Remedies for breach of contract

This article is written by Aniket Singh,Course: BBA LLB,Year: 3^rd year ,College: Kristu Jayanti college of law during his internship with Le Droit India.

1. INTRODUCTION

• A contract is a legally enforceable agreement between two or more parties—be they individuals, businesses, organizations, or government agencies—to carry out a specific action stipulated in the contract. Contracts can typically be formed according to the party’s wishes, either in writing or verbally

• In India, if someone doesn’t do what they promised in a contract, it’s called a breach of contract. Under the Indian Contract Act, of 1872, chapter VI of the act, under sections 73-75, covers Breach of contract. It explains what happens when someone fails to meet their end of the deal, like missing a deadline, not doing the job properly, or outright refusing to do it.

• When a breach occurs, the affected person can seek different remedies. These include getting compensated for any losses (damages), forcing the person to fulfill the contract (specific performance), or stopping them from doing something harmful (injunction). The law aims to make things right by putting the affected person in the position they would have been in if the contract had been properly followed. This system helps ensure that agreements are honored and provides a way for people to resolve disputes when things go 

wrong.

1. What is a contract? 

• According to the Indian Contract Act of 1872, the term contract is defined under section 2(h) of the act which states as an “agreement enforceable by law”.

• Generally, the term ‘contract’ refers to a legally enforceable agreement made between two parties, which includes terms and conditions that courts are empowered and obligated to enforce.

• While every contract is considered an agreement, however, it isn’t important that every agreement is not a contract. 

2. Essentials of contract?

• For every agreement to be a contract requires certain essentials that must be fulfilled to be considered as a contract which are as follows- 

1. Offer

– there must be an offer made by one party to the other party.

– It must be clear and free from any sort of misrepresentation and definite.

2. Acceptance 

– Must be accepted by the offeree.

– The acceptance made must be absolute and unqualified.

3. Consideration  

– Must be exchanged based on monetary benefits.

Thus, Offer + Acceptance + Consideration = Contract 

3. What is Breach of contract? 

• Under the Indian Contract Act of 1872, a breach of contract is defined as the failure of a party to fulfill their obligations as stipulated in the contract.  

• For instance, Jorah, a merchant, entered into a contract with Tyrin to deliver a mobile phone for which Tyrin paid Rs 40,000 as consideration. Jorah subsequently failed to deliver the mobile phone, resulting in a breach of contract.

2. Damages: Types 

1. What are the damages?

• Section 39 of the Indian Contract Act, 1872 defines the breach of contract as ‘when a party has refused to do or non-performance his promises in contract, omit to do or disable himself from performing his promise, this promise may put an end to the contract unless he has signified by words or conducted his acquiescence in its continuance’.

• In simple terms, this section means that if the parties involved in the contract do not fulfill their obligations, it constitutes a breach of contract, leading to damages for the party to whom the promise was made.

• Damages refer to monetary compensation to the aggrieved party in a contract for losses or damages caused by the guilty party. 

2. What are the types of breach of contract?

• The extent of harm caused is determined by the severity of the harm inflicted on the aggrieved party due to a breach of contract.

• The harm suffered by an individual or a company may vary depending on the specifics of the case, which differ from one situation to another.

• The types of breaches can be as follows:

a) Minor breach

b) Material breach

c) Anticipatory breach

d) Actual breach

1. Minor breach

•  Minor breach may be a circumstance when one of the wronged parties falls flat to perform a non-essential or immaterial angle of the contract.

• It refers to a situation where one of the breaching parties fails to fulfill certain aspects yet still receives the goods/services as stipulated in the contract.

• A minor breach of contract is also referred to as a partial breach or an insignificant breach.

• If due to a minor breach of contract, the aggrieved parties suffer major losses then the injured party can prove in a court of law that due to a minor breach, he/she suffered financial losses. 

• Examples- 

1. If a Swiggy/Zomato delivery partner delivers the food 30 minutes later which was promised to the customer.
2. A tailor delivers a custom suit with minor stitching issues that can be fixed with minor alterations that won’t affect the overall use of the suit.

• Plante v. Jacobs (1960): A builder constructed a house but made some minor deviations from the plans, such as placing a wall in the wrong location. The court found these deviations to be minor breaches and awarded damages based on the cost of correcting the defects.

2. Material breach 

• The material breach is also known as a fundamental breach or substantial breach.

• This is a sort of breach where the guilty party fails to perform a significant obligation of the contract and the other party receives a product/service which is substantially different from what was promised or mentioned in the contract. 

• For example: – A customer who ordered a Logitech keyboard for his desktop computer from Amazon but instead received a Lenovo keyboard of the same specifications and price, there is a breach of contract.

3. Anticipatory breach

• Anticipatory breach of a contract is a situation wherein the real breach of contract doesn’t happen however both the parties in the contract indicate that they lost the interest to do so.

• When someone in a contract says they won’t do what they promised, even before it’s time to do it that is known as an Anticipatory breach.

• For example: – Anish ordered 100 tiles from a person named Sameer for his construction-related work and paid Rs 5000/- as consideration. But later Sameer refuses to perform his side of the contract thus it results in an anticipatory breach of contract.  

• The landmark judgment of Hochster V/s De La Tour (1853) is a landmark English contract law case that resulted in the establishment of the concept of Anticipatory breach of contract. 

