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A contract is an exceptionally important concept in the trade and commerce of any nation. It is a legal agreement between two or more parties mentioning certain obligations which apply to both of them during the contract. It helps improve the Gross domestic product (GDP) and overall growth of a country. Breach of contract means the failure of a party to perform his/her obligations under a contract. Section 73-75 under the Indian Contract Act 1872 details the consequences of a breach of contract.
Breach of contract may be actual or anticipatory. In case of any breach of contract, the affected party can claim the damage from the court by forcing the other party to perform as promised. If one party fails to fulfil these obligations, a breach of contract takes place. Remedies for breach of contract include suit for damages, suit for specific performance, eliminating the contract, stopping the other party from doing something, suit upon quantum meruit (which is the compensation for work done before the breach).
Breach of Contract Meaning
A breach of contract occurs when one of the parties fails to perform the bounded terms and conditions of the contract. The other party can sue the party that caused the breach for money in such cases. Sometimes, they can approach the court and ask the court to force the other party to perform as promised. (Section 73 of the Indian Contract Act, 1872)
Breach of contract is of the following types:
- Anticipatory breach of contract.
- Actual breach of contract.
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Anticipatory Breach of Contract
This refers to when a breach of contract occurs before the time fixed for performance has arrived. It can take place in the following two ways:
- Expressly by words spoken or written
- Impliedly by the conduct of one of the parties.
Anticipatory breaches usually occur by the person who promises.
Actual Breach of Contract
This is a case of refusal to perform the promise on the scheduled date. When one of the parties breaks the contract by refusing to perform their promise on the due date, they have committed a breach. In that case, the other party leaves with the right of action against the one who has breached the contract.
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Remedies for Breach of Contract
- Suit for damages
- Suit for specific performance
- Eliminate the contract
- Stop the other party from doing something.
- Suit upon quantum meruit (compensation for work done)
Suit for Damages
The party can ask for compensation for loss or damage caused by the breach of contract. Remedy by way of damages is the most common remedy available to the injured party. Damages can be ordinary damages, special damages, exemplary damages, nominal damages, damage caused by delay, and pre-fixed damages.
The “Hadley vs. Baxendale” rule is important in the case of Suit for Damage.
It simply says that if there is any previous notice about special damages in the contract, the injured party can only sue the other party for ordinary damages.
Suit for Specific Performances
When compensation for the damage is not enough to cover the loss due to a breach of contract, we can approach the court and ask the court to force them to perform as promised.
Also see: UPSC Question Paper 2020
Eliminate the Contract
When a contract is breached, the promisee can stop doing the performance they are obligated to and claim compensation from the promiser.
Rescission of Contract
The promise restrains the party from doing something until the case is dismissed.
Suit for Quantum Meruit
Suing for the amount of money that must be paid to the injured party for the work they had done till the breach of contract happened.
Liquidated Damage and Penalty
Liquidated Damage: A reasonable estimate of likely loss in case of a breach which is mentioned in the contract before the breach.
Penalty: An arbitrarily fixed amount of money without estimating the likely loss in case of a breach.
Difference between Liquidated Damage and Penalty
Basis | Liquidated damage | Penalty |
Amount | Reasonable amount | High amount (not reasonable) |
Intention | To make up the loss that arises due to breach of contract | Enforce the other party for the performance |
Basis of amount fixation | Genuine pre-estimated loss | Not related to actual loss |
Conclusion
A contract is a legal agreement between two or more parties mentioning certain obligations which apply to both of them during the contract. It helps improve the gross domestic product and overall growth of a country. Breach of contract means the failure of a party to perform their obligations under a contract. Section 73-75 under the Indian Contract Act 1872 details the consequences of a breach of contract. The breach of contract may be actual or anticipatory. In case of any breach of contract, the affected party can claim the damage from the court, and the court forces the other party to perform as promised. There are different types of damages to discuss under the breach of contract.
Remedies for breach of contract include suit for damages, suit for specific performance, eliminate the contract, stop the other party from doing something, suit upon quantum meruit (compensation for work done).
Liquidated damage is a reasonable estimate of likely loss in case of a breach mentioned in a contract before breach. The penalty is an arbitrarily fixed amount of money without estimating the likely loss in a breach, which is usually a high amount.
