IPCC Paper 2

Business Laws, Ethics & Communication

The Indian Contract Act,

1872
Chapter 1 Breach Of
Unit 5: Contract

CA. Manish Dafria

Learning Objective
What is Breach of Contract – Meaning and Types

Consequences of Breach

Remedies for Breach of Contract

Types of Damages

Calculation of Damages

Liquidated Damages and Penalty

Breach of Contract
Breach of Contract : Meaning

A breach of contract occurs

when a party thereto

without lawful excuse

does not fulfill his contractual obligation by his own act, makes it impossible that
or he should perform his obligation under it.
Types of Breach of Contract

Actual breach of contract, or

Anticipatory or Constructive breach

of contract
Actual Breach of Contract and Its
Consequences

• Actual Breach : • Other party to contract

– Breach on the due date obtains a right of action
or during performance against the one who
breached the contract.
Anticipatory Breach of Contract and
Its Consequences

Other party may put

• Anticipatory Breach : an end to the contract
– Where the promisor immediately
declares his intention
of not performing the
contract even before
the time stipulated for It may wait till the due
performance of date of performance
contract has arrived. before putting an end
to the contract.
Remedies For Breach Of A
Contract
Remedies For Breach Of A Contract

Suit for
Rescission
damages

Suit for Suit for

specific “Quantum
performances Meriut”
Remedies For Breach Of A Contract
n Rescission-
• When one party breaches the contract, the other party can
treat it as rescinded. In this case the party is absolved of his
obligation and is entitled to compensation for damages which
he suffered.
Remedies For Breach Of A Contract
n Suit for damages -
Ø Damages are monetary compensation allowed for loss
suffered by the aggrieved party due to breach of a contract.

Ø Object is not to punish the party at default but to make

good the loss suffered by the aggrieved party due to
breach of contract.
Remedies for breach of a contract
n Suit for specific performances –
Ø Specific performance means seeking an order from the
court that the promise specified in the contract shall
be carried out.

Ø When actual damages arising from breach are not

measurable and monetary compensation is not an
adequate remedy, then SP may be directed by the
courts.
Remedies for breach of a contract
n Suit for Quantum Meriut – As much as is earned
Ø If a party prevents the other party from
completing his obligation under the contract, the
aggrieved party may claim payment of quantum
meriut for the part of contract already performed
by him.
A civil contractor, who has commenced the work and later on has to stop the
work because other party has breached the contract, is entitled to receive the
compensation on the principal of “quantum merit”.
Liability Of Damages
Damages

Party who breaches the

promise …

…is liable to pay

compensation …

…for damages suffered by

other party.
Types of Damages

Ordinary Special
Damages Damages

Exemplary Nominal
Damages Damages
Types of Damages

Ordinary Damages
•Damages that usually arise
in the event of breach of
contract.
 Types of Damages

Special Damages
•Damages which parties know
and
of a broken crankanticipated
shaft. The plaintiff sentatthethe time
crank shaft to theof
Hadley vs. Baxendale. In this case, the mill of the plaintiff had to be stopped because
manufacturer to

resumed.entering intowasthe contract.

manufacture a new one. Till the arrival of the new crank shaft, the mill could not be
However this position not properly conveyed to the defendant, the
carrier. There was some day on the part of the defendant in delivering the crank shaft
to the •This
manufacturerkind
which inof damages
turn delayed can
the reopening of the be
mill. As a result of this,
there were losses to the mill. The plaintiff claimed compensation for loss in profit of
the mill. claimed
However this wasonly onbyprevious
not accepted notice.
the court on the ground the plaintiff did
not explain to defendant that delay in delivering crank shaft would delay resumption
of the mill and this would result in losses to the plaintiff.
Exemplary Damages

This type of damages are allowed to

compensate for the humiliation or loss of
reputation suffered by aggrieved party.

They are awarded mainly in 2 cases :

Breach of promise to Wrongful dishonor of
marry cheque
Nominal Damages

Awarded in those
cases where Merely an
actual loss acknowledgement
suffered by the that aggrieved
aggrieved party is party has proved
nil or very his case and won.
nominal.
Calculation of Damages
Calculation of Damages
In case of Contract of Sale of goods, the damages would be
the difference between contract price and market price as
on the date of breach.

If the seller retains the goods after the contract has been
broken by the buyer, ….

He cannot recover from the He is also not liable to get

buyer any further loss even the damages reduced if the
if the market falls. market rises.
Duty of the party suffered
• The aggrieved party has a duty to take all
reasonable steps to minimise the losses.
Liquidated Damages and
Penalty
Liquidated Damages and Penalty
Parties to a contract
may stipulate in the
contract itself that on
Such sum may
the breach of contract- amount to -

-a certain specified Liquidated

Penalty
sum shall be payable Damages
as damages.
Liquidated Damages
• Liquidated damage is a genuine pre-estimate
of compensation for damages for certain
anticipated breach of contract.
• The estimate is agreed to between parties to
avoid at a later date, detailed calculations and
the necessity to convince outside parties.
Penalty
• Penalty on the other hand is an extravagant
amount stipulated in the contract and has no
comparison to the loss suffered by the parties.
Difference between Liquidated
Damages and Penalty

Liquidated Damages Penalty

Liquidated Damages are imposed Penalty is imposed by way of

by way of compensation punishment

Liquidated damages are assessed Penalty is not based on actual or

amount
ThoughofEnglish
loss based
Law on actual orthe difference
recognizes probables. It is imposed
between to prevent
the two, Section
74 of probable
the Indiancalculation
contract act does notparties
recognize
fromany differencethe
committing between
breach
the two.
Summary

A breach of contract may be actual breach of

contract or anticipatory breach of contract.

Remedies for breach of a contract are :

• Rescission
• Suit for damages
• Suit for specific performances
• Suit for “Quantum Meriut”
Summary

Damages payable for breach of contract may be in the

nature of :

• Ordinary Damages
• Special Damages
• Exemplary Damages
• Nominal Damages

A sum stipulated in the contract itself as payable in case

of breach may be Liquidated Damages or it may be
Penalty.
Thank you