Explain actual breach of contract in detail

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Q.10 Explain actual breach of contract in detail

Ans: ACTUAL BREACH OF CONTRACT

Actual breach of contract may take place in any of the following two ways.

(a) ON DUE DATE OF PERFORMANCE

If any party to contract refused or fails to perform his part of the contract at the time fixed for performance, it is called an actual breach of contract on due date of performance.

EXAMPLE

“X” agreed to sell to “Y” 10 of wheat @ Rs. 8,000/= per ton to be delivered in two equal installments on 20th October and 21st October. On 20th October, “X” refused to deliver the goods. It is an actual breach of contract on due date of performance.

 

a) DURING THE COURSE OF PERFORMANCE

If any party has performed a part of the contract and then refused or fails to perform the remaining part of the contract, it is called an actual breach of contract of contract during the course of performance.

EXAMPLE

UX” agreed to sell to “Y” 10 tons of wheat @ Rs 8,000/= per ton to be delivered in two equal installments on 20th October and 21s? October. On 20th October, “X” delivered 5 tons and refused 10 deliver remaining 5 tons. It is actual breach of contract during the course of performance.

 

CONSEQUENCES OF ACTUAL BREACH [SECTION SSI

The consequences of actual breach depend upon whether the time was the essence of the contract or not. The consequences in both cases may be summarized as under.

    Where time is the essence of a contract Where time is not the essence of a contract
i Whether the contract becomes voidable at the option of the promisee. Yes No
II Whether the promisee is entitled to claim the compensation for any loss occasioned to him by the non-performance of the promise at the stipulated time.    
  (i) Where performance beyond the stipulated time is not accepted. Yes Yes
  (ii) Where performance beyond the stipulated time is accepted. No unless the promisee gives notice to the promisor of his intention to do so. No, unless the promisee gives notice to the promisor of his intention to do so.

 

EXAMPLE

“X” a singer enters into a contract with “Y” manager of a theatre, to sign at his theatre two nights in every week for the next two months. “Y” agrees to pay her Rs. 100/= for each performance. On the sixth night, “X” willfully absents herself the theatre. In this case “Y” has the following two options.

(a)        “Y” may rescind the contract and claim compensation for the loss occasioned to him by X’s failure to sing on the sixth night.

(b)        “Y” may permit X to sing on the seventh night and claim compensation for loss from X by giving a notice to X of his intention to do so.

 

Q11 What is Breach of Contract? Discuss its remedies available to aggrieved party. OR Discuss the right of an aggrieved party. OR Discuss the consequence of Breach of Contract”.

Ans: BREACH OF CONTRACT

A breach of contract occurs if any refuses or fails to perform his part of the contract or by is act makes it impossible to perform his obligation under the contract. In case of breach, the aggrieved party (i.e. the party not at fault) is relived from performing his obligation and gets a right to proceed against the party at fault. A breach of contract may arise in two ways, (a) anticipatory breach and (b) actual breach.

 

REMEDIES OR RIGHT OF AGGRIEVED PARTY

On the breach of contract following remedies is available to an injured party.

 

I. CLAIM OF DAMAGES

If contract is broken, the injured party has a remedy to claim for damages and losses suffered by him. Injured party is entitled to receive compensation of loss from the party who has broken the contract. The aim of this remedy is to provide the injured party the same benefits, which it would receive in case of the performance of contract.

 

(a) Ordinary Damages

Ordinary damages are those, which naturally arise, in the usual course of things from such breach. These damages can be recovered if the following two conditions are fulfilled:

(i)         The aggrieved party must suffer by breach of contract, and

(ii)        The damages must be proximate (i.e. direct) consequence of the breach of contract and not the indirect consequence.

 

MEASURES OF ORDINARY DAMAGES

In a contract for the sale of goods, the measure of ordinary damages is the difference between the contract price and the market price of such goods on the date of breach.

 

EXAMPLE

On 1st December, X contracted to sell and deliver 50 tons of wheat @ Rs. 8,000/= per ton to Yon 1st Jan. On 20th Dec, Y, afterwards, contracted to sell those goods to Z at Rs 10,000/= per ton. X failed to deliver goods on 1st Jan. when the price of the wheat was Rs 9,500/= per ton. Y is entitled to recover Rs 75,000/- [i.e (Rs 9,500 – Rs 8,000) X 50]. Y is not entitled to recover Rs, 1,00,000/- as profit, which would have arisen to Y from the sale to Z because the profit is the indirect consequence of the breach of contract.

 

b) special Damages

Special damages are those which may reasonably B’ e supposed to have been in the contemplation of both parties as the probable result of the breach of a contract. These damages can be recovered if the special circumstances, which would result in a special loss in . case of breach of a contract, are communicated to the promisor, e.g. loss of profits on account j of default by the other party to the contract can be claimed only when an advance notice of such damages has been given before.

