By Nikita Sharma
B.A. LLB 3rd Semester
Indore Institute of Law
The Indian Contract Act, 1872 is an essential central law that is applied all over the states and it regulates and oversees all the business transactions in which there is some kind of agreement or a deal. The Indian Contract Act came into force on September 1, 1872. The Indian Contract Act regulates and validates the agreement or contract between the contracted parties. It is only the Indian Contract Act that defines which agreement is enforceable in the court of law and which is not.
In this article, we are going to discuss what is a contract under the Indian Contract Act, 1872. We will also take a look at the various important terms of the statute, understand what that means and how they are related to the contract. So in this article topics, we are going to understand the various aspects of this Act. Let first of all start with understanding what a contract means.
The term 'Contract' is defined under section 2 (h) of the Indian Contract Act, 1872 as "An agreement enforceable by law". In simple words, we can say that anything in which an agreement is and enforceable in the court of law or by the law or by the land is called the "Contract". The definition provided in the Indian Contract Act has two major elements and which are— "agreement" and "enforceable by law". Hence, to understand the concept of contract under the provisions of The Indian Contract Act, 1872, first we need to understand his two essential terms in the definition of a contract.
Agreement: The term ‘agreement’ is defined under section 2 (e) of the Indian Contract Act, 1872 as “every promise and every set of promises, forming the consideration for each other”. We understood what the definition of agreement is, and let us have a look at the definition of the term ‘promise’.
Promise: The term 'promise' is defined under section 2 (b) of the Indian Contract Act, 1872 as "when the person to whom the proposal is made signifies his assent thereto, the proposal becomes an accepted proposal. A proposal when accepted, becomes a promise". In simple words, an accepted promise is an agreement that is accepted by all the parties who are involved or affected by the agreement. To say all the above information in very few words it can be summed up in the following words:
Agreement = Offer + Acceptance
Enforceable by law: This element is very important regarding the establishment of the contract. Let us understand with the help of an example, suppose you and your friend both agreed to a certain promise, it has become an agreement but to be called as a Contract as per the provisions of the Indian Contract Act, it must have legally enforceable terms.
Thus, by interpreting this definition we can say that as per the Act, the contract is an agreement that gives rise to or lead to legal obligations. In other words, we can also say that it must be within the limitations of the law. We can sum up all this information in very few words and those are following:
Contract = Agreement (Accepted Proposal) + Enforceable by law (scope of law)
Now after understanding all these definitions we can define what a contract is and what not a contract is. As the defined earlier contract is an agreement which is an accepted proposal and it is legally defined or it has enforceability by the law.
Hence, a legal document which bestows upon party's some special rights (provided by the document itself) and also some obligations are imposed upon the contracting parties which are reached upon by both the parties by agreeing on the same thing, in the same manner, is called a contract.
So agreement and contract both are distinct from each other as some elements are required to make every agreement a contract. An accepted proposal is an agreement but it is not a contract until it is enforceable by law.
DIFFERENCE BETWEEN CONTRACT AND AGREEMENT
Contract: A contract is an agreement that is enforceable by law. It has the legal enforceability of the law. A contract must bestow some rights and some obligations on the parties. And lastly, all contracts are necessarily agreements.
Agreement: An agreement is an accepted proposal upon which is reached by contracting parties by agreeing on the same thing in the same manner. An agreement may or may not have enforceability of the law. An agreement does not create legal obligations on the parties. And lastly, all agreements are not contracts it may or may not be a contract.
When a contract is formed between the parties and one of the parties do not adhere to the provisions or terms and conditions of the contract it leads to breach of the contract. In other words, we can say that when a party does not perform his part of the contract or does not fulfil the stipulations of the contract, it is called the breach of the contract. This gives rise to serious implications, as the aggrieved party can ask for the damages suffered by that breach.
BREACH OF CONTRACT
Breach of Contract can be described as a violation of the terms and conditions which were agreed by the contracting parties at the formation of the contract. In other words, when a party to the contract does not fulfil the obligations completely or partly set upon him by the contract, this no adherence to the terms and conditions of the contract is called the Breach of Contract. The breach can be anything from no or non-payment of rent to the landlord to a failure in delivering a promised asset. In some cases of breach of contract, the contract itself states the process in which it is to be dealt with. Or in a contract, other methods of resolution can also be provided such as new contract, adjudication, mediation and alternative dispute resolution etc.
Since the contract is legally binding on the parties and it can be enforced in the court of law, if there occurs a breach the aggrieved party may take this to court and can ask for remedy, since his right has been violated. It is kind of imperative to prove that the breach has happened to successfully claim a remedy for the breach of contract.
When a party to the contract fails to perform the obligations set upon him by the terms and conditions of the contract, there happens a breach of contract.
Since the contract is of two types— oral and written, a breach can happen in both types of contracts.
And when a breach has occurred, the involved parties may resolve the conflict among themselves through arbitration, mediation or they can approach the court of law.
If a breach occurred then the aggrieved party can claim compensation or damage.
