Tuesday, October 25, 2011

Navigating Anticipatory Repudiation from Suppliers for the Micro Cap Executive

The contracts that flow in and out of a micro cap company can make for piles of possible litigation if contracts are breached.  The micro cap company executive should know that when a supplier has breached a contract before the performance date, in other words a seller states he or she can not deliver the goods, the actions you take once you find out this information is critical to recovering losses from the breach of contract.

This form of breach, also known as anticipatory breach of contract, occurs when one party positively states that he or she will not substantially perform a contract. The mere assertion that the party is encountering difficulties in preparing to perform, is dissatisfied with the bargain, or is otherwise uncertain whether performance will be rendered when due is insufficient to constitute a repudiation. Another type of anticipatory breach consists of any Voluntary Act by a party that destroys, or seriously impairs, that party's ability to perform the contract.  Article 2 of the Uniform Commercial Code defines:

§ 2-610. Anticipatory Repudiation.
When either party repudiates the contract with respect to a performance not yet due the loss of which will substantially impair the value of the contract to the other, the aggrieved party may
(a) for a commercially reasonable time await performance by the repudiating party; or
(b) resort to any remedy for breach (Section 2-703 or Section 2-711), even though he has notified the repudiating party that he would await the latter's performance and has urged retraction; and
(c) in either case suspend his own performance or proceed in accordance with the provisions of this Article on the seller's right to identify goods to the contract notwithstanding breach or to salvage unfinished goods (Section 2-704).

The statute was interpreted in part by a court in the case of Oloffson v. Coomer 11 Ill.App.3d 918, 296 N.E.2d 871 (1973) Dawson, p. 60-6 The facts of the case stated that Coomer agreed to sell corn to Oloffson. Coomer repudiated. Oloffson went into the market and covered by buying at current market prices which were higher than the contract price. Oloffson sued for damages of the difference between the market price and the contract price on the performance dates, but instead was awarded the difference between the market price and the contract price on the date of repudiation.

The court had to decide the issue of which date should the damages to Oloffson be calculated? The date when the contract should have been executed, or the date on which the buyer whom had to cover his expenses purchases the corn from another supplier?

The Rule: Pursuant to UCC § 2-610(a), one may await performance by the repudiating party for a “commercially reasonable time”. Then one has a duty to “resort to any remedy for breach”, pursuant to UCC § 2-610(b). The court found that if Oloffson had mitigated his damages under either § 2-711(a) or (b), he would have received the same damages as he was awarded at trial. In conclusion the court found that Oloffson received appropriate damages at trial and thus upheld the judgment o pinioning that he was entitled to the difference in contract price and the difference of the date he learned of the breach.

The buyer in this case covered on a later date, but waited to long according to the court. He should have found a different supplier the date the sellers' anticipatory breach. In short, an executive in the business of sales of goods, must know that just because a supplier does not intend to fulfill an obligation, does not mean an executive can rely on his breach for any damages that follow. Micro cap companies are especially prone to this when executing contracts on goods nationally. In short, buyer beware, you are responsible for how your capital and resources are spent and aquired. As a micro cap company, you can protect yourself by writing "terms of a breach" into a contract. Seek out a contract professional for optimal effect.

Hope this was helpful

The Micro Cap Company Team

1 comment:

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