DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

“BREACH OF CONTRACT AND ITS EFFECT”

SUBJECT: LAW OF CONRACTS

FACULTY: Dr. Ch. LAKSHMI

PROJECT TOPIC: BREACH OF CONTRACT AND ITS EFFECT

SUBMITTED BY: K. SAMUEL SANKEERTH

Reg. No.: 2015057

SECTION: A

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 ACKNOWLEDGEMENT
Successful achievement of any task would be incomplete without mentioning the people
who have made it achievable. So it’s with the thankfulness that I acknowledge the aid, which
crowned my hard work with accomplishment.
I owe my gratitude to Dr. CH. Lakshmi, Faculty Law of Contracts, for her constant
guidance and support. I would also like to thank the various department officials and staff who not
only provided me with required opportunity but also extended their valuable time and I have no
words to express my gratefulness to them.
Last but not least I am very much thankful to my family and friends for their warm
encouragement and moral support in conducting this project work.

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 PROJECT SUMMARY/ABSTRACT
Contract means “An agreement which is enforceable by law” and Breach means “A violation of
a law, duty, or promise. Whereas, Breach of Contract is a legal cause of action in which a binding
agreement or bargained-for exchange is not honored by one or more of the parties to
the contract by non-performance or interference with the other party's performance. Breach of
contract is a type of civil wrong. Again there are several type of breaches including minor breaches,
material breaches, fundamental breaches, anticipatory breach and efficient breach. Also, there are
few ways through a breach could be effected (1) repudiation of obligations before the beginning
of the contract, (2) repudiation of obligations before its completion, or (3) a conduct that prevents
the contract's proper performance (such as interfering with the other party's performance). Breach
of a major term (condition) of the contract entitles the aggrieved party to (1) treat the contract as
discharged, (2) consider itself free from its own obligations under the contract, and (3) sue the
offending party for damages arising from the breach.
All these aspects will be clearly mentioned in the projects and also the cases or case laws
relating will be discussed in the further project.

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 CONTENTS
1. Introduction………………………………………………………………………………05
2. Types……………………………………………………………………………………..08
 Actual Breach
 Anticipatory Breach
 Material Breach
 Minor Breach
3. Elements………………………………………………………………………………….11
 Existence of a Valid Contract
 Breach of the Contract Terms
 Damages for Breach of Contract
4. Remedies/Defenses for Breach of Contract………………………………………………13
 The Contract is Not in Writing
 The Contract Is Not the Intended Agreement
 One Party Was a Minor
 Mental Capacity
 Duress or Undue Influence
 There Is a Mistake in Creating the Contract
 The Contract Is Unconscionable
 Circumstances Change
5. Conclusion……………………………………………………………………………….17
6. Bibliography……………………………………………………………………………..18

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 INTRODUCTION
1
A contract is an agreement having a lawful object entered into voluntarily by two or more
parties, each of whom intends to create one or more legal obligations between them. The elements
of a contract are “offer” and “acceptance” by “competent persons” having legal capacity who
exchanges “consideration” to create “mutuality of obligation”. Section 2(h) of the Indian Contract
Act defines the term contract as “any agreement which is enforceable by law”. There are two
essentials of this act, agreement and enforceability at law. Section 2(e) defines agreement as “every
promise and every set of promises, forming the consideration for each other”. Again section 2(b)
defines promise in these words: “when the person to whom the proposal is made signifies his
assent thereto, the proposal is said to be accepted. Proposal when accepted becomes a promise.”
Before the enactment of the Indian Contract Act, 1972, there was no codified law for
contract in India. In the Presidency Towns of Madras, Bombay and Calcutta law relation to
contract was dealt with the Charter granted in 1726 by King George I to the East India Company.
Thereafter in 1781, in the Presidency towns, Act of Settlement passed by the British Government
came into force. Act of Settlement required the Supreme Court of India that questions of
inheritance and succession and all matters of contract and dealing between party and party should
be determined in case of Hindu as per Hindu law and in case a Muslim as Muslim law and when
parties to a suit belonged to different persuasions, then the law of the defendant was to apply. In
outside Presidency Towns matters with regard to contract was mainly dealt with English Contract
Laws; the principle of justice, equity and good conscience was followed.
The Indian Contract Act came into force on 1september 1872. It was enacted mainly with
a view to ensure reasonable fulfillment of expectation created by the promises of the parties and
also enforcement of obligations prescribed by an agreement between the parties.
2
Breach of contract is a legal cause of action in which a binding agreement or bar gained-
for exchange is not honored by one or more of the parties to the contract by non-performance or
interference with the other party’s performance. If the does not fulfill his contractual promise, or
has given information to the other party that he will not perform his duty as mentioned in the
contract or if by his action and conduct he seems to be unable to perform the contract, he is said to
breach the contract. A breach of contract is where a party to a contract fails to perform, precisely

