George Simons | August 16, 2022
Summary: Anticipatory repudiation is when someone refuses to honor the terms of a contract. Here's SoloSuit's guide on repudiation, the different types, and how it relates to debt collection.
Anticipatory repudiation describes one party's refusal to honor the terms of a contract. The refusal is usually expressed through a clear statement of refusal or action that amounts to refusal. Here's everything you need to know about anticipatory repudiation and its application in real-life situations.
Repudiation is the refusal to implement a particular proposal or idea. When used in the legal context, this term refers to one party's refusal to honor their part of an agreement.
Repudiation is a controversial area of law. It is one of those largely circumstantial concepts, meaning its application varies from one case to another. For this reason, it's not rare to find numerous debates on what counts as a repudiation and what does not. However, in the United States, the courts usually recognize three types of repudiation, especially in contract law. They include:
Now, let's break down each of these different types of repudiation a little further.
This applies when one party completely and unconditionally refuses to honor their part of a contract. Given that repudiation is a controversial concept, most courts will evaluate the exact actions or words of the other party to decide if they count as repudiation.
Here's an example of an unconditional refusal:
When you apply for a loan, the creditor will let you know how much you should pay to settle the loan. The payment plan could involve monthly payments or any other kind of agreement. Then, if you lose your job months down the line, such an unexpected situation could mean that you won't be able to meet some of your financial obligations for a while.
For instance, if you had agreed to pay $300 as monthly payments for the loan, but now you can only afford $100 until further notice, you may inform the creditor about this latest change in circumstances. A statement like “I can no longer pay $300 a month towards the loan, but I'll be able to pay $100 until I get a new job” does not count as repudiation. Here's why.
You have not completely refused to repay the loan in the statement above. Instead, you've offered to pay $100 every month until your financial situation improves. In that case, this is a conditional statement, meaning you are still willing to pay off the debt if the lender reduces the repayment terms to at least $100 a month.
Here's a statement that could qualify as repudiation:
“I will not pay the $300 as we agreed.”
The statement above is not conditional. It declares your intention to discontinue your agreement with the other party and does not provide any conditions to change your decision.
Repudiation may also be expressed in the form of actions, not words. Here's an example.
You borrow a loan to start a business but fail to manage the funds responsibly. Then, you apply for a second loan to support the mismanaged business. The business eventually collapses, leaving you with two business loans to repay.
The reckless management of the business may be considered a repudiation of the original loan you obtained to support the business. As a result, obtaining a second loan makes it impossible for your business to repay the original loan.
Repudiation may be established when one party transfers property to a third party. To count as repudiation, you must have entered a contract with the transferring party. For example, if you enter an agreement to buy a car from your friend and then later discover that they sold the vehicle to a family member, the car sales contract has been repudiated.
After establishing anticipatory repudiation, the other party might have the legal authority to respond promptly to avoid incurring unnecessary costs or expenses. This type of response is commonly known as mitigating damages and is allowed in most jurisdictions.
The main goal of mitigating damages is to minimize the losses that could result from a breach of contract. The law requires the party whose contract has been breached to find ways to limit the damages caused by such actions or words.
Here's an example.
John signs a one-year lease agreement with his landlord before moving into the apartment. However, four months after moving in, he gets a new job offer in another state and decides to terminate his lease early. This is clearly a breach of contract.
However, the law requires John's landlord to mitigate damages by putting up the apartment for lease. The landlord can't simply leave the apartment vacant for the remainder of John's lease agreement and then sue him for the unpaid rent and other penalties.
The same applies when you get a car loan. If something happens and you fail to pay the loan as agreed in the contract, the creditor might repossess the car and attempt to sell it. Again, this is a form of mitigating damages because the creditor cannot keep the car and sue you for breaching the contract at the same time.
Failure to mitigate damages jeopardizes the plaintiff's efforts to recover damages through a lawsuit. In order to recover damages, the court must establish that the plaintiff tried to mitigate damages. If the judge fails to establish that the plaintiff attempted to mitigate damages, the court will reduce the damages by the amount the plaintiff could have mitigated.
When you fail to honor your part of a debt agreement and the lender decides to file a lawsuit against you, it's crucial that you respond immediately. You have up to 35 days to respond to a debt lawsuit, depending on which state you live in. If you fail to respond within this deadline, the court might rule in favor of the plaintiff. Moreover, the ruling usually comes with severe consequences, such wage garnishment or liens.
To prevent this, use SoloSuit, to draft an Answer document and respond to the case.
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