Breach of contract

y Breach of contract means committing a default in

performance. y If a promisor in a contract fails or neglects or refuses to perform the contract , there is a breach of contract committed by non-performance. y Contract = agreement + enforceability factor y Promise = proposal + acceptance

Types of Breach
y Actual Breach y Anticipatory breach y Actual breach actual breach occurs when a party fails

to perform his promise on the due date of performance. y It takes place only on the day when performance is due and not before it

Example
y A promises to sell his car to B on 6 Nov for Rs 5 lacs.

On 6 nov if A does not sell his car , there is an actual breach of contract by A.
y Mr. Anand promises to sell his bike to Mr. Ujjwal on 3

April for Rs 50,000 . When Mr. Ujjwal asks for bike Mr.Anand refused to sell and told him that he has changed his mind.

Anticipatory Breach of Contract

This Breach takes place before the due date of performance. When the promisor refuses to perform or disables himself from performing on the due date. Breach is before the date of performance. The promisee anticipate the breach and knows in advance that promisor is not going to perform it.

Types of anticipatory breach

y Express - spoken or written y Implied

through behavior or acts of one party

y Eg. A agrees to sell his bike to B on 3 April . Before that

day he sells it to C. Now from A behaviour it is implied that A has committed breach of contract and he would be unable to perform the contract on due date.

Express anticipatory breach

y When one party communicate to the other party

before the date of performance about his intention of non- performance on the due date. Here one party comes to know in advance about the breach.

Implied Breach of contract

y When one party by his voluntary act disables himself

from performing the contract, anticipatory breach is implied through his behaviour.

Effect of anticipatory breach

y Promisee can rescind the contract and claim for

damages y The promisee can treat the contract as still operative and wait till the due date of performance in the hope that promisor may perform on due date. On the due date if the promisor does not perform the promisee may rescind the contract and claim for compensation

Remedies for breach of contract

y Rescission of contract y Specific performance of contract y An injunction y Quantum merit y Damages

Rescission Of Contract
y Rescission means to cancel the contract. It means not

to perform obligation. It means to put a full stop to contract in a legal way. y When a breach of contract is committed by one party ,the other party may sue him to rescind the contract. y A party rightfully rescind the contract can claim damages for any loss suffered by him due to other party s breach

y Eg. A agrees to supply 100 bags of salt to B on 10

March. If a fails to supply the goods on 10 March , B need not pay the price of the goods. He can sue A for getting the contract cancelled and claim compensation for the loss suffered by him due to As breach.

Suit for specific performance of contract

y When the aggrieved party, instead of demanding

cancellation of contract, insist upon its performance through the contract , the remedy is called Specific performance of contract remedy. y If the suit is granted the court directs the party committing breach to complete his promise specifically as per the terms of contract. y It is not available in each and every case.

y It is available y Where the loss caused to the aggrieved party is

incalculable. y When subject matter is unique one

y A promises to sell an antique piece to B for Rs 50,000

0n 6 March . B promise to purchase and pays Rs 10,000 as advance . On 6 march a refused to sell the antique at that price. B may sue a for specific performance of contract. Because identical antique is not available in the market. The loss caused to B is incalculable.

Suit For An Injunction

y Injunction means an order of a court prohibiting

(stoping) a party from doing a certain act which he had promised he will not do. y In a contract , where one party has promised he will not do a certain act and if he start doing that act, the aggrieved party can stop the defaulter by an injunction order. y Under the injunction suit the court at times issues temporary injunction , status quo or stay orders

y Eg . A, (a new film star )has signed a contract with B (

a producer) that A will act only for B s films for aperiod of 1 year . During the same period A contracted to act for some other producer . B can stop A by an injuction order. y Specific performance court compel the defaulter party to do something y Injunction court compels the defaulter party not to do something which he has already promise

Quantum Meruit
y Quantum merit means as much as merited or as much

as earned or in proportion to work done. y General rule unless a person has performed his obligation in full, he cannot claim performance from other. y But in certain cases when a person has done some work under a contract and other party has cancelled the contract or further performance becomes impossible, then the party who has partially performed can claim remuneration for his work done. y It is a claim on quasi contractual obligation

Suit for damages

y Damages means a monetary compensation granted to y y y y y y

the aggrieved party for the loss suffered by him as a result of breach of contract Types of damages Ordinary damages Special damages Nominal damages Damages by delay Damages for liquidated and penalty

y Ordinary damages - the aggrieved party is entitled to

receive compensation for loss or damage which naturally arose in the usual course of things y e.g. . A contracts to sell certain goods to B on 10 oct for Rs 60,000. A commits a breach on 10 oct when market price of goods is Rs 70,000. B can recover Rs 10,000 as ordinary damages y Ordinary damages = mkt price of goods contract price of goods y Loss must be due to breach and must be directly linked with breach.

y Special damages - the aggrived party to receive

compensation for any loss or damages which the parties knew ( when they made the contract ) to be likely to result from the breach. y The special damages can be recovered only if special circumstances were communicated to the promisor by promisee at the time of contract. y If the promisor was not aware of special facts of contract then he is not responsible to pay special damages to promisee

y Eg . A , ( a builder ) contracts to contruct a house for B

till on 1 dec . B has further contracted to lend his house on rent to C from that date. A is unable to complete the house , due which B commmits a default in his contract with C. B loses the rent . If A was aware of the contract between A & C then a is liable to pay to B the amount of rent lost by B as special damages

y Nominal damages whenever there is a breach

without any loss or hardly any loss caused due to breach , then nominal , small or a token amount is awarded to injured party. y Vindicative or examplary damages heavy damages are granted to aggrived party not to compensate him but also punish the defaulter party. Purpose is to punish and granted in exceptional cases y Eg. Breach of contract to marry y Wrongful dishonour of a cheque Etc.

y Damages by delay - in case of deterioration caused to

goods by delay damages can be recovered from carrier without notice. y Liquidated damages and penalty sometimes the parties to a contract , at the time of formation of contract, specify a sum which shall be payable by way of damages , in case of breach of contract , by a defaulter to the aggrieved party . Such amount so mentioned in the contract may be either liquidated damages or penalty

y Liquidated damages

it is amount no more and no loss than pre-estimate of loss that is likely to be caused in case of breach , then it is called as liquidated damages y Penalty if the sum mentioned in the contract is disproportionate and much more than the preestimate loss then it is called as penalty.

y Hadley vs. baxendale y Facts- h mill was stopped due to breakdown of

crankshaft. He delivered the shaft to B , a carrier, to take to a manufacturer for making a new shaft . H has not communicated the importance of the shaft to B . B delayed the delivery beyond reasonable time and as a result the mill remained idle for long time. As a result H lost his new orders and his profits . H sued B to recover the damages for loss of profits caused by delay.

y Court B was not liable for loss of profits during the

period of delay because the special circumstances regarding delay would cause loss of profit to H was not communicated to B. it was a remote loss. If H as a mill owner had kept a spare shaft the mill would not have remained idle.