California First-Year Law Students' Exam (Baby Bar) — MCContractsEasy
A buyer enters into a contract with a seller for the purchase of 1,000 custom-made widgets for $10,000, with delivery scheduled in three months. One month before delivery, the seller calls the buyer and states, 'I've decided to stop manufacturing widgets; consider our deal off.' The buyer immediately purchases 1,000 similar widgets from another supplier for $12,000 to ensure timely production. What legal principle allows the buyer to take this action?
- AImpossibility of performance, excusing the seller from their contractual obligations.
- BMutual rescission, as both parties implicitly agreed to terminate the contract.
- CAnticipatory repudiation, allowing the buyer to treat the contract as breached and seek remedies.
- DNovation, substituting the original contract with a new one with the second supplier.
Show answer & explanationAnswer & explanation
Correct answer: C. Anticipatory repudiation, allowing the buyer to treat the contract as breached and seek remedies.
Anticipatory repudiation occurs when one party unequivocally indicates, before the performance is due, that they will not perform their contractual obligations. This allows the non-breaching party to immediately treat the contract as breached, suspend their own performance, and seek remedies, such as 'cover' (purchasing substitute goods).
Why the other options are wrong
- A. The seller's decision to stop manufacturing is a choice, not an objective impossibility beyond their control.
- B. The seller's statement is a unilateral repudiation, not a mutual agreement to rescind.
- D. Novation involves replacing a party or obligation with the agreement of all original parties, which did not happen here.
Anticipatory Repudiation
A clear and unequivocal statement or action by one party to a contract, before the performance is due, indicating that they will not perform their contractual obligations.
- Allows the non-breaching party to treat the contract as immediately breached.
- Non-breaching party can suspend performance and seek remedies (e.g., cover, damages).
- Repudiating party can retract the repudiation unless the other party has materially changed position in reliance.
Memory trick: Don't wait till the date, if they say 'no way,' you can act right away.