1
http://legaldictionary.net/breach-of-contract/, 14/03/2016,5:00pm
2
https://en.wikipedia.org/wiki/Breach_of_contract, 14/03/2016,9:00pm

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and exactly, his obligations under the contract. This can take various forms for example, the failure
to supply goods or perform a service as agreed. A contract being a correlative set of rights and
obligations for the parties would be of no value, if there were no remedies to enforce the rights
arising there under. The Latin maxim Ubi jus, ibi remedium denotes where there is a right, there
is a remedy. Where the promisor neither performs his contract nor does he tender performance, or
where the performance is defective, there is a breach of contract.]

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 OBJECTIVES OF THE STUDY:
The main objective of the project is to study about breach of contract in detail, including
its types, remedies, elements and etc.

SIGNIFICANCE & BENEFIT OF STUDY:

The researcher gains knowledge regarding the topic, breach of contract and its types,
remedies and etc. It also allows the researcher to know about the various case laws relating
to the topic.

SCOPE OF THE STUDY:

The researcher is limiting the study to the types of breach of contract, remedies, elements,
reasons and a few important case laws relating to this topic.

RESEARCH METHODOLOGY:
The researcher has aimed at doctrinal study and tries to significantly analyze and give a
balanced explanation with the help of the doctrinal way of study. The various library and
Internet services available at Damodaram Sanjeevayya National Law University,
Visakapatnam will be utilized for this reason. Majority of the information is, though, from
the internet.

RESEARCH QUESTIONS:
1 To find out the defenses of breach of contract.
2. The ways in which a contract is breached and how it can be claimed by the parties.

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 TYPES OF BREACH OF CONTRCT
3
There are 4 types of breaches. They are (i) actual, (ii) anticipatory, (iii) minor, (iv) material.

(i) Actual Breach of Contract:

It is the actual failure or refusal by a party to perform its obligations under the contract. The
actual breach may take place either at the time the performance is due, or when actually
performing the contract. For instance, X agreed to sell his car to Y on 1st June. But on 1st
June X refused to sell the car to Y. On X’s refusal to sell the car, there occurred a breach of
the contract. And Y can hold X liable for the breach of contract. But sometimes the party, who
has failed to perform the contract on due date, subsequently expresses his willingness to
perform the same. In such cases, whether he can perform the contract or not will depend upon
the fact whether or not the time was the essence of the contract (i.e., whether the time was the
essential condition for the formation of the contract). If the time was the essence of the
contract, the failure to perform the contract within the specified time results in breach of the
contract. And if the time was not the essence of the contract, the other party may accept
performance and claim compensation for delayed performance.4

(ii) Anticipatory Breach of Contract:

A breach before the time for the performance has arrived is known as anticipatory breach of
contract. This involves one of the parties to a contract stating that they will not do so before
their actually have to fulfill their side of contract. For example, X contracted to supply to Y
100 pieces of spark plugs on 15th December 2005. But before the due date of performance
(i.e., 15th December), X informed Y that he is not going to supply the spark plugs at all. On
X’s refusal to supply the goods, the anticipatory breach of the contract occurs. And Y put an
end to the contract. This doctrine of anticipatory breach is contained in Section 39 of the Indian
Contract Act, which reads as under: “Where 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 by conduct, his acquiescence in its

3
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-can-
occur-What-are-the-ways-to-remedy-a-breach-of-contract, 15/03/2016,5:00pm
4
http://www.shareyouressays.com/94807/short-notes-on-actual-and-anticipatory-breach-of-contract,
15/03/2016,5:00pm

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 continuance.”

