DR.

RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY,
LUCKNOW

ACADEMIC SESSION: 2014-15

LAW OF CONTRACTS: Prospective non-performance of

Contract under Indian contract Act
Submitted To:

Submitted By:

Mrs. Visalakshi Vegesna

Astha Singh and Avani Jain

Asst.Professor (Law)

B.A. L.L.B.(Hons.)

Dr. Ram Manohar Lohiya National

2nd Semester

Law University, Lucknow

Roll No: 46 and 47

Section A

TABLE OF CONTENTS
Table of Contents............................................................................................................. 2
Principles and Evolution................................................................................................. 5
Effects of repudiation.................................................................................................... 11
Commercial hardships................................................................................................... 14
Conclusion..................................................................................................................... 18
Bibliography.................................................................................................................. 20

INTRODUCTION
There are few prospects more threatening for a party to an important contract than that
raised by the other partys statement that they will not perform. A prospective
nonperformance of a contract or an anticipatory breach of contract occurs when one of
the contracting parties declares that it will not perform the contract before the contract is
due to be performed.
For over a century now, authorities in the law of contracts have been struggled with the
repudiation of contracts especially when it proceeds the time of performance. Although
clear principles have been laid down time and again lawyers are unsure about specific
situations.1
This is also known as an anticipatory repudiation of a contract. It gives the injured party
an immediate right to damages for total breach, as well as discharging the injured
party's remaining duties of performance.
As such because the time of performance has not arrived, the injured party has no cause
of action, and a suit maybe held to be pre mature, but in such a case the injured party
may have to suffer an extra loss in the form of the time in which they could have
contracted with another party in order to derive the benefit they intended to.
The situation in the legal effect is similar as when the injured party has not fully
performed, but is literally prevented by the other party from continuing performance.
Where work requires some cooperation from both parties this often happens.
1

Rosset, Contract Performance: Promises, Conditions and the Obligation to Communicate , 22, U.C.L.A

Law Review 1083 (1975), cited in Partial, Qualified, and Equivocal Repudiation of Contract, Arthur
Rosett Columbia Law Review, Vol. 81, No. 1. (Jan., 1981), pp. 93-110. http://links.jstor.org/sici?
sici=0010-1958%28198101%2981%3A1%3C93%3APQAERO%3E2.0.CO%3B2-1

Attempted cancellations of pending contracts, especially when the business prospects

there under change for the worse, are constantly growing in the world of practical
affairs, and the controversies growing out of such attempted cancellations continually
come to lawyers for adjustment and to courts for adjudication.
This project aims to discuss the intricacies of prospective non performance of contracts
and the consequences and remedies of anticipatory repudiation of contracts. Along with
discussing the commercial hardships involved.

PRINCIPLES AND EVOLUTION

A prospective non performance of a contract or an anticipatory repudiation occurs when
instead of merely failing to provide the due performance at the stipulated time 2, one
party may put himself in breach by evincing an intention, by words or conduct, of
repudiating his obligations under the contract in some essential respect. 3 In such cases
the injured party can treat the breach as total, even if the breach would have otherwise
been partial.4
Not every refusal to perform a contract amounts to a repudiation which entitles the other
party to treat the contract as at an end; there must be a refusal to perform something that
goes to the root or essence of the contract.5 Thus it is not just any delay that will amount
to repudiation, but only such delay as would frustrate the adventure.6
Repudiation of contracts may be express renunciation of the contractual obligations by
one party as was seen in the case celebrated of Hochster v De la Tour,7 this will be in
cases where one of the parties expressly refuses to perform some or all of his
contractual obligations and says that he is unable to perform. However it is more often
seen that contractual that repudiation is in the form of an implied failure to perform, or
by the party in default putting himself in such a position that he will apparently be
unable to perform when the time comes. A party seeking to rely on the repudiation
implied from conduct must show that the party in default has so conducted himself as to
lead a reasonable person to believe that he will not be able to perform 8 or will be unable
2

