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LIVE LEARNING CLASSES

BOARD OF STUDIES(A), ICAI

CA FOUNDATION
TOPIC NAME - INDIAN CONTRACT ACT, 1872,
UNIT 5- BREACH OF CONTRACT & ITS REMEDIES
PAPER 2: SEC-A BUSINESS LAWS
Faculty Name: CA Sudeep Kumar Jain

Let’s Revise
Performance of a Condition for a Valid By Whom – Performance of Joint
Contract’ means Performance 1. Promisor himself Promises
carrying out the 1. Must be unconditional. 1. All joint promisors
2. Agent (Where the contract
obligations. 2. At proper time and are liable jointly and
does not involve personal skills)
Types place. severally. However
1. Actual (Sec. 37) 3. Reasonable opportunity 3. Legal Representative (In
Contract may provide
2. Tender to examine goods. case of death of the promisor.
otherwise.
Performance 4. For whole obligation. However, if contract involves
personal skill, it comes to an 2. One has right of
(Sec. 38): Promisor 5. To the promisee or his
end with the death of the contribution from
offers to perform his duly authorized agent.
promisor) others.
obligation under the However a tender may be
contract at the proper made to any one of the 4. Third persons (When a 3. If one of the joint
time and place but joint promisee. promisee accepts performance promisors is released,
the promisee refuses 6. Tender must be of exact of the promise from a third he is responsible to the
to accept the amount and must be in person, be cannot afterward other joint promisor or
performance. legal tender. enforce it against the promisor) promisors.

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Let’s Revise
Time place and manner: As decided otherwise during business hours at business place or residence of promisee.

Performance of Reciprocal Promises: Reciprocal Appropriation Of Payment

Promise means a promise in return for a promise. (Adjustment of Payment Against Debt)
1. Mutual and Dependent- If the promisor, who must Rules 1: Appropriation by Debtor : if accepted, must be
perform, fails to perform it, he cannot claim the applied to that debt.
performance of the reciprocal promise. Rule 2: Appropriation by Creditor: debtor does not
2. Mutual and Independent- Each party must perform intimate, the creditor may apply it at his discretion to
his promise without waiting for the performance or any lawful debt including a time-barred debt. (But not
readiness to perform on the part of the other. to a disputed debt)
3. Mutual and Concurrent- Promises have to be Rules 3: Where neither party appropriates: neither
simultaneously performed. party makes any appropriation the payment is to be
Note: Reciprocal promises to do things legal and also applied in discharge of the debts in order of time,
other things illegal (Sec. 57)- the first set of promises including time-barred debts. If the debts are equal the
is a contract but second is a void agreement. payment is to be applied proportionately.

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Let’s Revise
Discharge of contract means termination of the contractual relationship Contracts which need not be
between the parties. In other words, a contract is said to be discharged when performed
either of the parties in no more liable to contract. 1. If the parties mutually agree to
substitute the original contract by a
By Performance (a) Actual, (b) Tender new one or to rescind or alter it.
By Mutual Consent (a) Novation, (b) Rescission, (c) Alteration, (d) Remission,
2. If the promisee dispenses with or
or Agreement (e) Waiver, (f) Merger remits, wholly or in part the
By Impossibility of (a) Destruction of subject-matter, (b) Death or disablement performance of the promise made to
Performance for personal service, (c) Subsequent Illegality, (d) or extends the time for such
Declaration of war, (e) Non-existence of state of things performance or accepts any
By Operation of (a) By death, (b) Insolvency, (c) Merger, (d) Unauthorized satisfaction for it.
Law alternation of terms of a written document 3. If the person, at whose option the
By Breach of (a) Anticipatory, (b) Actual contract is voidable, rescinds it.
Contract 4. If the promisee neglects or refuses.
By Lapse of Time 5. If it is illegal.