Case: Universal Cargo Carriers Corp v Citati

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The ship owners had cancelled a voyage charter-party because no cargo had been provided.
The court asked what delay could lead to a claim for a repudiatory breach of a contract. Devlin
J said: ‘This case gives rise to a difficult question. How long is a ship obliged to remain on
demurrage, and what are the rights of the owner if the charterer detains her too long?
Translated into the terms of general contract law, the question is: Where time is not of the
essence of the contract – in other words, when delay is only a breach of warranty – how long
must the delay last before the aggrieved party is entitled to throw up the contract? The
theoretical answer is not in doubt. The aggrieved party is relieved from his obligations when
the delay becomes so long as to go to the root of the contract and amount to a repudiation of
it. The difficulty lies in the application, for it is hard to say where fact ends and law begins.
The best solution will be found, I think, by a judge who does not try to draw too many nice
distinctions between fact and law, but who, having some familiarity both with the legal
principle and with commercial matters and the extent to which delay affects maritime
business, exercises them both in a common-sense way. This is the sort of solution which, upon
the supposition that it was acceptable to business men, the commercial court was created to
provide.’ and ‘But a party to a contract may not purchase indefinite delay by paying damages.
. When the delay becomes so prolonged that the breach assumes a character so grave as to go
to the root of the contract, the aggrieved party is entitled to rescind. What is the yardstick by
which this length of delay is to be measured? Those considered in the arbitration can now be
reduced to two’ (as in the present appeal) ‘first, the conception of a reasonable time, and
secondly, such delay as would frustrate the charter-party. In my opinion the second has been
settled as the correct one by a long line of authorities’.6

(iii) Minor Breach of Contract:

It is sometimes called a partial breach. In many of the cases, a minor breach means that one
party failed to perform some part of the contract even through the specified item or service

5
http://swarb.co.uk/universal-cargo-carriers-corporation-v-citati-1957/ , 16/03/2016,5:00pm
6
http://www.shareyouressays.com/94807/short-notes-on-actual-and-anticipatory-breach-of-contract,
17/03/2016,5:00pm

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 was ultimately delivered. For instance, if a homeowner hires a contractor to install new
windows in a home and asks for wind resistant windows but the contractor uses windows that
aren’t wind resistant the homeowner will ask the contractor for damages incurred. Since there
is no difference in value between the two windows, the homeowner will not be awarded any
damages. If there was a difference between the two windows then the homeowner would have
been awarded damages that amount to the difference between the two windows.
(iv) Material Breach of Contract:
A material breach is when there is a failure to perform a part of a contract that permits the
other party of the contract to ask for damages because of the breach that has occurred. For
example, if the contractor mentioned above uses windows that aren’t wind resistant and the
windows break, the homeowner can collect damages for replacing the windows with the wind
resistant ones. To determine whether or not a material breach has occurred, the following are
essential:
 The extent to which the injured party will be deprived of the benefit which he reasonably
expected
 The extent to which the injured party can be adequately compensated for the part of that
benefit of which he will be deprived
 The extent to which the party failing to perform or to offer to perform will suffer forfeiture
 The likelihood that the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances
 The extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.7
Case: Peevyhouse v Garland Coal and Mining Co.

7
http://www.shareyouressays.com/94807/short-notes-on-actual-and-anticipatory-breach-of-contract,
18/03/2016,5:00pm

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 ELEMENTS OF BREACH OF CONTRACT

If a party breaks a promise, the other party may be able to sue for breach of contract. To win a
breach of contract action, the plaintiff will have to prove three elements, which are also known as
essentials of breach of contract. They are:

1. Existence of a Valid Contract8

For there to be any breach at all, there must first be a valid contract. The contract does not need to
be in writing. Oral contracts are enforceable if a party can prove their existence. To prove the
existence of an enforceable contract, a party must establish three elements:

 Offer – this can simply be an intention to enter a contract. However, not all discussions of
future deals will be offers. For example, an advertisement will probably not be considered
an offer.
 Acceptance – this means the parties have genuinely agreed to all of the contract's essential
terms. This is an area of the law where written contracts are preferable to oral contracts.
Written contracts tend to be a more clear expression of the essential terms each party has
accepted.
 Consideration – this means each party must have given and received something of value.
Put generally, a unilateral promise is probably not an enforceable contract; neither is a
contract based on services rendered in the past.

2. Breach of the Contract's Terms

Generally, a breach occurs when a contractual promise is broken. However, not every term of the
contract must be taken literally. Only a breach of contract that detracts value from non-breaching

8
http://www.legalmatch.com/law-library/article/essential-elements-of-breach-of-contract.html,
20/03/2016,5:00pm

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party can warrant a lawsuit. Such instances are considered material breaches. Breaches of contract
that do not take away value from agreement are considered minor breaches and are highly unlikely
to succeed as a lawsuit.

