DISCHARGE OF CONTRACT/ BREACH OF THE CONTRACT/ ANTICIPATORY BREACH OF CONTRACT

 DISCHARGE OF CONTRACT/ BREACH OF THE CONTRACT/ ANTICIPATORY BREACH OF CONTRACT

When an agreement, which was binding on the parties to it, ceases to bind them, the contract is said to be discharged. A contract may be discharged in the following ways-

(1) By Performance of the contract

(2) By Breach of the contract

(3) By Impossibility of performance

(4) By Agreement and Novation

 

1)      Discharge by performance

Each party to a contract is bound to perform his part of the obligation. After the parties have made due performance of the contract, their liability under the contract comes to an end. In such case, the contract is said to be discharged by performance. In regard to such a discharged contract, nothing remains-neither any right to see performance nor any obligation to perform. In short, here cannot be any dispute.

2)      Discharge by Breach of Contract

When a party having a duty to perform a contract fails to do mat, or does an act whereby the performance of the contract by him becomes impossible, or he refuses to perform the contract, there is id to be a of contract on his part. On the breach of contract by one party, the other party is discharged from his obligation to perform his part of the obligation.

As regards the question as to whether to party to a contract has committed the breach of the contract, interest of justice and equity requires, that it is to be adjudicated by an independent person or body and not by the other party to the contract.

The breach of contract may be either:

(i)                  actual, i.e., non-performance of the contract on the due date of performance, or

(ii)                anticipatory, i.e., before the due date of performance has come. For example, A is to supply certain goods to B on 1st January. On 1st January, A does not supply the goods. He has made actual breach of contract. On the other hand, if A informs B on 1st December that he will not perform the contract on 1st January next, A has made anticipatory breach of contract.

 

Anticipatory breach of contract

As noted above, anticipatory breach of contract means the repudiation of a contract by one party to it before the due date of its performance has arrived. Section 39, which contains law relating to anticipatory breach of contract, reads as under:

"When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance."

Anticipatory breach of contract could be made by the promisor, either by refusing to perform the contract, or disabling himself from performing the contract in its entirety, before the due date of performance has arrived. When the refusal to perform the contract in its entirety is not there, it is not to be considered to be a case of anticipatory breach within the meaning of Section 39.

In West Bengal Financial Corporation v. Gluco Serires A.1.R. 1973 Cal. 268., A granted a loan to B amounting to Rs. 4,38,000 and also agreed to grant à further loan of Rs. 1,62,000 at its discretion, provided that B made the repayment of the loan in accordance with the agreement at the rate of Rs. 60,000 every year. B failed to make the repayment as B insisted that A grant further loan of Rs. 1,62,000 to him, but A did not grant further loan because B did not make the repayment of loan as agreed. B's contention was that A had failed to perform the contract by not advancing further loan, which should be considered to be breach of contract. It was, however, held that A had already advanced some loan, which B had accepted, there cannot be said to be a refusal on A's part to the performance of the contract in its entirety. B was therefore not entitled to put an end the contract on the ground of breach of the contract on the part of A. The position is further explained by Illustration (a) to Section 39, which is as under:

A, a singer, enters into a contract with B, the manager of a theatre to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night's performance. On the sixth night, A wilfully absents herself from the theatre. B is at liberty to put an end to the contract.

The above illustration to Section 39 may create a misapprehension that in this case absenting on one of the nights is only partial refusal to perform the contract and not failure to perform the contract in its entirety.

Effect of anticipatory breach of contract

When the promisor has made anticipatory breach of contract, promisee may put an end to the contract, unless he has signified by words or conduct his acquiescence in its continuance." It means that on the anticipatory breach of contract by one party, the other party has two alternatives open to him, viz.,

(i)                  He may rescind the contract immediately, i.e., he may treat the contract at an end, and may bring an action for the breach of contract without waiting for the appointed date of the performance of the contract.

(ii)                He may not put an end to the contract but treat it as still subsisting and alive and wait for the performance of the contract on the appointed date.

 

(i)                  Election to rescind the contract

On anticipatory breach of contract by the promisor, the promisee has a right to treat the contract at an end, even though the due date of performance has not yet arrived. When the promisee accepts the repudiation of the contract even before the due date of performance and elects to treat the contract at end, he is discharged from his obligation to perform the contract, and also gets a right to bring an action for the breach of contract, if he so likes, even before the due date of performance has arrived.

In Hochster v. De La Tour (1853) 2 E & B. 678 95 R.R. 747, the defendant engaged the plaintiff on 12th April, 1852, as a courier to accompany him on the tour of Europe. The tour was agreed to begin on 1st June, 1852 and the plaintiff was to be paid £ 10 per month for his services. On 11th May, 1852, the defendant wrote to the plaintiff informing him that he had changed his mind and declined to take the services of the plaintiff. On 22nd May, 1852, the plaintiff brought an action against the defendant for the breach of contract. The defendant contended that there could be breach of contract before 1st June. It was held that a party to an executory contract may make a breach of contract before the actual date of performance, and the plaintiff, in such a case, is entitled to put an end to the contract and he can bring an action even before the actual date of performance has arrived. The plaintiff's action, therefore, succeeded.

In Frost v. Knight, (1872) L.R. 7. Ex. 111. the defendant promised to marry the plaintiff on his (defendant's) father's death. While the defendant's father was still alive, he broke off the engagement. The plaintiff did not wait till the defendant's father's death and she immediately sued him for the breach of contract. She was successful in her action.

(ii)                Election to keep the contract alive

Anticipatory breach of contract by one party does not automatically put an end to the contract. It has already been noted above that on the anticipatory breach by one party, the other party can exercise the option either to treat the contract at an end, or, to treat it as still alive and subsisting until the due date of performance comes. As pointed out by the Supreme Court in State of Kerala v. Cochin Chemical Refineries, A.I.R. 1968 S.C. 1361:

Breach of contract by one party does not automatically terminate the obligation under the contract: the injured party has the option either to treat the contract as still in existence, or to regard himself as discharged. If he accepts the discharge of the contract by the other party, the contract is at an end. If he does not accept the discharge, he may insist on performance.

Illustration of Sec 39

A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night, A wilfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A's failure to sing on the sixth night.

When the contract is kept alive by the promisee, the promisor may perform the same in spite of the fact that he had earlier repudiated it. If the promisor still fails to perform the contract on the due date, the promisee will be entitled to claim compensation on the basis of the breach of the contract on the agreed date of performance.

In case the promisee has elected to keep the contract alive and subsisting, it is just possible that before the due date of performance, some event happens because of which the promisor gets excused from the performance of the contract. The promisor can take advantage of such a situation and he will be discharged from the performance of the contract. The position was thus explained in Frost v. Knight

The promisee may treat the notice of intention (to renounce) as inoperative and await the time when the contract is to executed and then hold the other party responsible for all consequences of non-performance. But in that case, he keeps the contract alive for the benefit of the other party as well as his own. He remains subject to all his own obligations and liabilities under it, and enables the other party not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances which would justify him in declining to complete it."