This article is written by Janvi Kashyap, 6th Semester, B.Com. LL.B., Maharishi Markandeshwar (Deemed to be University), Mullana, Ambala, during her internship at LeDroit India.
Scope of the Article
1. This article is about breach. It tells us what that means and when someone can use it in contract law.
2. The idea of breach comes from important English court cases like Hochster, v. De La Tour. These cases helped create Section 39 of the Indian Contract Act, 1872.
3. Section 39 of the Indian Contract Act 1872 says this and that. We will look at what it says. What it means.
4. When someone breaks a contract early the other party has choices. They can end the contract. Keep it going. We will see what happens next in both cases.
5. If someone breaks a contract the person who did not break it can get help from Sections 73 and 75. We will look at how that works.
6. There is something called the Acquiescence Doctrine. It says if you keep going with a contract you might lose the right to end it.
7. Section 39 leaves some things unclear. For example what if someone implies they will break a contract? How do we figure out damages in a changing market?
ABSTRACT
Contracts are the basis of business and daily life. They are legally binding because people expect that promises made will be kept when the time comes. What if one party says they will not keep their promise before they are supposed to do it? This is where the idea of breach comes in. It is a deal in contract law and has led to some really interesting court cases.
The Indian Contract Act of 1872 has a section called Section 39 that talks about this idea in law. It says that if one party completely refuses to keep their promise or makes it impossible for them to keep it the other party can cancel the contract. However this only happens if the other party has not said or done anything to show they are okay with the contract being in place.
This article looks at the rules, around Section 39 where it came from, what it means, how courts have interpreted it and what can be done if there is a problem. It also thinks carefully about the issues that this section of the law can cause and what that means for contracts and the Indian Contract Act and Section 39.
Keywords: Section 39, Indian Contract Act 1872, anticipatory breach, repudiation, promisee, election, damages, Section 73, Section 75, Hochster v De La Tour, Frost v Knight, discharge of contract, specific performance.
Introduction: The Problem of the Premature Refusal
Every contract has an understanding: both parties plan to do their part. The law supports this understanding. Works to protect what both parties reasonably expect from the agreement. Sometimes one party makes it clear. Through what they say, do or by putting themselves in a situation where they can’t perform. That they won’t do their part when it’s time. The question that comes up is whether the other party has to wait, unable to do anything and possibly losing more until it’s time for the first party to act before they can try to fix the situation. The answer that contract law gives today is a no.
The idea of breach also known as anticipatory repudiation deals with this exact situation. It lets the innocent party consider the contract over as soon as they get a clear and direct message that the other party won’t perform without having to wait for the actual breach to happen. By doing this it serves a purpose that’s both practical and fair: it helps parties limit their losses, make other plans and seek court help without being stuck waiting for a date that one party has already said they won’t honour.
In India this idea is covered in Section 39 of the Indian Contract Act, 1872. The section is short. Just two sentences and two examples. But it has a lot of important legal meaning. This article will explore that meaning: looking at where the idea came from the details of Section 39 what conditions have to be met for it to apply what choices it gives the party that was supposed to benefit and what remedies are available when those choices are made.
Historical and Comparative Origins of the Doctrine
The doctrine of breach did not start in India. It actually came from the common law in the middle of the nineteenth century. The doctrine of breach has a very important case that is still remembered today: Hochster v. De La Tour from 1853.
The doctrine of breach is based on this case. In this case the defendant hired the plaintiff to be a courier for a trip to Europe. The trip was supposed to start on June 1 1852. On May 11 before the trip started the defendant told the plaintiff that he did not want to do the contract anymore. The plaintiff did not. Sued the defendant right away.
The defendant said that the plaintiff could not sue until the trip was supposed to start. Lord Campbell CJ did not agree with the defendant. He said that the plaintiff could treat what the defendant did as a breach of the contract and sue him away. This made sense because it would be silly to make the plaintiff wait until June 1 to do something when he already knew the contract was not going to happen. This would just cause problems for the plaintiff.
The doctrine of breach was used again in another case called Frost v. Knight in 1872. In this case the defendant promised to marry the plaintiff after his father died. Before his father died the defendant said he did not want to get married anymore. The court said that the plaintiff could sue the defendant away even though the condition for the marriage had not happened yet.
