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.

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
meaning-less 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 ).

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.

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 positionas far as money can do
itwhich 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.

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.

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 the11

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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