This article has been written by Sarthak Mittal. The article delves into the doctrine of anticipatory breach of contract. It focuses on the essentials, effects, and statutory provisions related to the doctrine of anticipatory breach of contract. The article also discusses the remedies available in case of an anticipatory breach of contract.
It has been published by Rachit Garg.
Table of Contents
Introduction
Lord Stowell, in the case of Dalrymple v. Dalrymple (1811), very succinctly held that “contracts should not be the sport of an idle hour, a mere matter of pleasantry and badinage, never intended by the parties to have any serious effect whatsoever.” The given statement brings out the seriousness behind the legal relationships that are created by contracts. It helps to highlight the primary object of contract law, which is to ensure that the contracting parties abide by all the duties imposed upon them by the contract and to provide for remedies in case of breach of the given duties. Contract law, being based on principles of equity, does not only provide remedies for actual breaches but also remedies where the breach of contract is anticipated by the promisee. Thereby, contract law does not expect the promisee to wait until the actual date of performance of the contract to witness the inevitable breach of contract. In such a case, an important doctrine in contract law, namely the doctrine of anticipatory breach of contract, is invoked, which empowers the promisee to seek the remedy before the actual date of performance in cases where the promisor has, due to his wilful conduct, made the contract impossible to be performed on the actual date of its performance.
What is a breach of contract
A contract consists of a promise or a set of reciprocal promises that are legally enforceable by law. Section 37 of the Indian Contract Act, 1872, provides that it is mandatory for parties to perform the promise or at least offer to perform the promise made by them in a contract. Thereby, when any of the parties refuses or fails to fulfil the promise made by him, it is said to be a breach of contract. The contract generally specifies a time period within which the promise is to be performed, and if there is no such time period provided, then the promise is to be performed within a reasonable period of time. However, on the expiration of such a period, if the act or abstinence promised in the contract remains unperformed, the contract is said to be breached.
What is an anticipatory breach of contract
The doctrine of anticipatory breach of contract is based upon equity. It enables the promisee to seek a remedy before the actual breach occurs. An anticipatory breach of contract occurs when the promisor creates a self-induced impossibility for the performance of his promise. The promisor, through his conduct, creates such circumstances that it would become obvious to any reasonable person that the contract has become impossible to be performed on or till the actual date of its performance. In the case of Hochster v. De La Tours (1853), the plaintiff engaged the defendant to accompany him on a tour commencing from 1st July, 1832. The defendant refused to accompany the plaintiff as agreed one month before the commencement of such a tour. In the suit brought against the defendant, the defendant contended that a suit for breach of contract cannot be brought before the actual date of commencement. Lord Campbell in the given case held that it cannot be laid down as a universal rule that, where a contract is for the performance of an act in the future, the suit cannot be brought until the date of the performance arrives. The suit can be brought before the date of performance if the promisor refuses to perform his part before such a date or when he creates such circumstances that disable him from performing the contract on the actual date of performance. Thereby, it was made clear that in cases of anticipatory breach of contract, the suit can be instituted before the actual date of performance has arrived.
As a general rule, to file a suit, we need a right, and that right has to be infringed to give rise to a cause of action. When such a cause of action arises, a suit can be filed. In the case of contract law, the parties create their contractual rights and obligations, which are given the force of law by the contract law. In such cases, the suit is filed when the contractual right of a person is infringed or when an obligation cast upon a person is left unfulfilled on the date prescribed by the contract for performance. The doctrine of anticipatory breach of contract is an exception to the given rule. Herein, the promisee becomes sure that the contract is going to be breached on the date of performance due to the promisor’s refusal to perform or due to his self-imposed inability to perform the contract. Equity dictates that the promisee cannot be made to sit and spectate until the actual date of performance while he incurs loss due to the promisor’s conduct. Thereby, in the case of anticipatory breach of contract, the suit is brought before there is an actual accrual of the cause of action; however, to institute a suit, it must be proved that the cause of action would have surely arisen on the actual date of performance prescribed by the contract.
Statutory provisions related to anticipatory breach of contract
In India, the doctrine of anticipatory breach of contract has been embodied in Section 39 of the Indian Contract Act, 1872, and Section 60 of the Sale of Goods Act, 1930. Both Sections provide that the consequence of the anticipatory breach of contract will be to make the contract voidable at the instance of the promisee, wherein the option of repudiating the contract can be exercised by the promisee until the actual date of performance. Section 39 of the Indian Contract Act provides that the promisor is said to have caused an anticipatory breach of contract when he refuses to perform his promise in its entirety or disables himself from performing the promise in its entirety. On such conduct by the promisor, the promisee can either repudiate the contract or continue with it. If the promisee expressly or impliedly acquiesces to the continuation of the contract, he forfeits his right to repudiate the contract.
