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Can I Stop Performing Under a Contract if the Other Side Cannot Perform?
Under California contract and business law, a party to one side of a contract can stop performing if the other party to the contract either stops performing or cannot perform. This is known as the legal doctrine of “anticipatory breach.” If your San Diego business finds itself in this situation, a good corporate attorney can help. Here is what you need to know.
San Diego Business Law: Anticipatory Breach: Legal Principles
For a party to be excused from his/her/its obligations under a contract based on anticipatory breach, the other party to the contract must express that performance will not be made. This expression can be explicit, implicit, and/or by conduct. For example, if the contract calls for delivery of certain machinery for your business, and the manufacturer states affirmatively in an email that it is unable to complete the delivery of the machinery, the repudiation of the contract is explicit. By contrast, if without comment, the manufacturer closes up the business and the owners move to another country, then repudiation is implicit.
Further, an express repudiation must be clear, positive, unequivocal refusal to perform. See Taylor v. Johnston, 15 Cal.3d 130 (Cal. Supreme Court 1975).
San Diego Business Law: Options When Confronted With Anticipatory Breach
In general, if a contract is repudiated by the other party to the contract, the non-repudiating party has basically four options.
- First, the non-repudiating party can cease performance and end the contract without further actions. This is often the result if the contract was just formed and the parties have not expended too much effort towards performance. This can be common for material goods or commodity-type contracts where substitute goods/products are readily available.
- Second, the non-repudiating party can cease performance and immediately sue for damages. In order to sue for breach, however, the non-repudiating party must be able to prove that it was able to perform.
- Third, the non-repudiating party can take a “wait-and-see” approach continuing to perform and waiting until the time for the other party’s performance and, when the performance is not forthcoming, the non-repudiating party can sue for breach of contract damages. This is often done when performance by the non-repudiating party is simple — such as making payment.
The second and third options are codified under Cal. Civil Code, § 1440 which states:
“If a party to an obligation gives notice to another, before the latter is in default, that he will not perform the same upon his part, and does not retract such notice before the time at which performance upon his part is due, such other party is entitled to enforce the obligation without previously performing or offering to perform any conditions upon his part in favor of the former party.”
But as noted, the non-repudiating party cannot recover for breach of contract without evidence that, but for the other’s repudiation and breach, the non-repudiating party would have had the ability to perform.” See Ersa Grae Corp. v. Fluor Corp., 1 Cal.App.4th 613 (Cal. Supreme Court 1991).
- Fourth, the non-repudiating party can attempt negotiations. Sometimes repudiation is a function of a fixable problem.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to draft your contracts properly and can provide advice in the event of a repudiation. Mr. Leonard and San Diego Corporate Law can provide legal services for any business-related matter. Contact Mr. Leonard by email or by calling (858) 483-9200.
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