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 and Actual Breach of Contract
1. How can you define Anticipatory Breach?
Anticipatory breach of contract is such breaches of contract which happen ahead of the Actual time. In such cases, a partner to a contract refuses to perform specified obligations before the time of performance.
He can either declare it verbally, through a written note or imply so through his conduct. The other partner involved in the contract can immediately file a complaint against him or decide to pause until the Actual time of performance arrives.
2. How is an Actual Breach of Contract different from anticipatory Breach of Contract Definition?
Unlike an anticipatory breach of contract, an Actual breach does not occur in advance. It occurs at the time when a certain duty is scheduled to be performed by a partner. It can either happen at the performance time mentioned on the contract, or during the span of performance. Once it happens, the other partner is also discharged from his duties until further actions are taken. The aggrieved partner facing the consequences of the Actual breach can claim compensation from the other partner (who caused the breach).
3. Which Act in India defines Breach of Contract?
The Indian Contract Act, which was passed in the year 1872, defines breach of contract. Under Section 39 of the Act, anticipatory breach of contract has been detailed along with the provisions and norms.
4. What is a contract and what are the conditions of enforcement?
A contract is a mutual agreement with fulfilling certain conditions and it can be enforced by the law if it fulfils the following terms:
There should be two or more parties willing to enter a contract and neither of them should be underage.
One party should propose to another party and if the second party accepts the proposal, the agreement turns into a promise.
Both the parties mutually exchange their proposals which are also known as consideration
There should be mutual acceptance between the subjects regarding the terms mentioned in the agreement.
To be enforced by the law, the object or activity that both the parties deal with should be legal.
The law which backs the legal enforcement of the contracts in India is the Indian Contract Act, 1872.
5. Explain some major case studies related to contracting law in India?
Following are some of the important case studies related to the Indian Contract Law:
The Felthouse vs Bindley case, upheld that to enforce the terms related to the breach of contract, both the parties should communicate the proposal and accept either offer mutually and communicate the acceptance.
In the case of Carlill vs Carbolic smoke balls company, the judgement stated, the agreement turns into a contract as soon as both the parties accept the proposal made by each other mutually and any breach of the contract is punishable as prescribed.
In the Balfour vs Balfour case, the judgement stated that if there is no intention of entering into a legal relationship, an agreement can not be considered as a contract and hence, it is not legally enforceable by the contract laws.
In the Lalman Shukla vs Gauri Dutt case, it was held that an agreement can not be considered a contract if the offer is not communicated properly or completely to either of the parties.
In the Mohori Bibee vs Damodar Ghose case, the judgement stated that a minor is not eligible to agree and hence it is not considered as a contract. So, any breach of the contract entered by a minor is considered to be null and void.
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