Repudiation

“Repudiation” is when we refuse to do something, even though there’s a contract that says we have to.

For example, let’s say we have a signed contract with our sister. We’ll come over and mow her lawn once a week, and in return, she has to make us fresh guacamole. For a while, everything runs like clockwork: we show up, we mow the yard, we go home with a bowl of delicious fresh guacamole. But then, one day, we show up and mow the yard...but there’s no fresh guacamole. We figure it’s an oversight, but then the next week, same thing. It looks like Sis is repudiating our little contract, which could mean she’s on her way to a full-on breach of contract.

Surprisingly enough, most repudiated contracts don’t involve mowed lawns and guac. A lot of times, we’ll see repudiation happen in the worlds of sovereign debt—debts owed by governments—and fixed-income securities. There are many reasons why one party might repudiate a contract: maybe they think it’s unfair, or maybe they’re unable to continue to fulfill their end of the bargain. Maybe they just don’t wanna do it anymore, which is what we suspect is going on with our sister.

Whatever the reason, we indicated before that our sister’s repudiation could end up being a breach of contract. This is important, because just repudiating a contract doesn’t mean we’re breaching it. That’s why it’s sometimes also called an “anticipatory breach;” it might lead to a breached contract, but it might not. In these situations, our best course of action is probably to start by talking to the other party. Maybe our sister hasn’t made guacamole lately because avocados have gotten too expensive, and she just can’t afford to keep us in fresh guac anymore. If that’s the case, maybe we can renegotiate or find another solution before we decide to take her to court for a breach of contract. If the other party is unwilling to talk or negotiate, and is just straight-up refusing to honor their end of the bargain, then we might decide it’s time to pursue legal action.