The Indian Contract Act is a general law applicable to all kinds of contracts, whereas the Sale of Goods Act is a special law applicable only to contracts related to the sale of movable property. Section 3 of the Sale of Goods Act provides that the provisions of the Indian Contract Act will supplement the provisions of the Sale of Goods Act in so far as they are consistent with each other. Thereby, even if Section 60 were to have been omitted from the said Act, the doctrine of anticipatory breach of contract would have applied through Section 39 of the Indian Contract Act. Section 60 of the Sale of Goods Act provides that where, before the date of delivery, either party repudiates the contract, the other party has the option to wait until the date of delivery, or such party can elect to treat the contract as rescinded and sue for damages even before the date of delivery arrives. Both the provisions, namely, Section 39 of the Indian Contract Act and Section 60 of the Sale of Goods Act, are pari materia to each other.
Essentials of anticipatory breach of contract
Section 39 of the Indian Contract Act lays down the following essentials for anticipatory breach of contract:
- There should be a contract with a future date for performance.
- Either of the parties should either refuse to perform the promise made on their part or should have wilfully induced such circumstances that the performance of the promise becomes inevitable.
- The performance of the promise should not merely be unlikely or economically infeasible; rather, it should have become impossible.
- Such refusal or self-induced impossibility should occur before the actual performance date.
- Refusal can be expressed or implied.
Effect of anticipatory breach of contract
It is imperative to discuss the illustrations provided by Section 39. The illustrations cogently bring out the effect of anticipatory breach of contract. In both illustrations, the terms of the contracts are the same, wherein a singer ‘A’ contracted with ‘B’ who is the manager of a theatre. The contract is for ‘A’ to sing at the theatre for two nights every week for a period of two months. It is stipulated that ‘A’ will get paid Rs. 100 for each performance. Thereby, as per the contract, ‘A’ is to sing for sixteen nights, but ‘A’ wilfully absents herself on the sixth night. In the given case, the word ‘wilful’ clearly manifests that it is a self-induced impossibility on the part of ‘A’. Thus, ‘B’ can elect to repudiate the contract by virtue of Section 39 on the sixth night itself without waiting for the end of the sixteenth night, as has been provided in illustration (a).
In Illustration (b) the circumstances are the same; however, ‘B’ here decides to acquiesce to the singing of ‘A’ on the seventh night. By allowing ‘A’ to sing on the seventh night, ‘B’ has forfeited his right to repudiate the contract as per Section 39. Herein, ‘B’ will not be able to end the contract now; however, he will be entitled to claim compensation for the damage sustained by him due to the wilful absenteeism of ‘A’ on the sixth night. It is pertinent to note that Section 39 omits to provide for compensation. However, by using illustration as an internal aid to interpretation, we can deduce that even on acquiescence by the aggrieved party to the continuance of the contract, the aggrieved party is entitled to compensation for damages caused to him due to the conduct of the promisor.
Remedies
In cases of contracts, the parties themselves carve out their rights and liabilities, and it is the Indian Contract Act that legally enforces such contracts. To effectively follow the principle of ubi jus ibi remedium, i.e., where there is a right, there is a remedy, the Indian Contract Act is read with the Specific Relief Act, 1963, for remedying cases of breach of contract. In the general case of breach of contract, the person aggrieved claims the relief of specific performance of the contract under Section 10 of the Specific Relief Act and claims compensation under Section 73 of the Indian Contract Act, alternatively or additionally.
Compensation to aggrieved party
When elects to repudiate the contract
It is clear from Section 39 that a person aggrieved by an anticipatory breach of contract can either repudiate the contract or continue the contract. If the person repudiates the contract, he will be entitled to be compensated for his loss under Section 75 of the Indian Contract. The illustration of Section 75 is based on the same facts as that of illustration (a) of Section 39. The given illustration provides that ‘B’ is entitled to claim compensation for damages sustained by him in breach of such a contract. Thereby, if ‘B’ repudiates the contract, he will not only be entitled to claim compensation for the sixth night but for all the consecutive nights on which ‘A’ was supposed to perform.
When elects to continue the contract
As per illustration (b) of Section 39, the aggrieved party, even if elected to continue the contract, will become entitled to be compensated for damages caused to him due to an anticipatory breach of contract. Thereby, even if ‘B’ allows ‘A’ to sing for all the successive nights after the sixth night, he will be entitled to be compensated for the wilful absence of the sixth night. Apart from this, ‘B’ will have no liability to pay ‘A’ for the sixth night.
