In the realm of contract law, a breach is any violation of the contractual obligations stated in the terms and conditions of the legally binding contract. A breach might range from late payment to failing to deliver the a promised item. A contract violation may occur in both oral and written contracts. A contract is a legally binding agreement that the parties agree with and enforceable by law. This reports aims to discuss about breach of contracts, its ingredients; types; possible reasons; consequences and defences.

Understanding Contracts

According to section 2(h) of The Indian Contract Act, 1872, a contract is an agreement enforceable by law. A contract is a legally binding agreement between two or more parties having Consensus Ad Idem (meeting of minds on a common thing in the same sense) and creates a legal relationship for a lawful object. Example: A promises B to provide him with 2500 pens at the rate of ₹10 each by 9th September 2023.

What is a Breach?

A breach of contract occurs when a party thereto renounces his liability under it, or by his own act makes it impossible that he should perform his obligations under it, or totally or partially fails to perform such obligations. In simpler words, a breach occurs when any party is unable to fulfill any of the obligations stated in the legally binding contract which was agreed upon by the parties. The breach can occur in both oral and written contracts. When one party fails to do the work for which the contract was entered into, such failure can be called a breach. In these cases, the breaching party compensates the party who suffered a loss by the breach or fulfills the breached obligations as per the requirements listed in the contract. The breach can be of a part of the agreement or the whole agreement. In case of partial breach of contract, the contract becomes voidable, and it is upon the aggrieved party to consider the contract as void or valid. Example:

• A and B entered into a contract wherein A was obliged to deliver 2500 pens to B by 9th September 2023 at the rate of ₹10 each but was able to deliver only 2000 pens.
• Here, A breached his obligation of delivering 2500 pens and delivered only 2000 pens. Now, it is the decision of B to consider the contract as valid by paying for only 2000 pens or declare the contract as void by returning the pens.

Ingredients of Breach

The elements of breach of contracts are:

1. Existence of a contract: In order for the contract to be breached, there should be an agreement which is enforceable by law. Example: A and B entered into a contract wherein A was obliged to deliver 2500 pens to B by 9th September 2023 at the rate of ₹10 each but was able to deliver only 20 pens. Here, the contract was legally enforceable but A was unable to fulfill his obligations, therefore A breached the contract.
2. Plaintiff's performance or some reason for non-performance: Even if the contract's provisions were not carried out exactly as stated, the defendant obtained services that were basically as agreed upon. The defendant is obligated to pay at this time. Example: If A was hired by B to paint a room but B didn't like the color clarity, they will still be obligated to pay, if not the whole sum, at least something. If the color was a key term in the contract, B may refuse to pay entirely.
3. Defendant's failure to execute contracts: The defendant cannot claim that the plaintiff is not entitled to compensation due to his/her own fault. The plaintiff has the right to claim the compensation. Example: A owns a small electrical company and enters into a contract with B, a builder, that A's company would do the electrical work for every project B undertakes. However, B fails to provide the required electrical supplies. A is unable to complete the obligations due to B's failure, and therefore A has the right to claim compensation for the damages incurred.
4. Damage to plaintiff as a result of breach of contract: The plaintiff should prove their injury to the honorable court in order to claim compensation. Example: A enters into a contract with B, an artist, to create a painting for her company within two weeks so that she can sell it in an auction. B fails to deliver the painting within the timeframe, causing a breach. A can claim compensation by proving the damages caused to her company due to the breach.

Possible reasons for Breach:

A breach occurs when one of the parties involved in the contract fails to complete the obligation mention in the legally binding agreement.

Some of the possible causes for breach are:

1. Unclear or incomplete terms: Contracts should be clear and include all the necessary details. There should be no use of vague language or missing information. Example: A promises B to provide him with 2500 pens at the rate of ₹10 each by 9th September 2023. A sent blue pens to B but B wanted red pens. According to B, A breached the contract, but the color of the ink was missing in the contract.
    
2. Time-related breach: When a party fails to complete the objective of the contract within the pre-decided deadline mentioned in the legally binding agreement, the contract is said to be breached. Example: A promises B to provide him with 2500 red pens at the rate of ₹10 each by 9th September 2023. But B was not able to deliver the pens by 9th September 2023, causing a breach.
    
