CONSEQUENCES OF BREACH OF CONTRACT

0 Comments

INTRODUCTION

The term Contract means an agreement between the two or more parties which is enforceable by law. In other words there are two parties involved where one party that is seller sell a good to another party that is buyer in exchange of consideration. Here consideration refers to money or anything which is specified in contract. Therefore when all such essential requirements fulfilled, parties are said to be in contract.

BREACH OF CONTRACT

Breach means failure of a party to perform his or her obligations under a contract. For instance if a one party fails or refuse to perform, the contract it said to be broken and amounts to breach of contract. It may arise in two ways: Anticipatory Breach and Actual Breach.

An anticipatory breach means when one party refuse in advance to perform before due date, that he intends not to fulfil its side. Consequence of anticipatory breach is that any party may put an end to the contract and he can sue the other party immediately without waiting for the performance of contract. Actual breach means when one party on the due date refuse to perform or performs incomplete its side.

Under the Indian Contract Act 1872, Section 73-75 concerned with the consequences for breach of contract. So that a liability and course of action shall be determined in case there is breach of contract by either of party.

Section 73 makes the provision regarding the right of the injured party to recover compensation for the loss or damage which is caused to him by breach of contract. Therefore when a contract has been broken, the party who suffers is entitled to receive the compensation from the party who has broken the contract.

Secondly, If any person injured by the failure to discharge its obligations under the contract, it is entitled to receive the compensation from the party in default. However the fundamental basis of awarding damages is compensation for monetary loss which naturally flows from the breach.

The foundation of modern law of damages both in India and England is to be found in the case of Hadley v. Baxendale (1854 {9} Ex 341)

X’s Mill was cease by the breakdown of a shaft. He delivered the shaft to Y, a common carrier to manufacture a copy of it and make a new one. X did not make known to the Y that delay would result in loss of profit. By some neglect on the part of Y, the delivery of shaft was delayed beyond the reasonable time due to which mill was close for longer period. It was held that Y was not liable for loss of profits during the period of delay as he was not communicated about this.

Further it could not be contemplated that the mill would be stopped in the usual course of things, by sending the shaft, as the millers might have another shaft in reserve. Moreover, the special circumstances were not communicated by the X to the Y. So the X was not entitled to recover the loss.

According to the above case there are two rules which consist of two parts, on the breach of which such damages can be recovered:

  1. as may fairly and reasonably be considered arising naturally; or,
  2. as may reasonably be supposed to have been in the contemplation of both the parties at the time they made the contract.

The relationship between the rules laid down in Hadley v. Baxendale were re-examined in Victoria Laundry (Windsor) v. Newman Industries Ltd (1949)1 All E.R 997 and it wasfound that the first rule enabled the plaintiff to recover the such loss which was reasonably foreseeable at the time of contract as liable to result for the breach. In ordinary course, the basis of this rule is that everyone, as a reasonable man, is expected to know the loss which would occur to other party from a breach.

The second rule is all about the knowledge of some special circumstances which lead to possibility of some extra-ordinary loss. In short, both the rules emphasise upon “forseeability”.

Section 74 states that if the contract contains any stipulation by way of a penalty for failure to perform the obligation , the aggrieved party is entitled to receive from the party who has broken the contract, in that case the reasonable amount not exceed to the sum amount. However this section basically talks about the liquidated damages which a plaintiff is entitle to claim the amount that is mentioned in the contract from the defendant.

In the case of Hobbs v. London & S.W. Rail/ Co (1875) L.R 10QB111

Due to the negligence of defendant railway company, the plaintiff and his family were set down at a wrong railway station. There was neither any hotel accommodation nearby nor any conveyance available. Hence, the plaintiff was entitled to substantial damages for inconvenience of the family.

Moreover under the English law, the court must either except or reject the pre-determined sum in total. In India the court need not to reject the whole amount. It may either accept the whole amount or reduce it to what appears reasonable.

Section 75 deals with A person who is rightfully rescinds a contract is entitled to compensation for any damage which he had sustained through the non-fulfilment of contract. In other words when one party rescinds the contract without performing, the said party has to pay the certain compensation to the aggrieved party.

CONCLUSION

Hence breach of contract includes both the damages that are liquidated damage and unliquidated damage. Therefore the former is applicable when the amount is specified in the contract from very beginning and the later is applicable when the specified amount would be decided by the court as per the requirement.

Moreover the court has to give due consideration in the case of unliquidated damages as to decide that under which type of the damage the act of defendant is and accordingly the court furnish the compensation to the aggrieved party.

Authored By-: Chahat Garg

Punjab University.

Leave a Reply

Your email address will not be published. Required fields are marked *