refusal – The other party unconditionally refuses to follow through on the contract. For instance, a supplier clearly states he or she won't be able to deliver the goods you purchased.
  • Circumstantial blocks – In this case, the other party's circumstances make it impossible for him or her to perform. A fire at the manufacturing facility destroys the equipment needed to produce the products you ordered, and so the company won't be able to send them as agreed, for instance.
  • Transference of property – This category deals specifically with the sale of assets. You can declare the other person in breach of a contract if he or she transfers property to another party or, at minimum, agrees to do so even though the person agreed to sell it to you. You make an agreement to purchase a vehicle, for example, but the vehicle's owner gives it to his sister instead.

When the other party engages in behavior that lands in any of these three categories, you can declare the other person has repudiated the contract. At this point, you have the option to either suspend your obligation to perform your duties as outlined by the contract until the other person resolves the issue or abandon the contract altogether and take action to mitigate your damages.

For example, a supplier states he cannot deliver the merchandise you ordered by the agreed upon date. You can legally withhold payment until the items ship or cancel the contract altogether and go with a different supplier.

Repudiation Exceptions

Repudiation can help you minimize your losses because it lets you react to a situation as it's developing rather than force you to wait until a specific date to declare the other party in default. However, this tort does have a couple of exceptions you need to be aware of if you want to use it effectively.

First, repudiation can't be used if the only thing obligation left in the contract is payment. In this situation, you must actually wait until the due date has passed before you can declare the other person has breached the contract. You make and deliver a cake to a wedding as part of the contract you have with the bride. However, the bride later tells you she can't pay as agreed. You must wait until the day the payment is due to pass before you can take action against the client.

Another issue is the other party can avoid repudiation by following through on the contract terms, which will return the contract conditions to the original status quo. The supplier who says he couldn't deliver the product calls and says the circumstances has changed and he will be able to send your order after all, for instance. You would then be obligated to send payment as agreed.

However, this can only be done if you haven't already made significant changes to your situation to deal with the problem. If you've already found and made a contract with a different supplier, for instance, then you're under no obligation to continue with the original supplier since you made a material change based on the anticipated breach.

For more information about repudiation or help dealing with a contract breach, contact a business attorney.