INDIAN CONTRACT ACT 1872

UNIT 5 – BREACH OF A CONTRACT

Breach means FAILURE OF A PARTY TO PERFORM his or her obligation under a contract.
Breach of contract may arise in two ways –
 Actual breach of contract.
 Anticipatory breach of contract.

ACTUAL BREACH
REFUSAL TO PERFORM the promise under a contract ON THE SCHEDULED DATE, is
called actual breach.
Actual breach of contract may be committed –
 At the time when the performance of the contract is due
Example – Anuj (A) agrees to deliver 100 bags of sugar to Bharath (B) on 1st February
2016. 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 of the
promise under the contract BECOMES DUE.
 During the performance of the contract
Example – Anuj (A) agrees to take Maths’s tuition classes for Bharath (B) for February and
March. On the 20th of February, he communicated his intention of not to take further
classes for B. This is actual breach of contract. The breach has been committed by A
DURING THE PERFORMANCE of the promise under the contract.

ANTICIPATORY BREACH
An anticipatory breach of contract is a breach of contract occurring BEFORE THE TIME FIXED
FOR PERFORMANCE HAS ARRIVED.
When the promisor refuses to perform his promise and SIGNIFIES HIS UNWILLINGNESS
even BEFORE THE TIME for performance has arrived, it is called Anticipatory Breach.
Anticipatory breach of a contract may take either of the following two ways –
 Expressly by words spoken or written; and
 Impliedly by the conduct of one of the parties.
The promisee is excused from performance or from further performance. Further he gets an
option –
 To either treat the contract as rescinded and SUE the other party for damages from breach
of contract IMMEDIATELY WITHOUT WAITING until the due date of performance; or

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 INDIAN CONTRACT ACT 1872

 He may elect not to rescind but to treat the contract AS STILL OPERATIVE and wait for
the time of performance and then hold the other party responsible for the consequences
of non-performance.
i. But in this case, he will keep the contract alive for the benefit of the other party as
well as his own, and the guilty party, if he so decides on re-consideration, may still
perform his part of the contract, and can also take advantage of any supervening
impossibility which may have the effect of discharging the contract.

REMEDIES FOR BREACH OF CONTRACT

The following are remedies available for the aggrieved party in case of breach of a promise in
a contract –
I. RESCISSION OF CONTRACT
Where there is a breach of contract by one party, the other party may rescind the contract
and need not perform his part of obligations under the contract. This is called right of
rescission which means a right to CANCEL OR SET ASIDE the contract.
Any aggrieved party who RIGHTFULLY RESCINDS the contract is ENTITLED FOR ANY
DAMAGES which he has sustained through the non-fulfilment of the promise in the
contract.
II. SUIT FOR DAMAGES
Damages are the MONETARY COMPENSATION allowed by a COURT OF LAW to the
AGGRIEVED PARTY for the LOSS OR INJURY SUFFERED by him. The loss or injury is
also known as damages. Damages are received from the party who has BROKEN THE
PROMISE in a contract.
The object of providing damages is to COMPENSATE THE INJURED PARTY and bring
him on the SAME POSITION in which he would have been if there was no breach of
contract.
If there is NO ACTUAL LOSS OR INJURY, then the aggrieved party cannot claim damages
(except nominal damages in certain cases).

TYPES OF DAMAGES
 Ordinary damages
Ordinary damages are those which naturally arise in the usual course of things from such
breach. They are NATURAL AND PROBABLE CONSEQUENCES of the breach, which
the aggrieved party suffering can recover from the defaulting party.

