Breach of Contract and Remedies

Breach of Contract
• A breach occurs when either 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 (party not at fault) is relieved
from performing his obligation and gets a right to proceed against the
party at fault.
• Breach may occur in two ways:
• Anticipatory
• Actual
Anticipatory Breach of Contract
• It occurs when the party declares his intention of not performing the
contract before the performance is due.
• Intention of not performing the contract may be declared in two
ways-
• When the party to a contract has refused to perform his promise (Express
Repudiation)
 Eg. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@ Rs.8,000/ton to be
delivered on 20th Oct. On 1st Oct, X informs Y that he is not going to supply the goods.
• When a party has disabled himself from performing his promise in its entirety
(implied Repudiation)
 Eg. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@ Rs.8,000/ton to be
delivered on 20th Oct. On 1st Oct he sold his entire crop to Z @Rs.10,000/ton.
Options to aggrieved party
Option 1
• Rescind the contract and claim damages for breach of contract
without waiting until the due date of performance.
In this case the amount of damages will be equal to the difference between
the price prevailing on the date of breach and the contract price.
Option 2
• Treat the contract as operative and wait till the due date for
performance and claim damages if the promise still remains
unperformed.
• Consequences:
(a) The promisor may perform his promise on or before the due date
and the promisee will be bound to accept the performance
(b) The promisor may take advantage of the discharge by supervening
impossibility arising between the date of breach and due date of the
performance and in such a case, the promisee shall loose his right to
sue for damages.
 Eg. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@ Rs.8,000/ton to be
delivered on 20th Oct. On 1st Oct, X informs Y that he is not going to supply the goods. Y
decided not to rescind the contract on 1st Oct and to wait till 20th Oct. On 19th Oct, the
entire crop was destroyed by fire without the fault of either party. Since the contract has
become void on the grounds of impossibility of performance, Y has lost his right to sue
for damages.
• If the aggrieved party decide not to rescind the contract at the date of
breach the amount of damages will be equal to the difference
between the price prevailing on the due date and the contract price.

• Que. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@

Rs.8,000/ton to be delivered on 20th Oct. On 1st Oct, X informs Y that
he is not going to supply the goods. Calculate the amount of damages
which could be recovered by Y from X if:
(a) Y rescinds the contract on 1st Oct when the market price of the
wheat was Rs.10,000/ton
(b) If Y does not rescind the contract on 1st Oct and waited till 20th Oct
when the market price of the wheat was Rs.12,000/ton.
Actual Breach of Contract
• On due date of performance: if any party to contract refuses or fails to perform
his part of the contract at the time fixed for performance, it is called actual
breach on due date of performance.
Eg. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@ Rs.8,000/ton to
be delivered on 20th Oct. On 20th Oct, X refuses to deliver the goods.

• During the course of performance: if any party has performed a part of the
contract and then refuses or fails to perform the remaining part of the contract, it
is called actual breach of contract during the course of performance.
Eg. A farmer agrees to sell to Y his entire crop of 10 tons of wheat@ Rs.8,000/ton to
be delivered on 20th Oct. On 20th Oct, X delivered 5 tons and refused to deliver
remaining 5 tons.
Remedies for Breach of Contract
• Remedy is the course of action available to the aggrieved party for
the enforcement of a right under the contract.
Types of Remedies
• Rescission of a contract (sec 39): means a right not to perform obligation.
In case of breach of contract, the promisee may put an end to the contract.
In such a case, the aggrieved party is discharged from all the obligations
under the contract and is entitled to claim compensation for the damages
which he has sustained because of non performance of the contract.
Eg. X agrees to supply 10 tons of wheat to Y on 20th Oct. Y promises to pay for the
goods on its receipt. X does not supply the goods on the due date. Here, Y is also
discharged from his liability to pay the price of goods.

• Suit for Damages: Damages are monetary compensation allowed for loss
suffered by the aggrieved party due to breach of contract. The object of
awarding damages is not to punish the party at fault but to make good the
financial loss suffered by the aggrieved party due to breach of contract.
Compensation for loss or Damage caused by
Breach of Contract (Sec.73)
• Ordinary Damages: which naturally arise in the usual course of things from
such breach. The damages can be recovered if the following two conditions
are fulfilled:
• The aggrieved party must suffer by breach of contract
• The damages must be proximate (i.e. direct) consequence of the breach of contract.
Eg. On 1st Dec., X contracted to sell 50 tons of wheat@ Rs.8,000/ton to Y on
1st Jan. On 20th Dec. Y afterwards contracted to sell those goods to Z at
Rs.10,000/ton. X failed to deliver goods on 1st Jan when the price of the
wheat was Rs.9,500/ton. Y is not entitled to recover Rs.20,000 as profit
which would have arisen to Y from the sale to Z because the profit is not the
proximate consequence of the breach of contract.
• Special Damage: are those which may reasonably be supposed to
have been in the contemplation of both parties as the probable result
of the breach of contract. These damages can be recovered if the
special circumstances which would result in a special loss in case of
breach of contract are communicated to the promisor.
Eg. A, a builder, contracts to construct a house by 1st Jan, in order that
B may give possession of it at that time to C, to whom B has contracted
to let it. A is informed of the contract between B and C. A constructs
the house in such a poor quality that before 1st Jan it fell down and has
to be rebuilt by B, who, in consequence, loses the rent which he was to
have received from C, and is obliged to make compensation to C for the
breach of his contract. A must compensate B for the cost of rebuilding
the house, for the rent lost and for the compensation made to C.
• Exemplary or Punitive or Vindictive Damages: these damages are sum
awarded beyond the financial loss sustained by the injured party. Normally
damages for breach of contract are intended to compensate the plaintiff
and not to punish the defendant. But the exemplary damages are allowed
not to compensate the party but as a means of punishment to the
defaulting party. These are given in cases of:
a) Breach of contract to marry (loss based on mental injury)
b) Wrongful dishonor of the cheque (smaller the amount of cheque, larger
the damage)

