Anticipatory Breach of Contract

Introduction

Indian Contract Act which came into force on 1872, frames and validates the contracts or agreements between different parties. Contract Act is one of the central laws which regulates all the business wherever there is a case of a deal or an agreement. This act mainly came into force, in order to prevent the parties from unnecessary breach of contracts.

Breach of Contract

Breach means failure of a party to perform his/her obligation under a contract. It mainly occurs when at least one party does not fulfil his/her commitments under the contract.  Breach of Contract may arise in two ways:

  1. Actual Breach of contract
  2. Anticipatory Breach of contract

Any of these kind of breach affects the contract in a negative manner.

An actual breach happens when one party to the contract refuses, neglects, or fails to perform his/her duties on the due date of the performance of the contract, while an anticipatory breach of contract occurs when one party to the contract refuses, neglects, or fails to complete his/her duties before the actual time of the performance of contract arrives.

Anticipatory Breach of Contract

An anticipatory breach of contract means a breach of contract which has taken place before the actual time of the performance of the contract has arrived. When the promisor refuses altogether to perform the promise which he had made and signifies his unwillingness of not performing the contract even before the time for the performance has arrived, it is called as the Anticipatory breach of contract.

Types of Anticipatory breach of contract

The two types of Anticipatory breach of contract are, or in other words the Anticipatory breach of contract may take place in either of the following two ways:

  1. Express repudiation i.e. Expressly by words spoken or written and
  2. Implied repudiation i.e. Impliedly by the conduct of one of the parties

E.g 1.  On 10 August 2020, ‘X’ had contracted with ‘Y’ to sell 10 bags of biscuits on 15 September 2020 for Rs. 10,000. But on 1st September 2020, ‘X’ informed ‘Y’ that he won’t be able to perform the contract on the said date. So, here there is an express rejection of the contract by ‘X’.

E.g 2. On 15 August, 2015, ‘X’ made a contract with ‘Y’ to sell his car to ‘Y’ on 1st  September, 2015 for Rs. 25,000. But, on 25th August, 2015, ‘X’ sold his horse to ‘Z’. Here, the anticipatory breach has occurred by the conduct of the promisor (‘X’ in the given example).

In the case of Hochester v. De La Tour, the most leading case relating to anticipatory breach, Lord Campbell CJ made a very important observation that forms the genesis of the concept of anticipatory breach. He stated that a ‘contract is contract from the date it is made and not from the date its performance is due.’ Hence, even though the performance becomes due on a future date, the obligations are still initiated on the date of the creation of the contract.

Provisions of the Laws

Anticipatory breach, though not per se defined under the contract laws in India, is incidently covered under the following provision of the Sales of Goods Act, 1930 and Section 39 of the Indian Contract Act, 1872.

Section 39 of the Indian Contract Act: ‘when a party to a contract has refused to perform or disable himself from performing, his promise in its entirety, the promise may put an end to the contract, unless he has signed, by words or conduct, his acquiescence in its continuance’.

Effect of Anticipatory breach

So, as we know, when this anticipatory breach of contract happens, the promisee need not perform his duty because the promisor has already made a default in performance of his part.

Further he gets an option:

  1. To either treat the contract as ‘rescinded’ and he can sue the other party for damages occurred due to the breach of contract immediately without even waiting for the due date of performance of the said contract.
  2. He also has the option not to rescind the contract but to treat the contract as still operative and wait for the date of performance of that contract and then, if he is still not performing, hold the defaulting party responsible for all the consequences of non-performance of the contract.

Remedies for the anticipatory breach of contract

The Indian Contract Act also provides for the remedies to the aggrieved party for the anticipatory breach of contract committed by the other party.

Some of the remedies for the anticipatory breach of contract given under the Indian contract act are as follows:

  1. Monetary damages:

In this the aggrieved party can claim compensation from the defaulting party for the anticipatory breach of contract which he has committed. In this, the party can recover the damages only to the extent of the amount actually spent by the party in execution of his part of performance.

  • Restitution:

In this remedy, the injured party cannot ask for any compensation for the loss which he has suffered due to the anticipatory breach of contract, but he has the right to ask for all the money or property which has been given to the other party of the contract.

  • Rescission:

It puts an end to the obligation of both the parties completely. The parties that are indulged in the contract due to mistake, fraud, undue influence can ask to set aside the contract and the obligations formed hereunder by way of remedy of rescission available in such cases.

Cases relating to Anticipatory breach of contract

Some of the cases relating to the anticipatory breach of contract are as follows:

  1. Food corporation v. J.P.Kesharwani:

In this case, the Supreme Court held that where one party to the contract making unilateral alterations without notifying to the other party and then cancelling the contract, this amounted to breach (repudiation). Therefore, contract of any kind may be treated as a broken contract when a party fails in performing the contract as promised, regardless of when the performance of the contract is supposed to occur. This unconditional refusal is known as a repudiation of contract.

2. In the case of Universal cargo in the year 1957, it was held by the supreme court that the ‘Anticipatory breach means that a party is in breach from the moment that his actual breach becomes inevitable. Since the reason for the rule is that a party is allowed to anticipate an inevitable event and is not obliged to wait till it happens, it must follow that the breach which he anticipates is of just the same character as the breach which would actually have occurred if he had waited’.

3. Aslhing v. L.S. John:

In this case, a contractor (respondent), who was a party to the contract with the government for the expansion of the road, wrote a letter to the concerned executive engineer notifying that the said contract was being closed. But, according to the appellant, the contents of the letter had not ant effect of discharging the contract.  The decision of the court in this case was given by Fazal Ali J. and it was argued that the contents of the letter made no effect in closing of the said contract. However, after reading the contents of the letter, it was evident that the contractor unilaterally terminated the contract and notified the appropriate department, as well as resigning from the PWD Manipur contractor list. As a result of this letter, the contract was rejected, and the authorities’ acceptance of the letter was not required to terminate the contract, however, a breach could result in a damages action.

Conclusion

As conclusion, the breach of contract may arise in two ways as Actual breach of contract and Anticipatory breach of contract. Anticipatory breach of contract means any breach of the contract which has occurred before the due date of the performance of the said contract. The Indian Contract Act clearly gives us a clear idea on the Anticipatory breach of contract its types as well as remedies, which I have explained deeply in my article.

Reference :

Understanding Anticipatory Breach of Contracts – S.S Rana & Co (ssrana.in)

Law on Anticipatory Breach of Contract in India (myadvo.in)

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