Breach of contract is a common occurrence in real estate. One often hears of instances where two parties agree to sell/purchase a property, however, on the day of the registration, one party does not reach the sub-registrar’s office. Similarly, developers promise to deliver a housing project in 26 months but fail to do so for several years. These are instances of breach of contract.
However, if Mukesh promises Ram to give Rs 10,000 in exchange for beating up Lalit and later refuses to pay, would this qualify as a breach of contract? Let us find out.
What is a contract?
According to the Indian Contracts Act, 1989, all agreements are contracts if they are made by the free consent of parties competent to contract for a lawful consideration and with a lawful object and are not expressly declared to be void.
Since the agreement between Mukesh and Ram is not lawful, this agreement would not be a contract.
Obligation of parties to contracts
The parties to a contract must either perform or offer to perform their respective promises unless such performance is dispensed with or excused under the provisions of the law. In case of the death of a party, his legal representatives are obligated to fulfil the promise.
Suppose, Roma promises to deliver goods to Harish on a certain day for Rs 1,000. However, Roma dies before the delivery. Roma’s representatives are bound to deliver the goods to Harish and Harish is bound to pay Rs 1,000 to her representatives. However, if Roma promises to paint a picture for Harish by a certain day, for a certain price, and she dies, the contract cannot be enforced by either party or their representatives.
What is a breach of contract?
Breach of contract is the failure to deliver on a promise made through a legally valid contract. It is a violation of the agreed-upon terms in a contract. This failure to deliver a promise or violation could be due to ill intention of the party due to prevailing circumstances.
Elements of a contract breach
A legally binding contract must be between two or more parties.
The aggrieved party must prove that a certain term in the contract has been breached.
Punishment for breach of contract
Section 73 of the Indian Contracts Act describes the compensation for loss or damage caused by a breach of contract.
“When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained because of the breach,” it says.
This section prescribes the compensation for failure to discharge obligations resembling those created by a contract.
“When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract,” it says.
Compensation for breach of contract where penalty is stipulated
According to the law, if a sum is named in the contract as the amount to be paid in case of a breach, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused, to receive from the party who has broken the contract reasonable compensation, not exceeding the amount so named or, as the case may be, the named penalty.
Party rightfully rescinding contract entitled to compensation
A person who rightfully rescinds a contract is entitled to compensation for any damage, which he has sustained through the non-fulfilment of the contract.
Suppose, Raghav, a singer, contracts with Tilak, the manager of a theatre, to sing at his theatre for two nights every week during the next two
months. Tilak agrees to pay Rs 11,000 for each performance. On the sixth night, Raghav wilfully absents himself from the theatre. Tilak, in consequence, rescinds the contract. In this case, Tilak is entitled to claim compensation for the damage which he has sustained through the non-fulfilment of the contract.
FAQs
What are the applicable laws on breach of contract in India?
Section 73-75 under the Indian Contract Act, 1872, details the consequences of a breach of contract.
Who is competent to enter into a contract?
A person who is of the age of majority, according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject is competent to enter a contract.
What is a sound mind for contracting?
A person is said to be of sound mind to make a contract, if, at the time of making the contract, he is capable of understanding it and of forming a rational judgment about its effect upon his interests. A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.
What is the legal definition of consent in the context of contracts?
Two or more persons are said to consent when they agree upon the same thing in the same sense.
What is free consent in the context of contracts?
Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.
When is a contract voidable?
Agreements entered into due to coercion, fraud or misrepresentation are voidable at the option of the aggrieved party.
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