Remedies for Breach of Contract Discharge of Contract

Remedies for Breach of Contract

Discharge of Contract Ø A breach of contract occurs if any party refuses or fails to perform his part of the contract or by his act makes it impossible to perform his obligation under the contract. Ø A breach of contract may arise in two ways 1. Anticipatory Breach 2. Actual Breach Ø Anticipatory breach occurs when the party declares his intention of not performing the contract before the performance is due. Ø Actual Breach on contract takes place when the promisor fails to perform his obligation or refuses to do so on the due date of performance.

Modes of Declaring an Intention not Performing the Contract A. When a party to a contract has refused his promise Eg: X, a farmer agrees to sell to Y his entire crop of 10 tons @ Rs 8, 000 per ton to be delivered on 20 th October. On 1 st October, X informs Y that he is not going to supply the goods. It is an anticipatory breach by express repudiation. B. When a party to a contract has disabled himself from the performing his promise in entirety Eg: X, a farmer agrees to sell to Y his entire crop of 10 tons @ Rs 8, 000 per ton to be delivered on 20 th October. On 1 st October, X sold his entire crops to Z @ Rs 10, 000 per ton. X has committed anticipatory breach by implied repudiation.

Options Available to Aggrieved Party In case of anticipatory breach, the aggrieved party has the following two options a) He can rescind the contract and claim damages for breach of contract without waiting until the due date for performance. b) He may treat the contract operative and wait till the due date for performance and claim damages if the promise still remains unperformed. Consequence of Treating Contract as Operative a) The promisor may perform the promise on or before the due date of performance and the promisee will be bound to accept the performance. b) The promisor may take advantage of the discharge by supervening impossibility.

Amount Of Damages Option Exercised Amount of Damages When the aggrieved party rescinds the contract at the date of breach The amount of damages will be equal to difference between the price prevailing on the date of breach and contract price When the aggrieved party does not rescinds the contract at the date of breach The amount of damages will be equal to difference between the price prevailing on due date of performance and contract price Eg: X, a farmer, agreed to sell to Y his entire crop of 10 tons of wheat @ Rs 8, 000 per ton to be delivered on 20 th May. On 1 st May, X informed Y that he was not going to supply the goods. Calculate the amount of damages which could be recovered by Y from X. a)If Y rescinded the contract on 1 st May when market price of wheat was Rs 10, 000 per ton. b)If Y does not rescinded the contract on 1 st May and waited till 20 th May when the market price of wheat was Rs 12, 000 per ton. Solution a: Rs 2, 000 Solution b: Rs 4, 000

Actual Breach of Contract A. On due Date of Performance If any party to contract refuses or fails to perform his part of contract at the time fixed for performance. Eg: X agreed to sell Y 10 tons of wheat @ Rs 8, 000 per ton to be delivered in two equal installments on 20 th May and 21 st of May. On 20 th May, X refused to deliver the goods. B. During the Course of Performance If any party has performed a part of the contract and then refuses or fails to perform the remaining part of the contract. Eg: X agreed to sell Y 10 tons of wheat @ Rs 8, 000 per ton to be delivered in two equal installments on 20 th May and 21 st of May. X delivers 5 tons and refused to deliver the remaining goods.

Consequences of Actual Breach 1 Whether the contract becomes voidable at the option of the promisee 2 Whether the promisee is entitled to claim compensation for any loss occasioned to him by the non performance of the promise at the stipulated time I. Where the performance beyond the stipulated time is not accepted. II. Where performance beyond the stipulated time is accepted. Where Time Is Essence of a Contract Where Time Is Not The Essence of a Contract Yes No, unless the promisee gives notice to promisor of his intention to do so

Remedies for Breach of Contract 1) Recission of Contract Recission means a right of not to perform the obligation. The net legal effects of rescission are a) Aggrieved party is discharged from his obligation in contract b)Right of restitution comes in to force and the party who has got benefit in that contract will be liable to restore it to the party from whom he has received it. c)It would also clear the way for aggrieved party to use other legal remedies against the party making breach of a contract. 2) Suit for Damages: The amount of compensation granted by the court is technically known as ‘damage’. Aggrieved party is entitled to receive compensation a)Which naturally arose out of breach of contract. b)Which the party knew when they make contract to be likely to result from breach of it. c)Compensation is not be given for any remote and indirect loss

Remedies for Breach of Contract 1. Suit for Damages: Damages are monetary compensation a) Ordinary Damages These damages are granted for the losses, which naturally arise in the usual course of things. b) Special Damages are granted by the court for compensating Special Losses. Special losses, are those losses which arise due to special circumstances. Special circumstances ‘which the party knew, when they made a contract, to be likely to result from breach of it’. c) Exemplary or Punitive or Vindictive Damages which are in the nature of punishment. d) Nominal Damages Nominal damages are those which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of the breach of contract.

Remedies for Breach of Contract 2) Suit for Damages: Damages are monetary compensation e) Liquidated Damages and Penalty: When the parties to a contract at the time of formation of contract, specify a sum which will become payable by the party responsible for breach, such specified sum is called: i. Liquidated Damages if the specified sum represents a fair and genuine pre-estimate of the damages likely to result due to breach. ii. Penalty if the specified sum is disproportionate to the damages likely to result due to breach. f) Stipulation of Interest: When the creditor charged, increased rate of interest from the date of default such stipulation may be considered a penalty clause and disallowed by court, if the enhanced rate is exorbitant. g) Forfeiture of Security Deposit ( Or Earnest Money): A clause in a contract which provides forfeiture of security deposit in the event of failure to perform is in the nature of a penalty.

Remedies for Breach of Contract 3. Suit for Specific Performance It means demanding the court’s direction to the defaulting party to carry out the promise according to the terms of contract. 4. Suit for Injunction’s means an order of the court which prohibits a person to do a particular act. It is a negative form of order of specific performance. 5. Suit for Quantum Meruit: Quantum Meruit means “as much as earned on merited”. It is the right to claim the compensation for the work already done. It means something along the lines of “reasonable value of services”.

Quantum Meruit 1. 2. 3. 4. 5. The various conditions in which the claim of quantum merit arise – When the Contract is discovered to be Void: Any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it. In Case of Non-gratituos Act In Case of Act Preventing the Completion of Contract In Case of Divisible Contract: A divisible contract is one in which both the parties have divided up their performance into units or installments, in such a way that each part performance is roughly the compensation for a corresponding part performance by the other party. In Case of Indivisible Contract Performed Completely But Badly