Breach of a Contract

7/28/2019 Breach of a Contract

1/12

Page 1 of12

1. Introduction:A contract is an agreement between two or more parties which is enforceable by law. In acontract the party who is offering something to the other parties is known as offeror. And the

party to whom the offer is made called an offeree. The offeror offers something to the offeree,and the offer may be either expressed or implied. If the offeree accepts the offer then it becomesa promise. After a promise has been made, then it is known as a contract.

The concept of breach comes from the concept of contract. After a promise has been made, ifany of the parties fails to enforce the contract or break the contract then it is known as breach ofcontract. Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance orinterference with the other party's performance. If the party does not fulfill his contractualpromise, or has given information to the other party that he will not perform his duty asmentioned in the contract or if by his action and conduct he seems to be unable to perform the

contract, he is said to breach the contract.

If breach is present in a contract, then there must be a party who is harmed by the contract. Inthis case, the affected party will get some remedy. These remedies of breach are also judgmentaland depend on the decision of the authority who is handling the case. In this report, various typesof damages and its remedies caused by breach have been discussed and an overview of thebreach has been explained.

1.1. Objective of the Study:Research study or report writing is an effective way of practical learning. It plays a very crucial

role on the academic study of the students. This is very much popular all around the worldbecause of its relative importance.

The primary objectiveof the report is to fulfill the requirement of our academic course BUS361Business Law. As a requirement for the completion of the course we are doing this study asthe topic assigned by our course instructor. This report has assigned to gather some practicalknowledge about the subject matter and to get involve in different matters related to this courseand for this reason this is also a primary objective of the study.

There are some other objectives for doing this study. Those are the secondary objectives of thestudy. Those are:

To define and explain the breach of a contract according to the Contract Act, 1872. To identify the possible damages that can be occurred by the breach of a contract. To identify possible remedies for those damages, especially with some practical case

examples.

To give some suggestions about the possible remedies for breach of a contractThese are some objectives of our study. And based on these objectives, we have prepared ourstudy, by doing proper analysis on the subject matter.


2/12

Page 2 of12

1.2. Methodology of the Study:We didnt use any primary evidences while preparing this report. All of the evidences we haveused in this report is from different secondary sources. The sources from which we havecollected data are given below:

Indian Contract Act, 1872 Articles published on the topic from different journals Real life cases and decisions collected from internet Internet based information from different websites

Based on these sources of information we have prepared this report. At first, we have studiedthose sources thoroughly and after that we have developed a framework for preparing the report.Then, according to the framework we have gathered information about different topics and putthat information in the right place of that framework. This report is a combination of our groupefforts and compiles information from different sources, which were essential for preparation of

the report. Through proper management of the gathered information we have prepared andfinalized this report.

1.3. Limitations of the Study:We have limited our study within the bracket of breach of a contract and its possible remediesfrom the overall Contract Act, 1872. Throughout this report we have highlighted and discussedonly about the different aspects of breach of a contract. None of the other information from theContract Act, 1872 has been discussed in this report.

Some other limitations of the study are given below:

Privacy of Information: These are the information about much classified topic. So, theinformation was not readily available. The information used in the study is not that muchin-depth about the topic.

Task Complication: We had financial limitations in the study. So surveying people fromwho are related to this sector was not possible as, this is very hard for us to reach themand survey them is also very much complicated task.

Time Limitations:We also didnt have that much time to prepare this report in a verymuch well manner. Because, proper study on these types of study is very much timeconsuming.

These are some limitations we have faced while conducting this study.


3/12

Page 3 of12

1.4. Literature Review:As in the literature review we disclosing that the paper which we had made for our courserequirement is fully unique. We had work a lot and review many journals, articles, report, andcase study and study a lot about the topic which we had is only to make the paper unique thanothers. We tried to provide the accurate information and other justification to make the paperdifferent from others

We have searched many websites in internet to find the relevant issue regarding breach ofcontract and the possible remedies. We have seen many national and international casesregarding the breach and we are putting some reference of it to make it visible andunderstandable to our honorable instructor.

Some article references related to breach are:

Meteorologist fired over breach of unwritten social media policy: written by MattWilson. A broadcaster at a news station in Louisiana politely responded to a Facebookcomment about her hair. She lost her job over it, via a policy that wasn't codified.