There are also other types of breaches. A fundamental breach is a breach that breaks a fundamental
aspect of the agreement, an aspect so important that the wronged party can terminate the fulfillment
of the contract. An anticipatory breach is where one party has every reason to suspect that the other
party will breach, even if they have not yet, so they repudiate their part of the agreement first.

3. Damages for Breach of Contract9

To recover for breach of contract, a party must prove that the other party harmed them in some
way. This is referred to as damages. Damages cover money lost, but may also include time lost as
well. In general, the breaching party must pay for any expenses incurred because of the violation.
In addition, the breaching party can also be ordered to pay punitive damages Punitive damages are
punishment for the party breaking the contract. If the contract itself states any additional payments
made to a party should the contract be broken, the terms on that contract may also be fulfilled in
addition to what a court awards.

If possible, the offending party can also be ordered to complete the terms of the contract.
Alternatively, the wronged party may ask the court to void the contract and restore the position the
wronged party was in before entering the contract.

9
http://www.legalmatch.com/law-library/article/essential-elements-of-breach-of-contract.html,
21/03/2016,5:00pm

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 DEFENSES FOR BREACH OF CONTRACT

Breaching a contract will generally have legal consequences. This means that if someone breaches
a contract, the other party can usually bring a lawsuit to recover the damages resulting from the
breach. In general, there are many exceptions to this. Firstly, breaching a contract that is void is
always acceptable. A contract is void if enforcing it would be against the law or is forbidden by
law.10

Otherwise, a breach of contract may also be acceptable if a valid contract was never formed in the
first place. In order to form a valid contract, there must be:

 Offer – a party must offer to make an agreement.

For instance, in cases where there is no proper offer to an agrrement by either of the parties or
when one of the parties mistake invitation to an offer as an offer to make an agreement, the other
party can breach the contract as he actually did not offer to make any such agreement.

Case:

 Acceptance of the offer – Usually the acceptance must be express, but implied acceptance
may be found in certain cases.

The acceptance of the offer may either be express or implied i.e., in written or through conduct.

There are some cases where acceptance is not given but the party mistakes the conduct of the party
as acceptance, which actually is not acceptance.

Case:

 Intent – If one party did not intend to make a legal relationship which makes them bound
legally, the transaction may be treated as a gift.

10
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-
can-occur-What-are-the-ways-to-remedy-a-breach-of-contract, 22/03/2016,5:00pm

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There must be a proper intention of both the parties to create a legal relationship in order to enter
into a contract. A mere agreement between wife and husband cannot be a legal relationship but it
is a social and domestic relationship. In such cases, the parties cannot be held liable.

Case: Balfour v Balfour

 Consideration – Exchange of valued goods or services.

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There must be proper consideration of the 2nd party when the 1st party offer to make an agreement.
The party cannot be held liable unless there was a proper consideration given by the party to the
contract or promise the other party that he would do or abstain from doing any act.
If one of these elements are lacking, then there is no enforceable contract, so there can be no
breach. Also, there are other instances where a breach of contract is acceptable, circumstances
which allow liability for breach for a contract are below:

1. The Contract Is Not in Writing

Many contracts can be made orally, but there are certain agreements which must be in writing. The
statute of frauds is a law that requires certain types of contracts to be in writing. If the contract fits
into one of these categories and is not in writing, then it is unenforceable or not enforceable:

 Contracts involving the sale or transfer of land

 Promises to pay someone’s debt obligations
 Contracts that cannot be completed within one year of their making, according to the terms
of the contract
 Contracts involving the sale of goods for more than $500
 Contracts that will go beyond the lifetime of the one performing the contract

2. The Contract Is Not the Intended Agreement

In a few situations, the contract may not reflect the original intention of the parties. In those
situations, a breaching party may be able to avoid liability if:

11
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-
can-occur-What-are-the-ways-to-remedy-a-breach-of-contract , 23/03/2016,5:00pm

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  They show that other agreements were made outside the contract
 The outside agreements change the nature of the contract

This defense typically works well if the contract does not contain a merger clause.

3. One Party Was a Minor

In general, minors cannot enter into contracts because they lack legal capacity. In most states,
someone is a minor if he or she is under 18. Thus, if someone enters into a contract with a person
younger than 18, that agreement can freely be breached without any consequences. For this reason,
it is a good idea to have the minor’s parents sign the agreement in order to ensure it will be
enforceable later.

4. Mental Capacity

Similar to entering into an agreement with a minor, a contract may be unenforceable if a party
lacks mental capacity. Determination of mental capacity will vary from state to state. Sometimes,
courts will look at whether or not the person understood what they were doing at the time of
contract creation. Similarly, courts may also look at whether or not the person had control over
their actions at the time of contract creation.

