A contract, is a legal agreement assuring an offer and acceptance of the parties involved. Now know what is a breach of contract

A contract is a legal agreement entered into by two or more parties, indicative of their consent to perform their respective actions for some consideration for which the contract is made.  An ideal contract will have a promisor (the contracting party) proposing a certain action to the promisee, which is the intent to do or abstain from doing a certain act.

The contract is complete when the promisee grants assent to such an act. The promisee in turn agrees to pay a consideration or agrees to do or abstain from doing a certain act as a consideration for the promisor’s act. The other parties, who suffer the consequences would want to be compensated for the losses and would therefore sue the defaulting parties for the breach of contract.

Once the contract is formed, it has to follow the basic framework as stipulated by law. The Indian Contract Act 1872, lays out the key points which have to be abided by the parties while signing the contract. Additionally, the Act delineates the particulars that have to be adhered to when there is a breach of contract by the parties involved.

When there is a contract, the most obvious outcome is the performance of the contract. Unfortunately, the situation may not be ideal round the clock and under such circumstances, a breach of contract ensues. The Act, therefore, answers the most pertinent question of what action can possibly be pursued when such a breach of contract happens. 

Action to be Taken When there Is a Breach of Contract

The most preferred and obvious compensation for the breach of contracts is monetary compensation. The monetary remedies can be categorised as listed below:

Compensatory Damages:

Compensatory damages are the most conventional form of remedy. Here it might be interesting to note the difference between the words ‘damage’ and ‘damages’.  In legal parlance, while ‘damage’ refers to the loss or injury meted out, ‘damages’ point to monetary or other forms of compensation given to the aggrieved party.  When compensatory damages are sought out, the party that breached the contract has to pay the aggrieved party, a sum that is proportional to the losses that occurred due to the breach of contract. For instance, if a person strikes a contract with another party to service a vehicle and say, it would cost a sum of ₹100. Suppose the party that accepted to perform the service forfeits the contract, and the other party finds a third party who would perform the same service at ₹150, which is the cheapest possible under the given circumstances, then the party that breached the contract owes the aggrieved party ₹150 in the case of compensatory damages.

Restitution:

In the case of restitution, when a contract is not performed, the party that failed to perform the contract is required to pay the compensation to the aggrieved party. Considering the above-stated example, the party that breached the contract is required to pay ₹100, since that was the amount the party received initially.

Punitive Measures:

Here the sum of money sued is intended to act as a punishment for the party that has breached the contract. Most often this is adopted in cases where there is moral guilt on behalf of the party that has breached the contract. For instance, when a manufacturer intentionally sells hazardous substances, punitive measures will be adopted.

Nominal Measures:

The Court often resorts to nominal damages, when there is an actual breach of contract, but the parties to the contract have neither suffered any harm in person nor suffered any material losses.

Liquidated Damages:

Liquidated damages are that which are paid by the parties, in the event of a breach of contract. The contract often specifies the amount to be paid in case of a breach of contract and hence the amount to be sued for is quite up-front in this case.

Quantum Meruit:

This is based on equitable compensation meted out for partial performance. In a contract most often the work and the compensation or the performance of the parties involved in general are quantified. But this is not always feasible, as not every genre of action is quantifiable. Under such circumstances, the concept of quantum meruit is employed to recover the compensation for the performance of the contract where a fixed price has not been agreed.

The Latin term ‘quantum meruit’ means ‘as much as it deserves’ and is often employed in matters relating to equitable compensation or restitution. Considering the example cited previously, suppose the contract mentions a service charge of ₹100 for servicing a vehicle, but the servicing party performs almost half of it and later abandons the contract, the party can demand a sum of ₹50 for having done half of the service, though the price is not explicitly mentioned in the contract.

Apart from suing for the breach of contract, the aggrieved party can also opt for the recession of the contract. When one of the parties fails to pay heed to the contractual obligations and fails to perform the promised action, the other party or parties to the contract can opt to rescind the contract and can forthrightly refuse to perform their part of the obligations.