What is Breach of Contract?
Meaning of Breach of Contract: – A breach of contract by a party is a failure to fulfill obligations under a contract. A breach of contract is a violation of any of the agreed-upon terms and conditions of a binding contract. It is of two types, namely the anticipated breach and the present breach. Breach occurs when a party to a contract fails to fulfill its obligation(s), whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract.
A breach of Contract takes place when a party corresponding consents formally to abandon his liability under it, or by his own act makes it impossible that he should perform his obligations under it or fully or partially fails to perform such obligations.
Fortunately, contracts are legally-binding agreements, so when a party fails to meet their contracted obligations, there may be a remedy. Such instances are called a breach of contract, and the first important step to claiming your contracted rights is being able to recognize that a breach occurred.
A breach of contract maybe of two types: –
- Anticipatory Breach of Contract
- Actual or Present Breach of Contract.
What is Anticipatory Breach of Contract?
Meaning of Anticipatory Breach of Contract: – Anticipatory breach of contract is a declaration made by one of the contracting parties of his intention not to fulfill the contract and proclaim that he will no longer remain bound by it. An anticipatory breach of contract occurs before the time of performance of a contract. Therefore, if a promisor refuses to perform his promise and indicates his unwillingness before the time of performance, it is a breach of contract.
The promisor may show his unwillingness by either: –
- Expressing it in words (spoken or written)
- Through his conduct or behavior
Example 1: – Karan enters into a contract with Daisy on May 30th, 2018. In the contract, Karan agreed to sell his house to Daisy, provided that Daisy has to give a token amount of Rs. 5,00,000 to Karan on or before June 30, 2018. However, on June 15, 2018, Daisy informed Karan that she would not be able to provide the token amount on the said date, thereby expressing rejection of the contract.
Example 2: – Namish enters into a contract with Arsh on June 01, 2018. As per the contract, Namish agrees to sell his guitar to Arsh on June 10, 2018, for an amount of Rs. 5,000. However, Namish sells this guitar to Daksh on June 07, 2018. Therefore, it is a breach of contract by Namish due to his conduct.
The anticipatory breach of contract is described under Section 39 of the Indian Contract Act, 1872. According to Section 39 of Indian Contract Act, When a party to a contract has refused to perform or disable himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, but words or conduct, his acquiescence in its continuance.
What is the effect of anticipatory breach?
A breach need not actually occur for the responsible party to be liable. In the case of an Anticipatory Breach, an actual breach has not yet occurred, but one of the parties has indicated that they will not fulfill their obligations under the contract. This can occur if the breaching party explicitly notifies the other party that they will not fulfill their obligations, but such a claim could also be based on actions that indicate one of the parties does not intend to or will not be able to deliver.
When a promisor refuses to perform his promise, his conduct is leading to the breach of contract, and then the promisee is expelled from the performance or further performance of his obligations.
Also, he can do either act: –
- Treat that contract as cancelled and can file a suit against the other party for damages arising from the breach. This suit can be filed immediately without waiting until the date of performance specified in the contract.
Or
- Choose not to cancel the contract, but treat it as an operative and wait till the time of performance can pass, as he can be held responsible for the loss caused by the non-performance to the other party for his conduct. However, he would need to keep the contract alive for the benefit of all parties involved.
What are the factors that indicate the occurrence of an anticipatory breach of contract?
Three major factors are considered necessary to determine whether an anticipatory breach of contract has occurred are as follows: –
- When the party has communicated that he will not perform his part of the contract.
- When party through his conduct or behavior shows that he is not performing his part to the contract.
- When deciding whether a sufficient refusal has been made to fulfill the obligation of the contract, that the reasonable person can see that the refusal is clear and absolute.
What is Actual Breach of Contract?
Meaning of Actual Breach of Contract: – An Actual Breach of Contract refers to a breach that has already occurred, meaning the breaching party has either refused to fulfill their obligations by the due date or they have performed their duties incompletely or improperly. While an anticipatory breach is before the performance of the contract, on the other hand, actual or present breach of contract is on the prescribed time of performance of the contract.
Actual or Present breach of contract can be done in the following ways: –
- At the Time, When Contract Performance is Due: – Kartik enters into a contract with Daksh on June 30, 2018, promising to deliver 50 bags of cotton. However, on the scheduled day, he fails to deliver the same. This is a present breach of contract. Furthermore, this breach occurs at a time when the performance of the contract is outstanding.
- During the Performance of the Contract: – Actual breach of contract can also occur when a party fails to perform its obligation during the performance of the contract. This refusal can be expressed in words or by action.
Case laws
In this case, the court held that A breach (retaliation) of this amount occurred where one party is making an unilateral change without any notice to the other and then cancelling the contract. Therefore it can be correctly said that any kind of contract can be investigated because when the party refuses to perform under the promised contract, whenever the performance is about to take place. This unconditional refusal is known as a repudiation for the contract.