Para 990 Halsburys Laws of England, 4th edn reissue, Vol 9(1)

Mersy Steel and Iron Co. v. Nylor, Benzon & Co., (1884) 9 Cas 434 at 438, 997 HLE

14 Harv. L.R. pg 422

Para 997 Halsburys Laws of England, 4th edn reissue, Vol 9(1)

Universal Cargo Carriers Corp v. Citati [1957] 2 QB 401

(1853) 2 E & B 678

Genral Billposting Co Ltd v. Atkinson [1909] AC 118, HL (here the wrongful dismissal of a repudiation

of contract of service)

to perform at the stipulated time. The fact that the breach is deliberate will not
necessarily repudiate the contract and nor will words and conduct which do not amount
to a renunciation of the contract.9
Tracing the history of the principle of prospective non-performance of contracts, in the
year 1853 the court of the Queens Bench for the first time allowed a pre mature action
in the case of Hochster v. De La Tour. On April 12th, 1853, Hochster and De la Tour had
entered into a contract under which Hochster was to serve as a currier for De la Tour
during his travels in Europe for three months starting on the 1 st of June. On May 11, De
la Tour wrote to Hochster that he had changed his mind and that Hochster was
discharged. On May 22, Hochster brought suit for damages. De la Tours counsel argued
that the suit was brought premature, since there could be no breach of contract before
the 1st of June, when the performance was to begin. Lord Chief Justice Campbell
decided this land mark case saying that the suit was not premature and the plaintiff did
have a cause of action against the repudiating party.
This judgment was criticized by Samuel Williston 10 saying that the case was an
unsatisfactory one on the grounds that mere words would not amount to a breach in
duty and there was no cause of action until the time of the contract came, although it
was important for Hochster to know whether he was free to take other jobs, it was said
that allowing the suit pre maturely would not help him in that regard. 11 It was further
suggested that it would be sufficient to regard the repudiation as the non occurrence of a
condition of Hochsters remaining duties, which discharged those duties but did not
operate as a breach. Other critics are of the opinion that:
there can be no fine-spun reasoning which will successfully make that a
breach of a promise which, in fact, is not a promise which, in fact is not a

Franklin v miller (1836) 4 Ad & El 499

10

Repudiation of contracts (pt. 2), 14 Harv. L. Rev. 432.

11

E. Allan Farnsworth, Farnsworth on Contracts, (Aspen Law Publisher, 2nd edn.)

breach of promise. To say that [a promise] may be broken by

anticipation is to say that which, in the nature of things, cannot be so.
Furthermore it was alleged that damages in an action brought before the time for
performance would be a matter of pure speculation and guess work.12
These arguments were rebutted by Lord Chief Justice Campbell himself in the judgment
as he concluded that;
where there is a contract to do an act on a certain future day, there is a
relation constituted between the parties in the meantime by the contract,
and they impliedly promise that in the meantime neither will do anything
to the prejudice of the other inconsistent with that relation.13
In the United States of America, the principles of prospective non-performance of
contracts originated from the case of Frost v. Knight14 Cockburn C.J. stated the law as;
the promisee, if he pleases, may treat the notice of intention as
inoperative, and await the time when the contract is to be executed, and
then hold the other party responsible for all the consequences of nonperformance; but in 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
circumstance which would justify him in declining to complete it.
On the other hand, the promisee may, if he thinks proper, treat the repudiation of the
contract, and may at once bring his action as on a breach of it; and in such action he will
12

Treey, Book Review, 34 Harv. L. Rev. 891, (1921)

13

The same opinion is held in the J. Beatson, Ansons Law of Contract (Oxford University Press, New

York, 28th edition) p 541.

