Consequences of Breach of Contract

A contract is an extremely important concept in every nation's commerce and trade. It is a legal agreement between two or more parties that specifies certain obligations that apply to both parties during the term of the contract. It helps to a country's Gross Domestic Product (GDP) and overall growth. A breach of contract arises when a party fails to perform his or its legal obligations. Sections 73-75 of the Indian Contract Act of 1872 describe the consequences of contract breach.

Breach of Contract

A breach of contract occurs when one or more parties to a contract actively breaks or fails to fulfill the terms of a legally binding contract.

A contract breach is broadly defined as a violation of any agreed-upon terms and conditions; therefore, the scope of a contract breach might range from late delivery of certain goods or services to missed payments.

A breach of contract happens when one of the parties fails to perform the contract's bound terms and conditions. In such instances, the other party may sue the party that caused the breach for money damages. They can sometimes approach the court and ask that the other party perform as promised. (Section 73 of the Indian Contract Act, 1872).

A contract breach can be both actual or anticipatory. Suit for damages, suit for specific performance, cancelling the contract, stopping the other party from doing anything, and suit on quantum meruit are all remedies for breach of contract (which is the compensation for work done before the breach).

Types of Breach of Contract

Breach of contract is of the following types −

Anticipatory Breach of Contract

This occurs when a breach of contract occurs before the time specified for performance. It can take place in two distinct ways −

• Clearly expressed through spoken or written words

• Implied from one of the parties' conducts.

Anticipatory breaches are usually made by the one who makes the promise.

Actual Breach of Contract

This is a case of refusing to perform a promise on the scheduled date. A breach occurs when one of the parties breaks the contract by refusing to deliver their promise by the due date. In that case, the other party maintains the right to sue the party who breached the contract.

Consequences of Breach of Contract

A simple way to resolve a breach of contract is to force the other party to finish what they've started - therefore fulfill their contractual responsibilities. But still, for many victims, this is not an option.

A fundamental breach of contract varies from a minor breach of contract, as we've discussed. In some cases, the injured party may be unwilling to keep pursuing the rest of the agreement. The court may award monetary damages depending on the precise breach of contract remedy.

Here's a summary of the many types of contract breach remedies, or, if you prefer, some of the consequences of a contract breach.

Restitution

The goal of restitution is ‘restoration.’ The objective is to put the injured party back into the position he was before the breach of contract occurred. It is a penalty to ‘give back’ the loss.

Compensatory Damages

Compensatory damages will compensate you for your damages. Suppose your 'freshly painted' apartments have already been advertised and booked for the next three months. In this case, compensatory damages would involve calculating the plaintiff's total 'cost' of lost income.

Punitive Damages

Punitive damages are awarded as a form of punishment. The aim is to deter the defendant from ever doing what he did again. This is the result of a breach of contract when compensatory damages are insufficient to compensate the plaintiff for his or her losses.

Liquidated Damages

The term ‘liquidated damages’ are usually included in a contract under its own heading. It is used when actual damages will be impossible to prove. The contract would also set out what circumstances will contribute to a breach in this case.

Remedies for Breach of Contract

It includes −

Suit for Damages

The party may claim compensation for any loss or damage caused by the breach of contract. Remedy by way of damages is the most common remedy available to the injured party. Ordinary damages, special damages, exemplary damages, nominal damages, delay damage, and pre-fixed damages are all possible.

The "Hadley vs. Baxendale" rule is important in a Suit for Damage

It simply states that if the contract includes any prior notice of special damages, the injured party may only sue the other party for ordinary damages.

Suit for Specific Performances

When monetary compensation is insufficient to cover the loss caused by the breach of contract, we can ask the court to force them to perform as promised.

Eliminate the Contract

When a contract is breached, the promisee can stop doing the performance they are obligated to and claim compensation from the promiser.

Rescission of Contract

The promise restrains the party from doing something until the case is dismissed.

Suit for Quantum Meruit

Suing for the amount of money that must be paid to the injured party for the work they had done till the breach of contract happened.

Liquidated Damage and Penalty

• Liquidated Damage − A reasonable estimate of likely loss in the event of a breach specified in the contract prior to the breach.

• Penalty − An arbitrarily fixed amount of money without estimating the likely loss in case of a breach.

Conclusion

A contract is a legal agreement between two or more parties that specifies certain obligations that apply to both parties during the term of the contract. It helps to a country's gross domestic product and overall growth. A contract breach takes place when a party fails to perform its contractual obligations. Sections 73-75 of the Indian Contract Act of 1872 describe the consequences of contract breach. The breach of contract can be both actual or anticipatory.

In the event of a breach of contract, the affected party may claim restitution from the court, and the court may order the other party to perform as promised. In breach of contract, there are many sorts of damages to consider. Suit for damages, suit for specific performance, cancelling the contract, stopping the other party from doing something, and suit on quantum meruit are all remedies for breach of contract (compensation for work done).

Liquidated damage is a reasonable estimate of likely losses as a result of a contract breach before the breach. The penalty is an arbitrarily set amount of money set without considering the possible loss in the event of a breach, which is usually large.

Frequently Asked Questions (FAQ)

Q1. How to file a case for breach of contract?

Ans. The Indian Contract Act, 1872 governs all contracts and agreements in India. When a contract or one of its sections is breached, a party may issue a legal notice under the Civil Procedure code. If the legal notice is ignored or not properly followed, the aggrieved party may file a case.

Q2. Is breach of contract a criminal case?

Ans. Individuals who breach a contract may not be imprisoned since it is a civil matter, not a crime one. So far, as stated previously, they can be held liable for damages.

Q3. What is compensation for breach of contract?

Ans. Compensatory damages (also known as "actual damages") reimburse the nonbreaching party for the loss incurred as a result of the breach of contract. The award is meant to compensate for or replace the loss caused by the breach.