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This article has been written by Mohammad Arish, pursuing a Certificate Course in Advanced Commercial Contract Drafting, Negotiation & Dispute Resolution from  LawSikho.

Introduction

Anticipatory repudiation of a contract is another term for anticipatory breach of contract. The meaning of anticipatory breach of contract has been explained in the contract law provisions. The term “anticipatory breach of contract” refers to the contract that has been repudiated even before the contract’s execution has begun. In plain terms, anticipatory breach of contract means that a contract’s promisor does not plan to fulfil his or her duties under the contract’s provisions. Anticipatory breach of contract occurs where a party to a contract is incapable of performing or unwilling to fulfil the contract even before the contract’s due date.  

  • If ‘A’ signs a contract to sell 200 metres of fabric to an ‘XYZ’ garment manufacturing company on May 15th, and then on April 17th, ‘A’ writes to say he has changed his mind and declines his services, and thus his contract. The circumstance, therefore, results in an anticipatory breach of contract. In such instances, the disgruntled or harmed party may sue for breach of contract damages. The harmed party can sue right once or wait until the act is scheduled to be performed. This was an express rejection anticipating breach of contract.
  • If ‘X’ pledged to assign all of his interest in a lease to ‘G’ within seven years after the date of his pledge for the value of Rs. 80,000/-. He assigned his interest to another person before the end of the seven-year period. This was determined to be an anticipatory breach of contract by implied repudiation.

The anticipatory breach of contract by one party gives the right to the other parties of the contract to claim damages and compensation under the anticipatory breach of contract (Section 39 of the Indian Contract Act).

Two types of anticipatory breach of contract 

  • Express repudiation: This sort of anticipatory breach occurs when a party expressly breaks the contract. It signifies that the contracting party has expressly declined to fulfil his side of the contract even before the contract’s actual due date.
  • Implied repudiation: In an anticipatory breach of contract, the party does not expressly refuse to meet his or her obligation, but rather implies through words or acts that he or she will not perform his or her portion of the contract before the contract’s due date.

What constitutes an anticipatory contract breach?

An anticipatory breach occurs when:

  • The defaulting party denies the other party unconditionally and positively:   Rejection must be straightforward, clear, and directed at the innocent party. Ambiguous or qualified refusal is not enough. Nevertheless, an expression of doubt may indicate a prospective failure to fulfil the contract, in which case the non-breaching party may suspend its performance and request assurance from the offender.
  • The violator is unable to do so due to a certain action. Actions are as important as words when repudiating contracts. If the voluntary actions of the defaulting party prevent him or her from fulfilling the contractual obligations, it is considered a contract repudiation.
  • The contract is transferred to another person. If the contract involves selling property, it is repudiated when the property is transferred to a third party.

Effect of anticipatory breach of contract

When a party is damaged or aggrieved by an anticipatory breach of contract, the injured or aggrieved party usually has two choices. In the event of an anticipatory breach of contract, the injured party has the following options:

  • The injured party can cancel or repudiate the contract as soon as the anticipatory breach occurs, and launch an action for damages for the anticipatory breach of contract without having to wait for the contract’s due date.
  • Another option is for the injured or aggrieved party to wait until the contract’s due date has passed before filing a breach of contract lawsuit against the defaulting party. 

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

  • When the party has clearly stated that he will not perform his part of the obligation, and that performance is central to the contract,
  • The renunciation or repudiation of the contract cannot be conditional on the occurrence of certain events. As a result, the refusal should be unequivocal.
  • When determining whether a reasonable person in the position of the innocent party would the refusal as clear and unequivocal, it is necessary to consider whether there has been a sufficient refusal to fulfil the contract’s obligation

Anticipatory breach of contract remedies

When one party to a deal unconditionally refuses to fulfil his share of the deal, it is said to be violated. Anticipatory breach of contract occurs when a party refuses to perform a contractual duty before the contract’s due date. Anticipatory breach of contract remedies is granted under the Indian contract act to the aggrieved party against the party who committed an anticipatory breach of contract. Following are the anticipatory breach of contract remedies which are provided in the Indian Contract Act:

  • Monetary damages 

It also involves a monetary award as compensation for the financial losses experienced by the party who was the victim of the anticipatory breach. The party can demand the deal that he or she was entitled to under the contract’s terms or compensation for the net gain that would have occurred if the contract’s anticipatory breach had not occurred. In the event of an anticipatory breach, the party can only claim damages up to the amount actually spent in performing his portion of the performance.

