Breach of Contract, Actual and Anticipatory

Anticipatory breach

An anticipatory breach occurs before the time for performance, and it takes the two forms section 39 names.

Express repudiation. The party announces that he will not perform. It must be clear and absolute; an expression of difficulty, or a request to renegotiate, is not a repudiation.

Implied repudiation, by disabling himself. The party puts it out of his own power to perform, for example by selling elsewhere the very thing he had contracted to sell. The disablement must be self induced; impossibility arising otherwise is frustration under section 56.

The refusal must go to the whole promise. Section 39 uses the words "in its entirety", so a party who announces he will fall short in some part has not given the promisee a right to end the contract, though the shortfall may sound in damages.

The election, and why it is the heart of the topic

Section 39 gives the promisee an option, and everything turns on which way he takes it.

Option one: accept the repudiation and rescind

• The contract is at an end, and he is discharged from his own obligations.
• He may sue immediately, without waiting for the date of performance.
• Section 75 confirms it: a person who rightfully rescinds a contract is entitled to compensation for any damage sustained through the non fulfilment of the contract.
• Section 64 requires him to restore any benefit he received.
• He must mitigate: the Explanation to section 73 requires the means of remedying the inconvenience to be taken into account.

Option two: affirm, and keep the contract alive

• The contract subsists for both parties.
• He must remain ready and willing to perform his own side.
• He may sue only when the time for performance arrives and the breach becomes actual.
• The risk shifts to him: if the contract is frustrated in the meantime, both parties are discharged and he loses the claim he could have brought.
• Acquiescence may be signified by words or conduct, and illustration (b) to section 39 shows conduct doing it: the manager who lets the singer perform on the seventh night cannot afterwards put an end to the contract.

The election, once made and communicated, is final.

The two kinds compared

Remedies for breach

Five, and an answer should name all of them because MU's topic 3.4 asks for remedies as well as damages.

1. Damages, sections 73 and 74. The primary remedy.
2. Compensation on rightful rescission, section 75.
3. Specific performance, under the Specific Relief Act 1963, and since the 2018 amendment the court shall enforce it subject to sections 11(2), 14 and 16. See [Specific Performance After 2018: the Rule, Not the Discretion].
4. Injunction, under sections 36 to 42 of that Act.
5. Quantum meruit, a claim for the value of what has been done, which lies where the contract has been discharged and one party has received a benefit; in this Act it is reflected in sections 65 and 70.

Rescission is not itself a remedy for the loss. It ends the contract; the money comes from section 75 or section 73.

A worked example

Chandrika contracts on 1 May to sell Dinesh two hundred tonnes of steel at fifty thousand rupees a tonne, delivery on 1 October.

• On 1 August she writes that she will not deliver. An express repudiation in its entirety, so an anticipatory breach under section 39.
• Dinesh accepts the repudiation on 5 August and buys elsewhere at fifty five thousand. He has rescinded, may sue at once, and recovers his loss under sections 73 and 75, measured by the difference on the substitute purchase. He has also mitigated, as the Explanation to section 73 requires.
• Dinesh instead writes insisting on delivery and continues to hold his own funds ready. He has affirmed. The contract binds both, he must stay ready to pay, and he can sue only after 1 October.
• Having affirmed, the steel becomes impossible to supply in September because of an export ban. The contract is frustrated under section 56, both are discharged, and Dinesh loses the claim he could have brought in August. This is the cost of affirming.
• On 1 August Chandrika sells the entire consignment to somebody else. Self disablement, and section 39 applies just as if she had refused in words.
• On 1 October she delivers a hundred and eighty tonnes only. An actual breach, but not a refusal in its entirety, so Dinesh cannot treat the contract as at an end on section 39; his remedy is damages for the shortfall.

What it does NOT mean

"An anticipatory breach ends the contract." It gives the innocent party an option. Until he exercises it the contract lives.

"Any breach entitles the innocent party to rescind." Section 39 requires a refusal or disablement in its entirety; a partial failure sounds in damages.

"Affirming is the safe course." It keeps the contract alive for both, obliges the affirming party to stay ready, and exposes him to intervening frustration.

"Rescission and damages are alternatives." They are not. Section 75 gives compensation precisely to the party who rightfully rescinds.

"A request to renegotiate is a repudiation." It is not. The refusal must be clear and absolute.

Quick revision

• Breach is failure or refusal to perform, or self disablement, without lawful excuse. Eliminate ss.38, 53, 54, 56, 62, 63 and 67 first.
• Actual breach: at or after the time fixed. Anticipatory breach: before it, by express repudiation or self disablement.
• s.39: the refusal must be in its entirety; the promisee may put an end to the contract unless he has signified acquiescence by words or conduct.
• Accept the repudiation: discharged, may sue at once, s.75 compensation, s.64 restore benefits, and must mitigate.
• Affirm: contract alive for both, must stay ready and willing, and bears the risk of frustration. Illustration (b) to s.39, the singer on the seventh night.
• The election is final once communicated.
• Remedies: damages (ss.73, 74), compensation on rightful rescission (s.75), specific performance and injunction under the Specific Relief Act 1963, and quantum meruit.

Test yourself

1. Define breach and distinguish its two kinds. A breach is a failure or refusal to perform a contractual promise, or a self induced disablement from performing it, without lawful excuse. An actual breach occurs at or after the time fixed for performance; an anticipatory breach occurs before that time, by an express repudiation or by the party putting it out of his own power to perform.

2. What options does section 39 give the innocent party? He may put an end to the contract, in which case he is discharged, may sue at once for damages under sections 73 and 75, and must restore any benefit received under section 64. Or he may affirm the contract by signifying acquiescence in its continuance by words or conduct, in which case he keeps a claim for damage already caused but must remain ready and willing to perform and can sue only when the time for performance arrives.

3. What is the risk of affirming after a repudiation? The contract remains alive for both parties, so the affirming party is exposed to events occurring before the date of performance. If the contract is frustrated in the meantime under section 56, both parties are discharged and the affirming party loses the claim he could have brought when the repudiation was made.

4. Is a partial failure to perform a breach within section 39? It is a breach, but not one that engages section 39, because the section requires a refusal to perform, or a disablement from performing, the promise in its entirety. A shortfall in part entitles the innocent party to damages, and it ends the contract only where the failure goes to the root of it or where time was of the essence under section 55.

5. List the remedies available for breach of contract. Damages under sections 73 and 74; compensation under section 75 for a party who rightfully rescinds; specific performance under the Specific Relief Act 1963, which since the 2018 amendment the court shall grant subject to sections 11(2), 14 and 16; an injunction under sections 36 to 42 of that Act; and a claim on a quantum meruit for the value of what has been done, reflected in sections 65 and 70 of the Contract Act.