• Damages for Inconvenience and discomfort: awarded if a party has

suffered any physical inconvenience and discomfort.
Case: (Hobbs v/s London & SW Rail co.)
H with his wife and children booked a ticket for a midnight train, to be
transported to a particular place. They were, however, transported to a
wrong place from where they had to walk several miles on a drizzling night
and as a result, his wife caught cold and he had to incur medical expenses.
Held that he could recover compensation for the inconvenience and for the
medical expenses because it was a remote cause.
• Suit for specific performance: means demanding the court’s direction
to the defaulting party to carry out the promise according to the
terms of the contract.
Eg. X agreed to sell an old painting to Y for Rs.50,000. Subsequently , X
refused to sell the painting. Here, Y may file a suit against X for specific
performance.

• Suit for Injunction: means demanding court’s stay order. It implies an

order of the court which prohibits a person to do a particular act.
Where a party to a contract does something which he promised not
to do, the court may issue an order prohibiting him from doing so.
Eg. A agreed to sing at B’s theatre only during the contract period.
During the contract period, A made a contract with Z to sing at another
theatre and refused to perform the contract with B. It was held that A
could be restrained by injunction from singing for Z.
• Suit for Quantum Meruit: means as much as is earned. It means a
right to claim compensation for the work already done.
Eg. C an owner of a magazine engaged D to write a book which was to
be published in chapters in C’s magazine. After a few chapters were
published, the publication of the magazine was stopped. Held that D
can claim payment for the part already published.
Quasi Contracts
• They are not contracts as one of the essentials for the formation of a
contract are absent.
• It is an obligation imposed by law upon a person for the benefit of
another even in the absence of a contract.
• It is based upon the principle of equity, which means no person shall
be allowed to unjustly enrich himself at the expense of another.
• They are called quasi contracts because the outcome of such
obligations resemble those created by a contract.
Features of a Quasi Contract
• It is imposed by law and does not arise from any agreement
• The duty of a party and not his promise forms the basis of such
contracts
• The right against it is available against a specific person and not
against the world at large
• A suit for its breach may be filed in the same way as in case of a
complete contract
Cases of Quasi Contract
• Supply of necessities to Incompetent person (sec 68): like a minor or person of
unsound mind. Here the minor or the idiot is not personally liable but their
property is liable. If the incapable person does not own anything, nothing shall be
payable.

• Right to recover money paid for another person (sec 69): a person who is
interested in the payment of money which another is bound by law to pay, and
who therefore pays it, is entitled to be reimbursed by the other.
Eg. B holds land in Jaipur on a lease granted by A, a landlord. The revenue payable
by A to the government being in arrears, his land is advertised for sale by the
government. Under the revenue law, the consequence of such sale of land will be
the annulment of B’s lease. B, to prevent the sale and the consequent annulment of
his own lease, pays the government the sum due from A. A is liable to make good
to B the amount so paid.
• Right to recover for non gratuitous act (Sec.70): such right arises if the
following three conditions are satisfied:
• The thing must have been done or delivered lawfully
• The person who has done or delivered the thing, must not have intended to
do so gratuitously
• The person for whom the act is done must have enjoyed the benefit of the act
Eg. A, a business man, leaves goods at B’s house by mistake. B treats
the goods as his own. He is bound to pay for them.
• Responsibility of Finder of goods (sec 71): A person who finds goods
belonging to others and takes them into his custody, is subject to the
same responsibility as a bailee.
Eg. X a guest found a diamond ring at birthday party of Y. He told Y and
other guests about it. He has performed his duty to find the owner.
Now if he is not able to find the owner he can retain the ring as a
bailee.
• Right to recover from a person to whom money is paid or thing is
delivered, by mistake or under coercion (sec. 72): A person to whom
money has been paid or anything delivered by mistake or under
coercion, must repay or return it.
Eg. A and B jointly owe Rs.100 to C. A, alone pays the amount to C and
B not knowing this fact pays Rs.100 over again to C. C is bound to repay
the amount to B.