Introduction
Every day we undergo this concept of contract, sometimes it happens without us realising it. Every time we buy something, unknowingly we are entering into a Contract with the seller. Though the laws related to Contracts are changing from time to time, the nature of the Contract is remaining the same. Sometimes we face a situation to decide whether a particular agreement is a Contract or not because Contracts are narrower than agreements. To be a Contract, the following conditions are to be fulfilled:
There need to be two or more parties signing and accepting the terms mentioned in the Contract mutually.
It needs to have an offer or proposal which mentions the desirability or undesirability of an action by one party and accepted by the other.
When the other party of the agreement accepts this proposal, then the agreement turns to a promise.
Consideration is made by the second party who accepts the promise in return for it. So, to agree to a Contract, it should be a promise with consideration signed by the parties entering the Contract.
For example, if a boy agrees to buy chocolate from a shopkeeper for 10 rupees, they are entering a Contract as the boy is accepting the chocolate and the shopkeeper is giving it in return for ten rupees. Both of them have agreed to each other's terms mutually.
Once a Contract is signed, certain obligations are imposed on both parties. If any of the parties fail to or unconditionally refuses to perform the obligations imposed on him, there will be a Breach of Contract. The party causing a Breach of Contract is usually called the ‘guilty party’, while the other party can be called ‘aggrieved’ or ‘injured’ party. A Breach of Contract can also be called repudiation of the Contract.
A Breach enables the aggrieved party to enforce its right of action against the guilty or the defaulter party. A Breach of Contract can primarily be of two different categories. They are:
Actual Breach of Contract
Anticipatory Breach of Contract
Any kind of repudiation, whether Actual or Anticipatory, is bound to affect a Contract negatively.
Anticipatory Breach of Contract
By Anticipatory, we mean something ahead of time. So, an Anticipatory Breach occurs when a partner refuses to complete his or her duty or fulfil his promise (as was specified in the Contract) before the Actual time arrives. Here, an individual or entity expresses its unwillingness to perform contrActual obligations prior to the date of performance. An Anticipatory repudiatory Breach takes place when a party shows an unwillingness to perform a duty in any of the following manners:
- By communicating it verbally or in a written form of notice.
- Implying so through his actions and conduct.
Suppose a businessman signs an agreement with a company on 1st of August, 2020. As per the contractual terms, that businessman had agreed to and is supposed to provide a certain amount of investment sum by October. However, in September, he declared to the company that he will be unable to disburse that sum within the stipulated time. Thus, here he Breaches the Contract terms, giving rise to the Anticipatory Breach of Contract.
This suggests that when a participant refuses to discharge his share of duties, forming an Anticipatory repudiation, the other party is also excused from performing his duties. The other participant can take the following steps:
Consider that Contract as void and complain about the guilty party to claim the Anticipatory damages. The aggrieved party can file such complaints immediately, instead of waiting for the Actual date of its performance (as was mentioned in the Contract).
Choose to retain that Contract, consider it to be valid, and wait until the Actual date of performance passes by. He can then claim the damages from the other party as per the repudiation Contract law. But in such cases, he will have to preserve the agreement clauses and ensure everyone’s benefit.
To compensate for the damages done by Anticipatory Breach of Contract, the guilty party can either accept the repudiation or continue performing under the Contract.
Actual Breach of Contract
Unlike an anticipatory Breach, an Actual Breach happens when a party neglects, refuses, or fails to perform its duties at the concerned time. It does not happen before time. An Actual Breach of Contract meaning is applicable when it occurs in the pre-planned period of performance.
In the repudiation of Contract cases, the other party (aggrieved or injured party) is also liberated from his share of duties. This party can eventually sue the Breaching party to compensate for the damages.
Actual and anticipatory Breach of Contract can be of minor or even material damage in some cases. Compensatory damages of a Contract Breach can either be expectation damage or consequential damage, depending upon the claims of an aggrieved party.