The doctrine of breach is clear: if someone says they do not want to do a contract before it is supposed to start the other person can do something about it right away. The English courts made decisions about the doctrine of breach that helped write the Indian Contract Act in 1872. The doctrine of breach is also in Section 39 of this act.
The Sale of Goods Act from 1930 also talks about the doctrine of breach. Section 60 of this act says that either party can say they do not want to do a contract for selling something before the thing is delivered. Then the other party can choose to either do the contract or cancel it and sue for damages. The doctrine of breach is important, in the context of the doctrine of anticipatory breach and sale contracts.
Section 39 of the Indian Contract Act, 1872: The Statutory Text
SECTION 39. Indian Contract Act, 1872 The Statutory Provision The text of the relevant section reads: “When the party to a contract expresses that he can’t perform the contract or she can’t fulfill the contractual duties then another person is the rightful authority to make rescission of the contract. However, the clause would be valid only if another person does not permit others to fulfill the contractual duties and obligations of the contracted terms either by act or omission.”
The Indian Contract Act 1872 has two examples to help explain this. These examples are about a singer named A who is hired by a theatre manager named B. In the example the singer A does not show up to perform on the sixth night of a sixteen night contract. The theatre manager B can treat this as a sign that the singer A does not want to do the contract and B can end the contract right away. The theatre manager B does not have to wait for ten nights.
In the example if the theatre manager B lets the singer A keep performing after she did not show up then the theatre manager B is basically saying it is okay to keep going with the contract. This means the theatre manager B cannot end the contract anymore. However the theatre manager B can still ask for money because the singer A did not perform on the night.
These examples are important. They show that the Indian Contract Act 1872 is not about when someone does not want to do a contract before they start. It is also about when someone is already doing a contract and they stop, without a reason. The examples also talk about what happens when someone agrees to keep going with a contract. If the person who was supposed to get something from the contract says or does something that shows they are okay with the contract going on then they cannot end the contract anymore. The Indian Contract Act, 1872 and the concept of acquiescence are significant, in these situations.
Elements of Anticipatory Breach Under Section 39
To use Section 39 some conditions need to be met. Indian courts have figured out what these essential elements are over the century. They are important for a breach.
First there needs to be a contract between the parties. Section 39 works when there is already a contract. If there is no contract because something is missing like consideration or consent then there can be no breach.
Second, one party must refuse to do what they promised. They must make it impossible for themselves to do it. This refusal or disablement must be total, meaning it affects the promise, not just a small part. A small refusal or breaking a term does not automatically trigger Section 39. The refusal or disablement must be complete. Go to the heart of the contract.
Third, the refusal or disablement must be clear and final, not uncertain or conditional.
Courts have said that if someone’s statement about not performing is vague it does not count as repudiation. The party must make it clear they do not intend to fulfill their obligation.
In the case of State of Kerala v. Cochin Chemical Refineries Ltd. the Supreme Court said that one party saying they will not fulfill the contract is not enough to end it. The other party must also accept this repudiation.
Fourth the repudiation must happen before the performance date. This is what makes it an anticipatory breach, not a breach. If the refusal happens on or after the performance date then it is an actual breach and Section 39 does not apply in the way. There are two types of breach: express repudiation and implied repudiation. Express repudiation is when a party clearly says they will not perform. Implied repudiation is when a party’s actions show they will not perform even if they do not say it directly.
For example if a party sells the subject of the contract to someone they have impliedly repudiated the contract. This is because they have made it impossible for themselves to fulfill the contract.
The Promisees Election: Terminate or Affirm
The Promisee has a decision to make when someone breaches a contract before they have to do what they said they would do. The Promisee can choose to end the contract. The Promisee does not have to do this. The Promisee can also decide to keep the contract going by saying or doing something that shows The Promisee is okay with the contract being in effect. This is called The Promisees election. It is an important part of the law when someone breaches a contract before they have to do what they said they would do.
When The Promisee decides to end the contract because someone breached it before they had to do what they said they would do the contract is over away. The Promisee does not have to do what The Promisee said they would do anymore. The Promisee can also sue for money away without waiting for the day when the other person was supposed to do what they said they would do. This is an option because it lets The Promisee make other plans right away which can help limit how much The Promisee loses. The Promisee also has to try to limit the loss, which’s something that Indian contract law says is important.
On the other hand when The Promisee decides to keep the contract going things get more complicated. The contract is still in effect. The other person can still do what they said they would do. The other person can also benefit if something happens that would end the contract for another reason. There was a case in England called Avery v. Bowden. In this case the person who was suing kept the contract going after the other person breached it.
