Discharge of Contract by Breach

Introduction

The word ‘discharge’ means to ‘end’ or ‘terminate’. So the word ‘Discharge of contract’ simply means to end or terminate the contract. As a result of that, the liability of the parties to the contract comes to an end. The Indian Contract Act, enacted on 1872, mainly focuses on preventing the parties from making unnecessary breach of contracts. According to Indian Contract Act, every contract has to come to an end. It gets discharged, when the contractual obligations are no more in existence.

Breach of contract

When two parties enter into a contract, that contract imposes some obligations on both these parties. So they are bound to fulfil their obligations in order to successfully perform the contract. But, if any of these parties fails to perform their part, then the party is said to have breached the contract. So, this breach of contract results in discharge of the contract. The aggrieved party can ask for compensation for the loss he has suffered due to the breach of contract made by the other party.

Discharge of contract by breach

There are many ways by which the discharge of contract occurs. The breach of contract by the parties is one among those ways by which the contract gets discharged,  because “breach” also brings to an end the obligations created by a contract on the part of each of the parties. Of course the aggrieved party i.e., the party not at fault can sue for damages for breach of contract as per law; but the contract as such stands terminated. 

There are two types of breach of contract. They are

  1. Actual breach
  2. Anticipatory breach

Actual breach of contract

The actual breach of contract arises when any party to the contract fails in performing his/her duties on the due date of performance of the contract.

There are two types of actual breach of contract. They are:

  1. Actual  Breach of contract ‘Due to Late Performance’:

When any party in a contract fails to fulfil his or her contractual duties on the deadline of the performance of the contract, then the other party is not required to perform his/her obligations and can hold the breaching party liable for breach of contract.

However, the guilty party might express his or her willingness to still perform the contract. In such situation, the decision to allow him or her to fulfil the contract will depend on whether time was of the essence in the contract. This means time must be an essential condition for establishing the contract.

If time was indeed an essential factor, failure to meet contractual obligations by the specified deadline is considered a breach of contract. If time was not an essential condition, the non-breaching party can accept performance and claim damages for late performance.

  • Actual Contract Breach During the Course of Performance:

This happens when any party starts the performance of the contract, but before completion of it, he fails or refuses to do further performance.

This may be:

1. Expressed   or

2. Implied

The expressed breach of contract happens when any of the parties, while performing the contract, informed the other party through written method, or words spoken that they won’t be performing the remaining obligations under the contract.

For eg: Mr. ‘X’ is a computer supplier and he entered into a contract with ‘Y’ to sell him 200 computers. After selling 100 computers to ‘Y’, Mr. ‘X’ informed ‘Y’ through spoken words  that he won’t be able to sell the remaining 100 computers. Here, the expressed breach of contract has taken place.

On the other hand, the implied breach of contract happens when any of the parties, while performing the contract, informed the other party through his conduct that he won’t be performing the remaining obligations under the contract.

For e.g:  On 15th January 2020,  ‘X’ a singer entered into a contract with ‘Y’ that he will sing at the theatre of ‘Y’ for a continuous period of 1 month. ‘ X’ sang for 2 weeks but after that he moved to abroad without informing ‘Y’. Here, the breach of contract took place by the conduct of ‘X’. This is implied breach of contract.

Case law related to the actual breach of contract

Bishamber Nath Agarwal v. Kishan Chand:

  In this case, it has been held that when an arrangement specifies that a particular act relating to the contracts is to be completed within a given period or manner, it should be performed in that manner or period and the parties don’t have any  right  of performing it in their own way or time.

Anticipatory breach of contract

Anticipatory breach of contract is a contract which has taken place before the due date of performance of the contract. In simple words, it means the promisor has informed the promisee even before the due date of the performance of the contract that he won’t be performing the said contract.

Types of anticipatory breach of contract:

The anticipatory breach of contract takes place in any of two ways. They are:

  1. Express repudiation : It takes place expressly by words spoken or written
  2. Implied repudiation: it takes place by the conduct of the parties

In the case of Hochester v. De La Tour, the most leading case relating to anticipatory breach, Lord Campbell CJ made a very important observation that forms the genesis of the concept of anticipatory breach. He stated that a ‘contract is contract from the date it is made and not from the date its performance is due.’ Hence, even though the performance becomes due on a future date, the obligations are still initiated on the date of the creation of the contract.

Effect of Anticipatory breach

So, as we know, when this anticipatory breach of contract happens, the promisee need not perform his duty because the promisor has already made a default in performance of his part.

Further he gets an option:

  1. To either treat the contract as ‘rescinded’ and he can sue the other party for damages occurred due to the breach of contract immediately without even waiting for the due date of performance of the said contract.
  2. He also has the option not to rescind the contract but to treat the contract as still operative and wait for the date of performance of that contract and then, if he is still not performing, hold the defaulting party responsible for all the consequences of non-performance of the contract.

Remedies for breach of contract

When one party to the contract makes any default in the performance of the contract, then the aggrieved party has the right to sue the defaulting party. The remedies which are available to the aggrieved party are:

  1. Rescission of contract :

 It simply means, cancellation of the contract. With the mutual agreement of both the parties, it generally cancels the contract. After that, not any of the parties will be bound to the terms of the contract because it set both the parties free from the contract. Contract sometimes contain rescission provisions as well.

  • Sues for damage:

In this, the aggrieved party has all the rights to sue the other party for whatever loss he has suffered due to the conduct of the defaulting party, through the court of law. The most common remedy for the breach of contract is monetary award to the plaintiff.

  • Injunction:

It simply means, the order of the court to one of the parties to stop, temporarily or permanently, some or all of the proceedings related to the said contract.

Conclusion

The parties enter into contract with the intention of performing the same. But if any of the parties to the contract fails in performing his/ her duties, then the breach of contract happens, which is one of the ways of discharging of the contract. The discharge of contract by breach mainly occurs in two forms as actual breach and anticipatory breach. If the breach of contract occurs, then the aggrieved party has the right to sue the other party for all the damages which he has suffered

Reference

Actual Breach Of Contract: Everything You Need to Know (upcounsel.com)

ANTICIPATORY AND ACTUAL BREACH OF CONTRACT (lexpeeps.in)

Breach of Contract: Remedies, Law, Case, and Examples (litem.in)

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