3. Failure of performance: When a party is unable to perform a part or the whole obligation stated in the contract or fails to meet the quality standard of the product, it leads to a breach. Example: A and B entered into a contract wherein A was obliged to deliver 2500 pens to B by 9th September 2023 at the rate of ₹10 each but was able to deliver only 20 pens. Here, the contract was legally enforceable, but A was unable to fulfill his obligations, therefore A breached the contract.
    
4. Unforeseen events: Sometimes, a party is not able to fulfill the obligations due to unforeseen events like natural disasters, government regulations, or other events which are beyond the party's control. Example: A and B entered into a contract wherein A was obliged to deliver 2500 pens to B by 9th September 2023 at the rate of ₹10 each but was not able to deliver the goods because of a landslide. Here the contract was breached, but A was not at fault because the landslide is an unforeseen event beyond A's control.
    
5. Fraudulent activities: If any party tries to do any fraudulent activity or make material misrepresentation, the contract is breached. Example: A promised B to provide him with the best quality paint for B's house but later delivered paint that was not up to the mark and cheaper than the promised good. Here A misrepresented the goods, thus breaching the contract.

Types of Breach

Breach of contract can be wholly or partially. If any of the terms mentioned in the contract are violated, it becomes a breach. It can happen in a way where parties no longer stick to the agreement, or any of the parties intend to violate the agreement. Based on the same, the breach of contract has been divided into four types:

• Actual breach
• Anticipatory breach
• Minor breach
• Material breach

Actual Breach

The actual breach happens by a party's non-performance, including both defective performance or refusal to perform the contractual obligation at the time mentioned in the contract. Example: A promises B to provide him with 2500 pens at the rate of ₹10 each by 9th September 2023. 9th September comes and goes, but A fails to deliver the pens. This constitutes an actual breach of the contract because A did not fulfill their obligation to deliver the goods by the agreed-upon delivery date.

Anticipatory Breach

An anticipatory repudiation occurs when, prior to the promised date of performance, the promisor absolutely repudiates the contract. Anticipatory breach occurs when either of the parties refuses to fulfill the contract before the end of the agreed time frame. Example: A and B entered into a contract wherein A was obliged to deliver 2500 pens to B by 9th September 2023 at the rate of ₹10 each, but due to financial difficulties, A refused to deliver the goods.

Minor Breach

A minor breach occurs when a party is not able to fulfill a part of the contract. Example: A promises B to provide him with 2500 blue and black pens at the rate of ₹10 each by 9th September 2023, but A was not able to deliver black pens to B.

Material Breach

Occurs when the key elements of the contract were not provided as promised in the agreement. Example: A and B entered into a contract wherein A was obliged to deliver 2500 blue pens to B by 9th September 2023 at the rate of ₹10 each but received 2500 red pens.

What Happens if Both Parties Breach the Contract?

Both parties may be in breach of their contracts. The court will consider the following to determine the breach:

• The parties' total obligations
• The losses sustained by both parties
• The attribution of blame
• The property recompense or remedy available to each

It's possible that one party broke the contract to a greater extent than the other.

If a party suffers a loss as a result of another contracting party's breach, the party who suffers damages can normally seek compensation. However, if the party seeking compensation also caused harm to the other party, the latter can expect to be compensated as well.

Example- Alice, and a construction company, XYZ Builders, entered into a contract for the renovation of Alice's home. The contract outlines that the construction company will complete the renovation within seven months, using specific materials and agreeing to certain quality standards. Alice, in turn, agrees to make periodic payments as the work progresses.

However, Alice becomes unhappy with the progress of the renovation and decides to withhold payment for work that has already been completed. Arguing that the project is taking longer than expected due to frequent changes in the renovation plans she requests. On the other side, XYZ Builders, facing financial difficulties, begins using lower-quality materials than specified in the contract to cut costs. They also fall behind schedule due to mismanagement of resources.

Here, both the parties breached the contract and suffered loss therefore, both the parties would be provided compensation according to the damage suffered.

Consequences of Breach:
Compensation for loss caused by breach
when a contract has been broken, the party who suffers by breach is entitled to receive, from the party who has broken the contract, compensation for any loss caused by him thereby, 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.

In such cases the compensation is not given for any indirect damage suffered.

Compensation for failure to discharge obligation resembling those created by 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.

