Anticipatory Breach of Contract

Written by- Palak Singh

Topic – Anticipatory Breach of Contract

Anticipatory Breach of Contract: Hindrance in Proper Functioning of Agreement

 The anticipatory breach of contract is specified under Section 39 of the Indian Contract Act, 1872. It states: “When a party to a contract has refused to perform or disable himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signifi­ed, but words or conduct, his acquiescence in its continuance.”

In other words an anticipatory breach of contract is an action that shows one party’s intention of failure to fulfil its contractual obligations to another party. An anticipatory breach ends the counterparty’s responsibility to perform its duties. Demonstrating the other party’s intention to breach the contract gives the counterparty grounds for beginning legal action. An anticipatory breach is also referred to as an anticipatory repudiation.

The courts generally recognize three different types of repudiation:

  • When the refusal made to the other party stands positive and unconditional (express repudiation) in such cases, the renunciation must be clear, straightforward, and directed at the party thereto in the contract. (for example: “A” contracts to sell crops to “B” within a due date, however before the due date he gives a written application to “B” saying, “ I’ll not deliver the crops as promised”).
  • When it comes to repudiation, sometimes action makes it impossible for the other party to perform. Action speaks as loudly as words. Such a case may be cited with an example, ‘A’ being a renowned businessman, was supposed to repay his bank loan. However, just before the due date he became bankrupt, which made it impossible for him to pay back his loans, his reckless voluntary actions that led to his insolvency was counted as a repudiation of the loan agreements.
  • If the contract is for the sale of property, repudiation occurs when one party transfers (or makes a deal to transfer) the property to a third party.

A breach of contract is normally categorized another two heads firstly Anticipatory breach of contract and secondly Present breach of contract.

Present Breach of contract is a situation where the failure to perform the obligations may take place at the time of performance or at a date even before that. Whereas Anticipatory breach of contract is a declaration made by one of the contracting parties of his intention of failure to not  fulfil the contract. And proclaim that he will no longer remain bound by it.

Anticipatory repudiation” originated in American and English common law in the mid-1800s with the watershed case of Hochster v. de la Tour.’ where in April, De La Tour engaged Hochester as his courier for three months from 1st June 1852 onwards, and was told to accompany him to a tour around the European Continent. However on the 11th of May of that year, (De La Tour) the defendant had written to say that the plaintiff’s services were no longer required. Thus on May 22nd Hochester sued. The defendant’s counsel very powerfully argued that Hochester was still under an obligation to stay ready and willing to perform till the day when the performance was due and there could commence no action before. But Lord Campbell CJ ruled out the objection, and allowing the claim pointed out that a contract is contract from the date it is made and not from the date that its performance is due[1].

Effect of Anticipatory Breach of Contract-

When an anticipatory breach of contract is committed the injured or the aggrieved party generally has two options at his/her disposal. The options available to the injured party in case of anticipatory breach of contract are as follows:

As soon as the anticipatory breach has been committed, the injured party can rescind or repudiate the contract and can bring an action for damages for anticipatory breach of contract without waiting for the due date for the performance of the contract. The other option is that the injured or the aggrieved party waits till the due date fixed for the performance of contract and then bring a case against the defaulting party for breach of contract.

There are four key factors which are considered essential to determine whether an anticipatory breach of contract has happened or not. These factors are as below:

1) When the party has clearly communicated that he will not perform his part of obligation and such performance goes to the root of the contract,

2) The renunciation or repudiation to perform a contract cannot be conditional on certain circumstances taking place. The refusal, therefore should be absolute.

3) While deciding whether there has been sufficient refusal to perform the obligation of the contract, it must be judged according to whether a reasonable person in the position of the innocent party would regard the refusal as being clear and absolute.

The Anticipatory breach of Contract Remedies are-

Any contract can be said to be breached when one party to the contract unconditionally refuses to perform his part of the contract. When this refusal to do the obligation under the contract is done before the due date of the contract then it is known as anticipatory breach of the contract. The Indian contract act provides for anticipatory breach of contract remedies which are provided to the aggrieved party against the party committed anticipatory breach of contract.

Following are the anticipatory breach of contract remedies which are provided in the Indian Contract Act :

Monetary Damages –  It includes a sum of money that is awarded as a compensation for the financial losses suffered by the party against whom the anticipatory breach has been committed. The party can claim the bargain which he/she was entitled for under the terms of contract or can ask compensation for the net gain which they have occurred if the anticipatory breach of the contract would not have been done. In case of an anticipatory breach the party can recover the damages only to the extent of amount of actually spent by the party in execution of his part of the performance.

Restitution – It is an anticipatory breach of contract remedy which provides that the injured party of the contract in the same position as he/she was in before the contract was made. If the Restitution is chosen as the anticipatory breach of contract remedy then the injured party cannot ask for compensation for the loss incurred by him because of the anticipatory breach of contract. Restitution as a remedy focuses on returning the injured party money or the property which has been given to other party of the contract who has committed the anticipatory breach of contract.

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

Reformation – It is a remedy available in case of a breach of contract. In this type of remedy the court changes those substance of the contract because of which inequities was suffered by the injured or the aggrieved party to the contract. The courts generally resist in providing the remedy of the reformation as a mistake in a contract can be easily changed by doing a pre-contract signing investigation.

Specific Performance of Contract – Specific performance of the contract is an equitable remedy available in case of anticipatory breach of contract or an actual breach of contract. This remedy compels the breaching party to perform his part of the contract i.e., his or her duties as specified under the terms of the contract. When the monetary damages are inadequate to compensate the injured or aggrieved party against the anticipatory breach of contract only then the court orders for the remedy of the specific performance of contract. The remedy of specific performance of the contract is generally given when the subject matter of the contract is the main reason of the dispute[2].

[1] Anticipatory breach of contract and the law in India, Ipleaders( April 30, 2015), https://blog.ipleaders.in/anticipatory-breach-contract-law-india/.

[2] ANTIM AMLAM, Law on Anticipatory Breach of Contract in India, MYADVO( May 23, 2018), https://www.myadvo.in/blog/law-on-anticipatory-breach-of-contract-in-india/.

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