Notes

Program Name- Master of Business Administration (MBA)

Course Name- Legal Aspects of Business Sem- I

Unit Number- I Unit Name- The Contract Act 1872

Topic Name – Breach of Contract

Introduction:

A Breach of Contract occurs when a party thereto renounces his liability under it, or by his own act
makes it impossible that he should perform his obligations under it or totally or partially fails to perform
such obligations. A Breach of contract can be Anticipatory or Present. Remedies available under
Common Law are Damages. There is another group of remedies available to the aggrieved party which
are known as Equitable Remedies. These are discretionary remedies at Equity and are only granted
where damages are a not an adequate remedy. Equitable remedies included Rescission, Restitution,
Specific Performance, and Injunction.

Section 73, 74 and 75 of the India Contract Act, 1872 deals with remedies and damages for Breach of
Contract.

Content:

A breach of contract is a violation of any of the agreed-upon terms and conditions of a binding contract.
The breach could be anything from a late payment to a more serious violation such as the failure to
deliver a promised asset.

A contract is binding and will hold weight if taken to court. To successfully claim a breach of contract, it
is imperative to be able to prove that the breach occurred.

The breach of contract is of two types. The following are its types:

Anticipatory
Anticipation by one of the parties is the anticipatory breach. The breach will occur either expressly or
through conduct. The party will intimate eventually that he or she is going to commit a breach. The
aggrieved party will not have sufficient in the loss if there is compensation and if he waits for the actual
breach.

Illustration: In the Hochster v. De La Tour, it was decided that if there is a rejection of the contract
before the performance, then claim for the damages can be made. In accordance with that, De la Tour
agrees to employ Hochster as their for 3 months. De La Tour appoints Hochster in April to start work
from June. But De La Tour withdraws the appointment by May. Hochster sues them. De La Tour argues
that Hochster is under the terms or obligation, stating that he should be ready to perform until the 3
months is due. But Lord Campbell CJ dismisses the argument and awards Hochster with the damages.

Actual
The refusal to abide by the contract is an actual breach. If one of the party withdraws to perform before
the due date or if he performs incompletely, then he commits a breach.

Illustration: Poussard was to perform opera in the London run for 3 months. The producers found a
substitute when she was ill. The producers refuse to take her back when she returned. The court was
with the producers as it discovered their defence justifiably. The court did not award her with the
damages. The contract claims that she must perform from the first day. Failure to oblige by the contract
made the producers reject her contract.

Remedies for Contract Violations

If a promise or Agreement is broken by any parties involved we call it a Breach of Contract.
Therefore if one of the parties does not comply with the terms of the Agreement or does not
fulfill its obligations under the terms of the Contract, that is a Breach of Contract. There are
several Remedies for Contract Breach available from the Victim. Let's take a look.
Contract Reduction
If one of the Contractors does not fulfil his or her obligations, then the other party may withdraw the
Contract and deny the performance of his or her obligations.

In terms of section 65 of the Indian Contract Act, a company that rescinds a Contract must repay any
benefits received under the specified Agreement a nd section 75 states that the entity withdrawing a
Contract is entitled to claim damages and/or compensation for such Recession.

Sue for Damages

Section 73 makes it clear that the Victim as someone who has broken a promise may claim
compensation for loss or damages incurred in the normal course of business.

Such damages will not be paid if the loss is not natural in nature, i.e. not in the normal course of
business. There are two types of damage in terms of the Act,
 • Discontinued Damage: Sometimes Contract parties will agree to the amount payable in the
event of a Breach. These are known as liquidated damages.

• Unintended Injury: Here the amount payable for Breach of Contract is assessed by the courts
and any other relevant authorities.

Sue for Specific Performance

This means that the offending party will have to do its job contractually. In some cases, the courts may
insist that the party enter into an Agreement
Injunction
An order is basically the same as the law of a particular operation but of the opposite Contract. An order
is a court order that prohibits a person from committing an act.
So the court may issue an injunction suspending the Contractor from doing something he has promised
not to do. In a restraining order, the court suspends the action and by order, will suspend the
continuation of the illegal act.
Quantum Meruit
Quantum meruit means "earned money". Sometimes when one part of a Contract is prevented from
completing its Contract performance by another, it may require quantum suitability.
So he should be paid a fair wage for part of the Contract he has made. This could be the reward for the
work he did or the amount of work he did.
Parties to a Contract area are unit duty-bounded to perform their guarantees. However, things arise
wherever one among the parties to a Contract could break the Contract by refusing to perform his
promise. This can be what's referred to as the Breach of Contract. Once one party commits a Breach of
Contract, presently the opposite party is entitled to the subsequent Remedies. When one among the
party commits a Breach of the Contract, the opposite party becomes entitled to any of the subsequent
reliefs:

• Rescission of the Contract

• Damages for the loss suffered

• Suit for the precise performance

• Suit upon quantum meruit

• Suit for the injunction

Rescission of the Contract
When one among the parties commits a Breach of Contract, another party shall additionally treat the
Contract as void or cancel. Once the Contract is cancelled, the affected party is mechanically discharged
from all the commitments beneath the Contract. Section 64 of the Act provides that the party cancel the
Contract if he has received any profit under it from the opposite party; restore such profit to the person
from whom it had been received. Further, the one that truly cancels the Contract is entitled to
compensation for any loss that he faced from the non-fulfilment of the Contract.
Damages for the Loss Suffered
The term “Damages” means that financial compensation collectable by the defaulting party to the
affected party for the loss suffered by him once the Contract was broken. Therefore, the aggrieved party
could bring associate action for damages against the party who are guilty of the Breach of Contract. The
party is guilty of the Breach and is vulnerable to pay damages to the aggrieved party.
Types of Damages

A. Normal Damages or General Damages

Damages that arise within the normal course of events from the Breach of Contract are referred
to as normal damages.

