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How to respond to anticipatory breaches of contract

On Behalf of | Jun 26, 2024 | Business Litigation

Contracts are designed to set expectations and limit conflicts, but breaches of contracts still happen. 

Sometimes, those breaches happen without warning – but there are other times when you see them coming. When another party clearly indicates that they won’t (or can’t) fulfill their contractual obligations before the performance is due, you have the option to take action to mitigate the issues and avoid an escalation of the situation. 

Assess the situation for the impact of the breach and look for solutions

Imagine that you’ve contracted with a tech firm for a custom software application. You expect the software to be delivered within six months. Five months into the work, the other company notifies you that they are having human resource issues that will make it impossible to complete the work on time. They need an additional six months to finish. 

There’s no ambiguity there. An anticipatory breach is in process. You can respond by:

  • Opening communication channels with the other company to see if you can better understand their situation and where there might be room for negotiation
  • Calculate any damages and losses you can anticipate as a result of the delay. You need to calculate any wasted resources, lost opportunities and decreases in profits that might occur. This will help you determine what resolution to seek.
  • Look for remedies short of a lawsuit, such as a revised contract, reduced fees by the other party or compensation. Make sure you document all your attempts to reach some kind of out-of-court resolution.

If you’re able to address the issue causing the breach constructively, that can help maintain a professional relationship with the other party involved – which may ultimately be desirable. If your efforts to manage the problems and prevent the situation from escalating fail, however, it may be time to move to litigation.