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BREACH: ANTICIPATORY AND PRESENT

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This article is written by Saloni Chandar Patil of 7th Semester of Adv. Balasaheb Apte College of Law, Mumbai, an intern under Legal Vidhiya

Abstract

This article examines two important areas of law, anticipatory breach and present breach of contract. An anticipatory breach occurs when a party indicates,that they will not fulfill their contractual obligations before the due date, while a present breach occurs when a party fails to perform their obligations on or before the due date . The article examines the differences between these two types of breach, including the timing, intent, and available remedies. It also discusses the legal consequences and outcomes of each type of breach, including termination, damages, and specific performance. By understanding anticipatory and present breach, parties can resolve contract disputes and take steps to protect their interests. This article provides a comprehensive overview of these essential concepts, serving as a valuable resource for legal professionals, scholars, and anyone interested in contract law.

Keywords

Breach of Contract, Anticipatory, parties to the contract, performance, Discharge, damages, damage.

Introduction

The Breach of Contract

The breach of contract is one of the forms of Discharge of Contract. A Contract is said to be breached when one of the party to the contract fails to fulfill its duty or obligation arising out of the contract. Section 73, 74 & 75 of  the Indian Contract Act 1872 gives the consequences of a breach of contract. The Breach of Contract may occur during the performance or before the event occurs . Anson’s[1] says that, “ If one of the parties to the contract break the obligation which the contract imposes, a new obligation will in every case arise a right of action conferred upon the aggrieved party by the breach. Besides this, there are circumstances in which the breach not only give rise to cause of action but will also discharge the injured party from such performance as may still be due from him”. Thus , breach of contract is of two kinds, namely :

  1. Actual or Present Breach of Contract
  2. Anticipatory Breach of Contract

[A]. Actual or Present Breach of Contract:

Actual breach of contract occurs when one party fails to fulfil their promises within the agreed time or performs them inadequately. This may include failure to meet agreed-upon quality standards, failure to deliver goods, etc.. This breach occurs at the time when performance was necessary to comply within the terms of Contract.

For example, if a contractor’s failure to deliver a complete project by the agreed time, is an actual breach of contract. In such cases, the innocent party can seek legal remedies to address the breach, such filing a suit for damages, seeking specific performance, or terminating the contract.

The innocent party can then take action to enforce the terms of the contract and seek appropriate compensation for the breach.

[B]. Anticipatory Breach of Contract:

The Anticipatory Breach of Contract is also known as ‘Anticipatory Repudiation’ . The Anticipatory breach of contract happens when one of the party to the contract shows, through words or actions, that they won’t be able to fulfill their contractual obligations. This breach of contract  occurs before the due time for performance . This can be done through words or actions, such as: stating a clear refusal, action that contradicts the contract terms, failure of the performance, transferring assets, and financial instability.

Imagine ‘A’ and ‘B’ make a deal where ‘A’  promise to deliver a rare book to ‘B’ by a certain date for a set price. Now, if before that date, ‘A’ tells ‘B’  that, ‘A’ can’t get the book or ‘A’ won’t deliver it, that’s an anticipatory breach. Even if the actual due date hasn’t come yet, ‘A’ statement or action shows ‘A’  won’t hold up he’s end of the deal.

In legal terms, when this happens, the other party can choose to treat the contract as breached immediately and sue for damages without waiting for the due date. It gives the aggrieved party the option to end the contract earlier and claim compensation for any losses caused.

Thus, anticipatory breach is a indication that one party won’t fulfill the contract, allowing the other party to take action sooner rather than later.

When the Anticipatory Breach takes place, the aggrieved party can either Accept the contract by  holding the other party to their obligation and ignoring the breach or Accept the Repudiation by terminating the contract and claiming the damages.

