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'''Anticipatory Breach '''

== 1. Concept and purpose of anticipatory breach  ==

=== a) Conceptual outline of anticipatory breach ===

The doctrine of anticipatory breach governs cases in which it becomes clear that one party to a contract (the ‘creditor’ or ‘breaching party’) will not perform its obligations at the time they become due ([[non-performance). Since the date for the creditor’s performance has not yet arrived normal remedies for non-performance are usually not yet available to the other party (the ‘debtor’ or ‘aggrieved party’). The rules of anticipatory breach therefore endeavour to provide the injured party with appropriate opportunities to respond to the impending non-performance.

These opportunities typically take the form of two distinct remedies. First, the creditor may terminate the contract (even before the date on which the other party’s performance is due) when it is clear that the debtor will commit a serious breach of the contract. Secondly, regardless of the nature of the anticipated breach, the creditor may suspend its performance in order to demand adequate assurance of due performance from the debtor. If the debtor fails to provide an adequate assurance for its performance, the creditor may terminate the contract.

In addition there may be further remedies. Among these, the most important is a claim for damages; such claims, however, are not generally conceived as a specific consequence of anticipatory breach rules. Instead, legal systems usually justify the creditor’s right to ‘early’ damages—with certain modifications—on the basis of the same general damages principles that underlie standard breach claims (see [[damages). Finally, in individual cases the question may arise whether the creditor should be entitled to claim specific performance before the date on which performance is due.

=== b) Functions of anticipatory breach rules  ===

The purpose of anticipatory breach rules is to avoid a situation in which creditors must wait until the contractual date for performance has arrived in order to remedy a breach despite the fact that it is clear the breach will occur. More specifically, the granting of a right to terminate provides the creditor with the ability to make other uses of the resources it has set aside to fulfil its obligations vis-à-vis the debtor. However, the right to terminate usually exists only where it is certain that the debtor will commit such a breach. The purpose of the right to demand adequate assurance of performance is to minimize the creditor’s risk of making an incorrect prediction regarding a debtor’s future breach and, more specifically, regarding the question whether this breach will be so serious as to lead to a right to terminate the contract. By requesting that the debtor provides adequate assurance of performance, the creditor ensures that the debtor will either secure the creditor’s interest in the contract or provide the creditor with sufficient grounds for termination.

=== c) A comparative history of anticipatory breach ===

The central doctrinal question surrounding the concept of an ‘anticipatory’ breach has remained whether a breach of contract can exist before performance of the contractual obligations is due. An English court addressed this question in the case of ''Hochster v De la Tour'' [1853] 2 El & Bl 678 (QB). The Court held that a breach may indeed occur before performance becomes due, and because the Court united various earlier strands of legal thought in a coherent doctrinal framework in its opinion, the case became the basis for the English doctrine of ‘anticipatory breach’. Subsequent English cases have differentiated between two types of anticipatory breach. First, when a debtor is responsible for circumstances that make it impossible for it to perform a contract, English cases speak of the debtor’s ''self-disablement''. Secondly, a debtor who communicates to the creditor a clear and final refusal to perform its obligations has ''repudiated'' the contract. Of these two, (anticipatory) repudiation is the wider and more important concept, since conduct by a debtor that renders it unable to perform can be seen as an implied repudiation of the contract.

The most important consequence of any type of anticipatory breach under English law is that the creditor may immediately terminate the contract and sue for damages—''if'' the threatened breach would have empowered the creditor to do so ''after'' the time the debtor’s performance had arrived. English law as a rule does not grant creditors a right to demand that the debtor provide security for its performance. However, the creditor may be entitled to suspend its own performance. The creditor may also be entitled to demand specific performance from the debtor under the stringent requirements which the [[common law sets out for an order for [[specific performance.

Although the issues surrounding anticipatory breach had been discussed since the mid-19th&nbsp;century, the [[''Bürgerliches Gesetzbuch ''(BGB) of 1900 did not expressly regulate the issue of anticipatory breach. German courts therefore took it upon themselves to fill the lacuna in the BGB and did so on the basis of the doctrine of ‘positive breach of contract’ (''positive Vertragsverletzung'') developed by Hermann Staub in 1902. A decision by the German Supreme Court quickly became the leading case for anticipatory breach in German law (''Reichsgericht'' 23&nbsp;February 1904, RGZ 57, 105). In that decision, the Court described an anticipatory refusal to perform as an unjustified ‘repudiation’ of the contract that endangered the purpose of the contract—in other words, a ‘positive breach of the contract’. The parallels to the line of argument in ''Hochster v De&nbsp;La&nbsp;Tour'' are readily apparent. During the next 100 years, German decisions expanded the Supreme Court’s anticipatory breach rationale to encompass cases in which the debtor’s unreliability was so severe that, on a good faith analysis, a continuation of the contractual relationship could no longer be reasonably expected of the creditor. In both types of cases (repudiation and unreliability), the creditor was given the right to terminate the contract immediately and claim damages for its expectation interest.

