Contents

01Chapter Overview 02Meaning of Breach 03Anticipatory Breach 04Actual Breach 05Remedies Framework 06Suit for Damages 07Ordinary & Special Damages 08Other Types of Damages 09Pre-fixed Damages 10Penalty & Liquidated Damages 11Rescission 12Quantum Meruit 13Specific Performance & Injunction 14Section 75 Compensation 15Case Law Bank 16Quick Revision 17Revision Mind Map
01
FoundationChapter Overview

This unit explains what happens when a contract is broken. The earlier units explain how a contract is made, performed and discharged. This unit explains the legal consequences when one party fails to perform.

Breach of Contract = failure of a party to perform contractual obligation. The injured party gets remedies such as damages, rescission, specific performance, injunction and quantum meruit.
Step 1Identify breach.
Step 2Actual or anticipatory?
Step 3Measure damages.
Step 4Choose remedy.
Step 5Apply case law.
ICAI Learning Outcomes
  • Concept of breach of contract and its modes.
  • How damages are measured.
  • Types of damages and compensation rules.
  • Other remedies such as rescission, specific performance, injunction and quantum meruit.
Main Exam Traps
  • Confusing anticipatory breach with actual breach.
  • Claiming remote loss as damages.
  • Forgetting special damages require prior notice.
  • Assuming full penalty amount is always recoverable.
  • Confusing damages with quantum meruit.
  • Missing the option available after anticipatory breach.
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Master Test For every problem, ask: When did the breach occur? Then ask: What loss naturally arose or was known to parties?
02
Basic ConceptMeaning and Modes of Breach

Breach means failure of a party to perform his or her obligation under a contract. Breach may occur before the due date or on/during performance.

Type of BreachMeaningExample
Anticipatory BreachBreach before the time fixed for performance arrives.Seller informs in advance that he will not supply goods.
Actual BreachBreach when performance is due or during performance.Seller fails to deliver goods on due date.
Memory hook: Before due date = anticipatory. On due date or during performance = actual.
03
Section 39Anticipatory Breach of Contract
Meaning
Anticipatory breach is a breach of contract occurring before the time fixed for performance has arrived.

It happens when the promisor refuses altogether to perform his promise or disables himself from performing the promise before the time of performance.

Modes of Anticipatory Breach

ExpressBy spoken or written words refusing performance.
ImpliedBy conduct making performance impossible.
ICAI-style Examples

A agrees on 15 July to supply 10 bales of cotton on 14 August. On 30 July, he informs B that he will not supply. This is express anticipatory breach. Similarly, A agrees to sell his white horse to B on 10 August but sells it to C on 1 August. This is anticipatory breach by conduct.

Section 39
When a party refuses to perform or disables 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.

Effect of Anticipatory Breach

OptionWhat promisee may doConsequence
Option 1Treat contract as rescinded immediately.Sue for damages at once without waiting for due date.
Option 2Treat contract as still operative.Wait till performance date and then sue if breach continues.
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Important Risk If promisee keeps the contract alive, the guilty party may still perform later, and may also take advantage of any supervening impossibility that discharges the contract.
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Hochster v. De La Tour
Anticipatory breach

Facts A courier was engaged for future service, but before the service period began, the employer informed him that his services would not be required.

Issue Must the promisee wait until the actual date of performance to sue?

Held No. The promisee could sue immediately because the promisor had clearly repudiated the contract before due date.

Exam Memory Line Clear refusal before due date gives immediate right to sue.
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Frost v. Knight
Future promise and repudiation

Facts A person promised to marry after a future event. Before that event occurred, he refused to perform the promise.

Issue Does refusal before the event give rise to immediate action?

Held Yes. The refusal amounted to anticipatory breach, giving the other party the right to sue immediately.

Exam Memory Line Future obligation repudiated now = anticipatory breach now.
04
Due Date / Performance StageActual Breach of Contract

Actual breach occurs when a party fails or refuses to perform at the scheduled time or during the performance of contract.

