Breach of Contract and Remedy

1. 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: • AnticipatoryBreach: 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. • 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.

2. 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:Section86. • Injunction: Section 87.

3. 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 ).

4. Rescission Continue... • Refusal of Rescission: The Court may refuse to rescind the contract in any of the following cases: • Where the party entitled to rescission has expressly or impliedly ratified the contract; • Where the parties cannot be substantially restored to their original positions because of a change of circumstances after the making of the contract; • Where third parties have, during the subsistence of the contract, acquired rights in good faith and for value; and • Where only a part of the contract is sought to be rescinded, and such part is not separable from the rest of the contract.

5. 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 position—as far as money can do it—which 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.

6. 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.

7. 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.

8. QuantumMeruit • 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.

9. 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.

10. 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: • When the act agreed to be done is such that compensation in money for its non-performance is not an adequate relief. • When there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done.

11. Non-availability of Specific Performance • When specific performance will not be granted: Section 86(2) of the Contract Act. • Where the compensation in terms of money is an adequate relief for the breach of contract. • Where the contract is of personal nature, i.e. depends upon the personal qualification, skill or knowledge of the parties. • Where the performance of contract cannot be supervised by the court. • Where the situation is such that the contract cannot be performed as agreed. • Where the party who has breached the contract him/herself demands for the performance of the contract as stipulated.

12. 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.