In 2002, the fundamental reform of Germany’s law of obligations finally placed anticipatory breach remedies into the BGB. Currently, §&nbsp;323(4) BGB allows immediate [[termination of a contract when it is clear that the requirements for terminating a contract will be satisfied at the time when the other party’s performance becomes due. Although there is no provision which expressly allows the creditor to sue for [[damages in lieu of performance (damages for its expectation interest), the prevailing opinion allows an analogous application of §&nbsp;323(4) and the (fault based) general damages provisions of the BGB (§§&nbsp;280&nbsp;ff) to apply in anticipatory breach cases. 

The BGB contains no provision that would explicitly allow the creditor to refuse to perform its obligations to the debtor before the date for performance has arrived. In practice, however, courts and legal writers have relied on various grounds for granting just such a right. For example, a creditor whose performance is due prior to that of the debtor will often be entitled to refuse to perform when the debtor has already stated that it will not perform, the correct doctrinal basis for such a right still being debated. Furthermore, in cases where both parties are obliged to perform concurrently, one party may be entitled to suspend its preparations to perform when the other party has repudiated the contract, or when the other party’s ability to perform is endangered. In cases where one party has repudiated the contract, this rule may, under appropriate circumstances, be coupled with a special procedural device: the creditor may obtain a judgment for → specific performance against the debtor ''before'' the debtor’s performance becomes due. At the moment the performance becomes due, the creditor may then immediately execute the judgment against the debtor.

Several other legal systems contain—more or less comprehensive—regulations of anticipatory breach. Examples include US law in ss&nbsp;2-609 and 2-611 of the Uniform Commercial Code, Danish and Greek law, as well as Finnish and Swedish sale of goods legislation, which is modelled on the CISG. In many legal systems which are strongly influenced by [[Roman law, however, the issue of anticipatory breach is not intensively discussed or regulated.

Most systems that have promulgated comprehensive anticipatory breach rules have accompanied the right to terminate the contract with a creditor’s right to suspend its performance. Additionally, many states have at least limited provisions granting a creditor a [[right of retention, ie the right to suspend its performance when the debtor is in danger of insolvency.

=== 2. Modern developments in anticipatory breach&nbsp;law  ===

During the first half of the 20th&nbsp;century, the efforts to create uniform rules for the (international) sale of goods have led to a tendency to regulate anticipatory breach. Even the first drafts of uniform sales rules contained detailed anticipatory breach regulations that were based on the comparative research of Ernst Rabel. These regulations, with certain modifications, were adopted in the CISG as well as the Hague Convention relating to a Uniform Law on the International Sale of Goods (see [[sale of goods, international (uniform law)).

The adoption of anticipatory breach rules into multilateral conventions prompted national legislatures to introduce similar provisions into their domestic regimes. Thus, §§&nbsp;61 and 62 of both the Finnish and Swedish statute regulating the sale of goods are modelled on the anticipatory breach provisions of the CISG. Germany’s amendments to its law of obligations (mentioned above) were also inspired by the CISG. Modern proposals for uniform contract law rules—such as the UNIDROIT PICC ([[UNIDROIT Principles of International Commercial Contracts (PICC)), the PECL ([[Principles of European Contract Law (PECL)) or the DCFR ([[Common Frame of Reference (CFR))—also contain detailed rules on anticipatory breach.

== 3. Anticipatory breach provisions in&nbsp;uniform&nbsp;rules ==

=== a) Termination ===

The primary goal of anticipatory breach rules is to give the aggrieved party a right to terminate a contract in advance of its performance dates. Most uniform sales rules contain two distinct grounds for termination, each of which requires that a party faces a fundamental breach on the part of the other party. The first ground for termination is that it is ''clear'' that a fundamental breach will occur (Art&nbsp;9:304 PECL; Art&nbsp;7.3.3 UNIDROIT PICC; Art&nbsp;III.-3:504 DCFR). The second regulates cases in which one party has ''reasonable grounds to believe'' that the other party will commit a fundamental breach. Under such circumstances, the creditor must first give the debtor a reasonable opportunity to offer an adequate security for its performance. Should the debtor fail to do so within a reasonable period of time, the creditor may terminate the contract (Art&nbsp;8:105 PECL; Art&nbsp;7.3.4 UNIDROIT PICC; Art&nbsp;III.-3:505 DCFR). The language of the CISG (Art&nbsp;72&nbsp;CISG) is narrower in that, ''before'' the creditor’s right to terminate accrues, it requires the creditor to give reasonable notice to the other party in order to permit it to provide adequate assurance of its performance. However, it remains unsettled whether the failure to give notice precludes the right to terminate or merely renders the terminating party liable for damages caused by the failure to notify.

