Introduction
A contract is a legally enforceable agreement that creates obligations between parties. When one party fails to perform their part of the obligation or refuses to do so, it amounts to a breach of contract. The law of contract not only enforces performance but also ensures remedies for the aggrieved party when a breach occurs.
Under the Indian Contract Act, 1872, Sections 73 to 75 deal specifically with the consequences of breach, including compensation for loss or damage caused by such breach. The purpose of these provisions is to protect the innocent party and ensure that they are put in the same financial position as if the contract had been performed.
Breach of contract is not merely the non-performance of an obligation — it is a violation of trust in commercial and personal dealings. The remedies available aim to maintain fairness and certainty in contractual relationships.
Meaning and Nature of Breach of Contract
A breach of contract occurs when a party to a contract fails, neglects, or refuses to perform their part of the promise, wholly or partly, within the stipulated time. The breach may be actual or anticipatory, depending on when it occurs.
- Actual Breach – Occurs when a party fails to perform the contract on the due date or performs it incompletely.
- Anticipatory Breach – Occurs when a party declares their intention not to perform before the performance is due.
Example: A agrees to sell goods to B on 10th June. On 1st June, A informs B that he will not deliver. This is an anticipatory breach.
Types of Breach of Contract
1. Actual Breach of Contract
An actual breach occurs when a party:
- Fails to perform obligations on the due date, or
- Performs defectively or incompletely.
Example: A contracts to deliver goods to B on 10th June but fails to do so. B can claim damages.
Case Law:
P.L. Subramaniam Chettiar v. K. Subramaniam Chettiar (1968) – Failure to deliver goods on the agreed date constituted actual breach.
2. Anticipatory Breach of Contract
This occurs when, before the performance is due, a party expressly or impliedly refuses to perform.
Example: A agrees to supply goods to B on 1st August but informs B on 15th July that he cannot.
Legal Consequence:
The aggrieved party may:
- Treat the contract as repudiated immediately, and sue for damages; or
- Wait until the due date, hoping for performance.
Case Law:
Hochster v. De La Tour (1853) – A courier engaged for a future trip was told before the date that his services would not be needed. He was allowed to sue immediately.
Remedies for Breach of Contract
When a breach occurs, the injured party is entitled to certain remedies under the Indian Contract Act, 1872. These include:
1. Damages (Sections 73–75)
The most common remedy is monetary compensation for loss or injury caused by the breach. The object is not to punish the defaulter but to compensate the aggrieved party.
a) Ordinary Damages (Section 73)
These are the losses naturally arising from the breach or which the parties knew at the time of contracting.
Case Law:
Hadley v. Baxendale (1854) – Established the rule of foreseeability. Damages must be such as may reasonably be considered to arise naturally from the breach.
Example: A’s mill stopped due to a broken shaft. He gave it to B for repair, who delayed returning it. A lost business but didn’t inform B of the urgency. B was not liable for loss of profits.
b) Special Damages
These arise due to special circumstances communicated to the other party at the time of contract formation.
Example: If A tells B that he must deliver goods by a certain date for a government tender, and B delays, causing A to lose the tender, A can claim special damages.
c) Exemplary (Vindictive) Damages
Awarded in exceptional cases such as:
- Breach of promise to marry.
- Wrongful dishonor of a cheque by a banker (especially for traders).
Case Law:
Addis v. Gramophone Co. Ltd. (1909) – Exemplary damages are not generally awarded for mental distress unless exceptional.
d) Nominal Damages
When there is a breach but no actual loss, the court may award a small sum to recognize the right of the aggrieved party.
e) Liquidated Damages and Penalty (Section 74)
If the contract specifies a sum payable upon breach, the court will award reasonable compensation, not exceeding the amount mentioned.
Case Law:
Fateh Chand v. Balkishan Das (1963) – The Supreme Court held that courts must award only reasonable compensation, even if a penalty is stipulated.
Section 74 thus limits the claim to what is reasonable, ensuring fairness.
2. Specific Performance (Specific Relief Act, 1963)
When monetary damages are inadequate, the court may direct actual performance of the contract.
Applicable when:
- Subject matter is unique (land, rare goods, artworks).
- Damages cannot adequately compensate.
Case Law:
Beswick v. Beswick (1968) – Court ordered specific performance since monetary compensation was inadequate.
3. Injunction
A court order restraining a person from doing an act which would breach the contract.
Case Law:
Lumley v. Wagner (1852) – Singer restrained from performing elsewhere after breaching exclusive contract.
4. Quantum Meruit (As Much as Earned)
When one party performs part of the contract and is prevented from completing it by the other, they can claim payment for the work done.
Case Law:
Planche v. Colburn (1831) – Author entitled to payment for partial work done after the publisher canceled the contract.
5. Rescission of Contract
The aggrieved party may cancel (rescind) the contract and refuse further performance when the other party breaches it.
Effect: Both parties are discharged from their obligations.
6. Restitution
When a contract becomes void or is rescinded, any advantage received must be restored or compensated (Section 65).
Also Read: Performance and Discharge of Contract
Measure of Damages
The measure of damages depends on the foreseeability and proximity of loss:
- Direct loss – Naturally arising from the breach.
- Consequential loss – Arising from special circumstances known to both parties.
- Remote damages – Not recoverable.
The rule of Hadley v. Baxendale governs the principle of remoteness of damages in India.
Important Case Laws Summary
| Case | Principle | Citation |
|---|---|---|
| Hadley v. Baxendale (1854) | Foreseeability and remoteness of damages | (1854) 9 Ex 341 |
| Fateh Chand v. Balkishan Das (1963) | Reasonable compensation under Section 74 | AIR 1963 SC 1405 |
| Hochster v. De La Tour (1853) | Anticipatory breach | (1853) 2 E & B 678 |
| Planche v. Colburn (1831) | Quantum meruit | (1831) 8 Bing 14 |
| Satyabrata Ghose v. Mugneeram Bangur (1954) | Frustration and impossibility | AIR 1954 SC 44 |
| Lumley v. Wagner (1852) | Injunction in personal service contracts | (1852) 42 ER 687 |
Conclusion
The law of breach and remedies ensures justice and fairness in contractual dealings. While the breach represents a failure of obligation, the remedies restore equilibrium by compensating the injured party. The underlying principle is to place the aggrieved party in the same position as if the contract had been performed.
The Indian Contract Act, 1872, through Sections 73–75, and the Specific Relief Act, 1963, together ensure that contractual integrity and commercial trust are maintained. In essence, breach of contract is not the end of legal protection — it is the beginning of legal redress.