The Indian Contract Act, 1872

Transcription

1 IPCC Paper 2 Business Laws, Ethics & Communication The Indian Contract Act, 1872 Chapter 1 Unit 5: Breach Of Contract CA. Manish Dafria

2 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

3 Breach of Contract

4 Breach of Contract : Meaning A breach of contract occurs when a party thereto without lawful excuse does not fulfill his contractual obligation or by his own act, makes it impossible that he should perform his obligation under it.

5 Types of Breach of Contract Actual breach of contract, or Anticipatory or Constructive breach of contract

6 Actual Breach of Contract and Its Consequences Actual Breach : Breach on the due date or during performance Other party to contract obtains a right of action against the one who breached the contract.

7 Anticipatory Breach of Contract and Its Consequences Anticipatory Breach : Where the promisor declares his intention of not performing the contract even before the time stipulated for performance of contract has arrived. Other party may put an end to the contract immediately It may wait till the due date of performance before putting an end to the contract.

8 Remedies For Breach Of A Contract

9 Remedies For Breach Of A Contract Rescission Suit for damages Suit for specific performances Suit for Quantum Meriut

10 Remedies For Breach Of A Contract Rescission- When one party breaches the contract, the other party can treat it as rescinded.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.

11 Remedies For Breach Of A Contract Suit for damages - Damages are monetary compensation allowed for loss suffered by the aggrieved party due to breach of a contract. 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.

12 Remedies for breach of a contract Suit for specific performances Specific performance means seeking an order from the court that the promise specified in the contract shall be carried out. 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.

13 Remedies for breach of a contract Suit for Quantum Meriut As much as is earned 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.

14 Liability Of Damages

15 Damages Party who breaches the promise is liable to pay compensation for damages suffered by other party.

16 Types of Damages Ordinary Damages Special Damages Exemplary Damages Nominal Damages

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

18 Types of Damages Special Damages Damages which parties know and anticipated at the time of entering into the contract. Hadley vs. Baxendale. In this case, the mill of the plaintiff had to be stopped because of a broken crank shaft. The plaintiff sent the crank shaft to the manufacturer to manufacture a new one. Till the arrival of the new crank shaft, the mill could not be resumed. However this position was not properly conveyed to the defendant, the carrier. This There was some kind day on of the damages part of the defendant can in delivering be the crank shaft to the manufacturer which in turn delayed the reopening of the mill. As a result of this, there were claimed losses to the mill. only The plaintiff on previous claimed compensation notice. for loss in profit of the mill. However this was not accepted by 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.

19 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 marry Wrongful dishonor of cheque

20 Nominal Damages Awarded in those cases where actual loss suffered by the aggrieved party is nil or very nominal. Merely an acknowledgement that aggrieved party has proved his case and won.

21 Calculation of Damages

22 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 buyer any further loss even if the market falls. He is also not liable to get the damages reduced if the market rises.

23 Duty of the party suffered The aggrieved party has a duty to take all reasonable steps to minimise the losses.

24 Liquidated Damages and Penalty

25 Liquidated Damages and Penalty Parties to a contract may stipulate in the contract itself that on the breach of contract- Such sum may amount to - -a certain specified sum shall be payable as damages. Liquidated Damages Penalty

26 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.

27 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.

28 Difference between Liquidated Damages and Penalty Liquidated Damages Penalty Liquidated Damages are imposed by way of compensation Penalty is imposed by way of punishment Liquidated damages are assessed Penalty is not based on actual or amount Though of English loss based Law on recognizes actual or the difference probables. between It is imposed the two, to prevent Section 74 of probable the Indian calculation contract act does not parties recognize from any committing difference the between breach the two.

29 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

30 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.

31 Thank you