All you need to know about Breach Of Contract

This Article is written by Aishwarya Joshi.

Introduction

Section 2(h) of the Indian Contract Act, 1872 defines an agreement that is enforceable by law^[1]. When the offer is accepted and the promise is made for acceptance, it forms the agreement and then after the payment of consideration a legal contract that binds the party for performance of what is written in the contract is made, it is contract. Breach of Contract, means when any of the parties fails to perform the terms and conditions of the legally binding contract, it is neither a crime nor a tort, but failure to comply results in payment of compensation to the aggrieved party. Defined in Chapter 6 Consequences of Breach Of Contract in Sections 73-75.^[2]

Identification Of Breach^[3]

For getting the compensation you can prove the breach through these ways-

1. Validity Of Contract- To prove breach occurred there should be a valid contract in which all the contractual obligations are fulfilled.
2. Terms- You have to prove the terms have not been fulfilled mentioned in the contract.
3. Terms Of Plaintiff- Complete all the obligations in the contract.
4. Notice- A notice of suing the defendant party on prior basis either verbally or orally.

Causes For Breach Of Contract^[4]

1. Defective Performance- When all the obligations of contract are not fulfilled accordingly it lead to defect in performance, minor defect can be ignored but material cannot be ignored.
2. Delay In Performance- When the date on which the contract should be completed is not fulfilled then it causes delay but mere late performance not amount to payment of damages.
3. Failure In Performance- When the contract has not been performed duly it result into breach of contract and immediate payment of damages.

Section 73- It talks about the payment of damages by breaching party to non-breaching party in case of failure to comply with the conditions of contract, excluding the remote and indirect damages.^[5]

Types Of Damages^[6]

Damage is the economic loss, expense occurred, harm caused by non performance of the contract, they can be classified as-

1. General Damages and Special Damages- General are those occurred in normal course of event naturally and special in special event, not through mistake of defendant and compensation can be paid if at the time of contract they made reasonable consideration for it.
2. Nominal and Substantial Damages- In case of infringement of legal right nominal damages are paid not real damage occurred and in case of substantial damage it is impossible to calculate the reasonable damage then paid.

R.K. Upadhyay vs. State of Bihar (1995), ^[7]in this case there was no substantial loss so, the court awarded the nominal damages.

• Aggravated and Exemplary Damages- First one through compensation for mental injury and second one through punishment
• Liquidated and Unliquidated Damages- Liquidated are fixed by the contracting party and unliquidated are assessed by the court.

Section 74- Parties fix the damages on it’s own and court cannot award more than that but a lessor amount of compensation which should be reasonable without penalty.^[8]

• Consequential and Incidental Damages- Consequential are caused through physical loss like fire and incidental is when complainant tries to avoid the loss when he is aware of the failures or breach.

Section 75- Party is entitled to compensation who rightfully or legally rescinds the contract.^[9]

Types Of Breach Of Contract^[10]

1. Minor Breach Of Contract- This breach occurs when almost all the obligations of the contract are fulfilled but not all and some minor duties left, it can also be referred as partial or immaterial breach of contract. It can be taken to court when actual loss has occurred and the party proves it.
2. Material Breach Of Contract- It occurs when after fulfilling all the obligation different result occurred instead of what perceived of. The other party can sue only if it proves it suffered the loss directly or indirectly and other party has made some sort of profit out of it.
3. Anticipatory Breach Of Contract – It happens when the actual breach not occurred but the other party has specified it’s intention directly or through its action to not fulfil the obligations mentioned in the contract, it turns into actual breach when the date of fulfilment of obligation has been passed.
4. Actual Breach Of Contract- It occurs when actually the obligations mentioned in the contract has not been fulfilled and now the aggrieved can ask remedies in court for non- fulfilment of the duties. It can be minor or material.
5. Repudiatory Breach Of Contract- It is the most serious condition where the root or fundamental of the contract has not been fulfilled. But the aggrieved party can affirm the contract instead of cancelling it.

Remedies Of Breach Of Contract^[11]

Remedy is paid to the aggrieved party in some of these forms:-

• Compensatory Damages- It can be termed as most common form of damage paid by putting other party at place and cost of the breaching party and make your contract complete.

Hadley vs. Baxendale (1854),^[12] this is landmark judgement of English law where it was stated that damages should be enforceable at the time of making of the contract.

• Liquidating Damages- They are provided to the party aggrieved by another party expressly either fix amount or by calculating the damages.

ONGC vs. Saw Pipes Ltd. (2003)^[13], Payment of liquidatory damages for failure of delivery of goods.

