It’s January 1, and you hire a general contractor to remodel your kitchen for $20,000, which you think is a great deal. You pay a $10,000 deposit and agree that construction will begin on February 1. However, on January 10, three weeks before the start date, the general contractor calls you and states in no uncertain terms that he won’t be able to begin your project for at least six months because he was hired to do work on a larger and more lucrative project, and your kitchen will have to wait.
What do you do? The general contractor was going to begin on February 1, in three weeks, and if he doesn’t, he will have breached the contract. But has he breached the contract already? Do you have to wait until February 1 to see if he doesn’t come? Can you deem the contract over now, demand the return of your deposit, find a new general contractor, and pursue other damages for breach of contract? Do you really have to wait until February 1?
No. Under Utah law, the general contractor has committed an anticipatory repudiation (or an anticipatory breach), and you have at least two options, which this blog post explains in more depth:
- – Treat the entire contract as broken now and immediately seek damages
- – Encourage performance while retaining the right to deem the contract broken
Elements of Anticipatory Breach
Utah courts have explained that “[a]n anticipatory breach occurs when a party to an executory contract manifests a positive and unequivocal intent not to render performance when the time fixed for performance is due.” Let me explain each of these elements in a little more depth.
Anticipatory breach only applies to executory contracts, which means that both parties to the contract have to perform. In the above example, the general contractor had to remodel the kitchen, and you (or the homeowner) had to pay the remaining $10,000 of the contract price.
Next, anticipatory repudiation requires a “positive and unequivocal intent not to render performance” when due. There must no uncertainty that performance will not occur. A statement that somebody might not perform or that performance will be difficult is not enough. For instance, if the general contractor said that he found a new job, which he has to finish first and that it might take more than three weeks, this statement would not constitute anticipatory breach.
Option 1: Treat the Contract as Broken
When an anticipatory breach occurs, the first of two general options is to treat the contract as broken and seek any contract damages to which you are entitled under Utah law. You do not have to wait until performance would have been due. So, in the above example, rather than wait until February 1, you could immediately state to the general contractor that the contract is broken and demand the return of the $10,000 deposit. You could rescind the contract and put the parties back where they were before the contract was entered. You could also hire a new general contractor, and if this new general contractor agreed to do the same work for $25,000 (instead of $20,000), you could probably sue for not only for the return of the $10,000 deposit but also for the additional $5,000 cost to hire a new general contractor. In short, you can seek any contractual damages to which you are entitled.
Option 2: Encourage Performance
Your second general option is to encourage the other party to perform. But at the same time, you don’t have to sit idle and wait for the due date to come and go. For instance, in the above example, you could start looking for a new general contractor while encouraging the old general contractor to keep his end of the deal and begin by February 1. You could explain to the general contractor that if he doesn’t perform, you are going to sue for all damages to which you are entitled. Importantly, encouraging the general contractor to perform usually does not waive your right to later deem the contract breached. If you find a new general contractor a week before February 1, and you think this general contractor will do a great job, you can usually move forward with that general contractor without any concern. Again, this is true even if you had still been encouraging the general contractor to perform.
Help with Anticipatory Breach Issues
This post explains a few basic principles of anticipatory breach, but it does not explain many of the nuances and exceptions to this rule. If you are dealing with a potential anticipatory breach, it is wise to discuss the facts and circumstances with an attorney who can properly advise you on your rights. Every situation is different, and whether an anticipatory breach has occurred may not be clear. A qualified attorney can advise you of the benefits and risks of treating a contract as breached, encouraging performance, or some other course of action.