Contract Breach

Introduction to Contract Breach

When one of the contracting parties refuses or fails to perform his part or obligation which he promised to perform, is a Contract Breach.

A breach may be one by nonperformance, by repudiation, or by both. Every breach gives rise to a claim for damages & may also give rise to other remedies.

Related Post: Contract: Definitions and Essentials

Relevant Provisions

Sections 73 of the Contract Act, 1872.

Meaning of Contract Breach

It means to break or fail to perform the contract.

Definition of Contract Breach

“Contract Breach is failure to perform the obligations under the contract”

Types of Contract Breach

There are four types of contract breaches recognized by the law today:

1. Minor Breach
2. Material Breach
3. Fundamental Breach
4. Anticipatory Breach

Minor Breach

A minor or partial breach is when the non-breaching party of the contract is not entitled to an order for the performance of its obligations but only to collect the damages for which they are owed.

For instance, if a homeowner hires a contractor to install new windows in a home and asks for wind-resistant windows but the contractor uses windows that aren’t wind-resistant the homeowner will ask the contractor for damages incurred. Since there is no difference in value between the two windows, the homeowner will not be awarded any damages. If there was a difference between the two windows then the homeowner would have been awarded damages that amount to the difference between the two windows.

Material Breach

A material breach is when there is a failure to perform a part of a contract that permits the other party of the contract to ask for damages because of the breach that has occurred.

For example, if the contractor mentioned above uses windows that aren’t wind resistant and the windows break, the homeowner can collect damages for replacing the windows with wind-resistant ones. The following, as defined by the Restatement of Contracts, must be present to determine whether or not a material breach has occurred:

• The extent to which the injured party will be deprived of the benefit which he reasonably expected.
• The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived.
• The extent to which the party failing to perform or to offer to perform will suffer forfeiture.
• The likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances.
• The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Related Post: Discharge Of Contract

Actual/Fundamental Breach

It may take place at the time when performance is due in which case the other party can sue the defaulter for a contract breach.

It may also take place during the performance of a contract where a party apparently performs the promise. But if the other party says it is not a proper performance then the other party is exonerated from the performance of his part of the bargain, if the breach is of a condition vital to the contract.

An actual/fundamental contract breach is when the person that has had the contract breached can sue the breaching party for damages incurred as well as terminate the contract if they wish to do so.

Constructive/Anticipatory Breach

It is also called a “breach before performance is due.” It may take place.

1. By the promisor doing an act that makes the performance impossible,
2. By the promisor in some other way his intention not to perform his promise.

Contract Breach Damages

If you have entered into a contract with someone who breaches that contract, you are entitled to damages as a result of the other party’s breach.

Contract breach damages are very different from personal injury damages. Personál injury damages are intended to put the plaintiff in the position they would have been in had the accident never occurred. Contract damages, however, are designed to put the plaintiff in the position they would have been in had the defendant performed the contract as expected:

1. COMPENSATORY DAMAGES
2. CONSEQUENTIAL DAMAGES
3. LIQUIDATED DAMAGES

(1) Compensatory Damages

In contract breach cases, compensatory damages are measured in terms of what you lost as a result of the other party’s breach. In other words, it puts you back in the position you would have been in had the other party performed as promised.

For example, if you agreed to pay Company A to remove waste from your property for $500 but they failed to appear. As a result, you had to pay Company B $800 to come and remove the waste from the property, you have damages of $300 – the difference between what you contracted to pay and what you actually ended up paying for the work.

(2) Consequential Damages

Consequential damages, also sometimes called “special damages,” are damages that indirectly result from the breached contract. And that was “reasonably foreseeable” at the time you entered the contract.

Let’s stick with the waste removal example from above. Say you own a small business and you did some repainting and renovations on a day when you were typically closed. Company A was supposed to come to remove the renovation waste from your business in time for you to reopen for business the next day. If they failed to show, and you had to hire Company B to come to do the job, but Company could not come until the following day, forcing you to remain closed an extra day, your loss of business for that extra day is consequential damage of the broken contract.

(3) Liquidated Damages

“Liquidated” damages are damages that are specified in the contract itself.

The contract will say something like: “If Party X fails to perform this contract by the deadline specified, he will owe damages to Party Y in the amount of $1000 per day for every past the deadline that his performance is not complete.”

Kinds of Remedies Available to Aggrieved Party / Remedies for Contract Breach:

Suit for Cancellation of the Contract: (Rescission of Contract)

Where one of the parties to a contract commits a breach, the other party may treat the contract as rescinded and the aggrieved party is free from his obligations and becomes entitled to compensation.

The former contract which is the subject of the dispute is “rescinded” (canceled). And a new one may be formed to meet the parties’ needs.

Suit for Damages

Section 73 of the Contract Act, of 1872 provides that when a contract has been broken, the injured party is entitled to either ordinary damages or special damages.

Suit upon Quantum Meruit

It arises only where one of the parties has not performed his part of the promise but has been discharged because of a breach of the other party. This right is founded not on the original contract but on the implied promise by the other party to pay for what has been done.

Suit for Specific Performance

Where the contract breach damages are inadequate to remedy, the party at fault may, at the discretion of the court, be ordered to perform the contract in specie.

Examples:

(i) A agrees to sell B his painting but commits a breach. B cannot sue for damages. A shall be ordered to make specific performance to B.

(ii) A contract to borrow money from B is not enforceable because the damage is an adequate remedy.

Suit For Injunction:

The injunction is granted by the court in cases where the damage is not adequate relief and it is appropriate in cases of anticipatory contract breach. The court by issuing an injunction restrains a person from doing what he has promised not to do.

Example:

A, a film actress, agreed to act exclusively for B, a film company, for two years and for no one else. But during this period, she contracted to act for C also.

Other Contract Breach Remedies Available Today:

Relief For Contract Breaches Can Come In Two Forms:

Legal damages, which are the monetary awards discussed above, and equitable remedies. Equitable remedies are rendered when monetary damages will not properly remedy the situation. They involve the court ordering the parties to take or refrain from some sort of action and include:

Contract Reformation:

The former contract is rewritten with the new contract reflecting the parties’ true intent. Reformation requires a valid contract, to begin with, and often is employed where terms of the contract are mistaken or disagreed upon.

Conclusion:

To conclude a contract breach is a violation of a contractual obligation, either by failing to perform one’s own promise or by interfering with another party’s performance. Different remedies are available to the aggrieved party on contract breach.

Frequently Asked Questions (FAQs):