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Laws Relating To Anticipatory Breach of Contract

Introduction

Anticipatory breach of contract refers to the cases involving the breach of the contract before the due date of the performance of the contract. This type of breach occurs when one of the parties to the contract, indicates to the other in advance, his/her inability or wish against fulfilling the contract. When an anticipatory breach of contract occurs various rights and remedies are bestowed upon the aggrieved party as to the further performance of the contract or compensation, rescission etc.

For example, if ‘P’ promises to sell to ‘Q’ 100 yards of cotton on September 10th and eventually on June 15th, ‘P’ corresponds by saying that he had changed his mind won’t perform the promise. Then this situation leads to the anticipatory breach of contract. Here the aggrieved party, i.e., ‘Q’ has the right to sue the other one for breach of contract and hence get damages. Also in such case it is on the will of ‘B’ whether he wants to sue “P’ immediately or wait till the act was to be performed.

Definition of a Contract

Section 2(h)[i] of the Indian Contract Act says that an agreement which is enforceable by law is a contract and the term agreement used here is defined under section 2(e)[ii] of the act as every promise or set of promises which forms consideration for each other. Further, section 10[iii] of the act defines ‘contract’ as agreements which are made by free consent of the parties who are competent to contract, for a lawful consideration and with a lawful object. Also, such agreement should not have been expressly declared as void by the act.

Breach of Contract

A breach of contract is said to have taken place when one of the parties to the contract consents formally about abandoning his liability under that contract or part of fully fails to perform his obligations under that contract or by his conduct makes the performance of the act impossible.

There are two types of breach:

1. Anticipatory breach – Where the failure of performance or renunciation takes place before the time of performance has arrived.

2. Present Breach – Where the failure of performance or renunciation takes place when the time of performance has arrived.

Anticipatory Breach of Contract

An anticipatory breach of contract occurs when before the date of the performance of the contract one of the parties declares about its intention to break the contract or about his/her non-performance. It is discussed under section 39 of the act which is as follows:

Section 39. Effect of refusal of party to perform promise wholly – When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.[iv]

Constituents of an anticipatory breach of contract

An anticipatory breach of contract happens in any of the following situations or ways:

(a) The defaulting party expresses to the other party, a positive and unconditional refusal: This is called expressed repudiation. This refusal should be clear, straightforward, and directed towards the innocent party. But in cases where the refusal is unqualified or ambiguous, the non-breaching party may request an assurance for performing from the other party and meanwhile may suspend his/her performance.

(b) The breaching party, because of a certain cause, is unable to perform: If the defaulting party voluntarily does something which makes his performance of contractual obligations impossible, it will also be considered as a repudiation of the contract.

(c) The transfer of the subject of the contract to someone else: In case of contracts involving the sale of property, if the property is transferred to a third party, the contract shall be considered to be repudiated.

Promisee’s options after the anticipatory breach

The innocent party is excused from the further performance of his or her contractual obligations in the first place. The original obligations under the contract come to an end and are now replaced by the operation of law under another obligation, namely payment of damages. The only remnant of legal nexus between the parties is the payment of the damages according to the old obligations under that contract. The two options available to the aggrieved party are:

(1) Immediate Right of Action:

The anticipatory breach of the contract entitles the injured party to either immediately sue for damages or wait for the time of performance of the contract. So, even in cases where the time for performance of contractual relation has not arrives, the aggrieved party may sue the repudiating party for damages.

In the case of Hochester v. De La Tour,[v] this principle was first recognised. The facts of the case were that the plaintiff was a courier who was engaged by the defendant for accompanying him on a tour commencing on June 1, 1852. About a month before this date, the defendant wrote a letter to the plaintiff stating about his change of mind Wand declining the service. When the plaintiff sued him for damages, the counsel for the defendant contended that there can’t be any breach of contract before the date of the performance of the contract. The court however held that the plaintiff in such cases has the right to take immediate action.

Similarly in the case of  Short v. Stone[vi] where a man promised to marry a woman on a future day but marries someone else before that day or in the case of Ford v. Tiley[vii] where a man contracts, on a certain term, to execute a lease on and from a future day but before that day executes the lease to a third party, an immediate action for breach of contract was allowed.

Anticipatory breach of a contingent contract:

Even in the cases where the performance of a contract is dependant upon the happening of a contingency, an immediate right of action will lie if, before the happening of the contingent event, the promisor had disabled himself from performance.

In the case of Frost v. Knight,[viii] the defendant had promised to marry the plaintiff on the demise of his father but while the father was still alive, the defendant had announced about his intention of non-fulfilment of the promise and thus broke off the engagement. The plaintiff was allowed to take an immediate action for breach of contract and was not needed to wait till the death of his father.

(2) Waiting for the Performance:

The presence of words “signified, by words or conduct, his acquiescence’’ in section 39 means that when the innocent party affirms the continuance of the contract, the other party loses his/her right to repudiate. Affirmation may be expressed or implied especially as in cases where the innocent party does an act, which shows that he intends to continue the contract. The effects of affirmation on the parties are as follows:

i. Effect of Affirmation on innocent party: Affirmation once made is irrevocable if it is communicated to the party who was committing the breach. In this case, he is subjected to all the contractual obligations and liabilities arising under it.

ii. Effect of Affirmation on the party committing the breach: Affirmation gives the chance to the party committing the breach to re abide and fulfill the contractual obligations and hence escape from being sued. Also it gives him/her an advantage as if now the other party fails to perform any of the contractual obligations, he/she has the option to sue for the breach of contract.

