What is Anticipatory Breach.

Introduction:

·         Anticipatory breach of contract occurs when one party indicates in advance their inability or unwillingness to fulfill the contract before the due date of performance. In such cases, the aggrieved party is entitled to various rights and remedies, including options for further performance, compensation, or rescission.

·         For example “A” enters into a contract to deliver “B” 100 kg of wheat against the compensation of 100 rupees per kg, by 15^th December 2023. Eventually on 10^th December “A” denies delivering on promise and turns back on his words. This situation leads to anticipatory breach of contract on the part of “A”. In this scenario, the aggrieved party, 'B', has the right to take legal action against the other party for breach of contract and seek damages. Additionally, 'B' has the discretion to decide whether to sue 'A' immediately or wait until the act was supposed to be performed.

Breach of Contract:

·         A breach of contract transpires when either a party expressly agrees to relinquish their responsibilities stipulated within the agreement or they fail entirely to carry out their duties, or through actions make it impracticable to execute the required task.

Types of breach:

·         Anticipatory breach - Occurs when there is a failure of performance or renunciation prior to the scheduled time of performance.

·         Present breach - Happens when there is a failure of performance or renunciation at the exact moment the time of performance arrives.

Anticipatory Breach

·         Anticipatory breach of contract is when one party in an agreement reveals, before the agreed time for their performance, that they are not going to perform as stipulated by the agreement. In Section 39 of the Indian Contract Act, 1872, it is stated that where any party either refuses or becomes unable altogether to perform what he has promised under a contract to do wholly or at all, then such other party (the promisee) has right to rescind the contract without consent if he has given no sign of his intention to continue such performance.

·         This clause enables the wronged party to exercise numerous rights and remedies including termination of contractual relationship; claiming damages for breach; and seeking restitution. This implies that the aggrieved party must have never implicitly accepted what was done by the infringing party so that this would otherwise have initialized even if there was an expected breach.

·         The idea of anticipatory breach is important since it allows the injured party to respond early enough on possible problems rather than waiting until after actual performance date. By taking early actions, these parties can limit their losses and protect themselves from further injuries due non-following of order issued by breaching party.

Constituents of an anticipatory breach of contract:

An anticipatory breach of contract happens in any of the following situations or ways:

(a) Expressed repudiation occurs when the defaulting party explicitly and unconditionally refuses to fulfill their contractual obligations. This refusal must be clear, unambiguous, and directed towards the innocent party. However, if the refusal is uncertain or vague, the non-breaching party may request assurance of performance from the defaulting party and temporarily suspend their own performance.

(b) Inability to perform due to a specific cause is another form of repudiation. If the defaulting party voluntarily engages in an act that renders them incapable of fulfilling their contractual obligations, it will be considered a breach of contract.

(c) Transfer of the subject of the contract to a third party is also a form of repudiation. In the case of contracts involving the sale of property, if the property is transferred to a third party, the contract will be deemed repudiated.

It is essential to note that repudiation of a contract can have significant consequences for both parties. The innocent party may seek remedies such as damages, specific performance, or rescission of the contract. The breaching party may also face legal action and be held liable for any losses incurred by the innocent party.

Promisee’s options after the anticipatory breach:

The two options available to the aggrieved party are:

1)      Immediate Right of Action:

·         In situations of anticipatory breach of contract, the aggrieved party possesses the authority to initiate legal proceedings for damages at their discretion, regardless of whether the time for performance of the contractual relationship has yet to arrive. Therefore, even though the specified performance period has not commenced, the harmed party may file suit against the repudiating party seeking monetary compensation.

·         This principle was first recognized. In the case of Hochester v. De La Tour.

A courier was hired by a defendant to accompany them on a tour starting on June 1, 1852, the defendant wrote a letter to the plaintiff a month before the scheduled date, expressing a change of mind and declining the service. When the plaintiff sued for damages, the defendant's counsel argued that there could be no breach of contract before the performance date. However, the court ruled that the plaintiff had the right to take immediate action in such cases.

2)      Waiting for the Performance:

·         Section 39 of the Indian Contract Act, 1872, includes the phrase "signified, by words or conduct, his acquiescence," which implies that if the innocent party indicates their willingness to continue with the contract, the other party loses their right to repudiate. This affirmation may be either expressed or implied, particularly in cases where the innocent party performs an act that demonstrates their intention to continue with the contract.

·         In cases where a contract is left open, discharge may occur through events such as frustration or supervening impossibility, instead of repudiation. This situation may allow the promisor to take advantage of the circumstances and avoid fulfilling their contractual obligations.

·         In the case of Avery v. Bowden, the defendant chartered a ship owned by the plaintiff, agreeing to load it with cargo at Odessa within forty-five days. After arriving at Odessa, the defendant refused to load the cargo. Despite this, the plaintiff remained optimistic that the defendant might eventually comply with the contract. However, a subsequent war occurred, making the performance of the contract illegal. When the plaintiff filed a lawsuit alleging breach of contract, the court determined that the contract had come to an end due to frustration.

Remedies for the breach of the contract:

(a)   The aggrieved party may rescind the contract: In such case, the aggrieved party is liable to offer restitution as under section 64of the act.

(b)   Receive damages: The aggrieved party may receive monetary compensation or damages for the breach of contract under section 73 of the act.

(c)   Demand Specific Performance: In accordance with the section 14 of The Specific Relief Act, 1877 along with the damages.

(d)   Recover any consideration given to the breaching party.

(e)   Quantum Merit and Restitution: Payment in accordance with the work done.

Conclusion:

In Conclusion, anticipatory breach of contract constitutes an intentional violation by one party before the scheduled performance date. As a result, the innocent party is entitled to various remedies. To establish an anticipatory breach, however, the misconduct must meet a threshold of being absolute and unequivocal. Minor irregularities alone cannot be construed as a breach.

Furthermore, while the burden lies on the repudiating party to clearly communicate their intentions, the innocent party also bears responsibility to acknowledge or reject the repudiation. Failure to do so may leave room for interpretation regarding the status of the contract.