Sunday, March 28, 2021

Anticipatory Breach of Contract

 It is when the debtor informs the creditor before the debt is due that he (debtor) will not perform his obligation (Art.1757 (2). Such information may be implied from conduct of the debtor or from express statements addressed to the creditor (G. Krzeczunowicz, 1983, p.106). For example, if A and B entered into construction contract whereby A agreed to construct B’s G +3 residential house in Awassa and B agreed to pay 25% of the total construction price  one month before the construction starts. They agreed that the construction had to start on August 12, 2008.


A won a big construction project in Mizan on July 12, 2008 and went there to start the work that takes a minimum of four years. Here A, by his conduct shown his intention not to start construction of B’s residential house. So B is entitled not to make any advance payment. In short if there is a reasonable suspicion that one party may not honor his future obligation the other party is not bound to carry out his obligation. Anticipatory breach under Art 1757(2) is invoked when time of performance of both sides of the obligation has already determined by contract and the party claiming anticipatory is duty bound to perform his obligation earlier than the party who has intended to breach the contract. For example in the above construction contract case if B was not obliged to pay advance and if the date A had to start the construction of the residential house was not determined Art 1757(2) does not apply. 

In short anticipatory breach Under Art.1757 (2) is a justification to refuse performance whereas under Art.1789 it is used as a justification to cancel the contract. However; under Art.1788 anticipatory breach exist only where there is express declaration by the breaching party or in case of implied anticipatory breach the party intending to cancel the contract gives default notice. In short, under Art. 1788 conduct does not unequivocally indicate anticipatory breach.  

However, the party has an option to claim performance by providing sufficient security that he will perform his obligation (Art.1759).

Insolvency 


When a person is declared bankrupt, all his future debts mature on the day he is declared bankrupt (Art.1868). So, he has to pay all his future debts on the date he is declared bankrupt. Any payment after that day may be equivalent to non performance or breach of contract. So a person declared bankrupt loses benefit of time that he obtained by contract and cannot claim performance unless he himself is ready to perform his obligation (Art. 1757(2).

Notice that under both Art.1757 (2) and Art. 1868, the type of bankruptcy should be legal bankruptcy. Factual bankruptcy never entitle the other party to refuse performance unless it amounts to anticipatory breach or the securities are damaged by the act of the debtor or act of God, provided there is no insurance for such loss.

Breach

Although breach of contract is discussed under chapter four , a party who violated his own contractual obligation  does not have moral and legal basis to complain for breach of contract since the other party can have a counter claim  or set-off(Art.1757(1). Note that for the purpose of Art. 1757(1) breach of contract includes refusal to give receipt (G. Krzeczunowicz 1983, p.109)

1 comment:

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Cancellation of Contracts

   Cancellation of Contracts Cancellation is another remedy for non-performance. Cancellation brings an already existing contract to an end....