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What do you understand by Breach of Contracts?

Narendra Kumar

| Updated: Apr 02, 2019 | Category: Legal, Legal Law

Breach of Contracts

To understand what breach of contract is we need to first know the basics of contracts. In today’s world, contracts have become an indispensable part of our lives. From joining work by entering an employment contract to buying goods from a sale, we are entering into a contract every now and then. Such being the case one needs to know the basics of contract, what a Breach of contracts is and what are the remedies for breach of contract.

In this article, we’ll discuss the basics of contracts, essentials of a contract and breach of contracts and its remedies.

What is a Contract?

The Indian Contract Act, 1872 in section 2(h) defines contracts. It states a contract is a legally enforceable agreement in oral or written form between two or more parties. In simple terms, it is a set of promises where one party promises to do something for the other for some benefit or consideration.

What is the Difference between Written and Oral Contract?

The main difference between an oral contract and a written one is that oral contracts are harder to prove because they are not written down. The oral contracts are susceptible to error because of lack of clarity and certainty. Due to this, one should always opt for written contracts. By putting the agreement in writing the parties get to know the terms and conditions which they have agreed upon.

What are the Essentials of a ontract?

Following are the essential characteristics of a contract-

  1. Offer and acceptance

The parties to the contract must have a clear understanding of the subject matter of contract. There must be an offer from one party and acceptance of such offer by the other party.

  • Competent parties

Every party should be competent to enter into an agreement. For instance, you cannot enter into an agreement with a minor. Both the parties must be major and of sound mind for entering into a contract.

  • Free consent

To form a valid contract the consent of the parties need to be free. All the parties must have agreed upon the subject matter of agreement in the same sense and in the same manner. If the agreement is caused by coercion, fraud, misrepresentation or mistake then under section 14 of the Indian Contract Act, the contract is deemed voidable and not enforceable by law. 

  • Lawful object and consideration

If the object of the agreement is unlawful, then the contract is void.

Consideration means “something in return”. It means the price paid by one party for fulfilling the promise by another. If there is no consideration or the consideration is unlawful then the contract is void.

  • The agreement should not have been declared void

Agreement should not have been declared void under any law in India.

What is a Breach of Contracts?

In a contract, the parties are legally bound to perform their respective promises if the agreement is enforceable by law. Section 37 of the Indian Contract Act also talks about this. It states that the parties are under an obligation to perform their promises unless and until such performance is dispensed under the Contract Act or any other law.

If the parties deny the performance of such obligations then it amounts toa breach of a contract. The breach can also occur if the party fails to fulfill their obligations specified in the contract, perform their obligation within the time specified, or they don’t perform their obligation in accordance of the terms of the agreement.

What are the types of breach of contract?

Types of breach of contract-

  • Minor breach– this occurs when the party performs a substantial part of the contract but does not fulfill a minor condition which does not affect the contract
  • Material breach– Under this, there is a breach of a substantial part of the contract giving the party the right to sue for damages.
  • Fundamental breach– This happened when the party breaches the contract in such a way that the party does not any other option but to terminate the contract and seek damages.
  • Anticipatory breach– Generally, contracts have a time limit for the fulfillment of the obligations. If one of the parties commits the anticipatory breach, the party can take legal action.
  • Actual Breach– This happens when the parties fail to meet the obligations stated in the contracts.

What are the remedies for breach of contracts?

There are few remedies available for breach of contracts-

  • Recession of contracts

When one of the parties doesn’t fulfill their promises, then the other party is at liberty to rescind the contract and refuse the performance of their obligations. As per section 75 of the Indian Contract Act, the party rescinding the contract is entitled to damages/compensation.

  • Sue for damages

In simple words, damages mean monetary compensation. When there is a breach of contract the aggrieved party may seek damages. The main objective of this is to put the aggrieved party in the position where he would have been if the contract would have been performed and there would not have been a breach of contract.

Section 73 of the Contract Act clearly states compensation for loss caused due to a breach of contract can be claimed by the party who has suffered the loss.

  • Sue for specific performance

Where damages cannot bean adequate remedy, the Court may grant specific performance of the contracts. The court may direct the party who breached the contract to perform their part of the obligation according to the terms of the contract.

  • Injunction

An injunction is an order of the court restraining a person from doing a particular act. The power of the court to grant an injunction is discretionary and it may be granted temporary or for an indefinite period.

  • Quantum merit

The term Quantum merit is derived from a Latin term meaning “what one has earned”.  A right to sue under quantum merit arises when the contract is partly performed by one party and has been discharged by breach of contract by another. The party can file for quantum merit and may claim for payment for the work done.

Conclusion

Contracts have been an indispensable part of our society and breach of contracts have become the most common disputes nowadays. To cater to the needs of the society we should know the basics of contracts, breach of contract and the remedies available for breach of contract. If there is a breach of contract, then the above remedies can be sort for relief.

For more information, you can contact our team of experts at Enterslice

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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