Short Notes on Actual and Anticipatory Breach of Contract

2. Anticipatory Breach

1. Actual Breach of Contract:

It occurs when on the due date of performance or during the performance a party fails to perform his obligations. Thus, the actual breach of contract may be discussed under the following two heads:-

(I) Actual breach of contract on the due date of performance:

Sometimes, on the due date of performance, one party fails to perform his obligations. In such cases, the other party is discharged from the performance of his obligations and can hold the guilty party liable for the breach of contract.

Example:

X agreed to sell his car to Y on 1st June. But on 1st June X refused to sell the car to Y. On X’s refusal to sell the car, there occurred a breach of the contract. And Y can hold X liable for the breach of contract.

But sometimes the party, who has failed to perform the contract on due date, subsequently expresses his willingness to perform the same. In such cases, whether he can perform the contract or not will depend upon the fact whether or not the time was the essence of the contract (i.e., whether the time was the essential condition for the formation of the contract)

If the time was the essence of the contract, the failure to perform the contract within the specified time results in breach of the contract. And if the time was not the essence of the contract, the other party may accept performance and claim compensation for delayed performance.

(II) Actual breach of contract during its performance:

Sometimes, one party performs his obligations under the contract and the other party fails or refuses to perform these obligations. It is an actual breach of contract during its performance.

And sometimes, one party, no doubt, performs his obligations but not strictly according to the contract. It is also an actual breach of contract. This type of breach of contract occurs when the party, performing the contract, commits a breach of the essential conditions to contract.

However, the breach of non-essential terms does not discharge the contract. It only entitles the aggrieved party to claim damages from the defaulting party.

Example:

X a shoe manufacturer, contracted with Y a dealer in shoes, to supply him 500 pairs of shoes at a certain price. The shoes were to be delivered in instalments. After the supply of 200 pairs of shoes, Y told X that no more shoes are required. In this case, the breach of contract was committed during the performance of the contract.

2. Anticipatory Breach of Contract:

It occurs when prior to the due date of performance, the promisor absolutely refuses or disables himself from the performance of his obligations. In other words, it is a declaration by one party of his intention not to perform his obligations under the contract. Thus, the anticipatory breach is the premature destruction of the contract, i.e., the repudiation of the contract before due date of performance.

Example:

X contracted to supply to Y 100 pieces of spark plugs on 15th December 2005. But before the due date of performance (i.e., 15th December), X informed Y that he is not going to supply the spark plugs at all. On Xs refusal to supply the goods, the anticipatory breach of the contract occurs. And Y put an end to the contract.

This doctrine of anticipatory breach is contained in Section 39 of the Indian Contract Act, which reads as under:

“Where 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 by conduct, his acquiescence in its continuance.”

Consequences:

In case of an anticipatory breach of the contract, the aggrieved party may exercise either of the following two options:-

1. He may treat the contract as discharged and bring an immediate action for damages.

2. He may treat the contract as operative and wait till the time of performance arrives.

Thus, the option of bringing the action lies with the aggrieved party. He may bring an immediate action or wait till the time for performance arrives. If he treats the contract operative and waits till the time of performance, the consequences will be as under

(1) The party who has committed the anticipatory breach of contract may perform his promise when the time for performance arrives, and the other party will be bound to accept the performance.

(2) The party who has committed the anticipatory breach of contract may also take the advantage of any subsequent event which discharges the contract. Sometimes, while the contract is operative, the contract is discharged due to subsequent impossibility or frustration. In such cases, the party guilty of breach may take the advantage of such discharge of the contract. And the other party loses his right to sue for damages.

Example:

‘X ‘agreed to sell his horse to 7 on 1 st December, 2005. But before this date. X informed Y that he would not sell his horse at all. However, Y did not accept the refusal and kept the contract alive till 1st December, 2005.

The horse died before this date. In this case, the contract is discharged by the death of the horse on the ground of impossibility of performance. X can take advantage of this event, and Y cannot recover any damages form X for the breach of the contract.