Contract Laws and Ease of Doing Business
The ease of doing business reports are dependent on multiple factors influencing the business environment in a country. To improve the ranking in such reports many things are to be taken care of. Implementing and enforcing Contract laws judicially is one of these factors. It tells us the time and factors influencing the dispute resolution mechanism in a country and also best practices in the judicial system are brought out. The department of the judiciary is the chief agency looking after these laws and implementation.
FAQs on Anticipatory Breach vs. Actual Breach of Contract: Differences
1. What are the two primary types of breach of contract a student of Commerce should know?
In the study of contract law, a breach occurs when a party fails to fulfil its contractual obligations. The two primary types are:
- Actual Breach of Contract: This happens when a party fails to perform their duties on the specified date of performance or during the performance of the contract.
- Anticipatory Breach of Contract: This occurs when a party declares its intention to not perform the contract before the date of performance has arrived.
2. What is the main difference between an anticipatory breach and an actual breach of contract?
The fundamental difference lies in the timing of the breach. An actual breach happens on or after the scheduled date of performance. In contrast, an anticipatory breach (or constructive breach) happens before the performance is due, based on one party's clear refusal to perform their future obligations.
3. Can you provide a simple example of an actual breach of contract?
Certainly. Imagine a bakery agrees to deliver a wedding cake on the morning of a wedding, say October 25th. If the bakery fails to deliver the cake on October 25th, it has committed an actual breach of contract because the failure to perform occurred on the exact date the performance was due.
4. What is a real-world example of an anticipatory breach of contract?
Suppose a company hires a contractor to begin a construction project on June 1st. On May 15th, the contractor informs the company in writing that they have taken on another, larger project and will be unable to start the work as agreed. This is an anticipatory breach because the contractor has communicated their refusal to perform before the performance date of June 1st has arrived.
5. How does an anticipatory breach of contract relate to the concept of 'repudiation'?
Repudiation means a clear and unconditional refusal to perform one's duties under a contract. An anticipatory breach is a form of repudiation that happens before the performance date. The party 'repudiates' the contract in advance, either through express words (written or verbal) or through actions that make performance impossible.
6. What remedies are available to the injured party in the case of an anticipatory breach?
When an anticipatory breach occurs, the aggrieved (or injured) party has two main options:
- They can treat the contract as immediately terminated and sue the breaching party for damages without waiting for the actual performance date.
- Alternatively, they can choose to keep the contract alive and wait until the due date. If the breaching party still fails to perform, they can then sue for an actual breach.
7. Is every breach of contract considered a 'material breach'? What is the importance of this distinction?
No, not every breach is a material breach. A minor breach is a small failure to perform that doesn't defeat the core purpose of the contract. In contrast, a material breach is a significant failure that deprives the injured party of the benefits they were supposed to receive. The distinction is crucial because a material breach allows the injured party to not only sue for damages but also to terminate the contract and be excused from their own performance obligations.
8. Under which Indian law are the provisions for breach of contract defined?
The provisions related to breach of contract in India are primarily governed by the Indian Contract Act, 1872. Specifically, Section 39 of the Act addresses the concept of anticipatory breach of contract, explaining the effect of a party refusing to perform their promise entirely.
9. Why would the non-breaching party ever choose to wait for the performance date instead of immediately suing for an anticipatory breach?
Choosing to wait can be a strategic decision. The non-breaching party might hope the other party will reconsider and perform their obligations, thus avoiding a dispute. Additionally, market conditions might change, making the original contract more favourable if completed. However, this strategy carries risk, as the non-breaching party must remain ready to fulfil their own side of the contract until the due date passes.
10. What happens if a party declares an anticipatory breach but then attempts to perform on the due date?
The outcome depends on the actions of the non-breaching party. If the non-breaching party had already accepted the repudiation and treated the contract as terminated (e.g., by filing a lawsuit or hiring a replacement), they are not obligated to accept the late performance. If, however, they chose to keep the contract alive and did not act on the breach, they would be obligated to accept the performance on the due date.
