A CONTRACT WAS BROKEN, NOW WHAT? 11 KEY CASES EXPLAINED

This article is written by Kimaya Anavkar, a T.Y.LL.B. student at Kishinchand chellaram Law College.

WHEN THINGS GO WRONG – BREACH, FRUSTRATION, AND OTHER VITAL PRINCIPLES

In the final installment of our series, we turn to the lifecycle of a contract after it has been formed, focusing on what happens when things don’t go as planned. This part addresses the critical concepts of Breach of Contract and the Frustration of a Contract, alongside other essential principles that ensure fairness and justice.

We begin by exploring Breach and Remedies. What happens when a party fails to fulfill its promise? The groundbreaking case of Hadley v. Baxendale established the rules for how damages are calculated, limiting them to what is reasonably foreseeable. We will also look at the concept of anticipatory breach through cases like Hochster v. De La Tour, which allows a party to sue even before the performance date has arrived.

Next, we examine the Doctrine of Frustration, where a contract is discharged because an unforeseen event makes performance impossible. Landmark cases like Taylor v. Caldwell , involving the destruction of the subject matter, and Krell v. Henry, concerning the frustration of its core purpose, are central to this discussion. Finally, this section covers other vital principles such as what constitutes fraud , the invalidity of agreements made under coercion , and the equitable concept of quasi-contracts that prevents unjust enrichment.

1. HADLEY V. BAXENDALE (1854) – BREACH AND REMEDIES

CITATION: (1854) 9 Exch 341

This is the foundational case for determining the remoteness of damages in a breach of contract.

• Detailed Facts:
  • The plaintiffs, Hadley and another, were proprietors of a flour mill. The mill’s crankshaft, an essential component, broke, causing the mill to halt operations completely.
  • They needed to send the broken shaft to engineers in Greenwich to be used as a model for a new one.
  • They contracted with the defendants, Baxendale and others, who were common carriers, to transport the broken shaft to Greenwich.
  • Crucially, the plaintiffs’ clerk only told the carriers that the item was a broken mill shaft and that it should be delivered promptly. He did not inform them that the mill was completely inoperable without it.
  • Due to the carriers’ neglect, the delivery of the shaft was delayed by several days, which in turn delayed the manufacturing of the new shaft. The mill remained idle for this entire period.
  • The plaintiffs sued the carriers to recover the profits they lost during the extended period of shutdown.
• Legal Issues:
  • Are the damages that can be recovered for a breach of contract unlimited?
  • Is a defendant liable for losses that were not reasonably foreseeable at the time the contract was made?
• Judgment:
  • The court ruled in favor of the defendant, Baxendale. It held that the carriers were not liable for the mill’s lost profits.
• Legal Principle (Ratio Decidendi):
  • This case established the rule of reasonable foreseeability for contract damages. Damages for a breach of contract are limited to those that were reasonably foreseeable at the time the contract was made. This rule has two limbs:
    • Damages that arise naturally from the breach itself.Damages that were in the reasonable contemplation of both parties at the time they made the contract, because of special circumstances communicated by the plaintiff to the defendant.
  • Since the carriers were not told that the mill would be idle without the shaft, the lost profits were not reasonably foreseeable.

2. HOCHSTER V. DE LA TOUR (1853) – BREACH AND REMEDIES

CITATION: (1853) 2 E&B 678

This case introduced the doctrine of anticipatory breach into contract law.

