Definition: An anticipatory breach occurs when one party has delayed or avoided performing an agreed-upon act, causing a subsequent obligation to be delayed or avoided as well. It is often instinctive to avoid such situations by taking counter-measures such as canceling the contract or taking legal action.
Either party can make a breach claim upon discovering the loss of the confidential information or when an actionable data breach occurs, even if notification of the breach has been delayed by more than three business days. In all cases when a breach occurs, the contractor has the burden of proof in establishing that no harm, financial or otherwise, resulted to the consumer as a result of the loss, theft, or unauthorized access to their information.
In many breach cases, the counterparty knew or should have known that an incident was likely to occur and did nothing to stop it. Thus, even though the contract is designed to end when one half of the bargain is met, an anticipatory breach allows the other party to continue fighting for compensation for losses that may have already been incurred.
When a party seeks to deny payment based on an anticipatory breach, the court will first examine the evidence presented in the preliminary hearing. In making this determination, the court considers all relevant information, including the party’s financial condition at the time of the breach, whether they took reasonable measures to mitigate their losses, and any damage suffered due to breach. If the party’s financial condition is sound, then the court will likely order payment.
There can be many reasons why a contract may be breached, including unexpected expenses, a change in circumstances, or a shift in preferences (e.g., a customer no longer wants the product or service you are offering). To be aware of these possibilities and be ready for them, one must evaluate their ability to pay. This evaluation includes assessing current and prospective liability and assess the likelihood of future harm caused by the contract breach.
To prove an intent to breach, one party must also provide tangible evidence, such as an offer or threat to perform an action that may cause the other party harm. The most common form of anticipatory breach is a demand letter. You can use these letters as leverage in your bargaining position if you feel your contract terms have been violated. If you send a demand letter without giving the other side a chance to respond, you have initiated a breach of contract and are therefore liable for any loss or damage resulting from that breach.
The purpose of an anticipatory breach is to protect the company if an actual breach occurs before your knowledge or consent. A court will only issue a temporary restraining order (TRO) if there is reason to believe a breach may occur within a specific time frame. By providing heads-up to your customers and investing money into information security procedures, you can minimize the risk of an anticipatory breach.