14

L.R.7 Ex.111

be entitled to such damages as would have arisen from the non-performance of the
contract at the appointed time, subject, however, to abatement in the respect of any
circumstances which may have afforded him the means of mitigating his loss.15
Then there was a restatement on repudiation, this restatement said that a Repudiation
was either a statement by an obligor that he will materially fail to perform an obligation,
which failure will substantially impair the value of the contract to the injured party at
such time of breach, or a voluntary affirmative action that renders the party unable or
apparently unable to perform without such a breach.16 When a repudiation occurs before
a breach of non performance it gives rise to a cause of action and a claim for damages
based on the total breach, and discharges the aggrieved parties remaining duties under
the contract.17 Basically the restatement (second) does not distinguish between cases in
which the aggrieved party is discharged of all duties to perform, those cases where there
is an action for damages and those cases in which there are both.
This approach was criticized on the ground that it would encourage wasteful
performance.18 In the same case it was suggested that the remedy of the innocent party
would be only damages, if its performance could not have been carried out except with
the cooperation of the other party.19 Further the right to complete the contract and claim
the price might not be available if it can be shown that a person has no legitimate
interest, financial or otherwise in performing the contract rather than claiming

15

14 Harv. L.R. pg 422

16

Rosset, Contract performance: promises, conditions and the obligation to communicate , 22, U.C.L.A

Law Review 1083 (1975), cited in Partial, Qualified, and Equivocal Repudiation of Contract, Arthur
Rosett Columbia Law Review, Vol. 81, No. 1. (Jan., 1981), pp. 93-110. http://links.jstor.org/sici?
sici=0010-1958%28198101%2981%3A1%3C93%3APQAERO%3E2.0.CO%3B2-1
17

Restatement (second) 253

18

Goodhart [1962] 78 LQR 263

19

Denmark Production Ltd. V. Boscobel Productions Ltd. [1968] All ER 513; Hounslaw London Borough

Council v. Twickenham Garden Developments Ltd. [1970] 3 All ER 326.

damages.20 By electing to affirm,21 the innocent party does not lose his right to claim
damages sustained because of the breach.22
Having elected to affirm the contract, the innocent party cannot then seek to repudiate
it. This was observed in the case of Union of India v. S Kesar Singh23 wherein a
contractor needed to supply the army charpoys in certain quantities in installments,
failed to supply the requisite number. Even after that breach, an installment of charpoys
was received by the army authorities. They could not therefore cancel the work orders
and put an end to the contract.
The party repudiating the contract is entitled to withdraw his repudiation before the date
fixed for the completion of the contract and to insist that the contract be performed in its
entirety, unless the other party has accepted the repudiation and elected to treat the
contract as terminated.24
It was held in the case of Murlidhar Chaterjee v. International Film Co. Ltd25 that an
acceptance of repudiation by the promise must be equivocal, and it must be
communicated to the party in breach26. Since the repudiatory breach makes the contract
voidable and not void prima facie.
Further it was made clear that mere doubts by one party that the other party will
perform when performance is due will not excuse the first party from performing. 27 The
20

Bensten v Taaylor & Sons Co. [1893] 2 QB 274

21

If the innocent party, having the option of accepting the repudiation and ending the contract, instead

elects to treat the contract as continuing, he has affirmed the contract; Pollock and Mulla, Indian
Contract and Specific Relief Acts, Volume 1 (LexisNexis Butterworths, New Delhi, 13th edition)
22

Pudi Lazarus v Johnson Edward AIR 1976 AP 243.

23

AIR 1978 J&K 102.

24

Hindustan Construction Co. v State of Bihar AIR 1963 Pat 254

25

AIR 1943 PC 34

26

Must be in consonance with Sec. 66 of the Indian Contract act, 1872.