• Facts of the case: De la Tour entered into an agreement wherein they employed Mr. Hochster to act as courier partner and travel along with them from the date of 1^st June 1852. However, the company reverted its decision and on the date of 11^th May 1852 wrote a letter that they didn’t require his service anymore. 

On the 22^nd of the same month, Hochster approached the court to file a suit against them based on damages for anticipatory breach of contract. 

De La Tours argued in the court of law that Hochster could not bring an action before the date on which the contract was agreed upon to commence.

• Issues of the case: The question was as follows- 

1. whether a party’s refusal to perform the agreement before the date of commencement entitled the other party to damages.

2. whether this breach is actionable before the date on which the contract was due to commence.

• Decision of the case: 

The court decided that if one side is trying to take back their agreement, it be seen as an anticipatory breach. That means they could be held for breaking it.

 They also said that when a contract is meant for future actions, there’s a sort of unspoken promise. This promise is that both sides will not mess things up while waiting to fulfill their parts.

 The Court ruled that the obligation of one party to perform a contract has been dissolved following the other party’s decision to rescind it. This means that the other party does not have to wait until the day after the contract has been rendered invalid before seeking its remedy.

So, if someone breaks this promise by refusing to do their future duty, they can quickly find themselves facing a lawsuit for damages from the other party who got hurt by this. In this case, the court awarded damages to Hochster.

3. Specific performance 

• Contractual parties are obligated to fulfill their contractual duties, or they may face legal action for non-performance. Specific performance is an order issued at the discretion of a court, compelling a party to carry out a particular act stipulated in a contract. While specific performance can involve any type of compelled action, it is typically invoked to finalize a previously agreed-upon transaction.

• One reason courts order specific performance is that some contracts’ damages cannot be remedied by money, or the actual extent of damages is unclear. A common example is a property sale contract, where monetary damages alone may not suffice to remedy the situation for the buyer.

3.1 People who are eligible for the Specific Relief Act, 1963

• Section 15 of the act of specific relief act, 1963 mentions the individuals who can claim for the Specific Relief Act: – 
• An individual to suit 
• A person who is they’re for authoritative representative in their interest.
• A beneficiary wherein there is a compromise between two or more parties. For instance- A settlement of marriage. 
• Tenant who enters into a contract with the owner for life ‘
• A company that thinks of or decides to amalgamate which means to merge with any other company by a contract.

3.2 Against whom it is enforceable?

• Specific performance can be enforced against any party to a contract who is under an obligation to perform a specific act, particularly when monetary damages are inadequate to remedy the breach fairly.

• Section 19 of the act mentions against whom it is enforceable.

a) Either party is involved in a lawsuit.

b) A person who is claimed based on the title, excluding the transferee for value who has paid all their money in fiduciary relation. 

c) a company enters into an amalgamation with another through a contract, and the resulting new company emerges from such amalgamation which means merging. 

4. Consequences of the breach of contract (sections 73-75)

• The parties who violate the contract terms and conditions or fail to follow the clauses / may have to face certain consequences which are mentioned under S73-75 of the Indian Contract Act, 1872 

• Section 73

This act states the Compensation for loss or damage caused by a breach of contract. 

This means the party who suffered the loss can only claim for the damages which are reasonable and must be in the reasonably enforceable limit. 

In the landmark judgment of Hadley V/s Baxendale 1854

• Hadley had a mill shop wherein one of the mills was damaged for which he gave it to repairs to Baxendale. 
• Baxendale who took the mill for the repairs returned it to Hadley after a week which resulted in the closure of his business for a week which resulted in huge losses for Hadley. 
• Hadley approached the court for the loss he faced due to Baxendale’s mistake. 
• The court held that Baxendale was not liable for the damages caused to Hadley as it wasn’t presumed by Baxendale that Hadley would face loss due to the late submission of the product back to the owner as the damages are very remote thus making him not liable to pay for the compensation. 

• Section 74

• Compensation for breach of contract where penalty stipulated for.

• When a contract is breached, and it specifies a sum to be paid for such a breach or includes a penalty clause, the aggrieved party is entitled to receive reasonable compensation from the party in breach. This compensation should not exceed the named sum or the stipulated penalty, regardless of whether actual damage or loss has been proven.

• For example– A enters into a contract with B, agreeing to pay B Rs. 1,000 if A does not pay Rs. 500 on an agreed-upon date. A does not pay the Rs. 500 on the specified date. Consequently, B is entitled to receive from A compensation not exceeding Rs. 1,000, as deemed reasonable by the Court.

• Section 75

• Party rightfully rescinding the contract, entitled to compensation. 

5. Injunctions 

• injunctions refer to an act that isn’t in your favor or against your will then one approaches a competent court and can pass a decree in his favor to stop the act which he doesn’t like. 
• Injunction is a preventive writ issued by the competent court against the defendant that forbids him to perform the act that is against his interest. 

6. Conclusion 

By all the above information we can conclude that a breach of a contract is a situation wherein. one of the parties fails to perform his aggrieved duties. The Indian Contract Act, of 1872, provides remedies for breach of contract, including damages, specific performance, and injunctions. Understanding the essentials of a contract, types of breaches (minor, material, anticipatory, and actual), and available remedies is crucial for effective contract enforcement.