Transcript Breach of Contract and Remedy

Breach of Contract and Remedy
• Breach of contract means the failure of a party to perform or
fulfil its obligations under the contract. Section 82 of the
Contract Act.
• Two Types:
1. Anticipatory Breach: When a party to a contract refuses to
perform its part of the contract before the due date of
performance.
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Express Renunciation: Communicating inability to perform.
Implied Renunciation: Making it impossible to perform by act or
conduct.
2. Actual Breach: When a party totally or partially fails to
perform its obligations under the contract on the due date
of performance or during the performance.
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Remedies for Breach of Contract
• A remedy is the means given by law for the enforcement of a
right. A right accruing to a party under a contract is meaningless if there is no remedy to enforce that right in the event of
its violation.
• In the case of breach of contract, the injured party has one or
more of the following remedies:
• Rescission of the Contract: Section 82 (2) of the Contract Act.
• Damages: Sections 83 and 84.
• Quantum Meruit: Section 85.
• Specific Performance of the Contract: Section 86.
• Injunction: Section 87.
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Rescission of Contract
• In case of Actual Breach: Cancellation of the contract by
the aggrieved party by giving notice to the other party.
• In case of Anticipatory Breach: The Aggrieved Party has
two options—
» Treat the anticipatory breach as an immediate breach and
may elect to rescind the contract (and sue for damages)
immediately (Hochster v. De La Tour); or
» Treat the contract as still operative and subsisting and wait
for the time of performance, and then hold the other party
responsible for all the consequences of non-performance or
breach of contract.
» If the aggrieved chooses the second option, the other party
would be able to perform the contract by the due date and
also take advantage of the intervening circumstances. (Avery
v. Bowden ).
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Rescission Continue...
• Refusal of Rescission: The Court may refuse to rescind the
contract in any of the following cases:
1. Where the party entitled to rescission has expressly or
impliedly ratified the contract;
2. Where the parties cannot be substantially restored to
their original positions because of a change of
circumstances after the making of the contract;
3. Where third parties have, during the subsistence of the
contract, acquired rights in good faith and for value; and
4. Where only a part of the contract is sought to be
rescinded, and such part is not separable from the rest of
the contract.
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Damages
• Damages may be defined as the monetary compensation payable
by the defaulting party to the aggrieved party for the loss suffered
by him/her.
• The primary aim of damages (Doctrine of Restitution)—to
compensate the aggrieved party for the loss or injury suffered by it,
and to place him in the same position—as far as money can do it—
which he/she would have occupied had the breach of contract not
occurred.
• The foundation of the modern law of damages with respect to a
breach of contract is the judgment in the UK case of Hadley v.
Baxendale. The principles of damages developed in this case has
been incorporated in the provisions of Section 83 of the Contract
Act.
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Rules Regarding Damages
• Observations of Justice Alderson, Where two parties have made a
contract which one of them has broken, the damages which the other
party ought to receive in respect of such breach of contract should be
such as may fairly and reasonably be considered either arising naturally,
i.e. according to usual course of things, from such breach of contract
itself, or such as may be reasonably be supposed to have been in the
contemplation of both the parties at the time they made the contract, as
the probable result of the breach of it.
• Actual or ordinary damages (proximate consequence of the breach of
contract) are recoverable—
» Such damages which may fairly and reasonably be considered
as naturally and directly arising in the usual course of things
from the breach of contract.
• Special damages may be recoverable if the parties to the contract knew
about it when they made the contract—
» Such damages which may reasonably be supposed to have
been in the contemplation of both the parties at the time they
made the contract, as the probable result of the breach of it.
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Rules Regarding Damages Continue...
• The remote, indirect or hypothetical damages are not
recoverable.
» Damages which are not due to natural or probable
consequences of the breach of contract.
• Liquidated damages may be recoverable.
» If a sum is mentioned in the contract as the amount
to be paid in case of its breach, the aggrieved party
is entitled to receive from the party who has
breached the contract, a reasonable compensation
not exceeding the amount so mentioned. Section 83
(2) of the Contract Act.
• The damages are determined on the date of breach.
• The injured party has to take all reasonable steps to
minimise the loss caused by the breach.
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Quantum Meruit
• Literal Meaning: as much as earned or as much as merited.
It is an amount to be paid in proportion to the work done.
• When a person has done some work under the contract, or
some event happens which makes the further performance
of the contract impossible, then the party who has
performed the work can claim remuneration for the work
he/she has done.
• The claim for quantum meruit arises only when the original
contract is terminated or discharged, and the claim for
quantum meruit can be brought only by the party who is
not in default.
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Cases for Quantum Meruit
• When an agreement is discovered to be void. Section 84 of
the Contract Act.
» Any person who has received any advantage under a void contract is
bound to restore it, or to make compensation for it , to the person from
whom he/she received it
• When a thing is lawfully done or goods or services are
supplied by a person without any intention to do so
gratuitously. Section 85 (b) of the Contract Act.
• When there is an express or implied contract to render
services but there is no agreement as to remuneration.
• When the performance of the contract has been prevented
by the other party to the contract.
• When a contract is divisible and the party in default has
enjoyed the benefit of the partial performance.
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Specific Performance of Contract
• In certain cases of breach of contract, damages are not an
adequate remedy for the aggrieved party.
• In such cases, the court may direct the party in breach to
carry out his/her promise according to the terms of the
contract. This is called Specific Performance of Contract.
• When specific performance of contract may be ordered by
the Court:
1. When the act agreed to be done is such that
compensation in money for its non-performance is not an
adequate relief.
2. When there exists no standard for ascertaining the actual
damage caused by the non-performance of the act agreed
to be done.
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Non-availability of Specific Performance
• When specific performance will not be granted: Section 86(2)
of the Contract Act.
1. Where the compensation in terms of money is an adequate
relief for the breach of contract.
2. Where the contract is of personal nature, i.e. depends upon
the personal qualification, skill or knowledge of the parties.
3. Where the performance of contract cannot be supervised by
the court.
4. Where the situation is such that the contract cannot be
performed as agreed.
5. Where the party who has breached the contract him/herself
demands for the performance of the contract as stipulated.
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Injunction
• Section 87 of the Contract Act.
• Where a party is in breach of a negative term of a contract,
i.e. Where he/she is doing or about to do something which
he/she promised not to do, the Court (in the case of Nepal,
an Appellate Court) may, by issuing an order, restrain
him/her from doing what he/she promised not to do. Such
an order of the court is known as an injunction.
• Damages in case of the failure of the party to comply with
the order so issued, if the aggrieved party suffers an
additional loss.
• It is at the discretion of the court whether or not to issue an
injunction.
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