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 INDIAN CONTRACT ACT 1872

 Special damages
Apart from ordinary damages, special damages can also be claimed. Special damages
are for loss which arises ON ACCOUNT OF UNUSUAL CIRCUMSTANCES affecting the
aggrieved party. They are not recoverable unless the special circumstances were
BROUGHT TO THE KNOWLEDGE of the other party.
 Nominal damages
Nominal damages are awarded where the aggrieved party has proved that there has been
a breach of contract, but he has NOT SUFFERED ANY REAL DAMAGE. It is awarded just
to ESTABLISH THE BREACH of contract.
 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.
 Vindictive damages
These damages may be awarded only in two cases –
a. for BREACH OF PROMISE TO MARRY because it causes injury to his or her feelings;
and
b. for WRONGFUL DISHONOUR BY A BANKER of his customer’s cheque because in
this case the injury due to wrongful dishonour to the drawer of cheque is so heavy that
it CAUSES LOSS OF CREDIT AND REPUTATION to him. A businessman whose
credit has suffered will get exemplary damages even if he has sustained no pecuniary
loss.
 Pre-fixed damages
Sometimes, parties to a contract stipulate AT THE TIME OF ITS FORMATION that on a
breach of contract by any of them, a CERTAIN AMOUNT will be payable as damage. It
may amount to either LIQUIDATED DAMAGES (a reasonable estimate of the likely loss
in case of breach) or a PENALTY (an amount arbitrarily fixed as the damages payable).

BASIS LIQUIDATED DAMAGES PENALTY

Reasonable estimate of probable High and arbitrary, not linked to

AMOUNT
loss or injury. loss or injury.

Acts as a compensation against Acts as a measure to avoid

INTENTION estimated damages that might be committing breach.
incurred on breach.

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 INDIAN CONTRACT ACT 1872

ENGLISH LAW makes a distinction between liquidated damages and penalty, but NO
SUCH DISTINCTION IS FOLLOWED IN INDIA. The courts in India must ASCERTAIN
THE ACTUAL LOSS and AWARD THE SAME which amount must NOT EXCEED THE
SUM SO FIXED in the contract.
III. SUIT FOR INJUNCTION
Where a party to a contract is negating (committing breach) the terms of a contract, the
court may by issuing an ‘injunction orders’ or ‘stay orders’, which restrain such person from
doing what he promised not to do.
Injunction is a PREVENTIVE RELIEF.
Example – Nayanthara, a film actress agreed to act exclusively for AGS Cinemas for one
year. During the year, she contracted to act for Sivan. Held, she could be restrained by an
injunction order from acting for Sivan.
IV. 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.
V. SUIT UPON QUANTUM MERUIT
Quantum Meruit means ‘AS MUCH AS DESERVES OR EARNS’. In legal sense, it means
‘PAYMENT IN PROPORTION TO THE WORK DONE’. Any person can recover
compensation in proportion for the work done or service rendered by him.
Normally, a person cannot claim performance from the other party, unless he has
performed his obligation in full. But under the concept of Quantum Meruit, a person who
has performed some work can claim payment in proportion to the work done. The right to
Quantum Meruit is NOT CONFERRED BY THE CONTRACT BUT IT IS CONFERRED BY
LAW. It is QUASI-CONTRACTUAL IN NATURE.
Practice Questions
1. PM Ltd., contracts with Gupta Traders to make and deliver certain machinery to them by
30th June 2017 for Rs 21.50 Lakhs. Due to labour strike, PM Ltd. could not manufacture
and deliver the machinery to Gupta Traders. Later Gupta Traders procured the machinery
from another manufacturer for Rs 22.75 lakhs. Gupta Traders was also prevented from
performing a contract which it had made with Zenith Traders at the time of their contract
with PM Ltd. and were compelled to pay compensation for breach of contract. Calculate
the amount of compensation which Gupta Traders can claim from PM Ltd., referring to the
legal provisions of the Indian Contract Act, 1872.

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 INDIAN CONTRACT ACT 1872

2. ‘X’ entered into a contract with ‘Y’ to supply him 1,000 water bottles @ Rs 5.00 per water
bottle, to be delivered at a specified time. Thereafter, ‘X’ contracts with ‘Z’ for the purchase
of 1,000 water bottles @ Rs 4.50 per water bottle, and at the same time told ‘Z’ that he did
so for the purpose of performing his contract entered into with ‘Y’. ‘Z’ failed to perform his
contract in due course and market price of each water bottle on that day was Rs 5.25 per
water bottle. Consequently, ‘X’ could not procure any water bottle and ‘Y’ rescinded the
contract. Calculate the amount of damages which ‘X’ could claim from ‘Z’ in the
circumstances? What would be your answer if ‘Z’ had not informed about the ‘Y’s contract?
Explain with reference to the provisions of the Indian Contract Act, 1872.

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