Anticipatory Breach of Contract Law and Defenses.

Definition

Repudiation of a contract, also known as “anticipatory breach,” occurs when a party announces an intention not to perform prior to the time due for performance. (Stephens & Stephens XII, LLC v. Firemen’s Fund Ins. Co. (2014) 231 Cal.App.4th 1131, 1150.)

Element 1: Bilateral Contract

The general rule is that there can be no anticipatory breach of a unilateral contract, or a contract that has become unilateral because one party has completed its performance, because the party who has performed is not prejudiced by having to wait for the arrival of the other party’s time for performance before suing for breach. (Maudlin v. Pacific Decision Sciences Corp. (2006) 137 Cal.App.4th 1001, 1018.)

Exception to General Rule

Where the contract is for the performance of related acts, rather than merely the payment of installment amounts, or if, after the repudiation, it appears that performance of the agreement is unlikely and that the non-repudiating party may be protected only by recovery of damages for the value of the promise, then the courts have made an exception to the general rule requiring a bilateral contract and have allowed recovery for total breach of a unilateral contract. (Coughlin v. Blair (1953) 41 Cal.2d 587, 599-600 [repudiation of unilateral contract for performance of improvements to real estate supported claim for breach of entire contract]; Gold Mining & Water Co. v. Swinerton (1943) 23 Cal.2d 19, 29-30 [repudiation of unilateral contract for extraction of minerals from property supported claim for breach of entire contract].)

Element 2: Repudiation

The repudiating party positively repudiates the contract when, by acts or statements, he indicates that he will not or cannot substantially perform his contractual duties. (Central Valley General Hospital v. Smith (2008)  162 Cal.App.4th 501; Guerrieri v. Severini (1958) 51 Cal.2d 12, 18.)

Repudiation must occur before the repudiating party’s performance is due under the contract; if the repudiation occurs after the performance is due, then the proper action is breach of contract. (Trilogy at Glen Ivy Maintenance Assn. v. Shea Homes, Inc. (2015) 235 Cal.App.4th 316.)

Element 3: Repudiation Treated as Breach

The non-repudiating party must have treated the repudiation as a breach of the contract. (Winegar v. Gray (1962) 204 Cal.App.2d 303, 309.)

Anticipatory breach can be express or implied: “An express repudiation is a clear, positive, unequivocal refusal to perform; an implied repudiation results from conduct where the promisor puts it out of his power to perform so as to make substantial performance of his promise impossible.” (Taylor v. Johnston (1975) 15 Cal.3d 130, 137.)

Express Repudiation

Express repudiation of the contract occurs when a party unequivocally refuses to perform the contract. (Johnson v. Meyer (1962) 209 Cal.App.2d 736, 741 [landlord expressly repudiated contract by offering a lease with an option to purchase to a third party after plaintiff had already accepted the same offer].)

The repudiation must be of the whole contract and must be a distinct, unequivocal, and absolute refusal to perform. (Whitney Inv. Co. v. Westview Dev. Co. (1969) 273 Cal.App.2d 594, 602-03.)

Generally, a mere threat not to perform will not constitute a repudiation. (Thornton v. Victor Meat Co. (1968) 260 Cal.App.2d 452, 476.)

Implied Repudiation

Repudiation can be implied when a party to a contract voluntarily renders his performance impossible. (Golden West Baseball Co. v. City of Anaheim (1994) 25 Cal.App.4th 11, 49.) Repudiation can be implied when the promisee demands adequate assurance of due performance from the promisor and the promisor fails to provide such assurance within a reasonable time which is not more than thirty days. (Ibid.)

Retraction of Repudiation

A cause of action for anticipatory breach requires that the repudiation was not retracted prior to the time for performance or prior to a detrimental change in position by the non-repudiating party in reliance thereon. (Salot v. Wershow (1958) 157 Cal.App.2d 352, 357-58.) The retraction of the repudiation must be clear and unequivocal, and the one who repudiates and then retracts the repudiation may not impose new conditions not in accord with the original contract. (Pichignau v. City Paris (1968) 264 Cal.App.2d 138, 141-42.)

If a party sues for breach after the other party anticipatorily repudiates the contract, the repudiation thereafter cannot be retracted, as the suing party has materially changed his position by treating the repudiation as a breach. (Diamond v. University of S. Cal. (1970) 11 Cal.App.3d 49, 53.)

Repudiation Treated as Breach

If the non-repudiating party materially changes his position in response to the repudiation, he has exercised his election to treat the repudiation as a breach of contract. (Guerrieri v. Severini (1958) 51 Cal.2d 12, 19.)

