BREACH: ANTICIPATORY AND PRESENT

This Article is written by Akash Singh Yadav of Dattopant Thengadi Law Institute, Veer Bahadur Singh Purvanchal University, Jaunpur Uttar Pradesh, an intern under Legal Vidhiya

ABSTRACT

A contract is an agreement that must be upheld by law. When one party fails to fulfill their promises outlined in the contract, it constitutes a breach. This breach can occur either before the agreed-upon deadline (anticipatory breach) or at the time of performance (present breach). Legal recourse is available to the aggrieved party, including seeking compensation for damages incurred due to the breach. The Indian Contract Act, 1872, provides guidelines for handling breaches of contract. Anticipatory breaches involve one party indicating an unwillingness or inability to fulfill their obligations, while present breaches occur when obligations are not met at the agreed time. Legal remedies for breach of contract include rescission of the contract, seeking damages, specific performance orders, injunctions, and suits for quantum meruit. These remedies aim to restore the affected party to their rightful position before the breach occurred.

KEYWORDS

Contract, breach, anticipatory breach, present breach, Indian Contract Act, remedies, legal agreement, legal remedies, breach of contract, damages.

INTRODUCTION

When people make promises to each other in a legal agreement, it’s called a contract. Contracts are vital in our everyday lives, from buying goods and services to employment agreements. However, sometimes one party fails to uphold their end of the deal, leading to what is known as a breach of contract.

A breach of contract occurs when one party doesn’t fulfill their promises as outlined in the contract. This breach can take various forms, such as failing to perform on time, performing inadequately, or not performing at all. When such breaches happen, there are legal remedies available to the aggrieved party to address the situation and seek compensation for any losses suffered.

In this discussion, we will delve into the concept of breach of contract, exploring its types, legal implications, and remedies available under the Indian Contract Act, 1872. We will examine both anticipatory breaches, where one party indicates their intention not to fulfill the contract before the agreed-upon deadline, and present breaches, where the failure to perform occurs at the time specified in the contract.

Additionally, we will explore key components necessary to prove a breach of contract and the types of damages that may be awarded to the injured party. These damages include restitution, compensatory damages, punitive damages, and liquidated damages, each serving a specific purpose in rectifying the harm caused by the breach.

Furthermore, we will discuss the remedies available to the injured party in case of a breach, such as rescission of contract, suits for damages, specific performance orders, injunctions, and suits for quantum meruit.

Understanding the intricacies of breach of contract is essential for safeguarding the interests of parties involved in legal agreements and ensuring fair and just outcomes in case of disputes. Through this exploration, we aim to provide clarity on the legal principles governing breaches of contract and the mechanisms available for resolving such disputes under Indian contract law.

BREACH OF CONTRACT

A contract is a promise or promises that must be followed by law. According to Section 37 of the Indian Contract Act, 1872, it’s required for both parties to fulfill their promises made in the contract or at least offer to fulfill them[1]. Usually, the contract sets a specific time for fulfilling the promises. If not, they should be fulfilled within a reasonable time.

A contract is like a promise between people who agree to do certain things. When you make a contract, you have to do what you promised, and the other person has to do what they promised. If someone doesn’t do what they said they would in the contract, it’s called a breach of contract.[2]

For example, if a singer agrees to perform at a music festival but doesn’t show up on the day of the show, that’s a breach of contract.

Breaking a contract can happen in two ways: either by actual or by anticipatory breach. If a breach occurs, there are legal options available to make things right. These options include getting money for the work already done, making the contract null and void, or asking for specific actions to be taken as agreed upon in the contract. These actions are meant to make up for any losses caused by the breach.

According to the section 73 of the Indian Contract Act, 1872, if one party breaks a contract, they have to pay the other party for any harm caused by the breach[3]. This payment includes damages that normally happen because of the breach or were expected by both parties when they made the contract. But they don’t have to pay for any far-fetched or indirect harm from the breach.