Actual Breach occursMeaningExample
At the time performance is dueParty fails to perform on the appointed date.A fails to deliver 100 bags of sugar on 1 February.
During performanceParty begins performance but refuses or fails midway.A supplies 20 bags out of 200 and then refuses to supply remaining bags.
ICAI-style Example

A agrees to deliver 100 bags of sugar to B on 1 February 2022. On that day, A fails to supply them. This is actual breach committed when performance becomes due.

05
Core FrameworkRemedies for Breach of Contract

When breach occurs, the injured party may use one or more remedies depending on the nature of breach and the kind of loss.

RemedyMeaningNature
Suit for DamagesClaim monetary compensation.Most common remedy.
Rescission of ContractTreat contract as cancelled.Discharges injured party from further obligations.
Specific PerformanceCourt orders actual performance.Used where damages are inadequate.
InjunctionCourt restrains party from doing prohibited act.Used mainly for negative promises.
Quantum MeruitClaim reasonable value of work done.Restitutionary remedy.
Memory hook: Damages compensate, rescission cancels, specific performance compels, injunction restrains, quantum meruit pays for work done.
06
Section 73Suit for Damages

Section 73 lays down how compensation is measured when a contract is broken.

Section 73 — Core Rule
The injured party is entitled to compensation for loss or damage caused by breach which naturally arose in the usual course of things, or which parties knew, when they made the contract, to be likely to result from the breach.

What Can Be Recovered

Ordinary lossLoss naturally arising in usual course of things.
Special lossLoss arising from special circumstances known to both parties.

What Cannot Be Recovered

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Duty to Mitigate The party suffering breach must take reasonable steps to minimise loss. He cannot sit idle and allow loss to increase unnecessarily.
07
Hadley RuleOrdinary and Special Damages

Ordinary / General Damages

Ordinary damages are damages that naturally arise in the usual course of things from the breach. They compensate direct and natural loss, not remote loss.

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Hadley v. Baxendale
Ordinary damages and remoteness

Facts The crankshaft of a flour mill broke. The owner gave it to a carrier for delivery to a foundry. The carrier delayed delivery. Because of the delay, the mill remained closed longer, and the owner claimed loss of profits.

Issue Was the carrier liable for lost profits caused by the mill remaining idle?

Held No. The carrier knew only that he was carrying a broken shaft. He was not told that the mill would remain stopped and profits would be lost if delivery was delayed.

Principle and Exam Memory Line Damages must be natural or within contemplation of parties. Uncommunicated special loss is not recoverable.
ICAI-style Example

A agrees to sell rice bags to B at ₹5,000 per bag after two months. On delivery date, market price rises to ₹5,500 and A refuses delivery. B can claim ₹500 per bag as ordinary damages because this loss arises directly from breach.

Special Damages

Special damages arise from special circumstances. They are recoverable only if those circumstances were communicated to the other party at the time of contract.

ICAI-style Example

A gives a machine to carrier B for immediate delivery to A’s mill and tells B that the mill is stopped for want of the machine. B delays delivery. A can recover average profit lost during delay. But if A had a separate Government contract and did not inform B about it, loss of that Government contract is not recoverable.

Memory hook: Special damages require special notice.
08
Section 73Other Types of Damages

Vindictive or Exemplary Damages

These are punitive damages. In contract law, they are awarded only in exceptional situations.

SituationWhy exemplary damages may be awarded
Breach of promise to marryIt causes injury to feelings.
Wrongful dishonour of cheque by bankerIt damages credit and reputation of customer.
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Gibbons v. Westminster Bank
Wrongful dishonour of cheque

Facts A banker wrongfully dishonoured a customer’s cheque despite sufficient funds. The dishonour harmed the customer’s credit and business reputation.

Issue Can damages be awarded even if exact monetary loss is difficult to prove?

Held Yes. A business person may receive exemplary damages for loss of credit and reputation caused by wrongful dishonour.

Exam Memory Line Wrongful dishonour can justify exemplary damages.

Nominal Damages

Nominal damages are awarded where breach is proved but no real loss is suffered. The object is to recognise that a legal right was violated.