• Rescission – When the fundamental conditions or material conditions, we can say” the Heart Of Contract” has not been fulfilled, the contract can be cancelled or returned to the very beginning.
• Specific Performance- It is done through the order of court by making the breaching party perform the obligations for non-breaching party, only done when the compensatory damages payable are inadequate.

Shree Hanuman Cotton Mills vs. Tata Air Services (1970), ^[14]A unique machine delivery was not made lead to court order for specific performance.

• Injunction- The court order the breaching party for taking action or refrain from taking a action in case of continuous obligation when the non- breaching party rights can be harmed and they are irreparable.

Gujarat Bottling Co. Ltd. Vs. Coca-Cola Co. (1995), ^[15]It was issued to prevent from doing a competing contract as it lead to breach of existing contract with the plaintiff.

• Quantum Meruit- The court paid amount proportionately in case the obligations are needed to be performed by another party instead of contracting party but somehow not fulfilled.

Sale Of Goods Act, 1930

Not only Contract buts Sales Act also talks about contract where seller in Section 55^[16]&56 ^[17]can sue for low price paid and unpaid amount as non completion of contract and in Section 57^[18],58 ^[19]& 59^[20] by buyer for non performance of obligation, late delivery of good, damage etc.^[21]

Conclusion

Contract has become an integral part of our life from buying a small pen to companies project proposals, we are doing contract from the ancient times through barter system till this 21^st century and it will go on to another more centuries. When all the essentials are fulfilled it make a valid contract i.e. legally enforceable and when any of it essential is omitted or changed it lead to breach of contract from any of the party and compensation is paid to the aggrieved party by the breaching party for the damage caused and for that there are various forms of remedy available for proper accomplishment of contract..^[22]

1. Indian Contract Act 1872, Section -2(h) ↑

2. Will Kenton, ‘Breach of Contract Explained: Types and Consequences’(Investopedia, May 6,2024)<https://www.investopedia.com/terms/b/breach-of-contract.asp > accessed 21^st June, 2024 ↑

3. ‘Breach Of Contract'(Contracts Counsel)<https://www.contractscounsel.com/v/us/breach-of-contract> assessed 21st June, 2024 ↑

4. Matt Viator, ‘A Deep Dive on Breach of Contract in Construction’ (Procore, June 11,2024)<https://www.procore.com/library/breach-of-contract > assessed 21^st June, 2024 ↑

5. Indian Contract Act 1872, Section 73 ↑

6. Khushi Agarwal, ‘Types of Damages under Section 73 of the Indian Contract Act, 1872’ (blogipleaders, June 3,2019)<https://blog.ipleaders.in/types-damages-section-73-indian-contract-act-1872/ > assessed 21^st June, 2024 ↑

7. Ramesh Kumar Upadhyaya vs State Of U.P. And Ors.,2006CRILJ2247 ↑

8. Indian Contract Act 1872, Section 74 ↑

9. Indian Contract Act 1872, Section 75 ↑

10. ‘What is a breach of contract?’(Juro, March 12,2024),<https://juro.com/learn/breach-of-contract >assessed 21^st June, 2024 ↑

11. ‘5 Common Remedies for a Breach of Contract’(Weisberg Law, June05,2022<)https://www.weisberglawoffices.com/blog/2022/june/5-common-remedies-for-a-breach-of-contract/> assessed 21^st June, 2024 ↑

12. Hadley v Baxendale (1854) 9 Exch 341 ↑

13. Oil & Natural Gas Corporation Ltd vs Saw Pipes Ltd,AIR 2003 SUPREME COURT 2629 ↑

14. Shree Hanuman Cotton Mills & Ors vs Tata Air-Craft Ltd,AIR 1970 SUPREME COURT 1986 ↑

15. M/S Gujarat Pottling Co.Ltd. & Ors vs The Coca Cola Co. & Ors,1995 AIR 2372 ↑

16. Sale Of Goods Act 1930,Section 55 ↑

17. Sale Of Goods Act 1930,Section 56 ↑

18. Sale Of Goods Act 1930, Section 57 ↑

19. Sale Of Goods Act 1930, Section 58 ↑

20. Sale Of Goods Act 1930, Section 59 ↑

21. ‘Breach of Contract: Remedies, Law, and Types with Examples’(Litem)<https://www.litem.in/breach-of-contract.php#:~:text=Breach%20of%20Contract%20Law,-The%20Sale%20of&text=The%20Indian%20Contract%20Act%2C%201872,consequences%20of%20breach%20of%20contract. >assessed 21^st June, 2024 ↑

22. Barnali Saha, ‘Issues and Challenges in Determining the Quantum of Damages in A Contract’(Thelegalquoram, 31^st May, 2024)<https://thelegalquorum.com/issues-and-challenges-in-determining-the-quantum-of-damages-in-a-contract/ > assessed 21^st June, 2024 ↑