Dealing with information privacy breaches: keep calm and carry on: written by Carolinebush and Wi-loon-Chang

Mammoth Lakes files for bankruptcy over $43-million judgment: published on July 2,2012 | By Louis Sahagun, Los Angeles Times

These are some cases related to breach of a contract that we have studied and we guarantee thatthis report is not alike with any articles that has already made by someone else previously.

References of some journals are also given below, with which our work can be compared. Somearticle references are given below:

The Design of Contracts and Remedies for Breach, and the article is written by StevenShavell.

Damages for Breach of Contract: Compensation, Restitution and Vindication, and thisarticle is written by David Pearce and Roger Halson.

Hopefully this will be enough to prove the uniqueness of this report.


4/12

Page 4 of12

2. Breach of a Contract:A breach of contract can be any kind of non-performance or abstinence from completion ofcontract or non-fulfillment or only partial fulfillment. A breach can also involve a situation

where a contract's performance is not up to the mark. Another case that is breached is non-payment appropriate consideration. A time constraint is also remarked to be a non fulfillment ofa contract.

2.1. Types of Breach of a ContractThere are different types of breach of a contract exist. In the following diagram, we have showndifferent types of breach of a contract.

Figure 1: Types of Breach of a Contract

Breach of

Contract

Fundamental Term Clauses

Exclusion Inclusion

Condition Anticipatory


5/12

Page 5 of12

2.1.1. Fundamental Breach:A fundamental breach of a contract, sometimes known as a repudiatory breach, is a breach sofundamental that it permits the distressed party to terminate performance of the contract, inaddition to entitling that party to sue for damages. In this case, the subject matter of the contract

changes. There is a fundamental breach of a contract where the breach goes to the very core andessence of the contract. For example, if anyone contracted someone to build a house but the otherparty didnt, that would quite clearly go to the core and essence of the contract.

2.1.2. Term Breach:In this case, the performance of the contract occurs; the subject matter also remains the same stillthe breach may occur because, the term of the contract may distract from the original term of thecontract. For example, if the contractor used fittings in some part of the house that are not thesame as those agreed on in the contract, this breach might only be treated as a breach of a

particular term, rather than a fundamental breach of the contract. Then, it will be considered asterm breach as the term of the contract was not fulfilled.

2.1.3. Clause Breach:Sometimes additional clauses might be added to the contract which may breach the contract.These types of breach are called the clause breach of a contract. These clause breaches are alsotwo types. Those are:

a)Exclusion:Here, a clause may be added without any kind of bargaining. In this case, any of the contractingparties may add clauses to the contract and may tell the other party to consider the clause. This isthe exclusion clause of breach of a contract. For example: in case of transportation of goods, ifthe route mentioned in the contract is closed or unavailable, then the other party may send thegood from a different route by his own judgment, even though it was not in the contract to use adifferent route.

b) Inclusion:In this case, a bargaining between the contracting parties is available about the clauses to beadded in the contract. For example: in the contract from the previous example, there was a clauseagreed by both of the parties of the contract to follow a different route if the original route isunavailable.


6/12

Page 6 of12

2.1.4. Condition Breach:In this situation, the condition of the contract might be changed. A specific condition of thecontract might be modified in some cases to perform the contract otherwise the contract couldnot be possible to perform. For example: a supplier was supposed to place a good in the morning

of a particular day. But, because of strike he sent the good in the night of the previous date byanother person otherwise the good may not be delivered on time. This type of breach of contractis called the conditional breach.

2.1.5. Anticipatory Breach:In contract law, anticipatory breach occurs when a party repudiates prior to the date that theperformance is due. Anticipatory breach is an excuse for non-performance by the non-breachingparty. A party can retract its anticipatory breach provided that the non-breaching party has notrelied on it. When a party to a contract declares that he or she will not be performing his or her

contractual obligations, either by word (for example, "I won't deliver the rest of the goods") or byaction (for example, not showing up with goods or stopping payment). The result is that the otherparty to the contract is excused from having to complete his or her obligations under theagreement. Anticipatory breach is often a defense to a lawsuit for payment or performance on acontract. One cannot repudiate one's obligations and demand that the other person perform.