TYPES OF BREACH OF CONTRACT
In contractual wording, when it comes to breach of contract the terms have no fixed meaning in law. These terms are interpreted in every contract when they are used, so it varies from case to case. Generally, the Breach of Contract can be majorly classified into 4 types and those are as follows:-
Minor breach: Minor breach is also known as a partial breach. When a party to the contract fails to perform a term of the contract or a particular obligation set upon him, but this breach is very insignificant and so unimportant that the remainder of the contract can even be completed to its fullest terms. This insignificant breach is called a minor breach. This minor breach does not affect the overall motive of the contract. Even if this breach is very minor the aggrieved party can still drag the non-performing party to the court of law and can ask him for the damages suffered.
Material breach: Material breach happens when a party fails to perform a term of the contract that allows the aggrieved party to enforce the contract against him and ask him for damages suffered due to the breach that has happened. A material breach is more serious in nature than a minor breach, as this violation of the contract, it prevents the parties to be able and to carry out the contract at all.
Fundamental breach: Fundamental breach is committed when one of the parties to the contract does not fulfil his part of obligation and fails to complete a contractual term which was very essential to the agreement that provides another party with no opportunity to complete his part of the obligations in the contract. Since the contractual term that was not fulfilled was so essential to the contract, it provides the aggrieved party with a right to terminate the contract entirely. A fundamental breach happens when a party against whom the breach has committed, this party has the right to sue the party who has breached for damages incurred and also he can terminate the contract if he wants to do so.
Anticipatory breach: Anticipatory breach is also known as anticipatory repudiation. The anticipatory breach is a type of breach of contract where an actual breach has not occurred yet, the non-performing party is yet to breach the contract. In the anticipatory breach, one of the party’s breaches by clearly stating that he will not be able to perform the terms of the contract or impliedly indicating that he will be not fulfilling his obligations under the contract.
Apart from this, the contract can also not be fulfilled due to mistake of fact, fraudulent activity, impossible nature of function to be performed, force majeure (the act of god), the doctrine of frustration etc.
REMEDIES IN BREACH OF CONTRACT
Breach of contract occurs when one of the parties to the contract does not fulfil his part of the contract. So when either of the parties breaks a promise or agreement or does not fulfil their obligations or does not perform his part of the contract, it is known as breach of contract. Now, when a breach has occurred what recourse does the aggrieved party has. There are some remedies available to the aggrieved party and those are as follows:-
The recession of Contract: The first remedy which is available to the aggrieved party is the recession of contract. When one of the parties does not perform their part of the obligations, the other party can rescind and set aside the contract and also can refuse to perform his part of obligations. According to section 65 of the Indian Contract Act, 1872 the party who rescinds the contract must give up any benefits that he received under that agreement. And section 75 of the Act provides.
Sue for Damages: According to section 73 of the Act, the aggrieved party who has suffered because the other party broke his promise and did not fulfil his part of the contract, can sue him for the damages or compensation for the loss suffered by him in the normal course of business. These damages are not provided to the aggrieved party if the loss is not suffered in the normal course of business.
Two types of damages are provided by the Act and those are—
Liquidated damages: In some cases of the contract, parties mutually agree upon the amount to be payable if there happens a breach. This type of damages is known as liquidated damages.
Unliquidated damages: Generally in the cases of contract, the court or any appropriate authority assesses the breach and decides the amount to be payable to the aggrieved party. This type of damages is known as unliquidated damages.
Sue for Specific Performance: In this type of remedy, courts say the breaching party to carry out his performance as provided by the contract. In certain cases of contract, the court tells the breaching party to carry out his actual duties as provided by the contract. This is an order of specific performance and it is provided in some cases instead of granting damages.
Injunction: The injunction is a court's order to restrain a person from doing a particular act. It is very similar to an order for specific performance but it is used for a negative contract. So there are some types of injunctions as the court would grant an injunction to prohibit a party from doing an act which he earlier said not to do. Then there is a prohibitory injunction, the court does not permit the commission of an act. Then lastly mandatory injunction prohibits the continuance of the act which is unlawful.
Quantum Meruit: The literal translation of the term "Quantum Meruit” is “as much is earned”. In some cases when a party prevents the other party from doing his part of the contract, the party who has been prevented can claim quantum meruit.
The topic of the project is "meaning, types and remedies of breach of contract with case laws". So in this, we first discussed what breach of contract is and what its types are and what remedies are provided to the aggrieved party in case of a breach. Generally, in most cases, the remedy of damages in the form of money is awarded to the non-breaching party. In very rare cases or some special ones, the remedy of injunction and decree of specific performance is awarded to the non-breaching party. Hence, it can be concluded that the remedy which is most common in the cases of breach of contract is providing damages in the form of money to the aggrieved party. The sole purpose of providing the compensation to the aggrieved party is to bring back the party in the same position as he was before the breach was committed.
“Anticipatory Breach.” Harvard Law Review, vol. 8, no. 2, 1894, pp. 112–113. JSTOR, www.jstor.org/stable/1322325. Accessed 11 Jan. 2021.
Law of Contracts & Specific Relief, Dr Avtar Singh.