 

EXAMPLE

A delivers to B a common carrier/’ a machine to be delivered without delay, to A s mill informing that his mill has stopped for want of the machine, B unreasonably delays the delivery of machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit, which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.

 

c) Exemplary or Punitive or vindictive Damages

Exemplary damages are those which are in the nature of punishment. The court may award these damages in case of (i) a breach of promise to marry, where damages shall be calculated on the basis of mental injury sustained by the aggrieved party, (ii) Wrongful dishonour of a cheque by a banker. In case of wrongful dishonour of a cheque, the rule is smaller the amount of the cheque, larger will be the amount of damages awarded. A trader may recover such damages as wrongful dishonour of cheque shall adversely affect his goodwill but a non-trader whose cheque is wrongfully Dishonoured will have to prove ihe loss of goodwill before claiming such damages.

 

d) Nominal Damages

Nominal damages are those, which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of breach of contract. These damages are called nominal because they are very small, say, one rupee. The court jnay or may not award these nominal damages.

e)         Damages for inconvenience and Discomfort

If a party have suffered physical inconvenience and discomfort due to breach of contract, that party can recover the damages for such inconvenience and discomfort.

 

EXAMPLE

H with his wife and children booked a ticket for a midnight train, to be transported to a particular place where he lived. They were, however, transported to a wrong place and they had to walk several miles on a drizzling night and as a result, his wife caught cold and he had to incur some medical expenses. It was held that he could recover compensation for inconvenience and not for medical expenses for the sickness of his wife because it was very remote consequence.

 

f)          liquidated Damages and Penalty

When the parties to a contract at the time of formation of contract, specify a sum which will become payable by the party responsible for breach, such specified sum is called:

i)          Liquidated Damages

If the specified sum represents a fair and genuine pre-estimate of the damages likely to result due to breach;

 

ii)         Penalty

If the specified sum is disproportionate to the damages likely to result due to breach. InPakistan, there is no distinction between penalty and liquidated damages. The Courts inPakistanallow only reasonable compensation not exceeding the specified sum [Section74]

But under English law, liquidated damages are enforceable and not penalty.

 

g) Stipulation for Interest

The stipulations for interest may or may not be in the nature of a penalty. If the stipulation for interest is in the nature of a penalty, the court may award reasonable compensation only. On the basis of various judicial pronouncements, the following guidelines may be adopted to decide whether a particular stipulation for interest is in the nature of a penalty or not:

Stipulation Whether the stipulation the nature of a penalty
(i) For payment of interest in case of default. It is not in the nature of a penalty if the interest is reasonable.
(ii) For payment of increased interest from the date of the Contract. It is always in the nature of a penalty.
(iii) For payment of increased interest from the date of Default only. It may or may not be in the nature of a penalty depending on the terms and circumstances of the case.
(iv) For payment of compound interest on default at the same rate as simple interest. It is not in the nature of a penalty.
(v) For payment of compound interest on default at the rate higher than that of simple interest It is in the • nature of a penalty.
(vi) For payment of interest at a rate lower than that of original rate if interest is paid on due date. It is not in the nature of a penalty.

 

(h) Forfeiture of Security Deposit (or Earnest Money)

A clause in a contract which provides for forfeiture of security deposit in the event of failure to perform is in the nature of a penalty. In such cases, the court may award reasonable com¬pensation only.

 

2. SUIT FOR SPECIFIC PERFORMANCE

Suit for specific performance means demanding the court’s direction to the defaulting party to carry out the promise according to the terms of the contract.

 

EXAMPLE

X agreed to sell an old painting to y for Rs 50,000/=. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the specific performance of the contract. Cases where suit for specific performance is not maintainable.

(i)         Where the damages are considered as an adequate remedy.

(ii)        Where the contract is of personal nature, e.g. contract to marry.

(iii)       Where the contract is made by a company beyond its powers as laid down in its Memorandum of Association.

(iv)       Where the court cannot supervise the performance of the contract.

(v)        Where one of the parties is a minor.

(vi)       Where the contract is inequitable to either party.

 

3. SUIT FOR INJUNCTION

Suit for injunction means demanding court s stay order. Injunction means an order of the court, which prohibits a person to do a particular act. Where a party to a contract does something, which he promised not to do, the court may issue an order prohibiting him from doing so.

 

EXAMPLE

W agreed to sing at Vs theatre only during the contract period. During the contract period, W made contract with Z to sing at another theatre and refused to perform the contract withL. It was held that W could be restrained by injunction from singing for Z.

 

4. SUIT FOR QUANTUM MERUIT

Quantum Meruit means as much as is earned. Right to Quantum Meruit means, a right to claim the compensation for the work already done.

 

EXAMPLE

Can owner of a magazine engaged P to write a book to be published by installments in his magazine. After a few installments were published, the publication of the magazine was stopped- It was held that P could claim payment for the part already published

 

 

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