Anticipatory repudiation, often referred to as anticipatory breach, is an element of contract law that occurs when one person announces he cannot fulfill the terms by the deadline. This statement alerts the other party to a potential breach of contract, allowing him to file a lawsuit before the contract even ends, as long as he can prove the breach caused him damage. The refusal to fulfill the terms can be retracted by the person who made the statement but he must provide the other party with adequate assurance that he will live up to the deal. Otherwise, the other party has a right to terminate the contract and sue for damages.
There are three standard types of anticipatory repudiation, with the most straightforward form occurring when one party tells the other that he simply will not fulfill the terms of the contract. Another type of anticipatory breach of contract may occur when the actions of one party make it obvious that the terms cannot be fulfilled. For example, a person might claim he will pay the other party by a certain date but, if it is clear that he has no money as the deadline approaches, the innocent party has a right to sue immediately. A third kind of anticipatory repudiation is when the object around which the contract revolves is sold to a third party.
For this element of contract law to apply, one party must state that he cannot or will not fulfill the terms. The statement cannot be ambiguous, and the also party has the ability to retract the statement so the contract is still in effect, as long as the original refusal did not cause the other party to make any changes. The innocent party, however, has the right to request additional assurance that the other party will fulfill the terms after retracting the statement. According to the Uniform Commercial Code (UCC), if the assurance is not provided within 30 days or the other party does not respond at all to the request, the innocent party can terminate the contract and sue for any damages.
The reason for anticipatory repudiation is so the innocent party can sue the person who plans to breach the contract, even before it occurs. In general, as long as it is clear that one party will not be able to fulfill the terms of the contract by the deadline, a lawsuit can be started, preventing the innocent party from having to wait until the contract is actually breached. The party that initiates the anticipatory repudiation lawsuit, however, must prove that not only did the other party claim he could not fulfill the terms, but he also had no just cause. In addition, the person who starts the lawsuit must prove he was harmed as a result of the breach of contract.