A contract is an exceptionally important concept in the trade and commerce of any nation. It is a legal agreement between two or more parties mentioning certain obligations which apply to both of them during the contract. It helps improve the Gross domestic product (GDP) and overall growth of a country. Breach of contract means the failure of a party to perform his/her obligations under a contract. Section 73-75 under the Indian Contract Act 1872 details the consequences of a breach of contract.
Breach of contract may be actual or anticipatory. In case of any breach of contract, the affected party can claim the damage from the court by forcing the other party to perform as promised. If one party fails to fulfil these obligations, a breach of contract takes place. Remedies for breach of contract include suit for damages, suit for specific performance, eliminating the contract, stopping the other party from doing something, suit upon quantum meruit (which is the compensation for work done before the breach).A breach of contract occurs when one of the parties of the contract do not abide by the terms of the contract. The breach in a contract happens even when there is a failure in the performance of the contract. But such breach of contract comes with some remedies which provide the aggrieved party for the damages.
Understanding a Breach of Contract
A breach of contract is when one party breaks the terms of an agreement between two or more parties. This includes when an obligation that is stated in the contract is not completed on time—for example, you are late with a rent payment—or when it is not fulfilled at all, such as a tenant vacating their apartment while owing six months’ back rent.
Sometimes the process for dealing with a breach of contract is written in the original contract. For example, a contract may state that, in the event of late payment, the offender must pay a $25 fee along with the missed payment. If the consequences for a specific violation are not included in the contract, then the parties involved may settle the situation among themselves, which could lead to a new contract, adjudication, or another type of resolution.
Breach of Contract Meaning
A breach of contract occurs when one of the parties fails to perform the bounded terms and conditions of the contract. The other party can sue the party that caused the breach for money in such cases. Sometimes, they can approach the court and ask the court to force the other party to perform as promised. (Section 73 of the Indian Contract Act, 1872)
Breach of contract is of the following types:
- Anticipatory breach of contract.
- Actual breach of contract.
Anticipatory Breach of Contract
This refers to when a breach of contract occurs before the time fixed for performance has arrived. It can take place in the following two ways:
- Expressly by words spoken or written
- Impliedly by the conduct of one of the parties.
Anticipatory breaches usually occur by the person who promises.
Actual Breach of Contract
This is a case of refusal to perform the promise on the scheduled date. When one of the parties breaks the contract by refusing to perform their promise on the due date, they have committed a breach. In that case, the other party leaves with the right of action against the one who has breached the contract.
Remedies for Breach of Contract
- Suit for damages
- Suit for specific performance
- Eliminate the contract
- Stop the other party from doing something.
- Suit upon quantum meruit (compensation for work done)
Suit for Damages
The party can ask for compensation for loss or damage caused by the breach of contract. Remedy by way of damages is the most common remedy available to the injured party. Damages can be ordinary damages, special damages, exemplary damages, nominal damages, damage caused by delay, and pre-fixed damages.
The “Hadley vs. Baxendale” rule is important in the case of Suit for Damage.
It simply says that if there is any previous notice about special damages in the contract, the injured party can only sue the other party for ordinary damages.
Suit for Specific Performances
When compensation for the damage is not enough to cover the loss due to a breach of contract, we can approach the court and ask the court to force them to perform as promised.
Eliminate the Contract
When a contract is breached, the promisee can stop doing the performance they are obligated to and claim compensation from the promiser.
Rescission of Contract
The promise restrains the party from doing something until the case is dismissed.
Suit for Quantum Meruit
Suing for the amount of money that must be paid to the injured party for the work they had done till the breach of contract happened.
Liquidated Damage and Penalty
Liquidated Damage: A reasonable estimate of likely loss in case of a breach which is mentioned in the contract before the breach.
Penalty: An arbitrarily fixed amount of money without estimating the likely loss in case of a breach.
FAQs
Difference between Liquidated Damage and Penalty?
Basis | Liquidated damage | Penalty |
Amount | Reasonable amount | High amount (not reasonable) |
Intention | To make up the loss that arises due to breach of contract | Enforce the other party for the performance |
Basis of amount fixation | Genuine pre-estimated loss | Not related to actual loss |
Can I Sue for Breach of Contract?
If you have a contract with another person or entity and they fail to fulfill the contract as agreed, you can file a lawsuit to recover any damages that you lost as a result. Before filing a lawsuit, though, you will want to speak with a lawyer who specializes in contracts to ensure that your case has a possibility of success.