Then before the other person had to do what they said they would do, a war started. This made it impossible for the other person to do what they said they would do. The court said that because the person who was suing did not end the contract it was still in effect until the war made it impossible. The person who was suing was left without a way to get what they wanted.
Indian courts have also said that this is how it works. In a case called Jawahar Lal Wadhwa v. Haripada Chakraborty, the Supreme Court said that if The Promisee treats a breach of the contract as the end of the contract The Promisee cannot sue to make the other person do what they said they would do. The Promisee can only sue for money.
The Promisee can choose what to do. This choice is not available forever. If The Promisee clearly shows by what they do that they are okay with the contract being, in effect The Promisee cannot later say that they want to end the contract. For example if The Promisee knows that the other person breached the contract but still accepts what the other person is supposed to do The Promisee is taken to have decided to keep the contract going. The Promisee usually cannot change their mind later.
Remedies Available to the Promisee
When someone breaks a promise before they are supposed to do something the person who was supposed to get something from the promise has an option. The Indian Contract Act of 1872 says that if the person who was supposed to get something decides to end the contract they have a choice.
The common thing people do is try to get money for the damage that was done. This is explained in Sections 73 and 75 of the Indian Contract Act. Section 73 says that the person who did not get what they were promised can get money for the damage that was done. This is figured out by looking at what happens when someone breaks a promise or what the people involved knew might happen when they made the promise.
When someone breaks a promise before they are supposed to do something the damage is usually figured out from the day the promise was broken not from the day the promise was supposed to be kept. This means that the person who was supposed to get something cannot guess how much money they might have made or lost between the day the promise was broken and the day it was supposed to be kept.
Section 75 says that if someone ends a contract because the other person did not do what they promised they can get money for the damage that was done. This is in addition to what’s said in Section 73. It means that the person who was supposed to get something can get money for the damage and any other damage that happened because the promise was broken.
If the person who was supposed to get something decides not to end the contract and the other person still does not do what they promised they might be able to get the court to make the other person do what they promised. The Supreme Court noted if somebody chooses to break the deal, he or she can not then return and also ask the court to make the other event do what they originally accepted. What’s more, if someone who was implied to obtain something has previously said the deal is off, he or she might not then approach a court looking for assistance. A person has to make a choice and stick with it.
Also if someone ends a contract because the other person did not do what they promised they have to give back anything they got from the contract. This is said in Section 64 of the Indian Contract Act. It means that if someone got something from the contract before they broke their promise they have to give it back or pay for it. The person who broke their promise does not get to keep what they got from the contract.
The Acquiescence Doctrine and Its Limits
The Acquiescence Doctrine is an important part of Section 39. If the person who is supposed to get something from the contract the promisee does something or says something that shows they are okay with the contract going on then they cannot stop the contract later. This is like giving up a right. It is very serious.
The courts look at what the promisee does. If they just do nothing that does not mean they are agreeing to the contract. They have to do something or say something that shows they want the contract to keep going. In the case of State of Kerala v. Cochin Chemical Refineries Ltd. the Supreme Court said that if one party wants to stop the contract the other party has to agree to stop it. If they do not agree then the contract is still valid.
The Acquiescence Doctrine is related to the idea of estoppel, which is in Section 115 of the Indian Evidence Act, 1872 and now in Section 122 of the Bharatiya Sakshya Adhiniyam, 2023. If the promisee does something that makes the other party think the contract is still going on and that party does something that hurts them because they believed the contract was still on then the promisee cannot later say the contract was stopped earlier.
The Acquiescence Doctrine and estoppel are. This is an area where more work needs to be done to understand how they work together in Indian law. The Acquiescence Doctrine and the idea of estoppel under the Indian Evidence Act are very important. We all need to more deeply consider how Acquiescence Doctrine and estoppel are working in tandem with each other.
Critical Analysis: Strengths, Tensions and Unresolved Questions
Section 39 is a rule. It takes something that lawyers agree on and puts it into words. It also gives us examples to help us understand how to use it. The Acquiescence Doctrine and estoppel are important here. Section 39 tries to be fair to the person who is promised something. It also makes sure that contracts are still good. The Acquiescence Doctrine and estoppel are still working in tandem with each other. Section 39 is not perfect; the Acquiescence Doctrine and estoppel have some issues that are not solved.