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Unit -5

Breach of Contract
and Its Remedies

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Breach of Contract
Meaning Failure of a party to perform his or her obligation under a contract

Ways Breach of contract may arise in two ways:

Actual breach of contract
Anticipatory breach of contract

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Breach of Contract
Actual Breach of Contract Actual breach of contract may be committed-
(a) At the time when the performance of the contract is due.
Example 1: A agrees to deliver 100 bags of sugar to B on 1st Feb, 2012. On the said
day, he failed to supply 100 bags of sugar to B. This is actual breach of contract. The
breach has been committed by A at the time when the performance becomes due.

(b) During the performance of the contract: Actual breach of contract also occurs
when during the performance of the contract, one party fails or refuses to perform his
obligation under it by express or implied act.

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Breach of Contract
Anticipatory Breach of Contract When a party repudiates it before the time fixed for
performance.
Example 2: Where A contracts with B on 15th July, 2020 to supply 10 bales of cotton for
a specified sum on 14th August, 2020 and on 30th July informs B, that he will not be
able to supply the said cotton on 14th August, 2020, there is an express rejection of the
contract.
Consequences of Anticipatory Breach: The promisee may either:
a) rescind the contract and treat contract as at an end, and at once sue for damages, or
b) he may elect not to rescind but to treat contract operative and wait for the time of
performance and then hold the party liable for the consequences for non –performance.

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Breach of Contract
Anticipatory Breach of Contract Example 3: X agrees to sell to Y a certain quantity
of wheat at Rs. 100/- per quintal to be delivered on the 3rd March. On the 2nd
February, X gives notice expressing his unwillingness to sell wheat; and the price of
wheat on the date is Rs. 110/- per quintal. If Y repudiates the contract forthwith
(which he is entitled to do at his option), he would be able to recover damages @
Rs.10/- per quintal. If instead of taking the action forthwith, he keeps the contract
alive till the 3rd March and in the mean time, the price increases tò 125/- per quintal
on the date. Y would be able or recover damages @ Rs. 25/- per quintal.

If, on the other hand, during the intervening period between 2nd February and 3rd
March, private sale of wheat is prohibited by the Government, the contract would
become void, and Y would not be able to recover any damages whatever.

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Remedies for Breach of Contract

Suit for Damages
Rescission Of Contract
Suit Upon Quantum Meruit
Suit For Specific Performance
Suit For Injunction

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1. Suit for Damages

Meaning Monetary compensation awarded to a person.

(a) Ordinary Damages: Ordinary damages are those which naturally arise in the usual
course of things from such breach. The measure of ordinary damages is the
difference between the contracted price and the market price at the date of the
breach.
Example 4: A contracts to deliver 100 tons of oil at Rs.1000 per
ton on a future date. On the due date he refuses to deliver. The
price on that day is Rs.1100 per ton. The measure of damages
is the difference between the market price on the date of
the breach and the contract price, i.e. Rs. 10,000.

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1. Suit for Damages

Note: Compensation can not be claimed for any remote or indirect loss or damage by
reason of the breach.
Example 5: A railway passengers wife caught cold and fell
ill due to her being asked to get down at a place other
Than the railway station and she had to walk a long
distance in cold night to reach home. In a suit by the
plaintiff against the railway company, it was held that
damages for the personal inconvenience of the plaintiff
alone would be granted, but not for sickness of the
plaintiffs’ wife.

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1. Suit for Damages

(b) Special damages: Damages other than those arising from the breach of a contract
may be recovered if such damages were decided at the time of making the contract.
These can be claimed only if the special circumstances which would result in a special
loss in case of breach of a contract, are brought to the notice of the other party.
Example 6: A, a builder, contracts to erect a house for B by the 1st of January, in order that B may give
possession of it at that time to C to whom B has contracted to let it. A is informed of the contract
between B and C. A builds the house so badly that before the 1st January, it falls down and has to be
rebuilt by B, who, in consequence, losses the rent which he was to have received from C, and is
obliged to make compensation to C for breach of the contract. A must make compensation to B for the
cost of rebuilding the house, for the rent lost and for the compensation made to C.

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1. Suit for Damages

(c) Liability to pay vindictive or exemplary damages: These damages may be
awarded only in two cases, viz (i) for breach of promise to marry; and (ii) wrongful
dishonour by a banker of his customer’s cheque.

