Breach of Contract Under the Indian Contract Act, 1872

Contracts are the foundation of commercial and personal transactions. When parties enter into a contract, they expect promises to be fulfilled. However, when one party fails to perform their obligations, it leads to a breach of contract. The Indian Contract Act, 1872 provides detailed rules to deal with such situations and offers remedies to the aggrieved party.

Understanding breach of contract is essential because it determines who is at fault, what compensation is payable, and how justice can be achieved.

What Is a Breach of Contract?

A breach of contract occurs when a party:

• Fails to perform their contractual obligations

• Performs them improperly

• Refuses to perform altogether

Under Section 37 of the Indian Contract Act, parties are required to perform or offer to perform their respective promises unless such performance is dispensed with or excused.

Types of Breach of Contract

1. Actual Breach of Contract

An actual breach occurs when a party fails to perform their promise on the due date or during performance.

Example: A agrees to deliver goods to B on 1st June but fails to deliver them.

Case Law: Hochster v. De La Tour (1853)

The court recognized breach where performance was refused on the due date.

2. Anticipatory Breach of Contract

An anticipatory breach occurs when a party declares in advance that they will not perform their part of the contract.

Example: A agrees to supply goods on 1st July but informs B in June that he will not deliver them.

Case Law: Hochster v. De La Tour

The court allowed the aggrieved party to sue immediately upon repudiation.

Consequences of Breach of Contract

When a breach occurs, the aggrieved party has the right to:

• Treat the contract as terminated

• Claim compensation or damages

• Seek specific performance in appropriate cases

These remedies are governed mainly by Sections 73 to 75 of the Indian Contract Act.

Compensation for Loss or Damage (Section 73)

Section 73 provides that when a contract is breached, the party who suffers is entitled to compensation for losses:

• Arising naturally in the usual course of things

• Which the parties knew to be likely at the time of contract formation

However, remote and indirect damages are not compensable.

Landmark Case: Hadley v. Baxendale (1854)

This case laid down the rule that compensation is limited to foreseeable losses.

Liquidated Damages and Penalty (Section 74)

Sometimes contracts specify a fixed amount payable on breach. Section 74 allows courts to grant reasonable compensation, whether the amount mentioned is a penalty or liquidated damages.

Case Law: Fateh Chand v. Balkishan Dass (1964)

The Supreme Court held that courts must award reasonable compensation and not automatically enforce penalty clauses.

Compensation When Contract Is Rescinded (Section 75)

If a party rightfully rescinds a contract due to breach, they are entitled to compensation for losses suffered due to non-fulfilment.

Specific Performance as a Remedy

In certain cases, monetary compensation is insufficient. Courts may order specific performance, especially in:

• Sale of immovable property

• Unique goods

Case Law: K. Narendra v. Riviera Apartments (1999)

The Supreme Court emphasized that specific performance is discretionary and depends on fairness.

Injunction as a Remedy

Courts may issue injunctions to restrain a party from doing something that violates the contract.

Example: Preventing breach of a negative covenant in an employment contract.

Quantum Meruit

Quantum meruit means “as much as earned.” It allows a party to claim payment for work already done when a contract is breached.

Case Law: State of Madras v. Gannon Dunkerley & Co. (1959)

The court recognized claims based on work completed.

Discharge of Contract Due to Breach

A contract is discharged when one party breaches it. The aggrieved party is released from further obligations and may claim remedies.

Actual Facts: Breach in Commercial Contracts

In commercial disputes, breach often arises from:

• Delay in delivery

• Non-payment

• Quality defects

• Failure to meet deadlines

Indian courts regularly handle breach of contract cases involving construction, supply chains, and service agreements.

Conclusion

Breach of contract is a common but serious issue that disrupts trust and business relationships. The Indian Contract Act, 1872 provides a balanced framework that protects the aggrieved party while ensuring fairness to the defaulting party. By understanding the types of breach and available remedies, individuals and businesses can safeguard their interests and resolve disputes effectively.