27

Koppelon v. W.M. Ritter Flooring Corp. 116 A. 491 (N.J. 1922)

common law recognized a limitation in the above principle and laid down the exception
of insolvency. Although the insolvency of a party is not repudiation and is not a ground
for terminating a contract, but it may give the first party a reason to believe that the
insolvent party will commit a breach. In such a situation the party has the right to
exercise self-help by suspending any performance for which that party has not already
received the agreed exchange until that party receives the remaining performance or an
offer to adequate security for that performance.28

28

Restatement (second)

10

EFFECTS OF REPUDIATION
When one party assumed to renounce the contract, i.e.; by anticipation, refuses to
perform it, he thereby, as far as he is concerned, declares his intention then and there to
rescind the contract. The other party may adopt such renunciation of the contract by so
acting upon it, as in effect to declare that he too treats the contract as at an end, except
for the purpose of bringing an action upon it for damages sustained by him in
consequence of such repudiation.29 Three legal effects follow:
1) It releases the innocent party from his obligation to perform. He can bring an
action without showing that he could have performed within the stipulated
time30, but proof by the guilty party that the other party could not have
performed by that time may affect damages and in appropriate cases reduce
them to a nominal sum. Though a party may exercise his right to treat the
contract as terminated as regards obligations de futuro, it remains alive for the
purpose of vindicating rights already acquired under it on either side.
2)

Acceptance of the breach also releases the guilty party from the obligation to
perform as section 64 of the Indian Contract Act, 187231 provides. He can
henceforth be sued for damages. When the promise has so determined his choice
then, whether he sues for damages or not, it is not open to the promisor to go
back on his refusal to treat the contract as subsisting and to insist on
performance or sue for damages for non-performance.

3) The innocent party may sue for damages. Once the innocent party has accepted
the breach it is final, his right to damages is not defeated by actual or possible
29

Jhonstone v. Milling [1886] 16 QBD 460\

30

For example wrongful dismissal of an employee has been held to determine not only the contract of

employment but also a term restraining an employee from carrying on the same business after his
termination. General Billposting Co. v Atkinson [1908-10] All ER Rep 619
31

When a person at whose option a contract is voidable rescinds it, the other party thereto need not
perform any promise therein contained in which he is the promisor. The party rescinding a voidable
contract shall, if he had received any benefit thereunder from another party to such contract, restore such
benefit, so far as may be, to the person from whom it was received.1

11

supervening events. Subsequent may affect the amount of damages but not the
right to damage. The innocent party can claim damages at once even though his
right to future performance of the contract is only contingent. Where the vendor
has repudiated the contract before the agreed date of performance, he is liable to
refund the amount of earnest money irrespective of the readiness and
willingness on the part of the vendee to perform the vendees obligations.
Where a party commits an anticipatory breach of a contract the other party might put an
end to the contract and sue for damages32 but in such a situation the aggrieved party may
not claim for specific performance of the contract, on the other hand the other party may
choose to keep the contract alive till the time of performance and then claim specific
performance according to the said terms of the contract33, he however can not claim
specific performance unless he shows that he is ready and willing to perform his side of
the contract.34

Damages
The measure of damages for the anticipatory breach of a contract is not necessarily the
same as it would be for a failure or refusal occurring at the time when the performance
was due.35 The injured party is under an obligation to take all reasonable steps to
mitigate the loss incurred by the breach.
In the case of Ramgopal v Dhanji Jadhavji Bhatia36 the defendant was an owner of a
cotton mill and they contracted with the plaintiff to allow the plaintiff to use the mill for
a period of six months, for half its working time at fixed rates in order to gin the raw
cotton, which the plaintiff contemplated buying and the defendants agreed to supply
them for the purpose. Before any of the cotton had been taken by the mill the
32

International contractors Ltd. v. Prasanta Kumar Sur [1961] 3 SCR 597

33

id

34

Jawahar Lal Wadhva v Haripada Chakroberty AIR 1989 SC 606

35

State of Kerala v. Cochin chemical refineries Ltd. AIR 1968 SC 1361

36

AIR 1928 PC 200

12

defendants repudiated the contract. The plaintiff sued the defendants for damages and it
was held that the breach being anticipatory, the damages were the estimated loss of
profit to the plaintiff by reason of the contract not being carried out and the plaintiff was
not bound to buy cotton and have it ginned at other mills under his obligation to
mitigate the damages.
So if an aggrieved party decides to accept the repudiation of the contract and sues for
damages, then the court will look into the damage caused to the plaintiff and it shall be
the plaintiffs duty to mitigate the damages to a reasonable extent, but if the aggrieved
party decides to keep the contract alive and sues for damages when the time of
performance of the contract arrives, in that case there is no duty on part of the plaintiff
to mitigate the damages and damages will be accordingly awarded.

