Breach of Contract

Breach means failure of a party to perform his or her obligation under a contract. Breach of contract may arise in two ways:

(1) Anticipatory breach of contract

(2) Actual breach of contract

Anticipatory breach of contract

It is an important concept under the law of contractual relationship. When the promisor refuses altogether to perform his promise and signifies his unwillingness even before the time for performance has arrived, it is called Anticipatory Breach. A promisee, instead of putting an end to the contract forthwith may keep the contract alive upto the time when the contract is to be executed. But the amount of damages in one case may be different from that in the other.

Example: X agrees to sell to Y a certain quantity of say, wheat at ' 100/- per quintal to be delivered, say, on the 3rd March. On the 2nd February, X gives notice expressing his unwillingness to sell wheat; and the price of wheat on the date is ' 110/- per quintal. If Y repudiates the contract forthwith (which he is entitled to do at his option), he would be able to recover damages @ '10/- per quintal, being the difference between market price on the 2nd February and the contract price. If instead of taking the action forthwith, he keeps the contract alive till the 3rd March and in the meantime, the price increases to ' 125/- per quintal on the date. Y would be able or recover damages @ ' 25/- per quintal. If, on the other hand, during the intervening period between 2^nd February and 3rd March, private sale of wheat is prohibited by the Government, the contract would become void, and Y would not be able to recover any damages whatever. Thus you observe that if the promisee keeps the contract alive, he does so not only for his own benefit but also for the benefit of the promisor.

Example:

(1) A agrees to employ B from 1st of March and on 25th February, he writes to B that he need not join the service. The contract has been expressly repudiated by A, before the date of its performance. This is the anticipatory breach of contract.

(2) A contracts to marry B. Before the agreed date of marriage, he marries C. In this case, A has committed anticipatory breach of contract.

Actual breach of contract

In contrast to anticipatory breach, it is a case of refusal to perform the promise on the scheduled date. The parties to a lawful contract are bound to perform their respective promises. But when one of the parties breaks the contract by refusing to perform his promise, he is said to have committed a breach. In that case, the other party to the contract obtains a right of action against the one who has refused to perform his promise.

Actual breach of contract may be committed-

(a) At the time when the performance of the contract is due.

Example: A agrees to deliver 100 bags of sugar to B on 1st Feb, 2012. On the said day, he failed to supply 100 bags of sugar to B. This is actual breach of contract. The breach has been committed by A at the time when the performance becomes due.

(b) During the performance of the contract: Actual breach of contract also occurs when during the performance of the contract, one party fails or refuses to perform his obligation under it by express or implied act.

The Act, in Section 73, has laid down the rules as to how the amount of compensation is to be determined. On the breach of the contract, the party who suffers from such a breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him by breach. Compensation can be claimed for any loss or damage which naturally arises in the usual course of events. A compensation can also be claimed for any loss or damage which the party knew when they entered into the contract, as likely to result from the breach. That is to say, special damage can be claimed only on a previous notice. But the party suffering from the breach is bound to take reasonable steps to minimize the loss. And no compensation is payable for any remote or indirect loss.

Liability for damages

Breach of contract entitles the injured party to file a suit for damages, which are the monetary compensation awarded to a person by the court. Thus the liability for the damages may be classified as under;

(a) Liability for ordinary damages: These damages arises in the ordinary course of events from the breach of contract. These Damages constitute the direct loss suffered by the injured party.

(b) Liability for special damages: Where a party to a contract receives a notice of special circumstances affecting the contract, he will be liable not only for damages arising naturally and directly from the breach but also for special damages.

(c) Liability to pay vindictive or exemplary damages: These damages may be awarded only in two cases, viz (i) for breach of promise to marry; and (ii) wrongful dishonour by a banker of his customer’s cheque. In a breach of promise to marry, exemplary damages may be awarded to the other party taking into consideration the injury caused to his or her feelings. The amount of damages recoverable by the drawer of cheque from his banker in case of wrongful dishonour of his cheque may be quite heavy, depending upon the loss of credit and reputation suffered on that account.

