Breach of ContractLegal Environment of Business

Prepared By

Manu Melwin Joy

Assistant ProfessorIlahia School of Management Studies

Kerala, India.

Phone – 9744551114Mail – manu_melwinjoy@yahoo.com

Kindly restrict the use of slides for personal purpose.Please seek permission to reproduce the same in public forms and presentations.

Definition

• Parties to a lawful contractare bound to perform theirrespective obligations. Butwhen one of the parties ofa contract fails to performhis part of contract, he issaid to have committedbreach of contract.

Definition

• Breach of contract confersa right of action upon theparty injured. This right ofaction is the remedyavailable for the injuredagainst the partycommitting breach ofcontract.

Remedies for breach of contract

• Rescission of contract(Cancellation).

• Restitution.

• Suit for specificperformance.

• Suit for Injunction.

• Suit from ‘QuantumMeruit’.

• Suit for damages.

Remedies for breach of contract

• Rescission of contract(Cancellation) - Rescissionof contract meansannulment of it. It is therevocation of thecontract. When all orsome of the terms ofcontract are cancelled,rescission of a contracttakes place.

Example

• A promises to supply

certain goods to B for

price. A does not supply

the goods. B is discharged

from his liability to pay

the price.

Remedies for breach of contract

• Restitution – Restitution meansreturn of the benefit receivedby one party from the otherparty in a void contract. Whenan agreement is, laterdiscovered to be void or whenthe contract becomes void, anyperson who received anyadvantage under suchagreement or contract is boundto restore it or makecompensation for it to theperson from whom he receivedit.

Example

• A pays B Rs. 1,00,000 in

consideration of B’s promising

to marry C, daughter of A. But

C is dead at the time of

promise. The agreement is

void at the time when the

death is known. So B must

repay the amount of Rs.

1,00,000.

Remedies for breach of contract

• Suit for specific performance –Specific performance meansactual performance of theparticular contract as peragreement. Specificperformance will be granted inthose cases wherecompensation will not be anadequate remedy or actualdamage cannot accurately beassessed and it will usually begranted in contracts connectedwith purchase of land or house.

Example

A agrees to sell his land to B. If

A subsequently refuses to sell

the land, B can file a suit for

special performance and the

court can compel A to sell and

to execute the sale deed in

favor of B in respect of the

land agreed to be sold.

Remedies for breach of contract

• Suit for Injunction – Anotherremedy for breach ofcontract is an injunctionwhich is an order of thecourt restraining orpreventing a person fromdoing a particular act. It isanother mode of securingthe specific performance bythe negative terms of acontract.

Example

A contracts with B to sing for

12 months at B’s theatre and in

no other place. Later A entered

into a contract with C to sing in

C’s theatre and refuse to sing

in B’s theatre. Now B can file a

suit and obtain an order of

injunction restraining A from

singing in C’s theatre.

Remedies for breach of contract

• Suit from ‘Quantum Meruit’ –The phrase ‘Quantum Meruit’literally means ‘ as much asearned’. When a person hasdone some work under acontract and the other partyrepudiates the contract orsome even happens whichmakes further performance ofthe contract impossible, thenthe party who has performedthe work can claimremuneration for the work hehas already done.

Example

Under a contract, A agrees to do

a certain piece of work for a lump

sum of Rs 1000 which is payable

on its completion. When A has

done 50 % of work, B repudiates

the contract. In such a case, A

can claim “ Quantum Meruit” ie

Rs 500 being the reasonable

remuneration of 50 % of the

work done.

Remedies for breach of contract

• Suit for damages – Damagemeans monitorycompensation payable bythe defaulting party to theinjured party in the event ofbreach of contract. Theobject of awarding damagesis to put the aggrieved partyin the same financialposition, had the contractbeen performed.

Different types of damages

• General damages

• Special damages

• Vindictive damages

• Nominal damages

• Liquidated damages

• Penalty

Different types of damages

• General damages –Damages that arisenaturally in the usualcourse of things from thebreach itself are calledgeneral damages. Thesedamages are awardedonly for consequenceswhich arise out of breachof contract.

Different types of damages

• Special damages – Special

damages are those which

arise from the breach of

contract under special

circumstances.

Different types of damages

• Vindictive damages –These damages areawarded with a view topunish the defaultingparty who injured thefeelings of the others andnot solely with the idea ofawarding compensationto the injured party.

Different types of damages

• Nominal damages –Nominal damages areawarded in cases wherethe injured party is ableto prove a breach ofcontract but he has notsuffered any real andsubstantial loss.

Different types of damages

• Liquidated damages –This represent a sum fixedor ascertained by theparties of the contract. Itis a fair and genuine pre –estimate of the probableloss that might ensure asa result of the breach.

Different types of damages

• Penalty – It is a sum fixedin the contract at the timeof its formation which isdisproportionate to thedamages likely to accrueas a result of the breach.It is used for forcing theother party to performthe contract.

• Breach of contract.