When any of the contracting parties to an agreement fails to discharge their obligations in any manner as contemplated therein, it constitutes as an event of breach of contract, thereby giving rise to an actionable claim against the erring party in question. Such violation of the terms and conditions of any contract must be established before the Court of Law for either enforcement of the rights and duties as contemplated under the contract and/or claiming damages. Oftentimes, the process and procedure for determining the future course upon such violation is contemplated within the contract itself in the nature of penalties for specific breaches.
Anticipatory & Actual Breach of Contract
The law pertaining to contractual breaches is largely regulated by the governing provisions of the Indian Contract Act & the Specific Performance Act, along with Common Law judicial precedents pertaining to the law of damages and compensation.
While actual breach of contract is simply an event where the breach has already occurred, a party may also enforce or seek compensation or performance of an anticipatory breach of contract in the event that a breach can be anticipated either through conduct of a party or by express communication. Under such circumstances, the aggrieved party may approach the Court and seek damages or specific performance of the obligations as stipulated under a Contract which are anticipated to be breached. Actual breach of contract occurs when the breach has already occurred and a party to the contract has failed to fulfil or abide by the specific obligations.
Material & Minor Breach of Contract
Contractual violations by a party to any contract can be classified as either material or minor breaches depending upon the stipulations under the contract. Material breaches are events that are essential to the fulfilment of the contract and have the effect of critically jeopardizing the interests of the aggrieved party and thereby deny it from the benefit which would have otherwise been derived in the event of a due performance of such stipulation.
Ordinarily, it is advisable to have specific clauses which stipulate the specific events which would constitute as material breach of contract. In addition to the aforesaid, material breaches often contemplate as a condition for termination of the contract.
Consequences & Remedies for Breach of Contract
In the event of breach of any obligation or stipulation under a contract, the aggrieved party is entitled to enforce their rights by way of pursuing several legal recourses to recover the damages incurred by it and enforce the execution and specific performance thereof.
Compensation & Damages
The Indian Contract Act, 1872 contemplates that an aggrieved party shall be entitled to receive a compensation for damages in the event of any breach of a contract, however, damages must be such that have occurred in due course and on account of the specific breach. A party alleging loss must necessarily be able to demonstrate the specific loss which it has incurred for pressing a suit for damages, and in case no direct loss can be attributable to such breach, the aggrieved party may not be entitled to any compensation, despite there being a breach of contract.
In addition to the abovesaid, the courts while determining such damages is also obligated to keep into consideration the inconvenience caused to the aggrieved party on account of such breach of contract.
Termination
Subject to the specific clauses and stipulations of a contract, a party may further be entitled to terminate a contract on account of any breach which contemplates action amounting to termination. Such clauses become crucial since they provide parties with the specific instances which shall invite termination of the contract, and therefore may act as a deterrent for both parties to discharge their obligations under the contract.
Suit for Recission
An aggrieved party may also seek to absolve itself from the obligations that it was mandated to fulfil and seek release from the same on account of the breach of contractual obligations by the erring party. Ordinarily, such a prayer for cancellation/recission of the contract is accompanied by a claim for damages.
Suit for Specific Performance
In certain scenarios, it may not be ideal for the aggrieved party to only claim damages in order to remedy the loss, and it is only the execution of the contractual obligations which can place it back in the position which was contemplated, and therefore, a suit for specific performance may be filed before the appropriate Civil Court inter-alia seeking a direction upon the erring party to comply and perform the specific obligations under the contract. Under such cases, an additional relief of monetary compensation is ordinarily not granted.
Suit for Injunction
In circumstances wherein a contracting party is acting contrary to the stipulated obligations under the contract or without the express consent of the other party, the aggrieved party may prefer a suit for injunction inter-alia seeking a restraining order against the other party and abstaining them from carrying out such acts.
Types of Claims for Damages
• Damages by way of Compensation
Such damages are awarded to remedy the actual loss incurred by a party aggrieved from a breach of contract and the intent of such damages is limited to the restitution, meaning thereby that the injured party is restored back to the original position had the breach not occurred.
• Liquidated Damages
Parties may seek to enforce the liquidated damages which are already contemplated and quantified in the contract as a specified and mutually agreed sum which shall be payable in the event of any breach of contract. In matters wherein parties understand that it may prove to be difficult to quantify the loss suffered in case of any breach, it is advisable to specify the liquidated damages that shall become due and payable in the event of any breach of the terms and conditions of the contract.
• Punitive Damages
Ordinarily, the courts refrain from granting any compensation over and above the actual loss suffered, and the intent is to remedy the loss suffered by the aggrieved party, and not to punish or penalize the erring party for such breach. However, in demonstrable cases, punitive damages are awarded to the aggrieved party, if it establishes that the breach has resultantly led to a harmful outcome and a malicious or fraudulent intention is attributable to the erring party. The purpose of awarding punitive damages is to deter such breaches from occurring which can pose as a potential threat which is harmful.
• Nominal Damages
Such damages are awarded in cases wherein there is no substantial loss or injury which has been suffered by the aggrieved party, and in essence, the rights of the parties are upheld without a major claim for compensation.
How to Determine the Appropriate Remedy for Breach of Contract
While under law, there are various remedies that are available to aggrieved parties for enforcing their contractual rights, to determine the appropriate remedy in the given facts of the case, the following factors must be taken into consideration:
- Nature of Breach: The specific breach of the obligation is a crucial aspect to determine whether a suit for recission and damages is more appropriate or whether a suit for specific performance is required to be filed. The ramifications of such breach and its effects shall be gone into before determining the most appropriate remedy.
- Contract Stipulations: In case where the contract contemplates liquidated damages, it would have to be specifically pleaded before the court why a suit for specific performance is necessitated and how the liquidated damages may not remedy the cause of the aggrieved party.
- Viability: There may be instances where a suit for specific relief may not yield any benefit upon the aggrieved party since they may have found other means to fulfil the requirements of the contract from a third party, and in such cases, suit for damages is the more appropriate remedy to be pursued.
Rounds of Negotiation
Often, it is not feasible either financially or due to time constraints, that a suit be instituted for damages or specific performance and therefore as a first step, it is appropriate to approach the erring party for amicable settlement of the matter. It is subsequent to such failure to arrive at any fresh terms for settling the dispute that the same may be pursued through litigation by availing the above-mentioned remedies.
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