(d) Liability to pay nominal damages: Nominal damages are awarded where the
plaintiff has proved that there has been a breach of contract but he has not in fact
suffered any real damage. It is awarded just to establish the right to decree for the
breach of contract. The amount may be a rupee or even 10 paise.
Example 7: A firm consisting of four partners employed B for a period of two years. After six months
two partners retired, the business being carried on by the other two. B declined to be employed under
the continuing partners. Held, he was only entitled to nominal damages as he had suffered no loss.

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1. Suit for Damages

(e) Damages for deterioration caused by delay: In the case of deterioration caused
to goods by delay, damages can be recovered from carrier even without notice. The
word ‘deterioration’ not only implies physical damages to the goods but it may also
mean loss of special opportunity for sale.

Example 8: A purchased a velvet for making caps for sale during spring season. Due
to delay in transit, he was unable to utilize it to benefit during season. Held that the
fall in value of cloth arrived after season amounted to deterioration for which A was
entitled to recover damages.

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Liquidated Damages And Penalty

Liquidated damages represent a sum, fixed or ascertained by the parties in the
contract, which is a fair and genuine pre-estimate of the probable loss that the might
ensure as a result of the breach, if it takes place.

A penalty is a sum named in the contract at the time of its formation, which is
disproportionate to the damage likely to accrue as a result of the breach. Court may
relief against penalty

Under ‘English law’ Liquidated damages are enforceable but penalties cannot be
claimed.

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Payment of Interest
01.01.2022 01.04.2022 01.07.2022
Date of Contract or Due Date of Payment Actual Date of
Date of Bond or Date of Default Payment

(1) A condition for payment of interest in case of default is not in the nature of a penalty, if
the interest is reasonable.
(2) A condition for increased interest from the date of the bond, and not from the date of
default, is always in the nature of a penalty, and relief is granted against it.
(3) A condition in a bond for payment of compound interest on failure to pay simple interest
at the same rate as was payable upon the principal is not a penalty.
(4) A condition in a bond for the payment of compound interest at a rate higher than that of
simple interest is a penalty and would be relieved against.

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2. Rescission Of Contract
When a contract is broken by one party, the other party may treat the contract as
rescinded. In such a case he become free from all his obligations under the
contract and is entitled to compensation for any damages that he might have
suffered.

Example 9: A promises B to deliver 50 bags of cement

on a certain day. B agrees to pay the amount on receipt
of the goods. A failed to deliver the cement on the
appointed day. B is discharged from his liability to pay
the price.

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3. Suit Upon Quantum Meruit

The phrase ‘quantum meruit’ literally means “as much as is earned” or “according
to the quantity of work done”. The claim on quantum meruit must be brought by a
party who is not at default. However, in certain cases, the party in default may also
sue for the work done if the contract is divisible.

Following are the cases in which a claim or quantum meruit may arise:

(a) Where an agreement is discovered to be void: If an agreement is discovered

to be void or becomes void, any person who has received any advantage under
such agreement or contract, is bound to restore it, or to make it compensation for
it to the person from whom he received it.

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3. Suit Upon Quantum Meruit

Example 10: A agrees to deliver 100 kgs of rice to B at a price of Rs.40 per kg. The
rice were to be delivered in two installments of 50 kgs. each. A delivered the first
installment but failed to supply the second due to some unavoidable reasons. B
must pay for 50 bags.

(b) Where something is done or delivered without intention to do gratuitously:

Where a person does some act or delivers something to another person with the
intention of receiving payments for the same (i.e. non-gratuitous act), in such a
case, the other person is bound to make payment if he accepts such services or
goods, or enjoys their benefit.
Example 11: A, a trader leaves his goods at B’s place by mistake. B treats it as his
own and use. B is bound to compensate A for it.

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3. Suit Upon Quantum Meruit

(c) Where the contract is divisible: Where the contract is divisible and one party
has enjoyed the benefit of part performance, then the other party may sue on
Quantum Meruit.

Examples 12: X wrongfully revoked Y‘s (his agent) authority before Y could
complete his duties. Held, Y could recover, as a quantum meruit, for the work he
had done and the expenses he had incurred in the course of his duties as an
agent.

