Breach of Contract

Breach of Contract- Meaning and Modes of Breach

Objective

After going through this lesson, you shall be able to understand the following concepts:

• Meaning of Breach of Contract
• Types of Breach of Contract
• Modes of Committing Anticipatory Breach and Amount of Damages
• Actual Breach and Consequences of Actual Breach of Contract

Before going through this lesson, let us read the meaning of difficult words that we will come across in this lesson.



Introduction

We all know how a contract is formed and how it is discharged.

We have already read about breach of contract as one of the modes of discharge of contract. In this lesson, we will discuss the meaning of breach of contract, types of breach of contract, effects of breach of contract and modes of committing breach of contract.

To start with, let’s understand the meaning of breach of contract.

Meaning and Definition of Breach of Contract

By now, you must be clear with the meaning of breach. The word 'breach' basically implies 'violation'. Accordingly, in terms of law, breach of contract implies violation of the said agreements by the parties involved in the contract. Breach of contract occurs when any of the parties or both the parties involved in the concerned contract fail(s) to carry out their respective obligations as agreed. This is what happened in case of the contact between Rajesh and Sam, where Rajesh later refused to sell the car to Sam and the same was carried with Sam.
There are mainly two causes of breach of contract:

a. Express denial: When a party explicitly denies performing its part of obligation.

b. Implicit denial: When a party by his/her own act disables himself/herself from performing the contract or portrays the scenario in such a manner that carrying out the agreed obligation seems to be impossible.

In case of breach of contract, the aggrieved party (i.e. party not at fault) is relieved from performing his/her part of obligation. Since the aggrieved party is free from carrying out his/her share of obligation, breach of contract is treated as one of the methods of discharge of contract. In such scenario, it is totally at the discretion of the aggrieved party whether he/she wants to sue the party at default for the damages so occurred due to breach of contract.

Types of Breach of Contract





It is evident from the two scenes depicted above that in both the cases, the contracts entered upon have not been performed. But there is a difference in both the cases. In the first case, the intention of non-performance has been intimated to the promisee well before the time when performance was due and in other case, the same has actually been done on the date of performance. Thus, we can say that breach of contract arises in two ways, which are as follows:

• Anticipatory breach

• Actual breach

Anticipatory breach of contract: It is a breach of contract when one of the parties to contract declares his/her intention of not performing the contract prior to the time when the contract is actually due. In other words, a party to the contract refuses to perform its respective promise before the performance is due.

Modes of committing anticipatory breach: A party may declare his/her intention of not performing the contract in the following two ways:

1. Expressly by words spoken or written: The party that intends to not perform the contract informs the same through oral or written communication to the other party. However, the declaration should be unconditional and absolute.

Example: A agrees to supply 1,000 pieces of ceiling fans @ Rs 1,000 per unit to B. The delivery of the same was to be made on 10 July. On 1 July, A informs B that he cannot supply the fans. Here, A has committed an anticipatory breach of contract.

2. Implied by conduct: In this case, the breach of contract is brought about by the action or conduct of the concerned party.

Example: A agrees to marry B. But before the marriage, which was to take place on the agreed date, A marries X. In this case, A is said to have committed an anticipatory breach of contract, which has been brought about by A's action.

Example 1: A agreed to sell his car to B for Rs 1,00,000 on 15 March, but he sold the same to C on 8 March. Is this a case of breach of contract and what kind of breach it is?

Solution
In this case, A had agreed to sell his car to B for Rs 1,00,000 on 15 March. Selling a car before the actual date of performance of contract is a case of anticipatory breach of contract. Here, A has committed an anticipatory breach of contract by implied repudiation.

Breach of contract is of two types. These are presented below in a branch diagram.



Effects of Anticipatory Breach
In case the promisor commits a breach of contract before the actual time fixed for the performance of the contract, the promisee (aggrieved party) is excused from the performance and can

• treat the contract as rescinded and claim the compensation suffered as a result of breach of contract without waiting for the due date of performance, or

• wait for the time of performance to come and then hold the other party responsible for the consequences of non-performance

However, in this case, the following can be the consequences:

i) The promisor may later perform his promise on or before the due date. At that point in time, the promisee will be bound to accept the performance.

ii) The promisor may take the advantage of discharge of contract by some supervening impossibility arising between the date of breach and the due date of the performance. In such a case, the promisee will lose his/her right to sue for damages.

Example: A agrees to sell his car to B for Rs 1,50,000 on 10 January 2014. Later, A changes his decision and informs B on 23 December 2013 that he will not sell his car to him. This is the case of anticipatory breach committed by A, which provides two options to B, that is, either to treat the contract as rescinded and sue A for the damages or wait till the due date of performance of the contract. Now, if B decides to wait for the day fixed for the performance of the contract and uncertainly, on 2 January 2014, A’s car is lost, then the contract between A and B will be discharged by the doctrine of supervening impossibility and A can take the advantage of the same and need not pay any damages to B. Even if car is not lost, A has the option to perform the contract by the actual date of performance and cancel the repudiation sent to B earlier. B is bound to accept the performance given by the actual date of performance of contract.

Example 2: A agrees to sell his shop to B for Rs 30,00,000 on 1 March 2015. But on 10 February, he changes his mind and intimates the same to B in writing. Is this a case of breach of contract? What if the shop catches fire and is destroyed completely on 19 February?

Solution
It is a case of anticipatory breach of contract, as intentions of not performing the contract have been disclosed before the date of performance of contract. So, B can treat the contract as rescinded and can sue A for the damages due to the breach or can wait till 1 March (i.e. actual date of performance).
Since the shop has been destroyed by fire before the actual date of performance of contract, the contract between A and B gets discharged on grounds of supervening impossibility. If B had opted for not rescinding the contract and treat it as operative on 10 February 2014, then he cannot recover any damages from A as the contract between two has become void due to doctrine of supervening impossibility.

Having learnt the types, let us now see the effects of anticipatory breach of contract from the diagram given below.




Amount of Damages
It is clear from what we have studied till now that in case of anticipatory breach of contract, the party who commits the breach has to make good the loss suffered by the aggrieved party. But how much are such losses? What has to be paid to the aggrieved party?
The amount of damages in case of anticipatory breach of contract, as given under the Indian Contract Act, 1872, depends upon the option exercised by the aggrieved party; that is…