KEY COMPONENTS OF BREACH A CONTRACT[4]

To prove a breach of contract and seek compensation, certain conditions must be met:

1. Contract Existence: It must be demonstrated to the court that a valid contract was established. This involves showing there was an offer, acceptance, and something of value exchanged (consideration).
2. Plaintiff’s Performance or Reason for Non-Performance: Even if the contract terms weren’t precisely fulfilled, if the defendant received services close to what was agreed upon, they are obligated to pay. For instance, if a room was painted, but the color wasn’t exactly as requested, payment is still due, though potentially not the full amount. If color was a crucial term in the contract, refusal to pay might be justified[5].
3. Defendant’s Failure to Fulfill the Contract: The defendant can’t avoid compensating the plaintiff by claiming the plaintiff didn’t meet their obligations if the defendant’s actions made it impossible for the plaintiff to fulfill those obligations. In such cases, the plaintiff has the right to seek compensation.
4. Plaintiff’s Damages Due to Defendant’s Failure: The promises made by each party should be outlined in the contract. Whether a breach occurred depends on how well the contract was drafted. It’s wise to have a lawyer review a contract before signing to avoid disputes later on.

TYPES OF CONTRACT BREACHES[6]

A contract breach occurs when one party fails to fulfill their promises outlined in the contract. There are two main types: present breach and anticipatory breach.

ANTICIPATORY BREACH

When one party thinks the other won’t do what they promised in the contract, it’s called an anticipatory breach. This can happen if one side refuses to finish the contract, does something that makes it impossible to finish, or if what the contract is about becomes unavailable. Sometimes, the party not breaking the contract can choose to end it because of this. An anticipatory breach shows that a party plans to break their promises in the contract. The other party’s duty to do what they promised stops when there’s an anticipatory breach. They can take legal action after showing the other party plans to break the contract. In simple terms, an anticipatory breach, also called repudiation, happens when one party doesn’t do what they promised in the contract. If someone claims there’s an anticipatory breach in court, they need to try to keep their own losses small. To count as an anticipatory breach, the intent to break the contract has to be a complete refusal to do what they promised. It’s important to know that the party claiming an anticipatory breach can take legal action right away, instead of waiting for the contract to be broken.

For example, imagine a real estate developer hires an architecture company to make blueprints for a new building by a certain date. It’s not an anticipatory breach if the developer asks for updates on the project and isn’t happy with the progress. Even if the architects are behind schedule, they might still finish on time if they take steps to fix the problem. But if the architects do things that make it hard to finish by the deadline, that’s an anticipatory breach. For instance, if they stop working on the first project and focus on a different one with a different developer.[7]

In the Indian Contract Act of 1872, Section 39 talks about anticipatory breach of contract. It is stated that if one party in a contract refuses to fulfill their promises or renders it impossible to do so, the other party has the right to terminate the contract, unless they show, through their words or actions, that they agree to keep it going.”[8]

ESSENTIALS OF ANTICIPATORY BREACH OF CONTRACT

According to Section 39 of the Indian Contract Act, anticipatory breach of contract has these main points:

1. There must be a contract with a future date for the work to be done.
2. One side of the contract either refuses to do what they promised or creates circumstances that make it impossible to do so.
3. The promise can’t just be difficult or costly to fulfill; it has to be truly impossible.
4. This refusal or self-induced impossibility happens before the actual deadline.
5. Refusal can be clearly stated or shown indirectly.

CASE LAWS

In the Food Corporation v. J. P Kesharwani[9] case (1994), the Supreme Court of India said that if one party changes a contract without telling the other and then cancels it, it’s breaking the contract (repudiation). Basically, if one party can’t or won’t do what they promised in a contract, it’s a breach, no matter when it was supposed to happen. Repudiation means clearly saying no to a contract.

In the case of Aslhing v. S. John (1983)[10], the respondent was working on a road project for the government. They sent a letter to the engineer saying they were canceling the contract. The appellant argued that the letter didn’t actually cancel the contract, but the letter clearly showed they were ending it on their own. They even resigned from the list of contractors. So, the contract was ended, even though the authorities didn’t officially agree. But the breach could still lead to a lawsuit for damages.

