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What Can I Do if my Vendor Tells Me He Won’t Perform His Obligations?

You entered into a requirements contract (see with your vendor to purchase 500 widgets per month for the next 24 months. In month 14 of your contract, your vendor calls and tells you that beginning in month 16(month 26 the contract will be over), the vendor will no longer be able to provide the widgets and will be “cancelling” your contract. These widgets are an integral part of your finished product, without which the cost of producing your product will increase substantially.What has just occurred is known as an anticipatory breach, which the California Courts of Appeal, Third District described as “

[a]n anticipatory breach of contract occurs on the part of one of the parties to the instrument when he positively repudiates the contract by acts or statements indicating that he will not or cannot substantially perform essential terms thereof, or by voluntarily transferring to a third person the property rights which are essential to a substantial performance of the previous agreement, or by a voluntary act which renders substantial performance of the contract impossible or apparently impossible.” C. A. Crane v. East Side Canal & Irrigation Co. (1935) 6 Cal.App.2d 361, 367, 44 P.2d 455 [citing, among other authority, 1 Restatement of the Law of Contracts, p. 475, Section 318.The anticipatory breach is just as much a breach of contract as any other type of breach. Indeed, the jury instruction  in an action for anticipatory breach states: “[a] party can breach, or break, a contract before performance is required by clearly and positively indicating, by words or conduct, that he or she will not or can not meet the requirements of the contract. ¶ If [the plaintiff] proves that [he/she/it] would have been able to fulfill the terms of the contract and that [the defendant] clearly and positively indicated, by words or conduct, that [he/she/it] would not or could not meet the contract requirements, then [the defendant] breached the contract.” California California Civil Jury Instruction (CACI) 324. Anticipatory Breach. Where an anticipatory breach of contract has occurred, the non-breaching party’s remedy is provided by California Civil Code Section 1440, which provides “[i]f 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. If you find yourself in the position of having one of your vendors “cancel” their contract with you, you should immediately begin searching for a vendor to replace the cancelling vendor and contact an attorney. An anticipatory breach provides the non-breaching party “an election of remedies-he or she may ‘treat the repudiation as an anticipatory breach and immediately seek damages for breach of contract, thereby terminating the contractual relation between the parties, or he [or she] can treat the repudiation as an empty threat, wait until the time for performance arrives and exercise his [or her] remedies for actual breach if a breach does in fact occur at such time.’” Romano v Rockwell Internat, Inc. (1996) 14 Cal.4th 479, 489, 59 Cal.Rptr.2d 20.Each business and business entity is unique. To understand the different options and which direction will be best for your situation, you need to consult with an experienced corporate attorney. Michael Leonard, Esq. of San Diego Corporate Law, named “Best of the Bar” by the San Diego Business Journal in 2016, has the expertise to guide you through everything from forming your business, to creating buy-sell agreements, to executing contracts, and anything in between. To schedule a consultation to discuss any business-related matter, please contact Mr. Leonard by visiting San Diego Corporate Law or by telephone at (858) 483-9200.

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