BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

BREACH & REMEDIES

Relevant Law: The Contract Act, 1872

BREACH OF A CONTRACT

WHAT IS BREACH OF A CONTRACT?

A breach of a contract occurs if any party refuses or fails to perform his part of the contract or by
his act makes it impossible to perform his obligation under the contract.
In case of breach, the aggrieved party is relieved from performing his obligation and is given a
legal right to proceed against the defaulting party.
TYPES OF BREACH
1. ANTICIPATORY BREACH
When the party declares his intention of not performing the contract before the performance is
due. This may be where a party:
(a) Refuses to perform i.e. expressly says that he will not perform
E.g. If a farmer agrees to sell to X, his whole crop of wheat i.e. 10 tons @ Rs. 8,000/ton, to be
delivered on 20 October. On 1 October, the farmer tells X that he will not deliver the wheat. The
farmer has committed anticipatory breach.
(b) Disables himself from performing
E.g. If a farmer agrees to sell to X, his whole crop of wheat i.e. 10 tons @ Rs. 8,000/ton, to be
delivered on 20 October. On 1 October, he sells the 10 tons of wheat to Y. The farmer has
committed anticipatory breach.
Consequences of Anticipatory Breach
The aggrieved party has a right to
(a) rescind the contract and claim damages instantly; or,
(b) treat the contract as operative till the due date of performance and claim damages after
the due date.
In scenario (b), the Promisor is given the opportunity to perform his promise before the due date
e.g. the farmer may decide on 10 October that he will arrange for additional wheat from another
supplier and make the delivery by the due date i.e. 20 October. However, there is also a chance
that the contract be discharged by way of frustration/supervening impossibility, e.g. if the entire
crop of wheat is washed away by a flood on the 19 October, in which case the Promisee will
loose his right to damages.

1
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

2. ACTUAL BREACH
If any party refuses or fails to perform his part of the contract at or before the time fixed for
performance OR if any party performs part of the contract and refuses or fails to perform the
remaining part of the contract.
Consequences of Actual Breach
The consequences of actual breach depend on whether time was of the essence of the contract.

 Where time is of essence, the contract is voidable at the option of the Aggrieved Party.
Where time is not of essence, the contract will not be voidable.
 Where time is of essence/not of essence and performance beyond the fixed time is not
accepted by the Aggrieved Party, the Aggrieved Party is entitled to claim compensation
for loss occasioned to him by non-performance.
 Where time is of essence/not of essence, but performance beyond the fixed time is
accepted by the Aggrieved Party, the Aggrieved Party is not entitled to claim
compensation UNLESS notice of this has been given to the Promisor.
E.g. A Bar Owner hires a Singer to perform at his bar twice every week for Rs. 5,000/night. On
the 6th night, the Singer does not show up. The Bar Owner may (a) rescind the contract and claim
compensation for the loss occasioned to him by the Singer’s failure to perform on the 6th night or,
(b) permit the Singer to perform on the 7 th night. In situation (b) the Bar Owner is not entitled to
claim compensation UNLESS, while granting permission to perform on the 7 th night, he has
intimated the Singer of his intention to do so.

REMEDIES FOR BREACH

WHAT IS A REMEDY?
The course of action available to the aggrieved party for the enforcement of a right under a
contract. The remedies available for breach of a contract are as under:
 Rescission of Contract
 Suit for Damages
 Suit for Specific Performance
 Suit for Injunction
 Suit for Quantum Meruit

2
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

RESCISSION OF CONTRACT (Section 39)

Rescission is the right to not perform an obligation. In case of a breach of contract, the
Aggrieved Party may put an end to the contract i.e. the Aggrieved Party is discharged from all
obligations under the contract and is entitled to compensation for the damage occasioned to him
by the non-performance of the contract.
E.g. in the Farmer Example, if X decides to rescind the contract, X is discharged from his
obligation to pay the price of the wheat. Additionally, X is entitled to claim compensation for the
damage occasioned to him on account of the Farmer failing to deliver the wheat on 20 October.
SUIT FOR DAMAGES
Damages are monetary compensation that is allowed for loss suffered by the Aggrieved Party.
The object of awarding damages is to make food the financial loss that has been suffered instead
of punishing the Defaulting Party.
Hadley v. Baxendale (1854)
H’s mill was stopped due to the breakdown of a shaft. He delivered the shaft to B, a common
carrier, to be taken to a manufacturer to copy it and make a new one. H did not tell B that delay
on B’s part could result in loss of profits. Due to the neglect of B, delivery of the shaft was
delayed in transit beyond a reasonable time. H sued B for loss of profits caused by the delay on
B’s part.
Principle: damages granted should be such as may fairly and reasonably be considered to
EITHER
 arise naturally from such a breach i.e. according to the usual course of things;
OR
 such as may reasonably be supposed to have been in the contemplation of both parties, at
the time that the contract was made, to be a probable result of breach.
Therefore, in Hadley v. Baxendale, it was held that since loss of profits did not fall within either
of the two conditions stated above, B was not liable to make good loss of profits to H.
Section 73 of the Act is in line with the principle laid down in the above case. It reads:
73.Compensation for loss or damage caused by breach of contract.- When a contract has
been broken, the party who suffers by such breach is entitled to receive, from 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 or damage
sustained by reason of the breach…

3
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

Explanation.- In estimating the loss or damage arising from a breach of contract, the
means which existed of remedying the inconvenience caused by the non-performance of the
contract must be taken into account.
There are different kinds of damages, these include, but are not limited to, the following:
Ordinary Damages: Damages that naturally arise in the usual course of things from such a
breach.
Special Damages: Damages that may reasonably be supposed to have been in the contemplation
of both parties as a result of the breach of a contract. Such damages may only be recovered if
there exist special circumstances that result if a special loss in case of breach of a contract is
communicated to the promisor.
E.g. A builder, X, is to build a house for Y by 1 January. Y has informed X that he intends to
give the house for rent to Z on 2 January. X builds the house so badly that the house falls down
before the 2 January and has to rebuild his entire house. As a consequence of this, Y fails to give
the house for rent to Z, and thereby loses the rent that he was supposed to receive from Z. Y is
also made to pay compensation to Z for not fulfilling his obligation under the contract between Y
and Z. In this case, X must make compensation to Y for the following:
o the cost of rebuilding the house;

o the rent lost; and,

o the compensation paid to Z.

Exemplary/Punitive Damages: Damages that are in the nature of a punishment.

Nominal Damages: Damages that are awarded where there is a technical violation of a legal right
but no loss is suffered by the Aggrieved Party. Such damages are very small and may or may not
be awarded by the court.
Liquidated Damages and/or Penalty: Two parties may, at the time of contracting, specify a sum
which will become payable by the Defaulting Party in case of breach. If such sum is a fair pre-
estimate of damages likely to result from breach it is called Liquidated Damages, however, if the
sum is disproportionate to the damages likely to result due to breach it is called a Penalty.
Additionally, damages may take the form of damages for inconvenience/discomfort and
forfeiture of security deposit/earnest money.
SUIT FOR SPECIFIC PERFORMANCE
Such a suit is a demand for the court’s direction to the Defaulting Party to carry out their
obligations under the contract.
SUIT FOR INJUNCTION
Such a suit is a demand for the court to prohibit the Defaulting Party from doing a particular act.
It is also called a stay order.

4
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

E.g. A bank, X may bring a suit for injunction against Y, a bank defaulter, prohibiting Y from
selling of mortgaged property.
SUIT FOR QUANTUM MERUIT
Quantum Meruit means as much as is earned. Where the court grants a right to quantum merit, it
means a right to claim compensation for work already done.