By Jonathan Schmidt / Guest Column
Have you ever been in a situation where you entered into a contract and are in the process of fulfilling your part of the bargain, but the other party isn’t? It’s called anticipatory repudiation or anticipatory breach of contract.
A failure to fulfill any promised commitment is known as a “breach” of the contract. Anticipatory breach occurs when, either through words or actions, one party demonstrates its intention or inability to fully perform its contractual obligations to the other party. In other words, there are promises that cannot be kept by that party for whatever reason.
In Iowa, a breach of contract suit can be filed against someone for both written and unwritten contracts. The only difference is the amount of time you have to assert your claim, or your statute of limitations. A lawsuit for a breach of an unwritten contract must be filed within five years, but a written contract is subject to 10 years. The clock starts from the time the contract was breached.
What can constitute breaking a promise, failing to perform or breaching a contract? Here are some examples:
- A positive and unconditional refusal. The other party is telling you outright that they are not going to honor the contract or keep their promise. For example: “I am not going to deliver you the cakes you ordered for your wedding.” By stating they do not intend to perform, the contract is breached.
- Actions that make it impossible to perform. A person’s voluntary actions made it impossible for the other party to follow through with their promise. For example: A business fails and doesn’t have the money to pay back its loans. It doesn’t matter whether the actions or inactions of the business owner caused the business to fail. The important thing is that there is no money to pay back the debt.
- The property that was subject to the deal was transferred to another party. For example: You were under contract to buy a house and you find out the house was subsequently sold to another person. The previous owner didn’t have the right to enter into the contract to sell the house to begin with, hence the breach.
But what if the situation isn’t as clear? Let’s say you have a contract for a lease of a commercial space along with a build-out. The other side hasn’t said anything, but you have reason to believe they are not going to fulfill their obligations – perhaps they’re being less communicative or construction has slowed to a halt. What can you do?
In Iowa, you have a right to request adequate assurance that the other party is ready, willing and able to perform all of its obligations under the contract. Once you have requested this assurance, you can halt all of your obligations that you have under the contract, such as withholding payment, until the assurance is provided. If, after 30 days, the owner fails to provide adequate assurance, you may then choose to terminate the contract.
What can you do when you’ve been promised something in a contract, but the other party doesn’t live up to all the promises made?
When a contract is breached, one or both of the parties may want to have the contract enforced according to its terms, or may try to recover any financial costs associated with the breach. If a dispute arises and attempts to resolve the problem amicably are not successful, you may file suit.
In the case of our owner/lessor above, you have the right to walk away from the breached contract. If the owner agrees it is unable to perform, but can provide a solution that is acceptable to you as the buyer, you can resolve the dispute without ever stepping into a courtroom. But if you need to recover money you have already paid or other financial costs incurred and the owner doesn’t agree, you have a dispute on your hands and may have to sue.
In a perfect world, contracts would be entered into, both sides would keep their promises and no issues would arise. Unfortunately, that isn’t always the case. An experienced attorney can help to determine whether there has been a breach of the contract and what your rights and options are under the law.
Jonathan Schmidt is an attorney and partner with Nazette, Marner, Nathanson & Shea LLP. He practices in areas of business and litigation. He can be contacted at email@example.com or www.jschmidtlaw.com.