One big problem is how to calculate damages. If the person who is promised something decides to end the contract on the day it is repudiated then damages are calculated based on that day. But if the person who is promised something decides to continue with the contract and the other person still does not fulfill their obligations then damages are calculated based on the day they actually failed to fulfill their obligations.
In a market where prices are changing a lot this can make a difference. The person who continues with the contract hoping it will be fulfilled might end up better or worse off than the person who ends the contract immediately depending on what happens in the market. The law gives the person who is promised something a choice. It does not protect them from the financial consequences of that choice.
Another problem is the duty to mitigate. When the person who is promised something decides to continue with the contract they do not have to try to reduce their losses away. This is because the contract is still valid and the other person might still fulfill their obligations.
However if the person who is promised something just continues with the contract and accumulates losses without trying to reduce them they might end up getting money in damages than they should. This is not what the law of contract usually allows. The English House of Lords dealt with this issue in the case of White & Carter (Councils) Ltd. Mcgregor. They said that the innocent party is usually allowed to fulfill their obligations and get the amount they were promised. They also said that the innocent party must have a good reason to fulfill their obligations beyond just wanting to get money. Indian courts have not fully figured out what this means.
Section 39 also has a problem with implied repudiation. Express repudiation is when someone clearly says they are ending the contract. Implied repudiation is when someone’s actions suggest they are ending the contract. It can be hard to determine whether someone’s actions are an implied repudiation. Courts have to look at the person’s actions and decide whether they clearly show that the person is ending the contract. This can be uncertain in complex business relationships where actions can be interpreted in different ways. If courts could provide guidance on what implied repudiation is it would make Section 39 more predictable. Section 39 would be clearer if courts could provide guidance on implied repudiation.
CONCLUSION
The concept related to Indian Contract Act 1872 section 39 is important in contract law, as the section declares that when any person refuses to perform the promise within the contract before the time scheduled or deadline it’s an obvious breach of contract. This allows the person who was supposed to benefit from the agreement to take action away.
This removes an unfair burden from them and makes it clear that anticipatory breach is a breach in Indian law. The good thing about this section is that it finds a balance. It gives the person who was supposed to benefit from the agreement the power to choose what to do. They can either end the agreement. Stick with it. It protects them. Also makes them responsible for their choices.
The section also takes ideas from common law and makes them work in Indian contract law. However because it is brief some difficult questions have been left for the courts to figure out. These questions include how to calculate damages, what to do if someone wants to stick with the agreement and when someone’s actions imply that they will not do something. Indian courts have made progress on these questions.
There is still more work to be done. As business relationships become complicated and contract disputes more complex the courts will have to keep working with Section 39. This will help create an effective contract law in India. The courts work on Section 39 will remain crucial for the development of contract law in India. Section 39 will continue to play a role in shaping contract law.
References
¹Indian Contract Act, 1872 (Act No. 9 of 1872), Sections 37, 38, 39, 64, 73, 75.
²Sale of Goods Act, 1930 (Act No. 3 of 1930), Section 60.
³Specific Relief Act, 1963 (Act No. 47 of 1963), Section 10.
⁴Bharatiya Sakshya Adhiniyam, 2023 (Act No. 47 of 2023), Section 122.
⁵Hochster v. De La Tour, (1853) 2 E&B 678.
⁶Frost v. Knight, (1872) LR 7 Ex 111.
⁷Avery v. Bowden, (1856) 6 E&B 953.
⁸State of Kerala v. Cochin Chemical Refineries Ltd., AIR 1966 SC 1292.
⁹Jawahar Lal Wadhwa v. Haripada Chakraborty, AIR 1989 SC 606.
¹⁰Satyabrata Ghose v. Mugneeram Bangur & Co., AIR 1954 SC 44.
¹¹Muralidhar Chatterjee v. International Film Co. Ltd., (1943) 70 IA 35.
¹²White & Carter (Councils) Ltd. v. McGregor, [1962] AC 413 (House of Lords).
¹³Pollock, F. & Mulla, D.F., The Indian Contract and Specific Relief Acts, 15th ed. (LexisNexis, 2017).
¹⁴Avtar Singh, Contract and Specific Relief, 12th ed. (Eastern Book Company, 2017).
¹⁵Anson, W.R., Anson’s Law of Contract, 29th ed. (Oxford University Press, 2010).