2.2. Some Other Types of Breach:There are some other types of breach of contract exists. Those are.

2.2.1. Minor Breach:A minor or partial breach is when the non-breaching party of the contract is not entitled to anorder for performance of its obligations but only to collect the damages for which they are owed.For instance, if a homeowner hires a contractor to install new windows in a home and asks forwind resistant windows but the contractor uses windows that arent wind resistant the

homeowner will ask the contractor for damages incurred. Since there is no difference in valuebetween the two windows, the homeowner will not be awarded any damages. If there was adifference between the two windows then the homeowner would have been awarded damagesthat amount to the difference between the two windows.


7/12

Page 7 of12

2.2.2.Material Breach:

A material breach is when there is a failure to perform a part of a contract that permits the otherparty of the contract to ask for damages because of the breach that has occurred. For example, ifthe contractor mentioned above uses windows that arent wind resistant and the windows break,

the homeowner can collect damages for replacing the windows with the wind resistant ones. Thefollowing, as defined by the Restatement of Contracts, must be present to determine whether ornot a material breach has occurred:

The extent to which the injured party will be deprived of the benefit which he reasonablyexpected

The extent to which the injured party can be adequately compensated for the part of thatbenefit of which he will be deprived

The extent to which the party failing to perform or to offer to perform will sufferforfeiture

The likelihood that the party failing to perform or to offer to perform will cure his failure,taking account of all the circumstances including any reasonable assurances

The extent to which the behavior of the party failing to perform or to offer to performcomports with standards of good faith and fair dealing

These are the different types of breach.

Till now in this chapter we have discussed about the types of breaches with proper examples. Inthe following chapter we have shown the remedies for these breaches of contracts.


8/12

Page 8 of12

3. Remedies for Breach of Contract:If a dispute does occur due to breach of contract then the judge will need to decide that a legallybinding contract does exist and that it has been breached. In some cases the contract may only be

a verbal contract and there may be no actual written evidence that a contract was formed. In suchcases a judge will need to go over the terms and conditions of the contract and clarify whatactually took place in practice.

Entitlement to damages may be awarded if the innocent party can prove that a breach of contracttook place. The innocent party must prove that there was a loss due to the breach and that thenature of the loss would lead to compensation. Remoteness of loss will also be taken intoconsideration by the courts and may include future loss that could reasonably occur from thecontract being broken.

Types of Remedies:Two basic types of remedies are offered for the breach of a contract. Those are:

a. Common Law Remediesb. Equitable Remedies

These two types are described below:

3.1. Common Law Remedies:There are four basic types of common law remedies.

3.1.1. Suit for Damage:

The party who is injured by the breach of a contract may bring an action for damages. Damage isthe monetary compensation allowed by the court to the aggrieved party for the loss or injurysuffered by him as the result of breach by the other party.

There are two types of damages. Those are:

a)Unliquidated Damage:Unliquidated damages refer to damages in a breach of contract case that were not predeterminedby the party. The concept of unliquidated damages appears in the law in both torts and contractlaw. It can refer to any damages award a court awards in a breach of contract case. It can alsorefer to damages in a tort case that are left to the discretion of the judge or jury, such as damagesfor pain and suffering. These damages are given based on:


9/12

Page 9 of12

What can the claimant recover? How much the claimant can recover? Why the contract is breached? (Evaluating the causation)b)Liquidated Damages:

These damages are specifically mentioned in the contract. These are available when damagesmay be hard to foresee and must be a fair estimate of what damages might be in case of breach.Provisions for liquidated damages frequently appear in all sorts of commercial contracts, both inindividually negotiated contracts and in standard terms of business. They are commonly found incontracts for construction, engineering and supply or sale of goods.

If a contract contains a liquidated damages clause:

Parties must merely show that the relevant breach has occurred Parties does not have to prove actual loss The amount recoverable is not left for the court to decide The agreed figure should be a genuine pre-estimate of the loss likely to be caused by the

specified breach.

3.1.2. Suit for Quantum Meruit:

The term "quantum meruit" means, 'as much as is merited' or 'as much as earned'. A suit ofquantum meruit is a claim for the value of the material used or supplied under a contract that hasbecome void on account of breach by the other party. When a contract becomes void, any personwho has received any advantages under such contract is bound to restore it, to the person from

whom he received it.

