What is Breach of Contract ?
Breach of contract is a legal cause of action in which a binding agreement or bargained for exchange is not honoured by one or more of the parties to the contract by non-performance or interference with the other party's performance. If the party does not fulfil his contractual promise, or has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to breach the contract.
Types of Breach of Contract
Breach of contract can be of two types:
1) Anticipatory Breach [Section 39]:
Anticipatory breach occurs when the party declares his intention of not performing the contract before the performance is due. Thus, when a party refuses to perform a contract even before it is due for performance, it is called anticipatory breach. It may take place in two ways:
i) Expressly by Words Spoken or Written:
When a party to a contract has refused to perform his promise.
For example, X. farmer agrees to sell to Y his entire crop of 10 tonnes of wheat at Rs.8,000 per tonne to be delivered on 20 October. On 1 October, X informs Y that he is not going to supply the goods. X has committed anticipatory breach of contract by express repudiation.
ii) Impliedly by the Conduct of One of the Parties:
When a party to a contract has disabled himself from performing his promise in its entirety.
For example, X, a farmer agrees to sell to Y his entire crop of 10 tonnes of wheat at Rs.8,000 per tonne to be delivered on 20 October. On 1 October, X sold his entire crop to Z at Rs.10,000 per tonne. X has committed anticipatory breach of contract by implied repudiation. According to section 39 of Indian Contract Act, 1872, "When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promise may put an end to the contract, unless he has given his acquiescence in its continuance by words or conduct".
2) Actual Breach:
Actual breach of contract may take place in any of the following two ways:
i) On Due Date of Performance:
If any party to contract refuses or fails to perform his part of the contract of the time fixed for performance, it is called an actual breach of contract on due date of performance.
For example, X agreed to sell to Y 10 tonne of wheat at Rs.8,000 per tonne to be delivered in two equal instalments on 20 October and on 21 October. On 20th October, X refused to deliver the goods. It is an actual breach of contract on due date of performance.
ii) During the Course of Performance:
If any party has performed a part of the contract and then refuses or fails to perform the remaining part of the contract, it is called an actual breach of contract during the course of performance.
For example, X agreed to sell to Y 10 tonne of wheat at Rs.8,000 per tonne to be delivered in two equal instalments on 20 October and 21 October. On 20 October, X delivered 5 tonne and refused to deliver remaining 5 tonne. It is an actual breach of contract during the course of performance.
Consequences of Breach of Contract
Damages are a monetary compensation allowed to the Injured party for the loss or injury suffered by him us a result of the breach of contract. The fundamental principle underlying damages is not punishment but compensation.
By awarding damages the court alms to put the Injured party into the position in which he would have been, had there been performance and not breach, and not to punish the defaulter party.
As a general rule, "compensation must be commensurate with the injury or loss sustained, arising naturally from the breach". "If actual loss is not proved, no damages will be awarded".
Compensation of Loss or Damage Caused by Breach of Contract [Section 73]
When a contract has been broken, the party who suffers by such breach is entitled to receive, form the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract. When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation: In estimating the less or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account.
For example,
1) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.
2) A hires B's ship to go to Bombay, and there takes on board, on the first of January, a cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. B's ship does not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, but is put trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.
Compensation of Breach of Contract where Penalty Stipulated for [Section 74]
When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulations by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved in have been caused thereby, to receive from the party who lies broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation: A stipulation for increased Interest from the date of default may be a stipulation by way of penalty.
Exception: When any person enters into any bail- bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the (Central Government) or of any (State Government), gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Explanation: A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.
For Example,
1) A contracts with B to pay B Rs.1,000 if he fails to pay B Rs.500 on a given day. A fails to pay B Rs.500 on that day. B is entitled to recover from A such compensation, not exceeding Rs.1,000, as the Court considers reasonable.
2) A contracts with B that, If A practices as a surgeon within Calcutta, he will pay B Rs.5,000. A practices as a surgeon in Calcutta. B is entitled to such compensation; not exceeding Rs.5,000 as the court considers reasonable.
Party Rightfully Rescinding Contract, Entitled to Compensation [Section 75]
A person who rightfully rescinds a contract is entitled to consideration for any damage which he has sustained through the non-fulfilment of the contract.
For Example,
A, a singer, contracts with B, a manager of a theatre, to sing at his theatre for 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 willfully absents herself from the theatre, and B. in consequence, rescinds the contracts. B is entitled to claim compensation for the damage which he has sustained through the non- fulfilment of the contract.
Remedies for Breach of Contract
A remedy is the course of action available to an aggrieved party (i.e., the party not at default) for the enforcement of o right under a contract. Various remedies available to an aggrieved party are as follows:
1) Rescission of Contract:
When a breach of contract is committed by one party, the other party may sue to treat the contract as rescinded. In such a case, the aggrieved party is freed from all his obligations under the contract. For example, A promises B to supply 100 bags of rice on a certain date. B promises to pay the price on the receipt of the goods. A does not deliver the goods on the appointed day, B need not pay the price.
2) Suit upon Quantum Meruit:
The term quantum meruit indicates "as much as earned or in proportion to the work done". A tight to sue on a quantum meruit arises where a. contract partly performed by one party, has become discharged by the breach of the contract by the other party. In such cases the plaintiff is entitled to the value of the services rendered or the goods delivered till the moment of discharge not on the basis of the original contract but on the basis of the quasi- contract.
3) Suit for Specific Performance:
Specific performance means the actual carrying out of the contract by the parties thereto. Where a party fails to carry out the contract, the Court may at its discretion, direct the defendant to perform his undertaking as per the terms of the contract. Provisions regarding the granting of this relief are dealt with in Specific Relief Act, 1877.
4) Suit for Injunction:
An injunction is a mode of securing the specific performance of a negative term of the contract. Where a party in a contract is in breach of a negative term of a contract (i.e., where he is doing something which he promised not to do), the Court may in its discretion issue an order to the defendant restraining him from doing what he promised not to do. Such an order of the Court is called an injunction.
5) Suit for Damages:
The common law remedy for breach of contract is damages. Damages are a monetary compensation adjudged to be paid to the injured party for the loss or injury suffered by him. The principle of awarding damages is to put the injured party in the same financial position as if the contract had been performed.