There are two main types of Anticipatory Breach of Contract:

  1. Express Anticipatory Breach:  The Express breach occurs when one party states or communicates through their actions that they will not fulfill their contractual obligations that is they would not fulfill the promises stated in the contract . For example, if a seller informs a buyer in advance that they will not be able to deliver the goods as agreed, it indicates an express anticipatory breach.
  2. Implied Anticipatory Breach: In this type, one party’s actions or circumstances imply that they will not be able to meet their obligations under the contract. For instance, if a contractor stops ordering materials for a construction project well before the completion date, it implies an inability to fulfill the contract terms.

Both types of anticipatory breach give the aggrieved party the right to consider the breached contract and pursue legal remedies for damages caused .  It provides the affected party with the option to seek compensation without waiting for the actual performance date specified in the contract.

Statutory Provisions Related to Anticipatory Breach:  

The principal of Anticipatory Breach of Contract is embodied in –

 1. Section 39[2] ( Indian Contract Act, 1872  )states ,Effect of refusal of party to perform promise wholly.—

If the contracting party has refused to fulfill his promise in full or has made it impossible for him to fulfill it, the promisor may terminate the contract if he has not expressed by words or conduct his consent to its continuation.

Illustration:

a) A comedian comes in contract  with B, the manager of a theatre, to perform at his theater two nights in a week for the next two months, and B  pay her 100 rupees for each night’s performance. On the sixth night, A voluntarily leaves the theater. B has the right to terminate the contract.

(b)A, a comedian, contracts with B, a theater manager, to perform in his theater two nights a week for the next two months, and B  to pay her 100 rupees for each night. On the sixth night, A deliberately moves away. With B’s consent, A sings the seventh night. B has expressed his consent to continue the contract and cannot now terminate it, but is entitled to damages for not performing on the sixth night.

2. Section 60[3] (The Sale Of Goods Act, 1930)  -states, repudiation of contract before due date.—If either party to the purchase contract withdraws from the contract before the delivery date, the other party can either treat the contract as subsisting and wait for the delivery date, or treat the contract as void and sue for damages for breach.

In the case of ‘Hochster v De La Tour’[4] it was held that, When a contract is made for future performance between the parties, a relationship is established when there is an implied promise that both parties will act in accordance with their contract and not interfere with its future performance. In this case, Respondent clearly repudiated its agreement with the Claimant, and it is futile to ask the Claimant to wait and prepare for an event that will not occur. Upon receiving the clear and firm notice of renunciation, Petitioner was released from his obligation under the contract. The aggrieved party retains the option to file a claim immediately or to wait until the  performance date before filing a claim. This case introduced the concept of “Anticipatory Repudiation” and remedies available to the victim party.

In “Manindra Chandra Nandy and Ors. V. Ashwini Kumar Acharya” (1920)[5], the court decided that  failure of the contract is anticipatory breach rather than default in its terms. The court also noted that in such a case, the damages are calculated with regard to what the injured party would have suffered by the continuing breach of the injured party  to the actual date of performance.

Remedies for Anticipatory Breach of Contract:

The remedies available for the aggrieved party in case of anticipatory breach are-

  1.  The aggrieved party may decide to  terminate the contract immediately following the anticipatory breach. This action releases both parties from their obligations from the contract.
  2. The aggrieved party can sue the infringing party for damages arising from the anticipatory breach. These damages are intended to compensate for any losses suffered as a result of the breach.
  3. The injured party may seek to cover their losses by finding a substitute contract or alternative method of performance. They can then claim the difference in cost between the original contract and the substitute contract from the breaching party.
  4.  In some cases, the injured party may seek a court order for specific performance, which compel the breaching party to fulfill their contractual obligations as originally agreed.

Generally, breach of contract, the person aggrieved claims the relief of specific performance of the contract under Section 10 of Specific Relief Act and claims compensation under Section 73 of the Indian Contract Act,1872 additionally or alternatively.

