We all have mugged up this definition of Contract before going to Law school ‘A contract is an agreement enforceable by law.’ In simple words, it is a legally binding agreement formed with the consensus of two or more parties upon mutual terms and conditions based on a consideration set by the parties. But what if one party refuses to perform the terms of the contract? What should be the remedies available to them? Let’s discuss this in the blog below.
What is Breach of Contract?
A breach of contract occurs when one party refuses to obey the terms of a legal agreement. The violation could range from a slight oversight to a significant failure to deliver the asset, for example. The contract law stipulates appropriate terms for the fulfilment of the agreement. However, it also outlines the contractual breach remedies in the event of a breach. A breach can take many forms, such as an anticipatory breach of contract.
Following the development of a contract, a breach of that contract may occur in both a written and an oral agreement, and the parties concerned may resolve the matter amicably, in court, or through arbitration.
Generally, the following questions are asked by the courts to adjudge the matter of a breach of contract
- Was there a legal contract?
- The terms and conditions of the contract
- Were there any amendments to the contract?
- The defendant’s arguments against the allegations
- The Damages caused by the breached party
Types of Breach of Contract
- Minor breach of Contract - When one party receives a product that was delivered but the other party didn't fulfil their end of the bargain, that is a minor breach. For instance, if you ask me to replace the window in your house with a new wind-resistant window but I only replace it with a new straightforward window, this will constitute a minor breach. You cannot, however, claim it if there is no price difference between the two windows.
- Material Breach - It happens when there is a substantial breach of the clause in the contract that entitles the other party to seek damages as a result. For instance, if the contract specifies that this window must be used in the home but I use a basic window and it breaks, you may ask me to pay damages so that you can replace it with a wind-resistant window.
- Actual Breach- When one of the contracting parties fails to fulfil their commitment by the deadline, this is referred to as an actual breach. It indicates that the party making the promise has chosen not to keep it, which must be done by the deadline.
For instance, Sohan and Mohan agree in their contracts that Mohan will purchase their items on November 16th, 5000. The "real breach" came when he refused to accept his products on November 16.
- Anticipatory Breach- When a contract is broken but before the performance deadline, this is known as an anticipatory breach. In this type, one party gives notice in advance (before to the deadline) that he will not carry out his obligations under the contract.
Example: A assures B that he will deliver 1000 units of his items on January 26 and will charge 100 rupees per unit. This promise is made on December 10th. Now, on January 1st, A informed B that he was unable to give him any merchandise. Here, A declines to provide his product before the deadline of January 26. The anticipated breach of contract is what this is known as.
Remedies for Breach of Contract
- Suit for Damages - The party has the right to demand restitution for any loss or harm brought on by the contract violation. The most frequent type of remedy accessible to the harmed party is damages. Damages might take the form of nominal damages, delay-related damages, exemplary damages, special damages, pre-fixed damages, and ordinary damages.
In the event of a Suit for Damage, the "Hadley vs Baxendale" rule is crucial.
It basically states that the damaged party may only claim ordinary damages against the other party if the contract contains any prior notice of special damages.
- Suit for Specific performance – We can approach the court in order to seek redressal and force the party to perform the terms and conditions mentioned in the contract when the compensation awarded is not sufficient to cover the loss that occurred to the party.
- Terminate the contract - When a contract is breached, the promisee has the right to quit performing the terms of the agreement for which the compensation is alleged from the promisor.
- Stop the other party from doing something – The party is prohibited from acting by the promise until the dismissal of the case.
- Suit upon quantum meruit – Suing to acquire the money for the work performed until the breach of contract.
Important case laws
1. Hadley v. Baxendale
In the well-known case of Hadley v. Baxendale, the English Court established consequential harm due to contract violation (1854). In his mill, the plaintiff ordered the defendant’s duties to complete, and when he made a mistake, the plaintiff accused the defendant of professional negligence. The question before the court was whether or not the plaintiff's claim was out of proportion to the harm that had been done. The Court concluded that the defendant would not be obligated to reimburse the plaintiff for his losses on the grounds that the plaintiff had not reasonably expected the consequences, noting that losses can be claimed if they can be adequately seen to have been the result of the defendant's acts.
2. Powell v. Lee (1908)
The plaintiff sued the defendant for breach of contract, is a well-known example of offer and acceptance. The King's Division Bench debated whether an individual communicating an offer's acceptance while acting in an unapproved capacity. The Court rejected the plaintiff and defendant's claim of contract breach by ruling that for an acceptance to be genuine, it must be conveyed and executed by the person offering in an authorised capacity.
3. Bhagwandas Kedia v. Girdharilal & Co (1959)
In its decision in the matter of Bhagwandas Kedia v. Girdharilal & Co. (1959), the Supreme Court of India considered Sections 2, 3, and 4 of the Indian Contract Act, 1872. The Court pointed out that, in contract breach cases, making an offer at a location where it has already been accepted elsewhere does not automatically constitute a cause of action for damages in a lawsuit. In general, a contract results from an offer being accepted, and some expressed indication that the offer has been acknowledged by the law or that is sufficient in the eyes of the law.