Anticipatory Breach of Contract and Actual Breach of Contract

Anticipatory Breach of Contract and Actual Breach of Contract

Contracts are integral parts of a business or commercial relationship. They provide guidelines and guardrails for business interactions and undertakings, large and small. While parties usually enter into contracts in good faith and with every intention of fulfilling their obligations and believing the same of the other parties, situations can arise, intentional and unintentional, that can disrupt or break the agreed terms, leading to a breach of contract. Such breaches can lead to disputes that need to be resolved, as one party may be aggrieved and demand restitution from the other.

This article will focus on two types of breach of contract: anticipatory and actual breaches.

What is a Breach of Contract?

A breach of contract happens when a party to a contract cannot or does not fulfill their responsibilities as they agreed to in the contract terms. There are many ways to define a breach of contract, depending on the situation and level of damage. These are usually outlined in the contract, usually to set guidelines as to when and how a party can demand recompense and what dispute resolution mechanisms, such as arbitration, should be implemented.

A breach of contract could be minor, whereby all involved parties agree that little or no harm is done, so that the contract and relationship could continue without disruption. A breach could be material, whereby significant impact or damage could be claimed, so that one party could demand compensation from another. When a breach occurs, it could also be a material matter, which brings us to anticipatory and actual breaches of contract.

What is an anticipatory breach of contract?

As the term suggests, an anticipatory breach of contract is a situation whereby a party anticipates, or expects, to breach a contract. That is, they either plan not to or foresee not being able to fulfil their responsibilities. For example, a builder may agree to complete a construction project within a year but has no intention to or discovers during the process that they will go bankrupt before they can finish. Typically, there are two types:

• Explicit repudiation, where the breaching party notifies the other party of this breach, and
• Implicit repudiation, where the breaching party’s actions or inactions strongly points to such breach (e.g., not sending workers to the construction site or not meeting preliminary deadlines).

With an anticipatory breach, the injured party may be able to mitigate the damage, especially if the breaching party informs them of the impending situation. An anticipatory breach allows the non-breaching party the ability to act quickly, possibly before the breach occurs. They could renegotiate or make other arrangements to avoid the breach altogether, or they can sue the breaching party for specific performance, whereby they are compelled to fulfill their obligations. They could also sue to terminate the contract or for monetary damages. Monetary damages could be for the losses incurred during the project or for the loss of the revenue that was expected from the contracted transaction or project. Anticipatory breaches could damage a business relationship if the breaching party entered into a contract knowing that such a breach could occur. On the other hand, they could salvage the relationship if they warned the other party of a breach to soften the impact.

What is an Actual Breach of Contract?

Again, as the name implies, an actual breach of contract occurs when a breach definitively happens. This could be described as a failure to perform, which can range from not complying with the terms of performance to fully not acting at all. Furthermore, the actual breach could be due to a delay, such as not delivering products by a specified deadline, or it could be an actual task that was not completed, such as installing wiring in a construction project.

Unfortunately, an actual breach, by its nature, is harder to mitigate or avoid as it has already occurred. The non-breaching party can then pursue remedies, which could include, as with anticipatory breaches above, specific performance, terminating the contract, or monetary damages. Furthermore, depending on the nature of the breach, the business relationship may be salvageable, especially if the breaching party can prove they tried to avoid the breach; however, if the breaching party shows incompetence or negligence caused the actual breach, they may not be able to save their reputation or relationships.

THAC can assist parties faced with breach of contract issues

As discussed above anticipatory and actual breaches are quite different and can have significant impacts on a contractual relationship. If you need to understand a breach of contract penalty in Thailand or other countries, you should consult a trusted, knowledgeable advisor. Thailand Arbitration Center (THAC) offers such assistance. As a dispute resolution center that meets international standards, THAC can help you evaluate and draft contracts to protect your interests regarding breaches of contract. 

THAC is a full-service dispute resolution center with state-of-the-art facilities and extensive administrative support to accommodate in-person and remote hearings. Parties can also access a comprehensive directory of ADR professionals, many with subject-matter expertise, to act as a neutral third party in arbitration or mediation proceedings. With a location in central Bangkok near public transportation and major roadways connected to international airports, THAC is easily accessible for those traveling from within Thailand and other countries.