BREACH OF CONTRACT
BY SHRISHTI MISHRA
The term contract means a legally binding agreement reached between two partners and it should contain terms over which courts have the authority and obligation to enforce.
According to Indian Contract Act, 1872 Section 2(h), A contract is an agreement enforceable by law.
An agreement becomes a “contract” only when it is intended to meet its legal obligation. Prepared on the basis of equality and mutual benefit be in line with the applicable law.
“EACH CONTRACT IS UNIQUE, TO FEEL THAT WE ARE WITHIN CONTRACT WE MUST BE SURE THAT WE HAVE UNDERSTOOD THE CONTRACT”
BREACH OF CONTRACT
A contract is breached or broken when any of the parties fails or refuses to perform its promise under the contract. Breach of contract is a legal cause of action in which a binding agreement is not honored by one or more parties by non-performance of its promise by him renders impossible.
Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are under obligation to perform or offer to perform, their respective promises under the contract, unless such performance is dispensed with or excused under the provisions of the Indian Contract Act or of any other law.
According to Section 39, where the party has refused to perform or disabled himself from performing, his promise in its entirely, the other party may put an end to the contract, unless that other party has expressly or impliedly signified its consent for the continuance of the contract. If the other party chooses to put an end to the contract, the contract is said to be broken and amounts to a breach of contract by the party not performing or refusing to perform its promise under the contract. This is called repudiation. Thus repudiation can occur when either party refuses to perform his part or makes it impossible for him to perform his part of the contract in each of the cases in such a manner as to show an intention not to fulfill his part of the contract.
CONSEQUENCES OF BREACH OF CONTRACT
Chapter VI (Section 73 to 75) of the Indian Contract Act,1872 deals with the consequences of breach of the contract.
COMPENSATION IN REGARD TO FAILURE TO DISCHARGE OBLIGATION WHICH RESEMBLES THOSE CREATED BY THE CONTRACT
An obligation resembling those created by contract has been incurred and has not been discharged, any person affected by the failure to discharge it is entitled to receive the same compensation from the party in default as if such person had contracted to discharge it and had broken his contract.
COMPENSATION FOR LOSS OR DAMAGE WHICH NATURALLY AROSE IN THE USUAL COURSE OF THINGS FROM SUCH BREACH
Compensations to be recovered for loss or damage which the parties knew or which would have naturally arisen in the usual course, to be likely to result from the breach of it.
SECTION 74 PENALTIES IN REGARD TO BREACH OF CONTRACT
The party to the contract may agree at the time of contracting that, in the occurrence of the breach, the party in default have to pay a stipulated sum of money to the other, or may agree that in the event of breach by one party any amount paid by him shall be forfeited. If this sum is genuine pre-estimate of damage likely to flow from the breach is called ‘liquidated damages.If it is not a genuine pre-estimate of the loss, but an amount intended to secure the performance of the contract, it may be called a ‘penalty.
Section 74 provides for the measure of damages in two classes: (a) where the contract names a sum to be paid in case of breach; and (b) where the contract contains any other stipulation by way of penalty(Fateh Chand v. Balkrishna Das, 1 SCR 515).
ESSENCE OF PENALTY AND LIQUIDATED DAMAGE:
The penalty is a payment of money to non –defaulting party, which puts the other party in fear and enforces the other party to perform its promise under the contract. The penalty is a deterrent in nature.
Liquidated damage is a genuine and reasonable pre-estimate of damage. Liquidated damages mean it shall be taken as the sum which the parties have by the contract assessed as damages to be paid whatever may be the actual damage.
DAMAGE CAN BE CLAIMED BY :
Only those parties can claim damages for breach of contract who has performed or is willing to perform his part of the obligations arising under the contract. Section 73 and 74 are for the benefit of a party willing to perform the contract and not for the defaulting party. Loss which is caused by the party’s failure to fulfill his duty is not recoverable from the other party. A party to a contract cannot be in a better position by reason of his own default, than if he had fulfilled his obligations. A person, who is not a party to the contract, cannot claim damages.
A contract is the fountainhead of a correlative set of rights and obligations of the parties and would be of no value if there is no statutory provision for compensation for damage or loss caused to the aggrieved party. Chapter VI of the Indian Contract Act,1872 provides for the remedy to the non-defaulting party to contract by way of compensation for damage or loss caused due to breach of contract by the other party. Section 73 provides for compensation for actual damage or loss from the party in breach of the contract Reasonable liquidated damages are payable without proof of loss. Section 74 provides that contracting parties in the event of breach may agree that the defaulted party shall pay a stipulated amount to the other, or may agree that in the event of breach by one party any amount paid to him shall be forfeited. If it is not a genuine pre-estimate of the loss, but an amount intended to secure the performance of the contract,it may be called ‘penalty’. However mere stipulation does not give the right for compensation by way of penalty. Prove has to be established for loss or damages caused by a breach of contract.