Breach of contract and damages

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Breach of contract and damages

  1. 1. Breach of Contract
  2. 2. • A breach of contract occurs when a person thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligation under it or totally or partially fail to perform such obligation. [Associated Cinema of America, Inc. v. World Amusement Co. [1937) Minn. 94]
  3. 3. • Every default does not strictly itself discharge the contract. It enables the innocent party, if he chooses, to absolve himself as discharged from performance or further performance on his side, he may be said to have accepted the repudiation and ask for compensation, or he may continue on insisting the performance. When repudiation is accepted by the innocent party, he is absolved from further contractual obligations.
  4. 4. • Renunciation or repudiation of the contract takes place where the party shows the intention to not to go on with the contract.
  5. 5. Kinds of Breach • A breach may be (1) Actual or present (1) Anticipatory
  6. 6. • Breach by one party always gives rise to right to claim damages by the innocent party. However, whether it would also enable the party not in default to absolve himself depends. A long line of cases have recognized that the party not in default has such a right in cases of anticipatory breach or in case of fundamental breach.
  7. 7. Breach may occur in the following ways (a) A party renouncing his obligations under the contract. (b) A party by his own acts making it impossible that he should fulfill his obligations under the contract. (c) A party may fail to perform what he has promised. The first two ways of breach is the examples of anticipatory breach and the third one is actual breach.
  8. 8. • Sec 39 of the Indian Contract Act gives expression to the doctrine of anticipatory breach. • See Illustration (a) & (b).
  9. 9. Case Laws on anticipatory breach – • Hoschster v. De la Tour (1853) 2 E&B 687 • Frost V Knight, [(1872) L.R. 7 Ex. 111] – Performance was contingent. • Therefore a breach of contract, by repudiation before the time for performance is anticipatory breach. The innocent party is entitled to treat the contract as discharged and sue for damages immediately. It is also open for him to not to treat the contract as repudiated till the time for performance arrived.
  10. 10. • Restitution – In case of anticipatory breach restitution should be made u/s 64. (Murlidhar Chatterjee v. International Film Co. [AIR 1943 PC 34]. Sir George Rankin - The contract which may be put an end to under sec 39 is voidable in nature.
  11. 11. Actual Breach – If at the time when performance is due, a party by words or conduct makes known his intention to not to perform his part of the contract it is actual breach. Failure of performance obviously can occur only during the performance. It gives rise to right to demand damages. The innocent party may treat the contract discharged where time is of essence. But he can always ask for damages. ( See Sec. 55).
  12. 12. Consequences of Breach • Primary obligation of the parties is replaced by the remedial rights and obligations irrespective of the facts whether the injured party is entitled to absolve himself from performance of his part or not as a result of breach. When a party breached the contract the other party may have the right to rescind the contract and treat himself as absolved from his obligations and hold the defaulting party liable in damages. (See Sec 62, rescission is cancellation of all or some of the terms.)
  13. 13. Liquidated Damages and Penalty • Under the English law liquidated damages are recoverable but penalty is not recoverable. Dunlop Pnumetic Tyre Co. Ltd. V New Garage & Motor Co. Ltd[(1915) AC 79] American Restatement of Law of Contract in S. 342 – punitive damages are not recoverable. • Under Indian Law the treatment of liquidated damages and penalty slightly differs from English Law. ( See Sec. 74)
  14. 14. Remoteness of Damage • Hadley v Baxendale [(1854) 9 Ex 341. The principle of this leading case have been followed, expounded and affirmed again and again. The principles of this case was entered into S. 73 of the Act.
  15. 15. • General and special damages – Damages as may fairly and reasonably be considered arising naturally according to the usual course of things from the breach as its probable result alone will be awarded unless any special damages by special circumstances are in the knowledge and contemplation of the parties.
  16. 16. Damages for the mental pain and suffering • Ordinarily in commercial contracts damages are not allowed for mental suffering. • But see – Hobbs v. L. & S.W. Railway [(1875) L.R. 10 QB]
  17. 17. • Mitigation of damages – Explanation Sec 73 *Please consult the referred books as provided in the course plan.

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