Breaking the Deal: Material Versus Anticipatory Breaches of Contract

Businesses run on the successful execution of contracts, but sometimes things don’t work out. When one party does not live up to its end of the bargain, that is called a “breach of contract.” Breach of contract can be grounds for a lawsuit in which damages may be awarded to the non-breaching party if they can prove their case in court.

Material Breach

A material breach is a failure to fulfill the terms of a contract that is so severe that the entire agreement becomes moot. This is different from a non-material breach, in which damages may be sought for nonperformance, but the contract remains in force. In deciding whether a breach of contract is material, the court will scrutinize the intent of the breaching party and determine whether that side has any ability to remedy the situation. 

For example, imagine you ordered a bicycle online, and the product description listed several attractive accessories. When the bike is delivered, some of these items are missing, but it still functions as expected. Notifying the seller about the lack of promised equipment should be sufficient to obtain some kind of adequate remedy, such as a subsequent shipment containing the missing accessories. If you open the box and find a bowling ball, however, you would have a material breach on your hands because of the drastic misalignment between what was promised and what was delivered.

Anticipatory Breach

An anticipatory breach, which also may be referred to as a repudiatory or renunciatory breach, takes place when one party can prove that the other has no intention of fulfilling its contractual obligations. When an anticipatory breach is proven to be true, the non-breaching party has the right to terminate the contract but it also has a duty to mitigate its damages. In other words, if you are unable to sell widgets to Company A because that company has announced that it cannot buy them, providing grounds for anticipatory breach, you can cancel the contract with Company A. You may not sue them for the value of your lost widget sales, however, if you can sell these same items to Company B for the same price. 

Possible Remedies

Remedies for a breach of contract often include expectation damages and consequential damages. Expectation damages are generally defined as the value of what was promised in the contract–for example, the amount you paid for the bicycle if it was never delivered. Consequential damages may be awarded to the non-breaching party if the harm caused by the breach exceeds the value of the contract. If you make your living as a bike messenger, for example, and you were unable to work because of the bike company’s breach, you might be entitled to compensation for your missed wages.

If you are concerned about a possible breach or need help determining what damages you might be entitled to, IGC can help. Contact us today.

Integrated General Counsel