Legal Aspects:

• The Sale of Goods Act, 1930:
  • Suits for breach of contracts, Chapter IV
    • According to sections 55 and 56 of the Act, the seller can sue the buyer for the price (low or unpaid) of the goods or ask for damages for the breach of the contract.
    • Section 57, 58, and 59 allow the buyers to seek damages for late or non-delivery of goods, breach of contract, and other specific performances.
       
• The Indian Contract Act, 1872:
  • According to section 39 of the Act, one party is allowed to end the contract if another party refuses or is unable to complete the agreement as per the conditions of the contract.
  • Sections 73, 74, and 75 define the consequences of a breach of contract.
     
• Section 55, The Sale of Goods Act (1930):
  • Suit for price
  • Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.
  • Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract.
     
• Section 56, The Sale of Goods Act (1930):
  • Damages for non-acceptance
  • Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance.
     
• Section 57, The Sale of Goods Act (1930):
  • Damages for non-delivery
  • Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
     
• Section 59, The Sale of Goods Act (1930):
  • Specific performance:
    Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to deliver specific or ascertained goods, the court may, if it thinks fit, on the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and conditions as to damages, payment of the price or otherwise, as the court may deem just, and the application of the plaintiff may be made at any time before the decree.
     
  • Remedy for breach of warranty
    Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may:
    1. set up against the seller the breach of warranty in diminution or extinction of the price, or
    2. sue the seller for damages for breach of warranty.
        
• Section 39, The Indian Contract Act (1872):
  • Effect of refusal of the party to perform promise wholly
  • When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.
     
• Section 73, The Indian Contract Act (1872):
  • Compensation for loss caused by breach
  • When a contract has been broken, the party who suffers by breach is entitled to receive, from the party who has broken the contract, compensation for any loss caused by him thereby, 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.
  • Compensation is not given for any indirect damage suffered.
     
  • Compensation for failure to discharge obligation resembling those created by 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.
     
• Section 74, The Indian Contract Act (1872):
  • Compensation for breach of contract where penalty stipulated for
  • When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, 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 penalty stipulated for.
     
• Section 75, The Indian Contract Act (1872):
  • 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-fulfillment of the contract.

Judicial Trends:

• Murlidhar chiranjilal v. Harishchandra Dwarkadas & Anr (1961)
  facts:
  Both the parties entered into a contract for the sale of canvas at Re 1 per yard. The delivery of the canvas was to be made by the railway receipt from Kanpur to Calcutta, and the charges for the same, including labour charges, were to be borne by the respondent.The railway receipt was agreed to be delivered on 5th August, 1947. However, the appellant failed to deliver the receipt.
  
  On 8th August, 1947 the appellant intimated to the respondent that since the booking from Kanpur to Calcutta was closed, the contract could not be performed, and it had become impossible for the appellant to perform the said contract thus closing the contract and returning the advance taken from the respondent.
  
  But, the respondent did not accept the impossibility of the performance of the contract by the appellant. The respondent informed the appellant that they had committed a breach of contract and were liable to pay damages. The respondent appealed in the High Court, and the Court held that the contract had not become impossible to perform. The High Court further held that the respondent was entitled to damages as per the rate prevailing in Calcutta on 5th August 1947 i.e., the date of the breach of contract. Thereafter, an application for special leave was granted by the Supreme Court.
  
  Judgement of the court:
  The Supreme Court held that there was a breach of contract as the contract was required to be performed on August 5, 1947, by delivery of a railway receipt. But, the delivery was not done on the mentioned date. The Court further addressed the question of whether the respondent was entitled to damages or not. The Court observed that the case involved the purchase of goods for resale, and the appellant and respondent were not aware that the contract would result in a breach of the contract.
  
  Therefore, the respondent had to prove the rate prevailing in Kanpur to calculate the amount of damage that would arise naturally in the usual course of things from such a breach. Unfortunately, the respondent failed to prove the rate, hence, they were not entitled to claim any damages.
   
• Karsandas H. Thacker vs. The Saran Engineering Co. Ltd. (1965)
  facts:
  The appellant had sued the respondent for breach of contract and recovery of damages amounting to Rs. 20,700. In July 1952, the parties entered into a contract for the supply of 200 tonnes of scrap iron. The respondent failed to comply with the contract and did not deliver the scrap iron, and expressed their inability to fulfil the contract in a letter dated 30th January, 1953. In the man time, the appellant had entered into a contract with another company in Calcutta for the supply of 200 tonnes of scrap iron.
  