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4. Suit For Specific Performance

Where damages are not an adequate remedy in the case of breach of contract,
the court may in its discretion on a suit for specific performance direct party in
breach, to carry out his promise according to the terms of the contract.

Specific Performance not granted where:-

Monetary compensation is an adequate relief,
Contract is of personal nature, e.g. contract of marry.
It is not possible for the court to supervise performance of contract, e.g.
construction work
Contract is ultra vires i.e. beyond the objects of company

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5. Suit For Injunction

Where a party to a contract is negating the terms of a contract, the court may by issuing an
‘injunction orders’, restrain him from doing what he promised not to do.

Example 13: N, a film star, agreed to act exclusively for a particular

producer, for one year. During the year he contracted to act for
some other producer. Held, he could be restrained by an injunction.

Example 14: A, a singer, agreed with B to perform at his theatre for

two months, on a condition that during that period, she would not
perform anywhere. In this case, B could move to the Court for grant
of injunction restraining A from performing
in other places.

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Penalty
Shootout

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Penalty Shootout

1. Quantum Meruit means______

a) A non-gratuitous promise
b) As implied promise
c) As much as earned
d) As much as paid

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Penalty Shootout

2. A contract to marry B. Before the agreed date of marriage,

A marries C. Here, B is entitled to sue A for ______
a) Actual Breach in express manner
b) Anticipatory Breach in express manner
c) Actual Breach in implied manner
d) Anticipatory Breach in implied manner

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Penalty Shootout

3. Remedies open to a person, suffering from breach of

contract are ______
a) Suit for damages
b) Suit for Quantum Meruit
c) Suit for Injunction
d) All of the above

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Penalty Shootout

4. In case of Anticipatory Breach remedies available to

aggrieved party are ______
a) He can wait till due date
b) He can not claim damages
c) He has no right at all
d) None of the above

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Penalty Shootout

5. N singer contracted with a theatre manager to sing a song.

Due to her illness she failed to perform the contract, she
received Rs.20000 as advance ______
a) N must refund Rs.20000
b) N need not to refund Rs.20000
c) They must enter into new agreement
d) None of these

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Penalty Shootout

6. Specific Performance may be ordered by the court when

______
a) The contract is voidable
b) Damages are an adequate remedy
c) Damages are not an adequate remedy
d) Defaulting party is not ready to pay damages

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Penalty Shootout

7. In case of breach of contract to marry, which remedy is

available?
a) Suit for exemplary damages
b) Suit for Quantum Meruit
c) Suit for Injunction
d) None of the above

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Let’s Revise
Remedies for Breach of Contract

1. Rescission of the contract : Termination of contract by promisee when promisor refuses to perform.

2. Suit for damages: Monetary Compensation

Kinds of Damages
1. Ordinary Damages- Equal to actual loss but not for indirect loss.
2. Special Damages-Decided at the time of contract entered.
3. Exemplary Damages- Granted only in case of breach of contract to marry & unjustified dishonour of cheque.
4. Nominal Damages- When there is no loss.
5. Damages for Inconvenience-Granted for physical inconvenience.
6. Liquidated Damages & Penalty-If damages equal to loss then liquidated damages, if more than loss then penalty
7. Payment of Interest- Payment of interest is permissible as per law or usage, if not decided. Court may grant
relief, if interest is in the nature of penalty.

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Let’s Revise
3. Suit for special performance: Where damages are not an adequate remedy, the court may direct the party in
breach to carry out his promise according to the terms of the contract.

Not granted where : a) Damages are adequate relief. b) Contract of personal nature. c) Not possible for the Court
to supervise the performance. d) The contract is made by a company beyond its object as laid down in its
Memorandum of Association.

4. Suit on Qantum Meruit : As much as earned : When a person has done some work under a contract, and the
other party repudiated 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 has already done.

5. Suit for injunction: (Order of the court) : Where a party does something which he promised not to do, the Court
may by issue an order, prohibit him from doing so.

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THANK YOU

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