3.1.3. Restitution of Payments:

A payment is made in advance of the contract to cover the risk of the breach. If any kind ofbreach occurs then the losses can be recovered by the payments made in advance. Thats whythis is called the restitution of payments.

These are the types of common law remedies for the breach of a contract.


10/12

Page 10 of12

3.2. Equitable Remedies for Breach:In the section below, different types of equitable remedies have been discussed. Those are:

3.2.1. Suit for Injunction:

An injunction is an order of the court requiring a person to refrain from doing some act whichhas been the subject matter of contract. The power to grant injunction is discretionary and it maybe granted temporarily or for an indefinite period.

There are again four types of injunctions exists for remedies. Those are:

a)Preliminary Injunctions:A preliminary or temporary injunction is a provisional remedy that is invoked to preserve thesubject matter in its existing condition. Its purpose is to prevent dis-solution of the plaintiff'srights. The main reason for use of a preliminary injunction is the need for immediate relief.

b)Preventive Injunctions:An injunction directing an individual to refrain from doing an act is preventive, prohibitive,prohibitory, or negative. This type of injunction prevents a threatened injury, preserves the statusquo, or restrains the continued commission of an ongoing wrong, but it cannot be used to redressa consummated wrong or to undo that which has already been done.

c) Mandatory Injunctions:Although the court is vested with wide discretion to fashion injunctive relief, it is also restricted

to restraint of a contemplated or threatened action. It also might compel Specific Performance ofan act. In such a case, it issues a mandatory injunction, commanding the performance of apositive act. Because mandatory injunctions are harsh, courts do not favor them, and they rarelygrant them. Such injunctions have been issued to compel the removal of buildings or otherstructures wrongfully placed upon the land of another.

d)Permanent Injunctions:A permanent or perpetual injunction is one that is granted by the judgment that ultimatelydisposes of the injunction suit, ordered at the time of final judgment. This type of injunction mustbe final relief. Permanent injunctions are perpetual, provided that the conditions that producedthem remain permanent. They have been granted to prevent blasting upon neighboring premises,

to enjoin the dumping of earth or other material upon land, and to prevent pollution of a watersupply.


11/12

Page 11 of12

3.2.2. Suit for Special Performance:

This is similar to the injunction. When the loss suffered by breach of contract cannot becompensated by damages or where there are no standards to ascertain the quantum of damages,the aggrieved party may approach the Court for the grant of a decree for specific performance of

the contract. Specific performance is granted when:

Money is an adequate remedy It will be inequitable to either party The contract is of a personal nature the court cannot supervise its execution

3.2.3. Suit for Rescission:

Rescission is the revocation of a contract. When a contract is broken by one party, the other party

may sue for rescission and refuse further performance. In such a case, the aggrieved party isabsolved of all its obligations under the contract.

These are different types of equitable remedies that can be given for the breach of a contract.


12/12

Page 12 of12

4. Recommendations & Conclusion:4.1. Recommendations:

Some suggestions about this topic from our group would be:

The remedies should be awarded based on the actual loss a party occurs. The situations related to the breach should be thoroughly reviewed because; sometimes

situation changes the intention of performing anything. If the matter of dispute is simple, then parties may involve in alternative dispute

resonance. The performance of the parties also should be considered in the overall contract or in

other words whether the breach is intentional or not. The remedy should be based on thisthing.

These are some recommendations about the remedies for breach of a contract that we would liketo give.

4.2. Conclusion:Breaking the conditions of an agreement that is enforceable by law is known as the breach ofcontract. When breach of a contract occurs, in most of the cases at least one of the contractingparties gets affected with it. To recover the loss of that party, some remedies are awarded by the

court if they can provide proper evidence. So, as there is existence of breach, anti breachactivities called remedies for those breach is also there. This is totally based on the judgment ofthe court about the remedies or compensation that a party can get who is affected by the breachof contract. So, we can expect a proper law in the country which will provide such remedies orcompensation for the breach so that the rate of breach of contract will be reduced by a significantnumber.

Breach of a Contract

Documents

Transcript of Breach of a Contract