The Coronavirus pandemic has created chaos and uncertainty for businesses in Los Angeles and across the globe. Many business owners are trying to navigate their way through these challenging circumstances while other business owners have made the difficult decision to close their businesses. The ramifications of this pandemic are far-reaching, including putting many business owners into the unfortunate position of deciding whether to breach a contract or be on the other side of a breached contract.
If you are in a contractual arrangement with another individual or business entity and do not anticipate having the necessary resources or capacity to fulfill the obligations of the contract, you may need to consider an anticipatory breach of the contract.
What is an Anticipatory Breach of Contract?
Under California law, a material breach of contract cannot occur until the time for performance has arrived. However, it is possible to commit an anticipatory breach of contract before performance is actually due.
Basically, an anticipatory breach happens when a party refuses to perform the said duties noted in a contract, or where their conduct makes performance of their contractual obligations impossible.
A timely example of an anticipatory breach of contract is when a restaurant owner is contracted with a food supplier. The contract states that the restaurant will purchase X amount of food items from the supplier on a specific date. In the midst of the Coronavirus pandemic, the restaurant owner is forced to shut down and is scrambling to find a way to stay afloat. If and when the restaurant owner contacts the supplier and states, “I do not know if or when I will be able to order from you going forward” an anticipatory breach has occurred. This is also know as repudiation.
Demanding Adequate Assurance
When it comes to anticipatory breaches of contract,it is possible for a party to demand adequate assurance of performance, . However, a demand for adequate assurance can only be made when a party has sufficient grounds to believe that the terms of the contract will not be completed by the other party or parties. Additionally, according to §2609(1), the party demanding adequate assurance has the right to suspend its performance until assurance is received, if commercially reasonable.
Once a demand for adequate assurance is conveyed, the other party is afforded time to provide assurance that it will in fact perform or confirm that they plan to breach the contract. In addition, if the party does not provide adequate assurance within a reasonable amount of time (typically 30 days after the demand for assurance is conveyed), it is reasonable to consider the lack of a response to be an anticipatory breach of the contract.
Have Questions? Contact an Experienced Business Contract Lawyer in Los Angeles
If you are in need of professional counsel on whether it is in your best interest to take legal action against an individual or business in which you have entered into a contractual arrangement, the Hakim Law Group is here to help.Our law firm represents a wide range of entrepreneurs, operating companies, venture capital firms, and financiers in numerous sectors of the economy. We possess the experience, knowledge and professionalism to help our clients attain the best possible outcome. To schedule a consultation or for further information please contact HLG at (310) 993-2203 or visit www.HakimLawGroup.com to learn more.