Breach of contract

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Breach of contract

BREACH OF CONTRACT

DISCHARGE OF CONTRACT

When contracting parties are bound by contracts and finish or end to bind them, it is called a discharge of contracts.
Contracts can be discharged in the following ways:

BREACH OF CONTRACT

Breach of contract can be explained as when one of the parties to contract who has a duty of performance of a certain act:

  • Fails to do the act
  • Does something which leads to the impossibility of the performance of the act(duty).
  • Refuses to perform the act.

These three acts constitute a breach of contract. On breaching a contract by one party, the obligation of performing the contract on the other party is discharged.

TYPES OF BREACH OF CONTRACT

There are two ways a contract can be breached, i.e.:

  • ACTUAL
    • This means not performing the act or duty on the date due to the act.
  • ANTICIPATORY
    • This means not performing before the due date of performance.

Illustration

Abhay and Bhavik were contracting parties. Abhay was bound to supply raw material to Bhavik on 15TH January and Bhavik had to pay Rs.1,00,000. Yet no goods (raw material by Abhay) were received by Bhavik.
i) So, here Abhay has made an actual breach of contract and Bhavik is discharged from paying Rs 1,00,000 as no goods were received.
If Abhay had notified Bhavik on 15 December that he is not going to perform his duty,
ii) then he would have been accounted for an anticipatory breach of contract.

ANTICIPATORY BREACH OF CONTRACT

Anticipatory breach of contract means the rejection or denial to perform the contract by one party before the due date of the performance has approached or arrived.

According to the Indian Contract Act 1872, anticipatory breach of contract is defined in section 39 as “ When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”

REMEDIES TO BREACH OF CONTRACT

When parties break the promise or terms of agreement it is called breach and by remedies in simple terms means reasons the other party gets to not to fulfil its obligations when the other has breached the contract.

Types of remedies to breach

Following are the remedies to breach of contract in different circumstances:

Recession to contract

When one party has breached the contract by not fulfilling its obligations as per the terms of the contract in the stipulated time or way, the other party is freed from the obligation of performing its duties as per the contract. The contract will be revoked or cancelled by the other party

Illustration
Abhay and Bhavik were contracting parties. Abhay was bound to supply raw material to Bhavik on 15TH January and Bhavik had to pay Rs.1,00,000. Yet no goods (raw material by Abhay) were received by Bhavik. So in this situation, Bhavik can rescind the contract and is not bound to pay Abhay the amount of Rs1,00,000 as Abhay breached the contract by not supplying the goods in the stipulated time.
Also under section 65 of the Indian Contract Act, 1872, it is mentioned that if the party has rescinded the contract it must also restore the benefits if received under the agreement.

Section 75 states that if the party has rescinded the contract, it is entitled to damages or compensation for any rescinding of the contract.

Sue for damages

Due to the breach of contract by one party, the other party who has suffered any loss can sue the breaching party for the damages for any loss during the normal course of business.

Losses not in the normal course of business are classified as abnormal and hence are not compensated. As explained in section 73 of the Indian contract act, 1872

Two types of damages are there:

  • Liquidated damages
    • When the contracting parties mutually decide the amount payable as compensation, it is known as liquidated damages.
  • Unliquidated damages
    • When the amount payable as compensation is decided by the court, it is known as unliquidated damages.

Sue for specific performance

When one of the parties in the contract breaches the agreement, the court may decide to order the breaching party to perform a specific duty. In this damages are not paid instead a decree of performance is granted.

Illustration

Abhay decided to buy raw material from Bhavik, later on, Bhavik refuses to sell his goods to Abhay, in this case, the court may decide and order Bhavik to sell his goods.

Injunction

It is the complete opposite of the above remedy, in this case, the court may restrain the party to perform a specific duty unlike in the above remedy wherein the court orders the performance of a specific duty.

Injunctions are of two types:

Mandatory injunction: court orders a mandatory injunction to stop the continuance of an act that is unlawful in nature.
Prohibitory injunction: court orders a prohibitory injunction to stop the act from commission (an act of committing or performing)

illustration

Abhay and Bhavik are contracting parties and entered into a contract in October, and eventually in December Bhavik is prohibited from performing any duties further because of the breach which was a prohibitory injunction, if some unlawful activity was carried in the contract, the court may order a mandatory injunction to stop carrying it out any further.

Quantum meruit

In this remedy when one party is stopped by performing its further duties any further, the other party can ask for quantum meruit, which means payment of the work already done by it or the remuneration for its services done to date.
Illustration

Author: Anjana Gupta,
Chandigarh University-B.A llb 1st year

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