5. Duress or Undue Influence

Duress occurs when a person is influenced to sign a contract under extreme pressure. Undue
Influence occurs when a dominant party exerts excessive pressure on a weaker party to sign a
contract. Both of these defenses are highly state specific and can be quite complicated.12

6. There Is a Mistake in Creating the Contract

A mistake occurs when parties have a mistaken belief about a fact upon entering into a contract. If
only one party is mistaken, it is a unilateral mistake, and generally contract performance is not

12
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-
can-occur-What-are-the-ways-to-remedy-a-breach-of-contract , 23/03/2016,5:00pm

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excused, and breaching may have consequences. In a bilateral mistake situation, both parties are
mistaken, and the contract will generally be void.

The unilateral mistake rule does not apply if one party misleads the other party. Unilateral mistakes
can also void a contract if one side fails to disclose information which is only known to that party
and which a reasonable person could not discover on their own.13

7. The Contract Is Unconscionable

A contract is void if it is unconscionable. "Unconscionable" simply means that the contract is very
obviously one-sided, essentially to the extent that no reasonable person would agree to such terms.
Thus, the court will assume that one party was either ill-informed or otherwise pressured into
signing the contract since no reasonable person would otherwise.

8. Circumstances Change

When something happens that makes it impossible to perform the duties of the contract, parties
may be excused from performance. However, circumstances that simply make performance more
difficult do not necessarily make the contract impossible. A party may be able to excuse
performance when an important overriding event has frustrated the purpose of the contract.14

13
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-
can-occur-What-are-the-ways-to-remedy-a-breach-of-contract, 28/03/2016,5:00pm
14
https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-breach-of-contracts-
can-occur-What-are-the-ways-to-remedy-a-breach-of-contract, 29/03/2016,5:00pm

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 CONCLUSION

Finally, I would like to conclude to the project, as follows. Basically, first we have learnt the
definition and meaning of a contract and then the definition and meaning of breach of contract.
Also we have learnt about the legal definition of the term and contract and breach of a contract.
And we have learnt that there is a lot difference between definition, meaning and the legal
definition of a term. Then coming to the history, we have found about the history of the term
contract as well as the term breach of contract and also a few cases of the past are mentioned under
some of the sub topics. Then, we have discussed about the types of breach of contract, which are
of four types, namely actual breach, anticipatory breach, material breach and minor breach of
contract. We have discussed in detail about each of these breach of contracts and then some
examples under each type and also some landmark case laws under each type of breach of contract.
Then, we have discussed about the elements or the essential elements of breach of contract, that
is, the things which are necessary for a contract to be breached. Then again under each sub topic,
there are cases mentioned and the process repeats. Elements of the breach of contract are generally,
the things that are necessary to proceed legally, if a party breaks a promise, the other party may be
able to sue for breach of contract. To win a breach of contract action, the plaintiff will have to
prove three elements, which are also known as essentials of breach of contract. There are 3
elements here, they are, Existence of a Valid Contract, Breach of the Contract's Terms, Damages
for Breach of Contract. Some case laws are discussed under each topic. Next comes the defenses
of breach of contract, defenses means that the legal defense which either of the party selects in
order to escape from the legal consequences. There are 8 defenses under this, which are, the
contract is not in writing, the contract is not the intended agreement, one party was a minor, mental
capacity, duress or undue influence, there is a mistake in creating the contract, the contract is
unconscionable, and here comes the last one, circumstances change. These defenses can be used
by either of the party in order to escape from the legal consequences or punishments, for not
fulfilling the contractual agreement properly or for not performing the duties and actions according
to the agreement and the contract, they have signed for.

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 BIBLIOGRAPHY
 http://swarb.co.uk/universal-cargo-carriers-corporation-v-citati-1957/
 https://www.quora.com/What-is-a-breach-of-contract-What-are-the-manners-in-which-
breach-of-contracts-can-occur-What-are-the-ways-to-remedy-a-breach-of-contract
 http://legaldictionary.net/breach-of-contract/
 https://en.wikipedia.org/wiki/Breach_of_contract
 http://www.shareyouressays.com/94807/short-notes-on-actual-and-anticipatory-breach-
of-contract
 http://www.legalmatch.com/law-library/article/essential-elements-of-breach-of-
contract.html
 Law of Contracts Textbook, Avthar Singh
 Contracts – I Textbook, R.K. Bhangia

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