Anticipatory Repudiation: Walking a Fine Line

Imagine you are a subcontractor on a large construction project. It has been nine months since you won the project. The general contractor has yet to provide the necessary information for you to perform. Multiple requests for information and other communications to the general contractor have gone unanswered. Fearing you will not get paid, you inform the general contractor that you will not perform unless certain conditions are met. These conditions include obligations covered by the contract (e.g., returning approved drawings and paying for storage of materials) and changes or new terms to the contract (e.g., voiding the liquidated damages provision and agreeing to joint check payment). In response, the general contractor terminates your subcontract.

Anticipatory repudiation occurs when a party unequivocally expresses that it cannot – or will not – execute a promise before the time fixed for performance. For example, it may be a repudiation if a party refuses to perform unless the contract amount increases. A repudiation constitutes a breach of contract, and the non-breaching party can immediately sue on the contract. However, a mere request for a change in the terms or a request for cancellation of the contract does not constitute a repudiation.

In the example above, the facts proved that the general contractor was thoroughly unresponsive and the subcontractor’s fears might have been justified. Despite this, a New York court held that the subcontractor’s threat not to perform amounted to anticipatory repudiation. Importantly, the subcontract did not have mediation provisions, and the subcontractor had to continue performance during any disputes. The court awarded the general contractor $600,000, representing the difference between the breaching subcontractor’s subcontract and the amount paid to the subsequent contractor. In addition, both parties paid significant attorney fees for the 4.5 years it took to get a judgment. This case teaches three lessons: Be wary of taking overly inflexible positions. Include a mediation provisions to avoid expensive litigation. Finally, negotiate for the right to stop performance during a dispute.