B. Special Damages
Special damages are those damages that are collectable for the loss arising on account of some
special or uncommon circumstances. That is, they undue the natural and probable
consequences of the Breach of the Contract.

C. Exemplary or Vindictive Damages

These damages are awarded against the party who has committed a Breach of the Contract with
the thing of gruelling the fallible as a defaulting party and to compensate the aggrieved party.
Generally, these damages are awarded just in case of action on loss

D. Nominal Damages
These damages are in little quantity. They’re awarded merely to acknowledge the correctness of
the party to say damages for the Breach of the Contract. Sometimes, the damages aren't
associated with an adequate remedy for Breach of the Contract. In such cases, the Court could,
at the suit of the party not in Breach, direct the party in Breach to hold out his promise as per
the terms of the Contract. This can be referred to as the precise performance of the Contract.

Example: A united to sell associate previous stamp of the pre-independence amount to 8 for Rs.500.
However, afterwards refused to sell it. During this case, B may file a suit against A for the precise
performance of the Contract and therefore the Court could order A to sell the stamp to B as united.
Some of the Cases Wherever the Court Could Direct the Execution Area Unit as Follow
• Once the act is done, compensation in cash, for its non-performance, couldn't afford adequate
relief.

• Once there exists no normal for crucial the particular damages caused thanks to the non-
performance of the Contract.

However, Execution Shall Not Be Granted Within the Following Cases

• Wherever the damages are associate adequate relief,

• Wherever the Contract is calculable.

• Wherever the Contract involves personal nature.

• Wherever the Courts cannot supervise the effecting of the Contract.

• Wherever the Contract isn't truthful and simple.

Suit upon Quantum Meruit
In a literal sense, the expression “Quantum Meruit” means that, “as very much like attained “. In an
exceedingly Legal sense, it means that payment is in proportion to the work done. This principle
provides for the payment of compensation under certain circumstances, to someone who has offered
the products or services to the opposite party under a Contract, which couldn't be performed under
certain circumstances.

Cases for Claim on Quantum Meruit

Wherever the work, that has been done and accepted under Contract, is afterwards discovered to be
void – Here the party has affected a part of the Contract will truly the quantity for the work he has done.
And therefore the party that accepts and reaps the profit under Contract should create compensation to
the opposite party.

• Wherever one party abandons or refuses to perform the entire Contract. Here the
compensation for the work done could also be recovered supporting quantum meruit.

• Wherever one thing is finished with non-intention to try and do gratuitously. In such cases, the
opposite person is certain to create the payment if he accepts such services or merchandise, or
enjoys their profit.

• Wherever the Contract is cleavable and therefore the party has enjoyed the advantages of the
work done – In such cases, the halfway in default could sue on quantum meruit if the opposite
party has enjoyed the advantages of the part performance.

Suit for Injunction

The term” Injunction” could also be outlined as an associate order of the Court instructing someone to
refrain from doing a little act that has been the subject-matter of the Contract. wherever a celebration
has secured to not do one thing and he will it, and thereby commits a Breach of Contract, the aggrieved
party could ask for the protection of the Court beneath sure circumstances and procure associate
injunction.
Example: A narrowed to sing solely at B’s theatre and obscurity else for an exact amount. Afterwards, A
created a Contract with C to sing at C’s theatre and refused to sing at B’s theatre. The Court refused to
order a selected performance as a result of the Contract was private however granted an associate
injunction against A to restrain him from singing anyplace else.

Summary:

❖ A contract is the fountainhead of a correlative set of rights and obligation of the parties and
would be of no value if there is no statutory provision for compensation for damage or loss
caused to the aggrieved party.
❖ It provides for the remedy to the non-defaulting party to contract by way of compensation for
damage or loss caused due to breach of contract by the other party, provides for compensation
for actual damage or loss from the party in breach of the contract. Reasonable liquidated
damages are payable without proof of loss .
 ❖ It provides that contracting parties in the event of breach, may agree that the defaulted party
shall pay a stipulated amount to the other ,or may agree that in the event of breach by one
party any amount paid to him shall be forfeited. If it is not genuine pre-estimate of the loss ,but
an amount intended to secure performance of the contract ,it may be called ‘penalty’. However
mere stipulation does not give right for compensation by way of penalty. Prove has to be
established for loss or damages caused by breach of contract

.Self-Assessment Questions:

1. A breach of contract can be of ___________ breach

a. Discharged
b. Illegal
c. Void
d. None of these

2. Injunction is a mode of:

a. Securing the specific performance of the negative terms of a contract.

b. Securing the performance of the contract in positive terms of a contract.

c. Securing the performance of the contract.

d. None of the above.

3. What is the meaning of ‘Quantum Meruit ’:

a. As much as saved
b. As much as paid
c. As much as retained
d. As much as earned

4. Which one of the following sentences is correct?

a. If a party has suffered no loss through a breach of contract he will only be entitled to nominal
damages
b. Damages can never be claim for distress or disappointment
c. A claimant can claim for all losses that have occurred through breach of contract
d. A claimant generally has no duty to mitigate his loss.