(d) Liability to pay nominal damages: Nominal damages are awarded where the plaintiff has proved that there has been a breach of contract but he has not in fact suffered any real damage. It is awarded just to establish the right to decree for the breach of contract. The amount may be a rupee or even 10 paise.

(e) Damages for deterioration caused by delay: In the case of deterioration caused to goods by delay, damages can be recovered from carrier even without notice. The word ‘deterioration’ not only implies physical damages to the goods but it may also mean loss of special opportunity for sale.

How to Calculate the Damage?

Under a contract for the sale of goods, the measure of damages, when the buyer breaks the contract, is the difference between the contract price and the market price at the date of breach. If the contract is broken by the seller, the buyer is entitled to recover from the seller the difference between the market price and the contract price at the date of breach.

Duty to mitigate the loss. You will perhaps recollect that the party who suffers in consequence of the breach of contract must take all reasonable steps to mitigate the loss from such a breach; he cannot claim as damages any loss which he has suffered due to his own negligence. Besides claiming damages as a remedy for the breach of contract, the following remedies are also available:

(i) Rescission of contract: When a contract is broken by one party, the other party may treat the contract as rescinded. In such a case he is absolved of all his obligations under the contract and is entitled to compensation for any damages that he might have suffered.

Example: A promises B to deliver 50 bags of cement on a certain day. B agrees to pay the amount on receipt of the goods. A failed to deliver the cement on the appointed day. B is discharged from his liability to pay the price.

(ii) Suit upon Quantum Meruit: The phrase ‘quantum meruit’ literally means “as much as is earned” or “according to the quantity of work done”. When a person has begun the work and before he could complete it, the other party terminates the contract or does something which make it impossible for the other party to complete the contract, he can claim for th work done under the contract. He may also recover the value of the work done where the further performance of the contract becomes impossible. The claim on quantum meruit must be brought by a party who is not at default. However, in certain cases, the party in default may also sue for the work done if the contract is divisible. Following are the cases in which a claim or quantum meruit may arise:

(a) Where an agreement is discovered to be void: Where the work has been done and accepted under a contract which is subsequently discovered to be void, in such a case, the person who has performed the part of the contract is entitled to recover the amount for the work done and the party, who receives and accepts the benefit under such contract, must make compensation to the other party.

(b) Where something is done or delivered without intention to do gratuitously: Where a person does some act or delivers something to another person with the intention of receiving payments for the same (i.e. non-gratuitous act), in such a case, the other person is bound to make payment if he accepts such services or goods, or enjoys their benefit.

(c) Where the contract is divisble: The compensation for the work done may be recovered on the basis of quantum meruit, where the contract is divisible and a party performs part of the contract and refuses to perform the remaining part. In such a case, the party in default may sue the other party who has enjoyed the benefits of the part performance.

Examples: (1) X wrongfully revoked Y‘s (his agent) authority before Y could complete his duties. Held, Y could recover, as a quantum meruit, for the work he had done and the expenses he had incurred in the course of his duties as an agent.

(2) A agrees to deliver 100 bales of cottons to B at a price of '100 per bale. The cotton bales were to be delivered in two installments of 50 each. A delivered the first installment but failed to supply the second. B must pay for 50 bags.

(iii) Suit for specific performance: Where damages are not an adequate remedy in the case of breach of contract, the court may in its discretion on a suit for specific performance direct party in breach, to carry out his promise according to the terms of the contract.

(iv) Suit for injunction: Where a party to a contract is negativating the terms of a contract, the court may by issuing an ‘injunction order’ restrain him from doing what he promised not to do.

Example: N, a film star, agreed to act exclusively for a particular producer, for one year.

During the year she contracted to act for some other producer. Held, she could be restrained

by an injunction.

SUMMARY

In case of breach of contract by one party, the other party need not perform his part of the contract and is entitled to compensation for the loss occurred to him. Damages for breach of contract must be such loss or damage as naturally arise, in the usual course of things or which had been reasonably supposed to have been in contemplation of the parties when they made the contract, as the probable result of the breach. Any other damages are said to be remote or indirect damages, hence, cannot be claimed.