• Detailed Facts:
  • In April, the defendant, De La Tour, hired the plaintiff, Hochster, to work as a courier for him on a three-month tour of Europe.
  • The employment was scheduled to begin on June 1st of the same year.
  • However, on May 11th, well before the start date, the defendant wrote to the plaintiff informing him that he had changed his mind and his services would no longer be required.
  • On May 22nd, before the date of performance had arrived, Hochster sued De La Tour for breach of contract.
• Legal Issues:
  • Can a party sue for damages for a breach of contract before the date of performance has arrived?
  • Does a clear refusal to perform a contract constitute an immediate breach?
• Judgment:
  • The court ruled in favor of the plaintiff, Hochster, holding that he was entitled to sue for damages immediately.
• Legal Principle (Ratio Decidendi):
  • The case introduces the concept of anticipatory breach. If one party to a contract clearly and unequivocally communicates their intent not to perform their obligations before the performance is due, the innocent party is not required to wait until the actual performance date. They can treat the repudiation as an immediate breach and sue for damages.

3. FROST V. KNIGHT (1872) – BREACH AND REMEDIES

CITATION: (1872) LR 7 Ex 111

This case affirmed and expanded the doctrine of anticipatory breach.

• Detailed Facts:
  • The defendant promised to marry the plaintiff as soon as his (the defendant’s) father died.
  • While his father was still alive, the defendant definitively broke off the engagement and refused to marry the plaintiff.
  • The plaintiff, without waiting for the father’s death, sued for breach of the promise to marry.
  • The defendant argued that there could be no breach until the condition (his father’s death) had occurred.
• Legal Issues:
  • Does the principle of anticipatory breach apply to contracts that are contingent upon a future event?
• Judgment:
  • The court found in favor of the plaintiff, affirming her right to sue immediately.
• Legal Principle (Ratio Decidendi):
  • This case further elaborates on anticipatory breach, confirming that the right of the aggrieved party to sue immediately arises as soon as the other party signals their intent not to perform. This is true even if the performance of the contract is contingent on an event that has not yet occurred. The repudiation itself is the breach.

4. SATYABRATA GHOSE V. MUGNEERAM BANGUR & CO. (1954) – FRUSTRATION OF CONTRACT

CITATION: 1954 AIR 44, 1954 SCR 310

A key Indian Supreme Court case explaining the doctrine of frustration.

• Detailed Facts:
  • A company was developing a large tract of land into a housing scheme.
  • The plaintiff paid a deposit to the company for a specific plot of land. The company’s obligation was to develop the land (build roads, drains, etc.) and then convey the plot to the plaintiff.
  • Before the development could be completed, a significant portion of the land, including the plaintiff’s plot, was requisitioned by the government for military purposes during World War II.
  • The company argued that this supervening event made the contract impossible to perform and that the contract was therefore frustrated.
• Legal Issues:
  • What constitutes an “impossible” act that can lead to the frustration of a contract?
  • Does a supervening, unforeseen event that fundamentally changes the circumstances of performance discharge the parties from their obligations?
• Judgment:
  • The Supreme Court of India held that the contract was indeed frustrated.
• Legal Principle (Ratio Decidendi):
  • A contract is frustrated when its performance becomes impossible due to a supervening, unforeseen event that is not the fault of either party. The Court explained that “impossibility” here does not mean physical impossibility, but also includes situations where the performance becomes impracticable or useless in view of the object and purpose of the contract. The requisition of the land destroyed the fundamental basis upon which the contract was made.

5. TAYLOR V. CALDWELL (1863) – FRUSTRATION OF CONTRACT

CITATION: (1863) 3 B&S 826

This is the landmark case that established the doctrine of frustration due to the destruction of the subject matter.

• Detailed Facts:
  • The plaintiff, Taylor, hired the Surrey Gardens and Music Hall from the defendant, Caldwell, for the purpose of holding a series of four grand concerts.
  • Before the date of the first concert, the music hall was completely destroyed by an accidental fire. The fire was not the fault of either party.
  • As the hall no longer existed, the concerts could not be held.
  • Taylor sued Caldwell for breach of contract for failing to provide the music hall as promised.
• Legal Issues:
  • Are the parties to a contract discharged from their obligations if the subject matter of the contract is destroyed without any fault of their own?
• Judgment:
  • The court held that both parties were discharged from their obligations under the contract.
• Legal Principle (Ratio Decidendi):
  • The case establishes that the destruction of the subject matter of the contract makes its performance impossible and therefore discharges the parties from their obligations. There is an implied condition in the contract that the subject matter will continue to exist. If it ceases to exist, the contract is frustrated.