PRESENT BREACH OF CONTRACT

Present breach of contract happens when one party doesn’t do what they promised in the contract. This could mean they don’t do it on time, they do it badly, or they don’t finish it at all. For example, if Mr. X agrees to give Mr. Y 50 bags of jute by a certain date but doesn’t do it, that’s an actual breach.

THERE ARE TWO MAIN TYPES OF PRESENT BREACHES

1. Late performance: This is when someone doesn’t do what they’re supposed to by the agreed-upon deadline. The other party doesn’t have to keep up their end of the deal if this happens. They can also sue the person who didn’t do their part. Sometimes, even if someone is late, the other party might still let them finish the job if time isn’t super important.
2. Breach during performance: This is when someone doesn’t do everything they promised while they’re working on the contract. It could mean they do part of the job but not everything, or they do it in a way that’s not okay according to the contract.

ESSENTIALS OF PRESENT BREACH OF CONTRACT[11]

To show that there’s been present breach of contract, you need to prove a few things:

1. Existence of a valid contract: First, there must be a real contract that the parties agreed to. This usually involves one party making an offer, the other party accepting it, something valuable being exchanged (like money or goods), and both parties intending to make a contract.

2. Failure to do what the contract says: One party has to not do something they were supposed to do according to the contract. This could mean not delivering goods, not providing services, or not paying as promised.

3. Timing: The breach has to happen when it’s supposed to. If the time for doing what’s agreed upon hasn’t come yet, it might not be an actual breach but an anticipatory one.

4. Importance: The breach has to be serious enough to mess up the point of the contract and need fixing. If it’s just a small mistake, it might not lead to legal action.

CASE LAWS

In Bishamber Nath Agarwal v. Kishan Chand (1989)[12], the Allahabad High Court said that if a contract says something has to be done in a certain way or by a certain time, it has to be done exactly like that. People can’t just do it whenever or however they want.

In Haryana Telecom Ltd. v. the Union of India (2006)[13], the Delhi High Court said that even if a contract says something can be done after a certain time, the person who didn’t do their part still has to pay for any losses caused by being late. They looked at all the parts of the contract and saw that being on time was really important.

ANTICIPATORY VERSUS PRESENT BREACH OF CONTRACT

When one party doesn’t fulfill their part of the agreement by the agreed-upon date or does it incompletely, it’s present breach. But if one party says they won’t do their part of the agreement before the deadline, it’s an anticipatory breach.

In an anticipatory breach, the whole contract is canceled. In present breach, the breach could be breaking a condition, a guarantee, or a vague term in the contract.

If there’s an anticipatory breach, the aggrieved party can cancel the contract and sue for damages without waiting for the contract’s deadline. Or they can wait until the deadline and then sue. But if there’s present breach, the aggrieved party has to sue right away.

DAMAGES FOR BREACH OF CONTRACT[14]

When someone breaks a contract, there are different ways to make it right. Sometimes, the person who broke the contract can fix things by doing what they were supposed to do in the first place. But that’s not always possible or fair for the other person.

If the breach is really serious, the person who didn’t break the contract might not want to keep working with the other person.

Depending on how bad the breach is, the court might order the person who broke the contract to pay money to the other person. Here are some types of money payments the court might order:

• Restitution

Restitution, when someone breaks a contract, is a way to fix things legally. Its goal is to put the person who didn’t break the contract back in the same place they were before the contract happened. It’s also meant to stop the person who broke the contract from unfairly benefiting.

Restitution is different from compensatory damages. Compensatory damages are money paid to make up for actual losses. Restitution is usually given when the contract can’t be enforced, is invalid, or has been canceled.

• Compensatory Damages

Compensatory damages, also called actual or direct damages, are money paid to someone who lost money because of a broken contract.

When one person in a contract doesn’t do what they agreed to, the other person might get compensatory damages. This money is meant to make up for their losses and put them in the same position they would’ve been in if the contract had been followed.

