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Contracts • Excuse of Non-Performance
K#123
Legal Definition
A party may justifiably become insecure about the other party's performance when their words or conduct cast doubt upon their intent to perform, but fall short of an unambiguous statement sufficient for anticipatory repudiation. When this occurs, the insecure party may, in writing: (1) demand adequate assurance, and (2) if commercially reasonable, suspend performance until such assurance is given. If assurances are not given, the party seeking assurance is excused from performing and may treat the other party's failure as repudiation. A party may retract the repudiation, but must communicate the retraction to the other party.
Plain English Explanation
In other cards, we've discussed what "anticipatory repudiation" is, which basically means that a party has made it crystal clear that they intend to breach the contract by refusing to perform their obligations. In contrast, "excuse due to insecurity" is a less severe, less obvious situation where it seems likely that a person will not perform their obligations, but it is still pretty ambiguous and unclear.
In such circumstances, you are allowed to send a letter to the party that gives them an opportunity to clear up any misunderstanding and provide some sort of assurance that they aren't going to breach. If they refuse (or fail) to respond, you're allowed to treat it as anticipatory repudiation.
In such circumstances, you are allowed to send a letter to the party that gives them an opportunity to clear up any misunderstanding and provide some sort of assurance that they aren't going to breach. If they refuse (or fail) to respond, you're allowed to treat it as anticipatory repudiation.
Hypothetical
Hypo 1: Bob is planning his birthday party. He wants to hire Sam to cater his birthday. Bob offers to pay Sam $200 to serve tacos at his birthday party in 3 months. Sam agrees. At this point in time, both Bob and Sam are obligated to perform. Bob is obligated to pay Sam $200 1 week before his birthday, and Sam is obligated to cater Bob's birthday party in 3 months. Usually Bob and Sam talk every few days, but Sam hasn't responded to Bob's texts in weeks. A month before Bob's birthday, Bob tries to call Sam and Sam doesn't respond. The next day, Sam calls Bob and says he has been arrested in Mexico. Bob asks Sam when he will be back, but the line cuts out. It is now 2 weeks before Bob's birthday, and Bob has no idea where Sam is. Result: This scenario would be appropriate to argue for anticipatory repudiation, since it seems super unlikely that Sam will perform. However, it's not quite clear enough based on these facts that Sam won't perform. Because there is some ambiguity, this is the perfect situation for Bob to send a letter to Sam demanding some assurances that he will perform and, if he doesn't hear back, treat it as repudiation.
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