13

COMMERCIAL HARDSHIPS
It is well known that the business value of a growing concern far exceeds the value of
the plant and stock in trade as articles of merchandise. In present business credit system
promises arrange their own commitments relying on the performance in good faith of
pending contracts as the resource to meet their own obligations. The value of
established contractual relations is often identifiable further in the very substantial form
of business extended in anticipation of process to be derived from the performance of
such contracts.
The business value, or the present advantage, from established contractual relations is
quickly and seriously impaired or destroyed by the promisors anticipatory repudiation.
No one in ordinary commercial business willingly advances money or furnishes credit
accommodation on the security of a law suit.37 A repudiated contract no matter how
binding in law ceases at once to be an effective business resource upon which the
promise can depend in arranging his own affairs. The repudiator at a stroke destroys the
intangible asset of trust and good will.
In commercial cases because the damage is caused to the reputation and reliability of an
establishment or a person, the main question lies that whether the plaintiff promisees
interest in the advantage of an established contractual relation pending performance
shall be given legal recognition or not?
Those in support of the principle of anticipatory breach of contracts say that the
situation is a fact and in such cases the principles of anticipatory repudiation should be
applied so that the aggrieved party is not made to suffer for long and they may be
restored to the reputation they had without any damage by non-performance.38

37

Frost v. Knight L.K 7 Ex. 111

38

Id

14

On the other hand those who oppose the principle, contend that such a situation is not
real and such situations where a company or a person suffers a great loss in reputation
due to a repudiation of another contract is very rare and maximum stress should be laid
upon business importance.
Unlike in other contractual matters where only the two contracting parties are affected
by a breach of such a contract, in business transactions a number of contract may be
dependent on each other and if one of the contracting parties repudiates or even
announces in advance his non-performance of the contract it affect more than just the
contracting party, for example; A contracts with B to provide him with raw material to
manufacture a product which A wishes to sell, now on the basis of this contract A enters
into a contract with C to which A will supply the finished goods. Now before B is due to
supply raw material to A, B repudiates the contract, now this will not only affect A but
will also effect C, because now even if A manages to contract with another supplier Z,
the prices may differ.
It is for cases like this that some general illustrations from various fields of law may be
suggested to indicate a broad general recognition for intangible advantageous relations.
Following these general illustrations the close similarity may appropriately be noted
between anticipatory repudiation by the promisor as a cause of action, and a strangers
inducing a breach or repudiation which is independently held actionable as a tort.39
It is now held that it is actionable to interfere without justification in the established
business relations of others40 any interference with anothers access to the market for his
goods or his labor is actionable, over two generations now it has been established that
interference with contractual relations of parties by procuring a breach is actionable. 41 In
the case of a repudiation of a contract, as is established above, the aggrieved party
suffers loss in the form of good will as well and hence there will be a cause of action the
39

L. Vold, Tort Aspect of Repudiation of Contracts 41 Harv. L.R. pg 355

40

Duplex Printing Co. v. Deering, 254 U.S. 443 (1921)

41

Nat. Phon. Co. v. Edison Co. [1908] I Ch. 335.

