CPA Exam — REG (Regulation)Business LawEasy
A client, a small business owner, enters into a contract to purchase custom-made equipment from a manufacturer. The contract specifies the equipment will be delivered in 90 days. Before delivery, the manufacturer informs the client that due to unforeseen material shortages, they will be unable to deliver the equipment for at least 150 days. The client, needing the equipment sooner, wishes to terminate the contract immediately without penalty. Under what legal doctrine can the client achieve this outcome?
- AAnticipatory repudiation
- BNovation
- CMutual rescission
- DAccord and satisfaction
Show answer & explanationAnswer & explanation
Correct answer: A. Anticipatory repudiation
Anticipatory repudiation occurs when one party to a contract clearly and unequivocally indicates that they will not perform their contractual obligations before the performance is due. This allows the non-breaching party to treat the contract as immediately breached and seek remedies.
Why the other options are wrong
- B. Novation involves substituting a new party or a new agreement, which is not the scenario described.
- C. Mutual rescission requires both parties to agree to cancel the contract, which is not indicated here.
- D. Accord and satisfaction involves an agreement to accept a different performance than originally promised, which is not applicable to an outright refusal to perform on time.
Anticipatory Repudiation
A clear and unequivocal statement or act by one party to a contract indicating they will not perform their contractual obligations before the performance is due.
- Allows the non-breaching party to treat the contract as breached immediately.
- Non-breaching party can sue for damages or seek other remedies.
- Repudiating party may retract the repudiation if the other party has not materially changed position.
Memory trick: Don't wait for a broken promise, anticipate the breach!