 Section 10. Cases in which specific performance of contract enforceable[6].—(Of the Specific Relief Act)

Except as otherwise provided in this chapter, specific performance of any contract may be enforced in the discretion of the court—

a) when there is no standard for determining the actual damage caused by the failure to perform the agreed action; or

(b) If the agreed act is such that financial compensation for failure to do so would not provide adequate relief. 

Section 73. Compensation for loss or damage caused by breach of contract [7]( The Indian Contract Act, 1872) —

If a breach of contract occurs, the party suffering such breach shall be entitled to damages from the breaching party for any loss or damage caused to it and which naturally arose as a result of such breach of contract. Breach or which the parties knew at the time of entering into the contract was likely to result from its breach.

This compensation will not be provided for any remote and indirect loss or damage caused by the breach.

Compensation for non-performance of an obligation similar to an obligation created by a contract.—

If an obligation similar to an obligation created by a contract has been incurred and not performed, any person injured by the failure to perform that obligation is entitled to the same compensation from the defaulting party as if that person had undertaken to perform it and had breached the contract.

The aim of these remedies is to protect the interests of the innocent party and to ensure that he is fairly compensated for any injury caused by the pre-breach of the contract.

Key differences between Actual Breach and Anticipatory Breach:

DifferenceAnticipatory Breach of ContractActual Breach of Contract
3. RemediesAnticipatory breach occurs before the due date.Present breach occurs on or after the due date.
2.IntentAnticipatory breach involves an indication of intention not to perform.Present breach involves actual non-performance.
2. IntentBreach allow for damages, specific performance, or injunction, but anticipatory breach may also allow for termination of the contract before the due date.Breach allow for damages, specific performance, or injunction.

Conclusion

In conclusion, understanding the differences between anticipatory and actual breach of contract is crucial in navigating contractual disputes and finding appropriate remedies. Anticipatory breach occurs when one party demonstrates its  inability or unwillingness to perform the contract before the performance date, allowing the innocent party to take proactive measures. On the other hand, actual breach occurs when a party fails to fulfill their obligations at the specified time. Both types of breaches have legal implications and provide the innocent party with avenues for seeking redress, such as termination of the contract, suing for damages, or pursuing specific performance. By recognizing the distinctions between anticipatory and actual breaches, parties can better protect their rights and interests in contractual relationships.

References

  1. 23rd Edition ;  J. Beatson , A. Burrows ,J. Cartwright; Anson’s Law of Contract ; ( Oxford)
  2. Contract and Specific Relief Act – Avtar Singh , 10th Edition (Eastern Book Company)
  3. Contract 1 and Specific Relief Act – Dr. S. K. Kapoor ( Central Law Agency)
  4. THE INDIAN CONTRACT AACT, 1872.
  5.  THE SALES OF GOODS ACT, 1930.
  6.   THE SPECIFIC RELIEF ACT, 1963.
  7. https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-farnsworth/performance-and-breach/hochster-v-de-la-tour/
  8. https://blog.ipleaders.in/anticipatory-breach-of-contract/#:~:text=In%20the%20case%20of%20Manindra,perform%20it%20in%20its%20terms.
  9. Indian Kanoon
  10. SCC online

[1] 23rd Edition ;  J. Beatson, A. Burrows,J. Cartwright; Anson’s Law of Contract ; p.483 ( Oxford)

[2] THE INDIAN CONTRACT ACT, 1872, § 39, No. 9, Act of Parliament,1872 ( India)

[3] THE SALES OF GOODS ACT, 1930, § 60. No.3, Act of Parliament, 1930 ( India)

[4] Hochster v De La Tour , [1853] EWHC QB J72 , [1853] 2E & B 678

[5] Manindra Chandra Nandy and Ors. V. Ashwini Kumar Acharya 60IND. CAS.337, AIR 1921 CALCUTTA 185

[6] THE SPECIFIC RELIEF ACT, 1963, § 10. No. 47 , Act of Parliament, 1963 ( India)

[7] THE INDIAN CONTRACT ACT, 1872, § 73, No. 9, Act of Parliament,1872 ( India)

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