• Punitive Damages

When a contract is broken, the main solution is usually compensatory damages. These damages aim to pay back the person who didn’t break the contract for the money they lost because of the breach.

The goal of contract law is to make sure agreements are followed and everyone gets what they’re supposed to. Punitive damages don’t fit well with this goal because they’re not just about paying back losses—they’re about punishing bad behavior. However, in some rare cases, punitive damages might be given in a contract breach if there was fraud or extreme wrongdoing, or if compensatory damages aren’t enough to cover the losses.

• Liquidated Damages

Liquidated damages are set amounts of money agreed upon in a contract to be paid if one party breaks the contract. These damages are meant to cover the expected losses because of the breach.

In a contract breach case where there’s a liquidated damages clause that’s valid, the party who didn’t break the contract gets the set amount of money mentioned in the contract. They get this money no matter what their actual losses are. Without this clause, they’d have to prove how much they lost, which can be harder.

REMEDIES FOR BREACH OF CONTRACT[15]

When someone doesn’t follow through on their promise or agreement, it’s called a breach of contract. This happens when one party doesn’t do what they agreed to in the contract. There are some ways to fix this situation for the party who was wronged. Let’s explore those options.

• Rescission of Contract

Rescission of a contract is a legal solution that cancels or voids a contract because of a breach or other valid legal reasons. When there’s a breach of contract, rescission lets the innocent party act like the contract never happened. This can be done if one party significantly breaks the contract or if there are legal reasons to cancel it.

According to section 65 of the Indian Contract Act, if someone cancels a contract, they have to give back any benefits they received from the contract[16]. And section 75 says that the person who cancels the contract can also get compensation for doing so[17].

• Suit for Damages

Section 73 says that if one party breaks promises, the other party who suffers because of it can ask for money to cover their losses in regular business situations[18].

In a claim for damages, the “Hadley vs. Baxendale“[19] rule is significant. It means that if the contract mentions specific damages in advance, the harmed party can only ask for regular damages when suing the other party.

But if the loss is unusual and not normal for that kind of business, they can’t ask for money to cover it. The law talks about two kinds of damages:

Liquidated Damages: Sometimes, in a contract, the parties agree on the amount of money that will be paid if there’s a breach. This is called liquidated damages.

Unliquidated Damages: If the amount of money to be paid because of a breach isn’t decided beforehand, the courts or other authorities will figure it out later. This is called unliquidated damages.

• Sue for Specific Performance

This means the party who breaks the contract has to do what the contract says. Sometimes, the courts can even make them do it. If one party doesn’t do what they agreed to in the contract, the court might order them to do it anyway. This is called a specific performance order, and it happens instead of paying damages.

For instance, if A agreed to buy land from B, but then B changes their mind and refuses to sell, the court might tell B they have to sell the land to A like they promised.

• Injunction

An injunction is similar to a specific performance order, but for contracts where one party promises not to do something. It’s a court order that tells someone to stop doing a specific thing.

For instance, if someone promised in a contract not to do something, the court might issue an injunction to make sure they don’t do it. There are two types of injunctions: prohibitory, which stops someone from doing something, and mandatory, which stops someone from continuing an unlawful action.

• Suit for Quantum Meruit

A suit for quantum meruit is a legal way for someone to get paid for the fair value of goods or services they provided, even if there wasn’t a clear agreement on payment in a contract or if the contract didn’t specify how much they should get paid.

Quantum meruit, which means “as much as he deserves” in Latin, is a legal idea to make sure that someone who benefits from goods or services has to pay a fair price for them, even if there wasn’t a specific agreement on the price.

This lets the party who didn’t break the contract sue to get paid for the work they did before the contract was broken.

CONCLUSION

In conclusion, breach of contract can occur in two main ways: anticipatory and present. Anticipatory breach happens when one party indicates, either explicitly or implicitly, that they won’t fulfill their obligations as agreed upon in the contract. This could be through a clear refusal to perform or actions that make it impossible to fulfill the contract. On the other hand, present breach occurs when one party fails to fulfill their contractual obligations either by not performing on time, performing inadequately, or not completing the performance at all.

