Breach of Contract under the Indian Contract Act, 1872 -

Breach of Contract under Indian Contract Act 1872

Table of Contents

Introduction

A breach of contract arises when one contracting party does not fulfil their contractual obligation towards the specified under the contract. A breach of contract is a critical matter; it harms the contractual relationship between the contracting parties. That can be brought to the court by an aggrieved party against the non-performing party. The aggrieved party can pray for compensation relief to the court for the resulting damages or losses incurred due to the breach of contract.

When one contracting party refuses to perform their part of the obligation or fails to fulfil the contract terms as agreed upon in the contract, it is called a breach of contract.

If the promisee fails to perform their contractual obligation, then there is an option for the aggrieved party to file a lawsuit against the non-performing party, or they can settle the issue by adopting the method of a dispute resolution system. In this article, we discuss what a breach of contract is, the essentials of breach of contract, types of breach of contract, and available remedies for breach of contract. So please stay tuned and read below.

What is a Breach of Contract?

A breach of contract is a failure to perform the contractual obligation by one contracting party, which is specified in the legally binding agreement. That situation led to a potential legal battle between the parties.

A breach of contract occurs when one party to the contract fail to perform their obligation under the legally binding contract on time. It is called a breach of contract.

There are different types of breach of contract categorised, such as material, minor, actual, and anticipatory breach of contract. The non-breaching party has available remedies for a breach of contract. Such as, put a claim for a breach of contract, specific performance, termination of a contract, etc.

Provisions of the Indian Contract Act, 1872

Section 37 of the Indian Contract Act, 1872:

“The parties to a contract must either perform, or offer to perform, their respective promises, unless such performance is dispensed with or excused under the provisions of this Act, or of any other law. Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.”

According to that, if the parties are not exempted by any law, they must be bound to perform their individual promises, which are specified in the contract.

Section 39 of the Indian Contract Act,1872:

“When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.”

According to that, when one party to the contract wholly refuses to perform their part of the contract, then the other party can end the contract. It is known as repudiation. It will occur when the contract is not possible to perform. The consequence of breaking down a contract can be resulted for damages or penalties which are defined in sections 75 to 78 under this Act.

Essentials of Breach of Contract:

There are some essential elements that must be met to establish conditions of a breach of contract, which are listed below.

Existence of a Valid Contract

The contract, which is made between the parties, must be legally valid. It fulfilled all the requirements of a valid contract.

One party must have failed to perform the contract

One contracting party must fail to perform or decline performance of the contract or any part of it.

Types of Breach of Contract:

There are different types of breach of contract that can be categorised according to violation of the conditions, which are listed below.

Anticipatory Breach of Contract

An anticipatory breach of contract occurs when one contracting party shows their unwillingness to perform the contract before the performance time of the contract. Here, the non-performing party can be indicated by signs via written, spoken, action or expression.

In the case of Food Corporation vs. J.P. Kesharwani, the Supreme Court ruled that, if one contracting party alter the contract or cancels without notifying the other party, it counts as a violation of the contract.

Actual Brach of Contract

The actual breach of contract occurs when one contracting party does not perform their obligation, which is specified under the contract, within the actual performance time of the contract. It is called an actual breach of contract.

Let’s understand with an example, the delivery of goods not provided after accepting the payment.

In the case of Bishambhar Nath vs. Kishan Chand, the Allahabad High Court rightly observed that in a time-bound contract, a particular act must be performed within the time which is specified in the contract.

Minor Breach of Contract

A minor breach of contract occurs when one contracting party does not complete any part of their obligation.

Material Breach of Contract

A material breach of contract occurs when one contracting party violates the important terms of the contract.

Let’s understand with an example, a builder fails to give possession to the flat buyer after completion of all necessary requirements of the contract. It is a serious violation of the contract terms which can be resulted a termination of the contract.

Remedies for Breach of Contract under the Indian Contract Act,1872

There are several remedies provided under the Indian Contract Act for the non-breaching party, which are listed below.

A non-breaching party can seek compensation from the other party who breach the contract. They can file a lawsuit for damages or losses that occurred due to the breaching party in the court of law. In some contracts, the compensation for breach of contract is already mentioned.

The Indian Contract Act, 1872, section 73, deals with the compensation for the breach of contract. According to that, the breaching party should compensate the other party for losses that occur as a result of their conduct.

Compensation when Penalty is Stipulated

Section 74 of the Indian Contract Act,1872 says that the amount which is specified in the contract for the breach. It must be paid by the breaching party whether the actual loss occurred or not.

As we refer to the provision of section 75 of the Act, which states that a contracting party who cancels or ends the contract due to breach is allowed to compensation.

Suit for Specific Performance

The non-breaching party can move to the court and pray for specific performance of the contract against the breaching party. The aggrieved party can file such a suit where the compensation or monetary relief is not sufficient to recover the losses.

Suit for Quantum Meruit

The non- breaching party can file a suit to recover the amount that was paid in advance or spent until the contract was breached by the other party.

Conclusion

A breach of contract occurs when one of the contracting parties fails to perform their part of the obligation, which is specifically described under the contract. The breach of contract is a critical situation for the contracting parties. Because it leads to litigation and has a negative impact on the parties. There are several remedies available for the non-breaching party, as follows, that they can protect their right and recover losses under the contract. As well, there are compensatory provisions to the breaching party. But it is advisable for the contracting parties to make sure of the terms and conditions before entering into the contract.