  • Restitution 

It is an anticipatory breach of contract remedy that puts the contract’s injured party in the same situation as he or she was before the contract was made. If the restitution is chosen as the anticipatory breach of contract remedy, the injured party is barred from seeking compensation for the damages he has suffered as a result of the anticipatory breach of contract. As a remedy, restitution focuses on repaying money or property to the aggrieved party that has been paid to the contracting party who has committed the anticipatory breach of contract.

  • Rescission 

It is a contractual remedy that entirely terminates both parties’ obligations. Parties who have entered into a contract due to mistake, fraud, or undue influence may seek to have the contract and the obligations formed thereunder set aside through the rescission remedy.

  • Reformation 

It is a legal remedy accessible in the event of a contract breach. In this sort of remedy, the court modifies the contract’s substance to address the injustices that the damaged or aggrieved party to the contract has experienced. Because a contract mistake can simply be remedied by conducting a pre-contract signing examination, courts often avoid offering the remedy of reformation.  

  • Specific performance of the contract 

Specific execution of the contract is an equitable remedy accessible in the event of a contract breach, whether it is anticipated or actual. case of anticipatory breach of contract or an actual breach of contract. This remedy obligates the breaching party to fulfil his or her contractual obligations, which are spelt out in the contract’s terms. Only when monetary damages are insufficient to compensate the injured or aggrieved party for the anticipation breach of contract would the court impose particular execution of the contract as a remedy. When the contract’s subject matter is the principal source of contention, the remedy of a particular performance of the contract is usually granted. 

Food Corporation vs J.P. Kesharwani

The Supreme Court found in the case of Food Corporation vs J.P. Kesharwani, that unilateral changes made by one party without informing the other and subsequently cancelling the contract constituted a breach (repudiation). As a result, any type of contract can be considered broken if a party refuses to perform as promised under the contract, regardless of when performance is meant to take place. Repudiation of contract refers to this unequivocal refusal.

When the innocent party establishes an anticipated breach of contract, three fundamental corrective actions are made available. The first and most likely remedy damages. Damages are a monetary amount awarded to compensate for actual loss, based on whether the damage occurred naturally as a result of the breach and if it was reasonably foreseeable by the guilty party.

Specific performance (a court order compelling the guilty party to honour the contract) or an injunction (a court order prohibiting the guilty party from carrying out a specific activity) are the other two remedies, although they are utilised less frequently in practice than damages.

Aslhing v L.S. John

In the case of Aslhing v L.S. John, the respondent, who was a party to an ongoing contract with the government for road expansion, wrote a letter to the concerned Executive Engineer announcing that the contract was being closed. The letter’s contents, according to the appellant, did not have the effect of terminating the contract. Fazal Ali J. delivered the court’s decision in this matter, and it was contended that the contents of the stated letter had no bearing on the contract’s conclusion. 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.

Case of Universal Cargo 

The Supreme Court concluded in the case of Universal Cargo in 1957 that “anticipatory breach” means that a party is in breach from the moment his actual breach becomes inevitable. Since the purpose of the rule is to allow a party to foresee an unavoidable event without having to wait until it occurs, the breach that he predicts must be of the same nature as the breach that would have occurred if he had waited.”

State of Kerala v. Cochin Chemical Refineries Ltd

In the case of the state of Kerala v. Cochin chemical refineries Ltd., it was considered that the obligation to purchase the groundnut cake from the company was also not over by refusing to advance the loan that the state had undertaken to advance. The court also noted that repudiation by only one party does not bring the contract to an end. Repudiation and acceptance of repudiation must take place on the one hand. Lords of White and Carter (Councils) Ltd. v. Mc. Gregor 1962 stressed this law.

Jhawahar lal Wadhwa and Anr. v. Haripada Chakraborty

Furthermore, the court observed, with regard to Jhawahar lal Wadhwa and Anr. v. Haripada Chakraborty, that “it is settled law that where a party to a contract commits anticipated violation of the contract, the other party of the contract can treat the violation as an end and claim for damages but, in that case, cannot demand specific performance.”

Conclusion

The doctrine of anticipatory breach is not a doctrine that fictitiously moves the performance ahead to the time on the repudiation and regards the repudiation as a failure to perform the contract. The anticipatory breach takes effect as premature destruction of the contract rather than as a failure to perform it in its terms. The Indian Supreme Court has time again followed the doctrine of anticipatory breach of contract following the precedents of English courts to secure the end of justice as discussed hereinabove.  

References


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