Breach of Contract

Breach of Contract

Failure of a contracting party or refusal to perform or a clear indication of its intentions to not perform is a breach of contract. It is the failure of the fulfillment of the obligations under the contract by either of the party. A breach could be affected by:

  • Refusal of obligations before the beginning of the contract.
  • Refusal of obligations before its completion.
  • A conduct that prohibits the contract's proper performance (such as interfering with the other party's performance).

Breach of a major condition (term) of the contract is called 'fundamental breach' entitles the aggrieved party to

  • Treat the contract as discharged with the party.
  • Consider itself free from its own obligations under the contract,
  • pull up the offending party for damages arising from the breach.

Breach of a minor term known as warranty allows for suing for damages arising from the breach but does not allow any of the party to treat the contract as discharged beside where terms of the contract reverse this implied legal-provision. In contrast to rescission of a contract,' a breach of contract does not operate reflectively.

According to Nepalese contract act, ‘if parties doesn’t fulfill his/her contractual promise or has given information to another party that he or she will not perform his or her duty as mentioned in the contract or if by his/her action or conduct he/she seems to be unable to perform the contract, said to be Breach of Contract.

If one party fails to perform the contractual liabilities or denies performing his contractual liabilities created by contract, it is said to be a breach of contract. A contract, when made, must be performed in accordance with their respective promises by the parties. But if one of the parties fails or denies to perform, it is called breach of contract.

A contract may be a breach in two ways if the contract is breach before the date of performance by given notice or by conduct, it is an anticipatory breach. For example, Bidhya made an agreement that she will sell her car for Rs. 1, 600, 000 to Reshma dated 30 April 2004. On 15 April 2004 if Bidhya informs Reshma that she will not sell her car it is an anticipatory breach.

If the contract is a breach or does not perform the respective contractual liabilities by one party at the time when he/she is supposed to perform, it is called actual breach. For example, Bidhya made an agreement that she will sell her car for Rs. 1, 600, 000 to Reshma on dated 30 April 2004. On first may 2004 if Bidhya informs Reshma that she will not sell her car. It is an actual breach.

Protection of contractual expectations is the primary purpose of the law of contract. These expectations are met where parties perform their respective promises, but if any one party fails to perform his obligations and breach the contract, the law provides certain remedies to the promise.

Remedies for breach of contract:

The remedy is a court order that searches to encourage a person’s rights or to reestablish a breach of the law. When one party breaches a contract, the other party may ask a court to provide a remedy for the breach. The court may order the breaching party to pay money to the non-breaching party. When the contract is breach by one party then aggrieved party can enjoy the following remedies:

1) Right to withdraw the contract: Breach of contract entitles the aggrieved party to withdraw or cancel the contract. If one party breaches the contract then next party ( aggrieved party) also free from his/her contractual liabilities at all and has right to withdraw or cancel the contract.

2) Right to claim compensation: breach of contract entitles the aggrieved party to claim compensation suffered by him. The compensation can be claimed on the following ways:

  • if actual loss- the same amount of actual loss.
  • If mentioned in the contract- the same amount that is mentioned in the contract.
  • If no mentioned in the contract- the reasonable amount suffered by him.

3) Right to get usual performance:If an aggrieved party does not satisfy with compensation or the compensation recovered by another party is inadequate, he has right to demand usual performance of a contract. For usual performance, he can sue in the court. Under the given following circumstances he or she can’t demand usual performance:

  • If the amount of compensation received from the breach is adequate.
  • If the court can’t supervise weather the work as mentioned in the contract has been actually worked or not.
  • If the court has been signed on the basis of one’s personal expertise and skill.
  • If the situation is such that the contract can’t be executed
  • Suit for injunction means demanding court stay order. The injunction means an order of a court which prohibits a person to do a particular act. For example, Krishna agrees to teach at hari’s school only during the contract period. During the contract period, Krishna made a contract with shyam to teach another school and refused to perform the contract with hari. Now Krishna has restrained by injunction.

4) Right to claim for quantum meruit: Quantum meruit refers to a reasonable remuneration or reasonable consideration that a person supposed to get from the other party upon the breach of the contract. If a party has already done some work or supply some sorts of goods in the course of a contract, the aggrieved party can claim the reasonable amount of compensation, which was already done. This is the claim of quantum meruit by an aggrieved party.

Rules regarding quantum meruit

  • Where the act has been done as per the contract and the contract is terminated by the default of the dependent party.
  • Where received goods are not of gratuitous nature.
  • Where the act to be performed is impossible due to the legal and technical cause.
  • Where goods and service of other are acquired by mistake
  • Where remuneration is not prescribed in the contract, a reasonable payment should be paid.

