Effect of Refusal of a Party to Perform Wholly

The two illustrations differ in one fact, and that fact decides everything: in (b) B let her sing on the seventh night.

Broken down

The trigger: refusal or disablement, in its entirety

Two ways the section can be engaged.

Refusal to perform. An express repudiation, or conduct that amounts to one. It must be clear and absolute; a mere expression of doubt, or a request to vary the terms, is not a refusal.

Disabling himself from performing. The party puts it out of his own power to perform. Selling to a third party the very land he contracted to sell you is the classic case, and it is a refusal in substance whatever he says. The disablement must be self induced: where performance becomes impossible through no act of his, the case is one of frustration under section 56 and not of breach.

"In its entirety." The refusal or disablement must go to the whole of the promise. A failure in some part only does not entitle the promisee to put an end to the contract under this section, though it may sound in damages.

The option, and how it is lost

The promisee may put an end to the contract. Two courses are open.

Rescind, and sue at once. He treats the contract as at an end, is discharged from his own obligations, and may sue immediately for damages under section 73 without waiting for the date of performance. Section 75 confirms the right: a person who rightfully rescinds is entitled to compensation for any damage sustained through the non fulfilment of the contract. See [Compensation to a Party Rightfully Rescinding].

Affirm, and keep the contract alive. He may signify, by words or conduct, his acquiescence in its continuance. If he does, he loses the right to put an end to the contract, though he keeps the right to compensation for the damage already caused, which is exactly what illustration (b) says.

The election is final. Once made and communicated, it cannot be withdrawn.

The risk of affirming

Keeping the contract alive is not a free option, and this is the point examiners test. A party who affirms keeps both parties bound, and so:

• he must remain ready and willing to perform his own side;
• the contract may be discharged by frustration before the date arrives, and if it is, both are excused and he loses his claim;
• the market may move against him, and damages are assessed on the footing of the contract he chose to keep alive.

Anticipatory and actual breach

Section 39 covers both, because it speaks of a refusal without saying when it occurs.

The word anticipatory does not appear in the Act. It is the name the courts give to the situation section 39 describes when the refusal comes early, and an answer should say so.

A worked example

Prakash contracts on 1 June to deliver a custom machine to Quresh's factory on 1 December for forty lakh rupees.

• On 1 August Prakash writes that he will not be making the machine. An express refusal to perform in its entirety, before the date. Quresh may put an end to the contract at once, buy elsewhere, and sue immediately for damages under sections 73 and 75.
• On 1 August Prakash sells the only suitable machine he had to somebody else. He has disabled himself from performing, which engages section 39 just as a refusal does.
• On 1 August Prakash writes that he is having difficulties and may be late. Not a refusal in its entirety. Quresh cannot put an end to the contract on this; he must wait and see.
• Prakash refuses on 1 August, and Quresh replies insisting on delivery and continuing to prepare his factory. Quresh has acquiesced in the continuance of the contract by words and conduct. He can no longer put an end to it on that refusal, and he must stay ready to pay. He keeps his claim for any damage the refusal has already caused, on the model of illustration (b).
• Having affirmed, the machine becomes impossible to make in October because a new law bans its import. The contract is frustrated under section 56, both parties are discharged, and Quresh has lost the claim he could have brought in August. This is the price of affirming.

What it does NOT mean

"A refusal automatically ends the contract." It does not. It gives the innocent party an option, and the contract continues until he exercises it.

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

"The innocent party must wait for the date of performance." He need not, if he accepts the repudiation. That is the whole value of the section.

"Affirming costs nothing." It keeps the contract alive for both parties, so the affirming party must stay ready to perform, and he bears the risk of frustration and of the market.

"Disablement means performance has become impossible." It means the party has put it out of his own power to perform. Impossibility not caused by him is frustration under section 56.

Quick revision

• s.39: where a party 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 conduct his acquiescence in its continuance.
• The Indian home of anticipatory breach, a phrase the Act never uses.
• Two triggers: express refusal, and self induced disablement. Both must go to the whole promise.
• Two options: rescind and sue at once (ss.73 and 75), or affirm and keep the contract alive. The election, once communicated, is final.
• Illustration (a): the singer absents herself on the sixth night, B may end the contract. Illustration (b): B lets her sing on the seventh, so he cannot end it, but keeps compensation for the sixth.
• Affirming carries risk: the affirming party must stay ready and willing, and the contract may be frustrated meanwhile, discharging both.

Test yourself

1. State section 39 and name the doctrine it supports. When 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 conduct his acquiescence in its continuance. It is the provision from which the doctrine of anticipatory breach is worked out in India, although the Act does not use that phrase.

2. What are the innocent party's options on an anticipatory breach? He may accept the repudiation, put an end to the contract, and sue at once for damages under section 73, with section 75 confirming the right of a person who rightfully rescinds to compensation. Or he may affirm the contract and keep it alive, in which case he retains a claim for damage already caused but must remain ready and willing to perform and bears the risk of intervening frustration.

3. Explain the difference between illustrations (a) and (b) to section 39. In both, a singer wilfully absents herself on the sixth night of an engagement. In (a) the manager is at liberty to put an end to the contract. In (b) he allows her to sing on the seventh night, and by that conduct he has signified acquiescence in the continuance of the contract, so he can no longer end it, though he remains entitled to compensation for the damage caused by her failure on the sixth night.

4. What is meant by disabling oneself from performing? Putting it out of one's own power to perform, for example by selling to a third party the very thing one had contracted to sell. It engages section 39 in the same way as an express refusal, because the result is the same. It must be self induced; where performance becomes impossible through no act of the promisor, the case is one of frustration under section 56.

5. What risk does a party run by affirming the contract after a repudiation? He keeps the contract alive for both sides, so he must remain ready and willing to perform his own obligations, and he is exposed to events between then and the date of performance. In particular, if the contract is frustrated in the meantime under section 56 both parties are discharged and he loses the claim he could have brought when the repudiation was made.