6. KRELL V. HENRY (1903) – FRUSTRATION OF CONTRACT

CITATION: [1903] 2 KB 740

This case is famous for establishing frustration of purpose.

• Detailed Facts:
  • The defendant, C.S. Henry, hired a flat in Pall Mall from the plaintiff, Paul Krell, for two specific days.
  • While not explicitly stated in the written contract, both parties understood that the sole purpose of hiring the rooms was to watch the coronation procession of King Edward VII, which was scheduled to pass by the flat’s windows.
  • Due to the King’s sudden illness, the coronation procession was postponed.
  • The defendant had paid a deposit but refused to pay the remaining balance of the rent.
• Legal Issues:
  • Can a contract be frustrated if its core commercial purpose is defeated by an unforeseen event, even if performance is still technically and physically possible?
• Judgment:
  • The court ruled that the contract was frustrated, and the defendant was excused from paying the remaining rent.
• Legal Principle (Ratio Decidendi):
  • The frustration doctrine can apply when the core purpose of a contract is defeated by an unforeseen event. The court looked at the foundation of the contract and determined that the procession was its central purpose. Although the defendant could still have used the room, the reason for the contract had ceased to exist, frustrating its purpose.

7. DERRY V. PEEK (1889) – OTHER IMPORTANT CASES

CITATION: (1889) 14 App Cas 337

This case provides the definitive legal test for fraudulent misrepresentation.

• Detailed Facts:
  • A company’s directors issued a prospectus to attract investors for building horse-drawn trams. The prospectus stated that the company had the right to use steam or mechanical power instead of horses.
  • In reality, the right to use steam power was subject to the approval of the Board of Trade, which the company honestly believed they would receive.
  • The Board of Trade ultimately refused permission. The company went bankrupt, and an investor, Derry, who had bought shares based on the statement in the prospectus, sued the chairman, Peek, for the tort of deceit (fraud).
• Legal Issues:
  • What constitutes “fraud” in contract law? Does making an untrue statement that you honestly believe to be true amount to fraud?
• Judgment:
  • The House of Lords held that the directors were not liable for fraud.
• Legal Principle (Ratio Decidendi):
  • The case defines “fraud” by stating that a misrepresentation must be made with the intention to deceive. To prove fraud, one must show that a false representation has been made:
    • Knowingly, or
    • Without belief in its truth, or
    • Recklessly, careless as to whether it be true or false.
  • A mere lack of care or an honest but mistaken belief is not sufficient to constitute fraud.

8. RUNGAMMAL V. ALWAR CHETTY (1888)

CITATION: (1888) ILR 11 Mad 223

An Indian case illustrating the concept of coercion.

• Detailed Facts:
  • A young Hindu widow was pressured by her husband’s relatives into adopting a boy.
  • To force her consent, the relatives refused to allow the corpse of her dead husband to be removed for cremation until she agreed to the adoption.
• Legal Issues:
  • Is consent obtained through unlawful pressure or compulsion considered free consent?
  • Does a contract entered into under such pressure constitute a valid agreement?
• Judgment:
  • The court held that the adoption agreement was not valid.
• Legal Principle (Ratio Decidendi):
  • The case illustrates that a contract entered into under coercion (unlawful pressure) is not valid. Consent must be freely given. Obstructing the removal of a corpse is an unlawful act intended to cause a person to enter into an agreement, which amounts to coercion under the Indian Contract Act.

9. ALICE MARY HILL V. WILLIAM CLARKE (1905)

CITATION: (1905) ILR 27 All 266

This case deals with agreements that are partially illegal.

