Anticipatory breach: FAQ

• International Trade

It happens quite often the parties have entered into a trade contract, and without waiting for the deadline to fulfill the obligation, one of the parties declares the impossibility or unwillingness to fulfill its obligations under the contract, also known as anticipatory breach. Of course, this deprives the innocent party of a substantial benefit from the contract.

The intention to terminate the contract should be absolute in order to qualify as an anticipatory breach. An innocent party cannot rely solely on the assumption that the other party will not fulfill its obligations.

For example, the parties have entered into a contract on wheat sale and purchase with a delivery date of January 31, 2023. The seller, having understood that it has no time to deliver the goods within this period, legitimately extended delivery period until February 8, 2023 (for example, with reference to Clause 10 of the GAFTA 48 proforma contract). In response, the buyer reported on February 3, 2023, that such an extension was allegedly illegal and terminated the contract.

In case of early or anticipatory breach of the contract, the innocent party has the right:

1. either to accept anticipatory breach, to terminate the contract and to claim for loss recovery;

2. or to continue performance of the contract, to wait for violation and only then to apply to the court.

Given the nature of anticipatory breach of contract, the innocent party could potentially claim for loss recovery. In GAFTA and FOSFA proforma contracts, it will be treated as difference between the contract price and the market value of the goods within the term specified in the contract, as well as all other direct losses arising from such violation.

The innocent party is obliged to do all the best in order to reduce its own losses if it wants to claim their reimbursement at the court. For example, if the buyer has prematurely breached the contract, the seller should sell the goods to a third party.

It is important to note that in assessing the right to damages, the court will consider whether the innocent party would actually have been able to fulfill its obligations under the contract.

What is the difference between anticipatory and actual breach of contract?

Anticipatory breach occurs when one of the parties to the contract shows, by words or conduct, that it does not intend to fulfill its obligations under the contract before the due date.

Actual breach of the contract occurs when the other party fails to fulfill its contractual obligations within the period specified in the contract.

Let us highlight advantages of such an anticipatory breach of the contract.

It helps you to save time and it can potentially reduce losses to the innocent party.

And vice versa, by declaring anticipatory breach by yourself, you give to the other party an opportunity to reduce its own losses.

However, if it seems to you that your counterparty intends to breach the contract prematurely, before declaring it as default, you need to analyze in detail whether this is anticipatory breach indeed or not. If it is just your presumption and you declare it as default, you may end up defaulting yourself in return.

If you still have certain doubts about whether to consider certain actions of your counterparty as anticipatory breach, you may contact us: Interlegal law team is always ready to provide comprehensive legal assistance.