If the contract is left opened, a discharge by any other event like frustration or supervening impossibility may take place in place of discharge by repudiation. It would lead even to the promisor taking the advantage of this.

In the case of Avery v. Bowden,[ix]  the defendant had chartered the ship of the plaintiff promising to load it with cargo at Odessa within forty-five days. Later on the arrival of the ship the defendant refused to load cargo but still the plaintiff stayed in the hope of the defendant fulfilling the contract. But, a war broke out rendering the performance of the contract illegal. Here, when the plaintiff brought an action for breach, it was held that the contract has ended by frustration and therefore it wasn’t the fault of either of the parties.

This principle can also be applied to the premature termination of the contract of employment of an employee. If the repudiation is not accepted, the contract remains alive. In such cases, although positive covenant can’t, but negative covenant, i.e., not to hire anyone else till the expiry of term, can be enforced. Similarly, in cases of premature termination of lease, although the court can’t enforce specific performance, it can allow the lease-money for the unexpired term as damage to injured party. This was held in the case of Food Corporation of India v. Babulal Agarwal.[x]

Repudiation

What amounts to repudiation:

It is a declaration by one of the party of his intention of non-performance of contract. It should be held to arise only in clear cases of denial and not on minor irregularities. A repudiation or the breach must be in entirety and should go to the root of the contract.

In the case of Maple Flock Co. Ltd. v. Universal Furniture Products (Wembley) Ltd.,[xi] there was a contract for delivery, in installments, of 100 tons of flock of Government standard. The sixteenth delivery was below standard and when the buyer tried to treat it as a repudiation, the court held that the intention of seller to repudiate the contract is absent here so it won’t come under repudiation. The buyer was only allowed damages for defective products.

Communication of Acceptance of Repudiation:

The innocent party, if wishing to be discharged, must make the other party known about his decision or else the contract would be deemed to be continued. The principle here is that there are two parties to the contract and therefore mere repudiation from one side won’t end the contract.

Mode of the acceptance here should be the same as the communication of proposals. Since repudiation makes a contract voidable, its rescission should be in accordance with Section 66[xii] of the act. Also, the acceptance is not revocable.[xiii]

Remedies for the breach of the contract

The following remedies are available to the innocent party in the case of anticipatory breach of contract:

(a) The aggrieved party may rescind the contract: Both the parties shall be absolved from their contractual obligations. In such case, the aggrieved party is liable to offer restitution as under section 64[xiv] of the act.

(b) Cover and receive damages: The aggrieved party may receive monetary compensation or damages for the breach of contract under section 73[xv] of the act.

(c) Demand Specific Performance: The Court, in accordance with the section 14 of The Specific Relief Act, 1877 order specific performance of the contract in place or along with the damages.

(d) Demand Injunction: Injunction may be granted in cases like that of employment for enforcing the negative covenant.

(e) Recover any consideration, if, given to the breaching party: All consideration granted for the contract should be returned.

(f) Quantum Merit and Restitution: This remedy basically means payment in accordance with the work done. Restitution means restoring of original conditions.

Conclusion

Anticipatory breach of contract is the intentional breach by one of the parties and therefore the innocent party must have remedies for it. However, there is a certain obligation which needs to be fulfilled before declaring an act as a repudiation so as to maintain the contract. Any minor irregularity by one party can’t be held as breach and it should be absolute. Also the way it is the obligation of the repudiating party to communicate his intention of refusal, it is duty of the innocent party to communicated its acceptance of repudiation or otherwise. The contract is between two parties and so for establishing anything, the contract as a whole need to be considered along with the conduct of both the parties.

[i] Section 2(h), Indian Contract Act, 1872.

[ii] Section 2(e), Indian Contract Act, 1872.

[iii] Section 10, Indian Contract Act, 1872.

[iv] Section 39, Indian Contract Act, 1872.

[v] Hochester v. De La Tour, (1853) 2 E&B 678.

[vi] Short v. Stone, (1846) 8 QB 358.

[vii] Ford v. Tiley, 6 B&C 325.

[viii] Frost v. Knight, (1872) 7 Exch 111.

[ix] Avery v. Bowden (1855) 5 E&B 714.

[x][x] Food Corporation of India v. Babulal Agarwal, AIR 1998 MP 23.

[xi] Maple Flock Co. Ltd. v. Universal Furniture Products (Wembley) Ltd., (1934) 1 WLR 361.

[xii] Section 66, Indian Contract Act, 1872.

[xiii] Nannier v. N M Rayulu Iyer & Co., (1925) 49 Mad 781.

[xiv] Section 64, The Indian Contract Act,1872.

[xv] Section 73, The Indian Contracts Act, 1872.

This article has been written by Swati Singh, 3rd-year law student at National University of Study and Research in Law, Ranchi.

Also Read – Memorandum of Understanding Legally Binding In India or Not?

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