Law and You > Business Laws > Indian Contract Act, 1872 > Anticipatory Breach of Contract under The Indian Contract Act, 1872 (S. 39)
Anticipatory breach of contract represents a very important concept discussed under Section 39 of the Indian Contract Act, 1872. It occurs when one party indicates, through words or actions, an intention not to fulfill their promised obligations before the agreed performance time. This principle of anticipatory breach of contract not only signifies a pressing concern in contractual relations but also underscores the importance of understanding the difference between actual breach and anticipatory breach, as well as the anticipatory breach meaning, for those involved in contractual agreements. Recognizing an anticipatory breach of a contract allows the promisee to seek remedies for anticipatory breach of contract before any actual damage occurs, thereby providing a safeguard against potential losses and contract disputes.
Effect of Refusal of Party to Perform Promise Wholly (S. 39 ICA):
According to Section 39 of the Indian Contract Act, 1872 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.
Illustrations:
(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night’s performance. On the sixth night A wilfully absents herself from the theatre. B is at liberty to put an end to the contract.
(b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two night’s in every week during the next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night, A wilfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A’s failure to sing on the sixth night.
Types of Breach of Contract:
Breach of contract may be:
- Actual Breach of Contract ,or
- Anticipatory or Constructive Breach Of Contract.
Actual Breach of Contract:
It is non-performance of the contract on the due date of performance. For example, A Is to supply certain goods to B on 1st January 2024. On 1st January 2024, A doesn’t supply the goods. He has made actual breach of contract. It may take place as:
- At the time when the performance is due: breach of contract occurs, when at the time when the performance is due one party fails or refuses to perform his obligation under the contract.
- During the performance of the contract: Actual breach of contract also occur when during the performance of the contract, one party fails or refuses to perform his obligation under the contract.
Anticipatory Breach of Contract:
Anticipatory Breach of contract occurs when a party to the contract without lawful excuse does not fulfil his contractual obligation or by his own act makes it impossible that he should perform his obligation under it. It confers a right of action for damages on the injured party. For example, if A informs B on 1st December that he will not perform the contract on 1st January next, A has made anticipatory breach of contract.
Modes of Manifestation of Anticipatory Breach of Contract:
Anticipatory breach of contract can manifest in two primary forms:
- Express Repudiation: This occurs when a party explicitly declares their intention not to fulfill the contractual obligations. For example, C contracted with a railway company to supply it 3,000 tons of railway chairs at a certain price to be delivered in instalments. After 1,787 tons had been supplied, the railway company asked C to deliver no more. In this case C can bring an action for breach of contract.
- Implied Repudiation: This form is less direct but equally binding, where a party’s actions or words strongly suggest that they will not perform their part of the contract as agreed. The intent to not fulfill contractual obligations must be clear and absolute to constitute an anticipatory breach. This intent is essential as it affects the legal remedies available to the non-breaching party.
Effects of Anticipatory Breach of Contract:
Rights and Options for the Aggrieved Party
Anticipatory breach of contract provides the aggrieved party with significant rights and strategic options.
- The aggrieved party can choose to either repudiate the contract immediately or continue under the existing terms while seeking compensation for the breach.
- If opting to terminate, the aggrieved party can initiate legal proceedings without waiting for the time of performance, thus addressing the breach proactively.
- The aggrieved party can demand reassurance from the breaching party that the contract will be performed as agreed. Failure to provide satisfactory assurance within 30 days can lead to the official recognition of the breach.
- It is obligatory for the aggrieved party to take reasonable steps to mitigate the losses resulting from the breach. This includes halting payments and other duties while awaiting assurance from the breaching party.
In Frost v. Knight (1872) L.R. 7 Ex 111 case, the defendant promised to marry the plaintiff on his (defendant’s) father’s death. While defendant’s father was still alive, he broke off the engagement. The plaintiff did not wait till the defendant’s father’s death and she immediately sued him for the breach of contract. She was successful in her action.
Legal and Practical Implications:
The anticipatory breach doctrine not only alters the contractual landscape by shifting immediate responsibilities but also influences the strategic behaviour of both parties involved.
