Generally when ever a contract is made, it gives rise to rights and obligations between the parties. When both the parties perform their obligation, the contract is said to be performed and is treated as „Terminated‟. But if any one of the parties to a contract does not fulfill its contractual obligation, it is called „Breach of Contract‟.
A contract creates certain obligations that are to be followed by the people who entered into the agreement. In the eyes of law, a party‟s failure to fulfill the contractual obligation is known as „Breach of Contract.‟
A Breach can occur when a party fails to perform on time, does not perform in accordance with the terms of the agreement, or does not perform at all.
In case of breach of contract the party who does not perform his obligation is called „Defaulting Party‟ . Where as the other party who was interested in the performance of the contract is called „Aggrieved Party‟
Actual Breach of Contract Anticipatory Breach of Contract
When a party to a contract refuses or fails to perform his part of the contract at the time fixed for the performance of that contract, it is known as „Actual Breach of Contract‟.
When one party to a contract shows its intention not to perform the contract before the contract becomes due is called „Anticipatory Breach of Contract‟.
1.Exoneration from Performance/ Cancellation/ Rescission If a party to a contract breaches the contract, then the aggrieved party may treat the contract as terminated. In such a case, he is absolved of further obligations under the contract.
When the aggrieved party who wants to cancel the contract gives or has given his express or implied confirmation to the contract. When without the fault of any party, the circumstances have changed in such a way, that it becomes impossible to perform the obligation in the given time.
2. Claim for Damages: The aggrieved party can file a case against the defaulting party for the loss suffered by him due to breach of contract. This is also known as „Compensation of Damages‟. The amount of compensation always depend upon the facts of the case and the level of loss incurred.
3. Claim for Quantum Meruit: The term Quantum Meruit literally means “As much as earned”. In other words we can say the payment in the proportion to the amount of „work done‟ or remuneration according to the work done. If a person has done some work for another in pursuance of a contract which ha since been discharged by the latter‟s wrongful breach. He may obtain reasonable compensation for his work by suing him on the basis of Quantum Meruit.
If a person delivers something to another person not with the intention to enter into contract, but other person enjoys the benefit thereof, then he becomes bound to make compensation. Further, if there is a contract to do work for a lump sum, payable only after the completion of the work, no action can be brought on the basis of Quantum Meruit.
4. Claim for Specific Performance: Specificperformance is an order by the court upon the party guilty of breach of contract directing him to perform what he promised to do. Thisorder is issued by the court when it seems that damages are not an adequate remedy, so the court can ask for specific performance under Specific Relief Act, 1963.
5. Claim for Injunction According to Sec 42 of the specific Relief Act, injunction is another form of specific performance. This is a negative order of the court through which one person does something which he had promised not to do, the court by issuing an order may prohibit him from doing so.
The term damages implies the monetary compensation for the loss suffered by the aggrieved party as a result of breach of contract by other party But the debatable question is that what amount an aggrieved party may claim from the defaulting party!
Compensation for loss: In case of breach of contract aggrieved party may ask for compensation for loss. Efforts to use resources for minimizing the loss: According to Sec 73, it is the duty of the aggrieved party, in case of breach of contract to make efforts to minimize the loss .
Compensation where Penalty stipulated: According to sec 74, if the amount of penalty has already been determined, in case of breach of contract, in such case the aggrieved gets the right to recover that amount.
Ordinary Damages: These are the normal losses which arise because of breach of contract. Special Damages: In some special circumstances the aggrieved party can claim for direct as well as indirect damages, only if the defaulting party is aware of such special circumstances.
Exemplary or vindictive or punitive damages: This is the amount charged to punish the guilty party for the breach.
Stipulated penality or Liquidated damages: Liquidated damages means a sum fixed at the time of contracting, which is fair and genuine pre-estimation of the probable loss that is likely to result from the breach of contract. The amount of Penality is that amount which is not concerned with the amount of actual loss occurring due to Breach of Contract. Penality means a sum fixed at the time of entering into contract, which is extravagant in amount in comparison to the greatest loss due to Breach. It is a kind of punishment. Interest as damage