There are two types of damage, they are:

  1. Compensatory Damages: Compensatory damages are also called as actual damages, cover the loss the non-breaching party incurred as a result of the breach of contract. The amount awarded is intended to make fair or replace the loss caused by the breach.

There are two types of compensatory damages that the non-breaching party can be entitled to recover:

a) General Damages: General damage is the common type of damages. It covers the loss directly and necessarily incurred by the breach of contract. Those are the most common types of damages awarded for breaches of contract.

Example:

  • Company X delivered the wrong kind of furniture to Company Y. After discovering the mistake later in the day, Company Y insisted that Company X pick up the wrong furniture and deliver the right furniture. Company X refused to pick up the furniture and said to company Y that it could not supply the right furniture because it was not in stock. Company Y successfully sued for breach of contract.

b) Special Damages: Special damages is also called as consequential damages, cover any loss incurred by the conditions that are difficult to predict or breach of contract because of special circumstances. These are actual losses caused by the breach, but not in an immediate and direct way. To obtain damages for this type of loss, the non-breaching party must verify that the breaching party knew of the special requirements or circumstances at the time of the contract was made.

Example:

  • In the above scenario , if Company X knew that Company Y needed the new furniture on a particular day because its old furniture was going to be carted away the night before, the damages for breach of contract could include all of the damages awarded in the scenario above, Payment for Company Y’s expense in renting furniture until the right furniture arrived.
  1. Punitive Damages:Punitive damages are also known as exemplary damage that is awarded to punish or make an example of a wrongdoer who has acted willfully, maliciously or fraudulently. Unlike compensatory damages that are intended to cover real loss, punitive damages are based on the intentions to punish the wrongdoer for egregious behavior and to deter others from acting in the same manner. Punitive damages are awarded in additional to compensatory damages.

    Reference:

    Shrestha, R. P. (2007).Business Law.Kathmandu: M.K.Books.

    http://legal-dictionary.thefreedictionary.com/, 2011

    , W. (2016).businessdictionary. Retrieved from businessdictionary.com:http://www.businessdictionary.com/definition/performance-of-contract.html

    Jones, S. (2012). http://freebcomnotes.blogspot.com. Retrieved from free BCom notes:http://freebcomnotes.blogspot.com/2016/04/performance-of-contract.html

Remedies for breach of contract:  Remedy is a court order that searches to encourage  a person’s rights or to reestablish a breach of the law. When one party breaches a contract, the other party may ask a court to provide a remedy for the breach. The court may order the breaching party to pay money to the non-breaching party. When the contract is breach by one party then aggrieved party can enjoy the following remedies:

  • Right to withdraw the contract: Breach of contract entitles the aggrieved party to withdraw or cancel the contract. If one party breaches the contract then next party ( aggrieved party) also free from his/her contractual liabilities at all and has right to withdraw or cancel the contract.
  • Right to claim compensation: breach of contract entitles the aggrieved party to claim compensation suffered by him. The compensation can be claimed ion the following ways
  • if actual loss- the same amount of actual loss.
  • If mentioned in contract- the same amount that is mentioned in the contract
  • If no mentioned in contract- the reasonable amount suffered by him
  • Right to get usual performance: if an aggrieved party does not satisfy with compensation or the compensation recovered by another party is inadequate, he has right to demand usual performance of a contract. For usual performance, he can sue in the court. Under the given following circumstances he or she can’t demand usual performance:
  • If the amount of compensation received from the breach is adequate.
  • If the court can’t supervise weather the work as mentioned in the contract has been actually worked or not.
  • If the court has been signed on the basis of one’s personal expertise and skill.
  • If the situation is such that the contract can’t be executed
  • Suit for injunction means demanding court stay order. The injunction means an order of a court which prohibits a person to do a particular act. For example, Krishna agrees to teach at hari’s school only during the contract period. During the contract period, Krishna made a contract with shyam to teach another school and refused to perform the contract with hari. Now Krishna has restrained by injunction.
  • Right to claim for quantum meruit: Quantum meruit refers to a reasonable remuneration or reasonable consideration that a person supposed to get from the other party upon the breach of the contract. If a party has already done some work or supply some sorts of goods in the course of a contract, the aggrieved party can claim the reasonable amount of compensation, which already done. This is the claim of quantum meruit by an aggrieved party.

 Rules regarding quantum meruit

  • Where the act has been done as per the contract and the contract is terminated by the default of the dependent party.
  • Where received goods are not of gratuitous nature.
  • Where the act to be performed is impossible due to a legal and technical cause.
  • Where goods and service of other are acquired by mistake
  • Where remuneration is not prescribed in the contract, a reasonable payment should be paid.
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