Compensation to the party causing anticipatory breach
When the person aggrieved elects to repudiate the contract
In cases of anticipatory breach of contract where the aggrieved party elects to repudiate the contract under Section 39 of the Indian Contract Act, he is also simultaneously obligated to restore the benefit made to him till the date of such repudiation under Section 64 of the same Act. The same was held in the case of Muralidhar Chatterjee v. International Film Co., Ltd., (1942). The illustration regarding the same has been provided under illustration (c) of Section 65, which is a legislative error. The given illustration should be under Section 64, and it is to be read with illustration (a) of Section 39 as the former is an extension of the latter. According to the given illustration, even if singer ‘A’ wilfully absents herself on the sixth night, she will be entitled to claim compensation for all five nights she has performed in accordance with the contract.
When the person aggrieved elects to continue the contract
In the case where the aggrieved person elects to continue the contract under Section 39, he will be liable to pay compensation to the person causing the anticipatory breach as per the same terms agreed between the parties. For example, on the same facts as that of illustration (b) of Section 39, if ‘B’ agrees to continue the contract, then the singer ‘A’ will be entitled to be compensated for the five nights she sang before being wilfully absent on the sixth night and to be compensated for singing on all ten successive nights. In such a case, ‘A’ will have all the remedies provided under Section 73 of the Contract Act and Section 10 of the Specific Relief Act.
Specific Performance of the Contract
In the case Jawahar Lal Wadhwa v. Haripada Chakroborty (1989), it was held by a three-judge bench of the Supreme Court that a person who is guilty of anticipatory breach of contract cannot claim the remedy of specific performance of contract, as in the case of specific performance of contract, it is mandatory to prove readiness and willingness on the part of the plaintiff as per Section 16(c) of the Specific Relief Act.
The court also held that the other party who is aggrieved by the anticipatory breach of contract cannot claim specific performance if it chooses to repudiate the contract; however, the party can then sue for damages. The court further held that if the aggrieved party chooses to keep the contract alive and is able to prove that he is ready and willing to perform his part of the contract, he can also claim specific performance of the contract.
Invoking writ jurisdiction in cases of anticipatory breach
Generally, a suit is filed in such cases; however, in the case of Jakson Engineers Pvt. Ltd. v. Delhi Development Authority (2003), it was held by the Delhi High Court that in special cases against the government authorities, the High Courts can also exercise their jurisdiction under Article 226 of the Constitution of India. In the given case, the Delhi Development Authority, i.e., DDA, being a public authority, asked the purchaser of a successful bid to pay the purchase money in full when they themselves were not in a position to hand over possession of the auctioned plot. The Delhi High Court held that this was a special case where Article 226 could be invoked.
Important case laws
In the case of Manindra Chandra Nandy and Ors. v. Ashwini Kumar Acharya (1920), it was held by the court that anticipatory breach of contract takes effect as a premature destruction of the contract rather than failure to perform it in its terms. The court also observed that in such a case, the damages are calculated by considering what the injured party would have suffered by the continuing breach of the other party down to the actual date of performance. The court also reduced the cost of damages that are mitigated due to repudiation before the actual date of performance.
In the case of West Bengal Financial v. Gluco Series Pvt. Ltd. (1972), the plaintiff was a private limited company, and the defendant was a body corporate established under the State Financial Corporations Act, 1951, which was a financial institute. The defendant granted a loan of Rs. 4,38,000 to the plaintiff. The contract also stipulated that a loan of Rs. 1,62,000 will also be extended if the plaintiff is able to repay Rs. 60,000 every year. The plaintiff failed to make the repayment but still insisted that the loan of Rs. 1,62,000 should be extended. The defendant denied extending the loan. The plaintiff filed the suit, alleging that the defendant is liable for breach of contract as it failed to provide the loan of Rs. 1,62,000. The court in the given case held that the contract between the parties could be severed into two contracts. One contract is for a loan of Rs. 4,38,000, which was successfully granted by the defendant and accepted by the plaintiff. The court held that the second contract was to extend the loan of Rs. 1,62,000. The second contract was breached by the plaintiff as it failed to make yearly payments of Rs. 60,000. Thereby, as per Section 39 of the Indian Contract Act, the plaintiff caused the anticipatory breach of contract. The defendant, in furtherance, elected to repudiate the given contract, and thereby, the defendant was right in doing so.
Further, in the case of State of Kerala v. Cochin Chemical Refineries Ltd. (1968), the Supreme Court relied on the case of White and Carter v. McGregor (1962) and held that under Section 39, the contract does not repudiate automatically due to the mere fact that one of the parties will fail to perform the terms of the contract. Rather, it is mandatory for the other party to elect in such a case whether the contract is to be repudiated or whether it is to be continued. The given election should be succinct and clear.