If the non-repudiating party chooses not to treat the anticipatory repudiation as a final breach, but instead waits until the time for performance to arrive, he may then exercise remedies for actual breach if a breach does occur at such time. (Trypucko v. Clark (1983) 142 Cal.App.3d 1, 7.)

If the non-repudiating party acts upon the repudiation, then he need not allege his performance under the contract, because the repudiation of a contract excuses the other party’s performance. (Winegar v. Gray (1962) 204 Cal.App.2d 303, 309.)

Element 4: Ability and Willingness to Perform

In order to recover damages, the non-repudiating party must plead and prove that he would have had the ability to perform, and was ready and willing to do so, if not for the repudiating party’s breach. (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 625.)

The non-repudiating party is not obligated to actually tender performance in order to be entitled to damages, but he must plead in the complaint and present evidence at trial sufficient to satisfy the trier of fact that, but for the repudiating party’s breach, he was ready, willing and able to perform as required by the contract. The repudiating party is then allowed to present evidence that the non-repudiating party would not have performed, and therefore, the breach caused the non-repudiating party no damage. (Ersa Grae Corp. v. Fluor Corp. (1991) 1 Cal.App.4th 613, 626 [plaintiff was required to prove that it had the ability to form consortium and fund deal to construct office building and failed to do so only because defendant repudiated the contract].)

In the event the promisor repudiates the contract before the time for his or her performance has arrived, the plaintiff has 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 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 International, Inc. (1996) 14 Cal.4th 479, 489.)

Remedies

Compensatory Damages

The measure of damages for breach of contract is the amount which will compensate plaintiff for all detriment proximately caused by the breach or which, in the ordinary course of things, would be likely to result from the breach. (Cal. Civ. Code, § 3300.)

Restoration

Damages for breach of contract ordinarily include all amounts necessary to place plaintiff in same position as if breach had not occurred. (Applied Equip. Corp. v. Litton Saudi Arabia, Ltd. (1994) 7 Cal.4th 503, 515.)

Lost Profits

Future profits can be recovered to extent they can be estimated with reasonable certainty. (Sanchez-Corea v. Bank of America (1985) 38 Cal.3d 892, 907-08; Fisher v. Hampton (1975) 44 Cal.App.3d 741, 747. Lost profits are recoverable to extent they are natural and direct consequence of breach. (Brandon & Tibbs v. George Kevorkian Accountancy Corp. (1990) 226 Cal.App.3d 442, 457, 277; Postal Instant Press v. Sealy (1996) 43 Cal.App.4th 1704, 1709 [franchisee’s failure to make timely royalty payments to franchisor was not a “natural and direct” consequence of the breach because franchisor chose to terminate contract, thus losing entitlement of future royalty payments].)

Rescission and Restitution

Rescission and restitution are alternative remedies in action for damages where there has been repudiation or material breach of a contract, transfer of unique goods is involved, other remedies are inadequate, subject of contract still exists and interests of innocent purchasers for value and defendant’s creditors will not be unjustly affected. (Wong v. Stoler (2015) 237 Cal.App.4th 1375.)

Equitable Relief

Specific Performance

Specific performance is granted only when money damages are inadequate. (Palo Alto-Menlo Park Yellow Cab Co. v. Santa Clara County Transit Dist. (1976) 65 Cal.App.3d   121, 132-33.)

Injunction (Very Limited Availability)

Injunctive relief is largely within discretion of trial court, considering inadequacy of damages to plaintiff, as well as harm to defendant. (Smith v. Mendonsa (1952) 108    Cal.App.2d 540, 543-44.)

Statute of Limitations

Generally, the limitations period is four years for written contracts (Cal. Civ. Proc. Code, §337, subd. (a)), and two years for oral agreements. (Cal. Civ. Proc. Code, §339, subd. (1)). A contract cause of action does not accrue until the contract has been breached. (Spear v. Cal. State Automobile Assn. (1992) 2 Cal.4th 1035, 1042.) The discovery rule may be applied to breaches of contract which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time. (Gryczman v. 4550 Pico Partners, Ltd. (2003) 107 Cal.App.4th 1, 4-5.)

Affirmative Defenses

Waiver

The waiver may be either express, based on the words of the waiving party, or implied, based on conduct indicating an intent to relinquish the right. Thus, “California courts will find waiver when a party intentionally relinquishes a right or when that party’s acts are so inconsistent with an intent to enforce the right as to induce a reasonable belief that such right has been relinquished.” (Wind Dancer Production Group v. Walt Disney Pictures (2017) 10 Cal.App.5th 56, 77-78.)