The common requirement for termination contained in all uniform anticipatory breach rules—that the creditor be faced with a fundamental breach—arises from the drafters’ attempts to restrict the scope of the remedy of termination. The further requirement that it be ‘clear’ that a fundamental breach will occur shows that termination before performance is due should be regarded as an exception which is available only in special circumstances. When defining what kind of future conduct is ‘clear’, it is appropriate to require that the threat of a substantial breach be ‘obvious’ to an objective observer, but it is probably too much to require ‘virtual certainty’. The paradigmatic (but not the only) case of a ‘clearly’ impending breach arises when a debtor unequivocally and seriously declares that it will not perform (repudiation); some anticipatory breach rules explicitly make reference to such a situation. Usually, a creditor faced with such repudiation need not notify the debtor and provide it with an opportunity to offer adequate assurances of performance (cf Art&nbsp;72(3) CISG, Art&nbsp;III.-3:504 DCFR).

=== b) Right to suspend performance and demand assurance of performance ===

Uniform anticipatory breach regulations usually provide creditors who—with a certain degree of justification—fear that the debtor will commit a breach the right to suspend their performance and demand adequate assurance of performance from the debtor. Differences between the regulations exist, however, with regard to the details.

The PECL and UNIDROIT PICC permit a creditor to suspend its performance when the creditor ‘reasonably believes’ that a fundamental breach will occur (Art&nbsp;8:105(1) PECL, Art&nbsp;7.3.4 UNIDROIT PICC). The DCFR contains a similar rule which, however, does not specifically require that the threatened breach be ‘fundamental’ (Art&nbsp;3:401(2) DCFR).

The provisions in Art&nbsp;71 CISG differ from those of PICC, PECL and DCFR in several aspects. First, the anticipated breach must affect a ‘substantial part’ of the debtor’s obligations under the contract. Predominant legal opinion seems to take the position that on the one hand this does not require a ‘fundamental’ breach, but that on the other hand not ‘every breach’ will affect a ‘substantial part’ of the debtor’s obligations. Secondly, Art&nbsp;71 requires that it be ‘apparent’ that the debtor will breach before the creditor may suspend its performance. This standard probably corresponds more or less to the requirement in, for example, the PICC that the creditor have ‘reasonable grounds’ to believe that the debtor will not perform. In contrast to other uniform rules, however, the CISG defines what can provide reasonable grounds for doubting the debtor’s willingness or ability to perform: a ‘serious deficiency in [the debtor’s] ability to perform or in its creditworthiness’ or the debtor’s ‘conduct in preparing to perform or in performing the contract’. Such a list is not known in most other uniform instruments. Still, the language of the CISG ‘limitations’ is so broad that it is likely to encompass any circumstances that will be relevant in practice.

=== c) Damages ===

The question whether and to what degree an anticipatory breach may entitle the aggrieved party to claim [[damages is usually governed by the general rules on liability for damages. Whether a creditor can bring an action for [[specific performance even before the date for performance has come should be regarded as a matter of procedural law and therefore be governed by the applicable ''lex fori''.

'''Literature.''' Ernst Rabel, ''Das Recht des Warenkaufs'','' vol&nbsp;1'' (1936), ''vol&nbsp;2'' (1958); Guenter H Treitel, ''Remedies for Breach of Contract'' (1988) 318&nbsp;ff; Reinhard Zimmermann, ''The Law of Obligations'' (1996) 800&nbsp;ff; Christian von Bar and Reinhard Zimmermann (eds), ''Grundregeln des Europäischen Vertragsrechts'' (2002) 439&nbsp;ff, 450&nbsp;ff, 495&nbsp;ff; Reinhard Zimmermann, ''The New German Law of Obligations'' (2005) 66&nbsp;ff, 107&nbsp;ff; Gareth H Jones and Peter Schlechtriem, ‘Breach of Contract’ in IECL VII/2 (1999) ch 15; Peter Huber, ‘Comparative Sales Law’ in Mathias Reimann and Reinhard Zimmermann (eds), ''The Oxford Handbook of Comparative Law'' (2006) 937; Peter Huber and Alastair Mullis, ''The CISG'' (2007) 209&nbsp;ff, 339&nbsp;ff; Heinz Weidt, ''Antizipierter Vertragsbruch'' (2008).</div>

<div align="right">''[[Peter Huber]]''</div>