In the event of a breach of contract, there are legal remedies available to the aggrieved party. These remedies include seeking damages, rescission of the contract, specific performance, injunction, and suit for quantum meruit. Damages can take various forms, such as compensatory, punitive, liquidated, or unliquidated, depending on the circumstances of the breach and the terms of the contract.

It’s essential for parties entering into contracts to understand their rights and obligations under the law to avoid disputes and mitigate risks associated with breaches. Additionally, clear and precise contract drafting can help minimize ambiguity and confusion, thereby reducing the likelihood of breaches occurring. In case of a breach, prompt action and seeking legal advice can help protect one’s interests and facilitate resolution in a fair and equitable manner.

Ultimately, the enforcement of contracts and the remedies available for breach play a crucial role in upholding the integrity of business transactions and fostering trust and confidence in commercial dealings. By adhering to contractual obligations and resorting to legal recourse, when necessary, parties can ensure accountability and uphold the principles of justice and fairness in contractual relationships.

REFERENCES

1. https://www.indiacode.nic.in/
2. https://cleartax.in/glossary/breach-of-contract/
3. https://www.lovell-law.net/blog/business-litigation/the-elements-of-a-breach-of-contract-claim/
4. https://blog.ipleaders.in/types-breach-contract-should-know-about/
5. https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-ii/anticipatory-and-actual-breach-of-contract/
6. https://www.studysmarter.co.uk/explanations/law/contract-law/actual-breach/
7. https://lawctopus.com/clatalogue/clat-pg/notes-breach-of-contract-types-effects-remedies/
8. https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/remedies-for-breach-of-contract/
9. https://www.lawteacher.net/cases/hadley-v-baxendale.php
10. https://indiankanoon.org/

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[1]Indian Contract Act, 1872, § 37, No. 9, Acts of Parliament, 1872 (India).

[2]Cleartax, https://cleartax.in/glossary/breach-of-contract/ (last visited on April 29, 2024)

[3]Indian Contract Act, 1872, § 73, No. 9, Acts of Parliament, 1872 (India).

[4]Joe Lovell, The Elements of a Breach of Contract Claim, LOVELL, ISERN & FARABOUGH, (April 29, 2024, 9:29 PM), https://www.lovell-law.net/blog/business-litigation/the-elements-of-a-breach-of-contract-claim/

[5]Oishika Banerji, Types of breach of contract that you should know about, IPLEADERS, (April 29, 2024, 11:02 PM), https://blog.ipleaders.in/types-breach-contract-should-know-about/

[6]Toppr, https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-ii/anticipatory-and-actual-breach-of-contract/ (last visited on April 30, 2024)

[7]Ibid 5

[8]Indian Contract Act, 1872, § 39,No. 9, Acts of Parliament, 1872 (India).

[9]Food Corporation v. J. P Kesharwani, (1994 Supp (1) SCC 531)

[10]Aslhing v. S. John, 1984 AIR 988

[11]Study Smarter, https://www.studysmarter.co.uk/explanations/law/contract-law/actual-breach/ (last visited on April 30, 2024)

[12]Bishamber Nath Agarwal v. Kishan Chand, AIR 1990 ALL 65

[13]Haryana Telecom Ltd. v. the Union of India, AIR 2006 DELHI 339

[14]Ruchika Mohapatra, Notes on Breach of Contract: Types, Effects, Remedies, LAWCTOPUS, (May 01, 2024, 02:10 AM), https://lawctopus.com/clatalogue/clat-pg/notes-breach-of-contract-types-effects-remedies/

[15]Toppr, https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/remedies-for-breach-of-contract/ (last visited on May 01, 2024)

[16]Indian Contract Act, 1872, § 65, No. 9, Acts of Parliament, 1872 (India).

[17]Indian Contract Act, 1872, § 75, No. 9, Acts of Parliament, 1872 (India).

[18]Supra Note 3

[19]Hadley vs. Baxendale, [1854] EWHC J70

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