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. After 30 days, the manufacturer informs the client that they have decided to cease production of that particular equipment line and will not be able to fulfill the order. Which of the following best describes the manufacturer's action?
- ABreach of warranty
- BMutual rescission
- CSubstantial performance
- DAnticipatory repudiation
Show answer & explanationAnswer & explanation
Correct answer: D. Anticipatory repudiation
Anticipatory repudiation occurs when one party clearly and unequivocally indicates, before performance is due, that they will not perform their contractual obligations. The manufacturer's statement directly fits this definition.
Why the other options are wrong
- A. Breach of warranty relates to defects in goods or services, not a refusal to perform the contract at all.
- B. Mutual rescission requires both parties to agree to terminate the contract, which did not happen here.
- C. Substantial performance occurs when a party has performed most of their obligations, not when they refuse to perform entirely.
Anticipatory Repudiation
A clear and unequivocal indication by one party to a contract, before performance is due, that they will not perform their contractual obligations.
- Allows the non-breaching party to immediately sue for breach.
- Must be a clear and definite statement or action.
- Can be retracted if the non-breaching party has not yet acted upon it.
Memory trick: Anticipate the Repudiation, then React to the Breach.