  The respondents stated that there was no contract between them and the appellant and that the appellant did not suffer any damages. They also stated that the controlled price of scrap iron was the same in July 1952 and January 1953, the days when they entered into the contract and the days when the respondent intimated the desirability of discontinuation.
  
  The respondent also contended that they were not liable to pay the amount that the appellant paid to the company in Calcutta because the appellant had not informed the respondent about their intention of purchasing the scrap iron for the company or for the purpose of export. The trial court was in favour of the plaintiff, it was held by the trial court that the appellant was entitled to damages because the respondent breached the contract. However, the High Court reversed the decree of the trial court.
  
  Judgement of the case:
  The Supreme Court held that the respondents did not know that the appellant was purchasing the scrap iron for export, as concluded by the High Court. Therefore, as provided under Section 73 of the Act, the appellant was entitled to receive compensation for the breach of contract by the respondent, as the Section states that compensation is to be paid for the breach of contract when a loss is caused to the appellant in the usual course of business.
  
  However, under the Section, in the event of any remote or indirect loss or damage suffered by the appellant, compensation shall not be given. The loss suffered by the appellant from the breach of contract by the respondent would be nil, and hence, no loss was suffered by the appellant on account of the breach of contract.
   
• Fateh chand vs Balkishan Das (1963)
  Facts:
  The petitioner entered into a contract with the respondent on 21st March 1949, to sell leasehold rights in a piece of land and in the building constructed thereon to the respondent. Under the contract, the petitioner received a sum of Rs. 25,000, and he delivered the possession of the building and the land to the respondent. However, the sale was completed after the expiration of the time period mentioned in the contract, and for this reason, both parties blamed each other. The petitioner initiated a suit in the court of a subordinate judge and claimed to forfeit the amount of Rs. 25,000 received by him.
  
  He also prayed for a decree to have possession of the building and land along with compensation for the use and occupation of the building from the date of delivery of the building and the land. On the other hand, the respondent contended that the petitioner has breached the contract, therefore, he cannot forfeit the amount of Rs. 25,000 received by him and that the petitioner cannot claim any compensation.
  
  It was held by the trial judge that the petitioner had failed to put the respondent in possession of the property, and therefore he must deposit the amount of Rs. 25,000. However, the Punjab High Court (Circuit Bench) in Delhi modified the decree passed by the trial court and held that the petitioner was entitled to retain Rs. 25,000 paid by the respondent under the sale agreement and also directed that the respondent pay compensation for using the property to the petitioner. An appeal was filed against the order passed by the Punjab High Court (Circuit Bench) in Delhi before the Supreme Court.
  
  Judgement of the court:
  The Supreme Court was in favour of the High Court, which found the respondent had committed a breach of contract and referred to Section 74 of the Act. The Court interpreted Section 74 of the Act, which states that the contract contains any other stipulation by way of penalty. The Court viewed that this clause of the Section was applicable to every contract that contains a penalty and was also applicable in cases of payment on breach of contract for money or delivery of property in the future or in cases of forfeiture of rights to money for other property that has already been delivered. The Court further viewed that under this Section, there is an imposition on the courts not to enforce the penalty clause but only to award reasonable compensation.

How to avoid breach:
To avoid a breach of contract, one should check any contract they sign for three things:

1. Clarity: The contract's language should be clear and precise. There should be no hidden meaning and both the parties should agree upon the terms and conditions in the same sense.
2. Expectations: Both the parties signing the contract should understand the expectations it mentions.
3. Legality: To be binding, the contract should be legally enforceable.

Conclusion:
A breach of contract results in loss or damage. Both parties to the contract suffer losses. One party suffers monetary or other types of losses due to the non-fulfilment of the obligation by the other party, and the other party (the breaching party) suffers losses mostly in monetary terms by paying compensation, The Indian Contract Act 1872 gives a remedy to the non-defaulting party to a contract in the form of compensation for harm or loss caused by the other party's violation of contract.

This report aimed to provide an overview about breach of contract, its ingredients, possible reasons, types, consequences, acts and laws pertaining to breach, cases and ends by answering how to avoid breach.