• Detailed Facts:
  • An agreement was made between a man and a woman. The woman agreed to live in adultery with the man and, at the same time, to serve as his housekeeper.The agreement, therefore, had two parts: an illegal part (living in adultery) and a legal part (acting as a housekeeper).
  • The consideration for the man’s promise to pay her was a single, lump-sum amount for both services combined.
• Legal Issues:
  • What is the legal status of an agreement where the consideration is indivisible, but the objects are partially legal and partially illegal?
• Judgment:
  • The court held that the entire agreement was void and unenforceable.
• Legal Principle (Ratio Decidendi):
  • If the consideration for an agreement is indivisible, and any part of that consideration is illegal, the entire agreement is void. It is not possible for the court to sever the legal part from the illegal part if they are intertwined by a single, inseparable consideration.

10. SHRI KRISHNA V. KURUKSHETRA UNIVERSITY (1976)

CITATION: AIR 1976 SC 376

A case discussing the principles of estoppel and implied waiver.

• Detailed Facts:
  • A student at Kurukshetra University was short of the required attendance percentage to be eligible to sit for an examination.
  • The university authorities had the means to discover this ineligibility but still allowed the student to take the examination.
  • After the results were declared and the student had passed, the university attempted to deny his results, citing his prior ineligibility.
• Legal Issues:
  • Can a party who has, by their conduct, waived a condition or requirement, later turn around and enforce that same condition to the detriment of the other party?
• Judgment:
  • The Supreme Court of India held that the university could not deny the results.
• Legal Principle (Ratio Decidendi):
  • The case discusses the principle that if a university allows a student to take an examination despite ineligibility, they cannot later deny the results. By issuing the admit card and allowing the student to sit for the exam, the university implicitly waived its right to object on the grounds of attendance shortage. It would be unjust to allow them to cancel the result after the student had acted on their permission.

11. STATE OF WEST BENGAL V. B.K. MONDAL & SONS (1962)

CITATION: 1962 AIR 779

A landmark Indian case on the law of quasi-contracts and unjust enrichment.

• Detailed Facts:
  • A construction company, B.K. Mondal & Sons, performed certain construction works at the request of officers of the State of West Bengal.
  • The state accepted and used the benefits of the completed construction.
  • However, no formal contract was ever executed between the company and the state, as required by the statutory provisions of the Constitution.
  • When the company asked for payment, the state refused, arguing that in the absence of a valid contract, it had no obligation to pay.
• Legal Issues:
  • Is a party obligated to pay for services or goods they have received and benefited from, even if there is no formal, valid contract?
• Judgment:
  • The Supreme Court held that the State of West Bengal was liable to pay the company for the work performed.
• Legal Principle (Ratio Decidendi):
  • This is a key case on quasi-contract, which prevents unjust enrichment. The Court held that the state must pay for services received if it has benefited from them, even without a formal contract. A person is liable to pay for a benefit if three conditions are met:
    • The benefit was lawfully provided and not done gratuitously.The person providing the benefit did not intend to do so for free.
    • The other party enjoyed the benefit of the work or goods.

CONCLUSION

The final part of our series illustrates that contract law provides a comprehensive framework not only for creating agreements but also for resolving them when challenges arise. The principles governing breach and remedies ensure that when a promise is broken, the innocent party is compensated in a fair and foreseeable manner, as established in the timeless case of Hadley v. Baxendale. In parallel, the doctrine of frustration provides a just and logical escape route, discharging parties from their duties when unforeseen events make performance impossible or destroy the very purpose of the contract.

Finally, the exploration of concepts like fraud, coercion, and quasi-contracts underscores the law’s ultimate goal: to uphold fairness, deter misconduct, and provide equitable solutions even in the absence of a formal contract. These landmark cases collectively show that the law of contract is a dynamic and equitable tool for regulating promises and ensuring justice in commercial and civil life.

We hope this three-part series on landmark contract law cases has been insightful. Please share your thoughts or questions in the comments below!