Furthermore, in the case of anticipatory breach of contract, it is pertinent to note that there is disagreement between the parties regarding the interpretation of the terms of the contract. In such a case, if the party offers to perform the contract as per his interpretation, it will not amount to an anticipatory breach of contract; the same was held in the case of Lowenstein v. Federal Rubber Co. (1936).
Difference between anticipatory and actual breach of contract
| Grounds | Breach of contract | Anticipatory breach of contract |
| Relevant Provision | Breach of contract is due to non-compliance with Section 37 of the Indian Contract Act, which requires the contract to be performed by the parties to the contract unless the obligations created can be dispensed with under the provisions of this Act or under any other law. | The doctrine of anticipatory breach of contract is embodied in Section 39 of the Indian Contract Act. |
| Definition | It occurs when any party to the contract fails to fulfil the promise made by him on or before the date of performance of the contract. | It is a special situation where, before the actual date of the performance arrives, the party to the contract refuses the performance of the contract or wilfully creates such circumstances that make the performance of the contract inevitable. |
| Remedies | Generally, the remedy in cases of breach of contract is to claim specific performance of the contract under Section 10 of the Specific Relief Act, 1963, or to claim compensation under Section 73 of the Indian Contract Act, 1872. The remedies can be stipulated in the agreement expressly as well, for example: liquidated damages can be provided in the contract, or in contracts of guarantee, the guarantor or the surety can be asked to perform the contract. | In the case of anticipatory breach of contract, Section 39 provides the aggrieved party the right to elect whether he wants the contract to be repudiated or whether he wants the contract to be continued. Where one elects to repudiate the contract, he can seek compensation, and if he elects to continue the contract, the contractual relationship will continue like any other normal case; however, the aggrieved person will still be entitled to claim compensation for anticipatory breach as inferred from illustration (b) of Section 39. |
| Cause of Action | In the case of a breach of contract, the cause of action arises on the actual date of performance. | In the case of anticipatory breach of contract, the cause of action arises on the date when the party expresses its refusal to perform the contract or on the date when the performance of the contract becomes inevitable. There is no need to wait until the actual date of the performance. |
Conclusion
The doctrine of anticipatory breach is primarily based on the broad principles of equity, justice, and good conscience. The doctrine removes the impediment of seeking remedy only after the expiration of the actual date of performance, like in a normal contract; rather, it enables the aggrieved party to seek remedy as soon as the actual performance of the contract becomes an impossible endeavour. The doctrine does not deem that the date of performance has moved ahead of its time; rather, it deems the refusal or self-induced impossibility of the contract as non-performance of the actual contract even though it takes place before the actual date of performance. The doctrine also helps both parties prevent or reduce any loss that may be caused by an actual breach of contract. This doctrine has been followed by the Indian courts time and again to secure the ends of justice. It clearly adds to the group of laws that ameliorate the conditions of business convenience in India.
Frequently Asked Questions (FAQs)
Is there any benefit of anticipatory breach of contract?
Yes, the doctrine of anticipatory breach of contract can be helpful to both parties. The aggrieved party can mitigate its losses, take preemptory measures, and claim damages before the actual date of performance arises. It is also beneficial to the party breaching the contract, as they can be discharged of their liability to perform the contract before the actual date. The doctrine exists for the ease of doing business, as it helps in saving time and money and also provides a flexible alternative for repudiation of the contract.
What is the difference between frustration of contract and anticipatory breach of contract?
In both the doctrine of frustration and the doctrine of anticipatory breach of contract, a once possible and valid contract becomes impossible before the date of actual performance. However, the doctrine of frustration has been given under Section 56 of the Indian Contract Act, and the doctrine of anticipatory breach of contract has been given under Section 39 of the Indian Contract Act. In cases of frustration of contract, the impossibility is caused by an act not in the control of either of the parties, for example, an act of God (force majeure) or vis major like a flood or earthquake. It can also include other human-made impossibilities, like situations of war. On the other hand, the impossibility of discharging the contract by performance under the doctrine of anticipatory breach of contract occurs due to the wilful conduct of the party. Further, in cases of frustration, the contract automatically becomes void, whereas, in cases of anticipatory breach of contract, the aggrieved party has to elect whether the contract is to be repudiated or whether it is to be continued.
References
- https://ssrana.in/ufaqs/anticipatory-breach-contracts/
- https://blog.ipleaders.in/indian-courts-follow-doctrine-anticipatory-breach-contract/
- Avtar Singh’s Law of Contract & Specific Relief (2022), 13th edition.
- Indian Contract Act by Sir Dinshaw Fardunji Mulla (2015), 15th edition.
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