- When one party clearly indicates through actions or explicit communication that they will not perform their obligations, it relieves the counterparty of their duty to perform, thus preventing further resource expenditure on a contract that is unlikely to be fulfilled.
- The ability to take immediate legal action provides a tactical advantage, allowing the aggrieved party to address the breach swiftly and effectively.
- Even if the aggrieved party chooses to continue with the contract, they remain entitled to claim compensation for the anticipatory breach, ensuring that any losses are covered.
Deterrent Effects:
The anticipatory breach doctrine serves multiple functions within contractual relationships, extending beyond immediate legal remedies to influence broader contractual behaviour and negotiations.
- By allowing the possibility for the contract to be salvaged through reassurances and negotiations, the doctrine promotes dialogue and may prevent the complete breakdown of the contractual relationship.
- The serious implications of an anticipatory breach, including immediate legal consequences and potential compensation claims, act as a deterrent against premature or unjustified repudiations of contracts.
- The doctrine enables the aggrieved party to take pre-emptive measures to mitigate losses and arrange their affairs without waiting for the actual performance date, thereby reducing the impact of the breach.
Remedies Available for Anticipatory Breach:
Upon encountering an anticipatory breach of contract, the injured party faces a critical decision: to either cancel the contract immediately and seek damages or wait until the contract’s due date has passed before initiating legal action for breach of contract. This choice allows the aggrieved party to either address the breach proactively or gather more evidence of non-performance. Options for the Injured Party are as follows:
- Immediate Cancellation and Action for Damages: The party can cancel the contract as soon as an anticipatory breach occurs, allowing them to file for damages immediately without waiting for the contract’s scheduled completion.
- Waiting for Due Date: Alternatively, the injured party may choose to wait until the contract’s due date before taking legal action against the defaulting party, which might be strategic in gathering more substantial evidence of non-performance.
Forms of Remedies Available:
Monetary Damages:
This includes compensatory and consequential damages, intended to cover financial losses directly tied to the breach or those indirectly incurred but were foreseeable. It is a legal obligation for parties claiming an anticipatory breach to actively mitigate their damages. This means taking reasonable steps to reduce the financial impact of the breach, which is a prerequisite for claiming compensation in court. Different types of damages are as follows:
- Compensatory Damages: Aimed at directly compensating the non-breaching party for the loss suffered due to the breach.
- Consequential Damages: These cover losses that result indirectly from the breach, provided they were reasonably foreseeable at the contract’s formation.
- Nominal Damages: Awarded when a breach is recognized but no substantial loss has been suffered, serving more as a symbolic recognition of the breach
Rescission and Restitution:
These remedies aim to restore the injured party to the position they were in before entering the contract, effectively nullifying the contractual obligations.
Specific Performance:
In certain cases, the court may order the breaching party to fulfill their contractual duties as originally agreed, applicable particularly in unique goods or services that cannot be easily substituted.
Conclusion:
Anticipatory breach of contract under the Indian Contract Act, 1872, refers to a situation where one party indicates, either through words or conduct, that they will not fulfill their contractual obligations before the performance is due. An anticipatory breach occurs when a party to a contract clearly refuses to perform their obligations before the performance is due, allowing the other party to seek remedies.
Upon receiving notice of anticipatory breach, the non-breaching party has several options. They can choose to treat the contract as discharged and sue for damages or they may also decide to wait until the performance is due and see if the breaching party performs. Section 39 allows the aggrieved party to call off the contract if the other party shows an unwillingness to perform, while Section 40 deals with the performance of reciprocal promises. The non-breaching party can claim damages for any loss suffered due to the breach, and the measure of damages is typically based on the loss that can be reasonably foreseen. Indian courts have upheld the principle of anticipatory breach, affirming the rights of non-breaching parties to seek remedies without having to wait for the due date of performance.
In conclusion, anticipatory breach serves as an important legal mechanism within the framework of the Indian Contract Act, allowing parties to address potential breaches proactively. It emphasizes the importance of upholding contractual obligations while providing avenues for redress in cases where those obligations are threatened. This principle supports the broader goals of contract law, which aims to promote fairness and certainty in commercial transactions.