15

moment the contract is repudiated under tort law, and the plaintiff need not wait for the
time of performance in such a case.
The contractual relation, pending performance, is an interest to the promisee, it is
valuable to him as on the basis of such a contract he may further get business or grants
for loans, hence no one be it a stranger or a promisor, may without lawful justification
impair. In cases of prospective non-performance this interest is harmed as one of the
parties declares that he will not perform the contract and this will further affect other
persons in a commercial setup.
Much of the criticism of the principle of prospective non-performance was based on the
assumption that there is no duty to perform before the due date of performance, so there
is no breach before such a date and hence there is no cause of action, but in case where
the contracting parties are in a commercial setup wherein they are not the only parties
affected by the repudiation of their contract, the anticipatory repudiation or breach of a
contract in a commercial situation often causes an immediate injury and a present cause
of action. The injury caused in such a case is most often not financial but is in the form
of hampered reputation and good will; this only makes establishing the quanta of
damage more difficult in such cases. All considerations for the maintenance of
contractual good faith, all the considerations for stability or promises to the end that
reasonable exceptions arising from promises may be realized, come into play while
establishing the damages in such a case.
Essentially prospective non-performance of a business contract causes a great amount
of commercial hardship as his plans for counter performance under the contract are
thrown into confusion. This further worsens because the duty to mitigate is at once
imposed on the aggrieved party, then there is confusion about the facts of the case and
whether the facts fit into the definition of repudiation or not and then further find out
whether or not for some reason the repudiation was justified.42
42

Rohem v. Horst 178 U.S. I (1900)

16

Further in the presence of a repudiated contract a person or organization will loose

reputation and will find it difficult to get a loan. Especially if the contract was granted
on the basis for his business credit in the promisees own transactions with others, this
resource also shrinks when it is repudiated.

17

CONCLUSION
Prospective non-performance of a contract is actionable on three grounds;
1) There is a prospective breach of a contract and keeping the interest of the
plaintiff such cases are held to be maintainable.
2) The repudiation is a breach of an implied contract apart from the main contract
which is there between the promisor and the promisee, and the cause of action ia
a breach of that contract and not the main contract.
3) The cause of action is derived on the basis of tort law and in cases of
commercial contracts the case will be maintainable.
A number of cases have laid down principles of prospective non-performance of
contracts, then there was issued a statement in this regard and then there was a
restatement (second) which laid down rules for governing prospective non-performance
of contracts.
Legal rules of repudiation should be structured and interpreted in such a manner that it
encourages the parties to resolve disputes without judicial intervention. A resolution is
in every way better when the parties themselves reach an amicable solution instead of
going to court and going through a cumbersome litigation process. The right of an
insecure party to demand an assurance from the contracting party should be upheld and
the duty of the breaching party to offer timely cure of previous failures of performance
frequently diffuse the dispute caused by the repudiation. The rules should make
guidelines to this effect and the Courts must ensure to not penalize a party that is trying
to adjust his differences with the other side on the basis of good faith.
Early settlement of the controversy ends the uncertainty as to the rights of the parties,
avoids loss through future idleness or misdirected activity pending developments, and
sets the parties free to devote their time and resources to independent productive efforts

18

General repudiation of business contracts pending performance would throw the whole
productive and credit machinery out of joint and bankrupt the business, industrial and
commercial world. Individual repudiation of a particular contract, while equally
pernicious in its tendency, does not cause so great a general damage, only because its
scope is too small and the damage done is largely absorbed by the aggrieved promise.

19

BIBLIOGRAPHY
Articles

Repudiation of Contracts 14 Harv. L.R. pg 422

L. Vold, Tort Aspect of Repudiation of Contracts, 41 Harv. L.R. pg 355

Partial, Qualified, and Equivocal Repudiation of Contract, Arthur Rosett

Columbia Law Review, Vol. 81, No. 1. (Jan., 1981).

Rosset, Contract Performance: Promises, Conditions and the Obligation to

Communicate , 22, U.C.L.A Law Review 1083 (1975)

Books

E. Allan Farnsworth, Farnsworth on Contracts, (Aspen Law Publisher, 2nd edn.)

Halsburys Laws of England, 4th edn reissue, Vol 9(1)

J. Beatson, Ansons Law of Contract (Oxford University Press, New York, 28th
edition)

Pollock and Mulla, Indian Contract and Specific Relief Acts, Volume 1
(LexisNexis Butterworths, New Delhi, 13th edition)

Websites

www.google.co.in/

www.jstor.org

20