Damages for Deterioration caused by Delay

Where goods deteriorate because of delay, damages can be recovered from the carrier even without notice. Deterioration includes physical damage and loss of special opportunity for sale.

09
Section 74Pre-fixed Damages

Sometimes parties decide in advance what amount will be payable if breach occurs. This may be called liquidated damages or penalty.

Pre-fixed Damages
A sum named in the contract as payable on breach of contract.
TypeMeaningSimple Test
Liquidated damagesGenuine pre-estimate of likely loss.Reasonable estimate.
PenaltyAmount fixed to threaten/force performance.Extravagant or excessive.
ICAI-style Example

If contract states penalty of ₹1,00,000 and actual loss is ₹70,000, only ₹70,000 should be awarded. If actual loss is ₹1,50,000, recovery cannot exceed ₹1,00,000.

ICAI-style Example

X promises Y, a priest, to pay ₹10,000 as charity. Relying on this, Y incurs ₹7,500 liability for temple repairs. Y can recover ₹7,500.

10
Section 74Penalty and Liquidated Damages

English Law

Liquidated DamagesPenalty
Genuine pre-estimate of loss.Unreasonable amount fixed to force performance.
Recoverable as agreed.Not recoverable beyond actual loss.
Compensatory.Punitive / terrorem.

Indian Law

Indian law does not make a practical distinction between penalty and liquidated damages for recovery. Courts award reasonable compensation not exceeding the amount named in the contract.

Section 74 — Indian Position
Where a sum is named in a contract as payable on breach, the injured party is entitled to reasonable compensation not exceeding the amount so named.
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Exam Rule In India, the court may reduce the amount if unreasonable, but it cannot award more than the amount named in the contract.

Exception

Where a person gives a bond to Central or State Government for performance of public duty or an act in which public are interested, on breach he may be liable to pay the whole sum mentioned.

ICAI Illustrations

IllustrationLegal point
Surgeon promises not to practise in Kolkata, failing which ₹50,000 payable.Court awards reasonable compensation not exceeding ₹50,000.
Borrow ₹10,000, bond for ₹20,000 payable by five yearly instalments of ₹4,000, whole due on default.Penalty.
Loan ₹10,000 repayable by five equal monthly instalments; whole due on default.Not penalty; enforceable according to terms.
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Sri Chunni Lal v. Mehta & Sons Ltd.
Section 74 — reasonable compensation

Facts Parties had fixed a sum in a written agreement as payable on breach. The question was whether the aggrieved party could claim more than the sum mentioned.

Issue Can the court award compensation higher than the amount specified in the contract?

Held No. The Supreme Court held that the aggrieved party cannot claim more than the sum specified in the written agreement. The court may reduce the amount if reasonable.

Exam Memory Line Court cannot exceed the named sum; it may award less if reasonable.
11
RemedyRescission of Contract

When one party breaks the contract, the other party may treat the contract as rescinded. The injured party is discharged from his own obligations and may claim compensation for loss suffered.

ICAI-style Example

A promises B to deliver 50 bags of cement on a certain day. B agrees to pay on receipt. A fails to deliver. B is discharged from his liability to pay the price.

Memory hook: Rescission cancels future obligations and opens claim for compensation.
12
Restitutionary RemedyQuantum Meruit
Quantum Meruit
Quantum meruit means “as much as earned”. It allows a party to claim reasonable value of work already done.

Damages are compensatory; quantum meruit is restitutionary. It focuses on payment for the value of benefit already conferred.

Conditions

Contract dischargedThe original contract must be discharged.
Claimant not in defaultThe claim must be by party not responsible for breach.

When Quantum Meruit Arises

ICAI-style Examples

If a buyer orders 12 bottles of whisky but also receives and accepts 2 bottles of brandy, he must pay reasonable price for the brandy. If X wrongfully revokes Y’s authority as agent before completion, Y can recover for work done and expenses incurred. If A delivers first instalment of 50 cotton bales but fails to supply second instalment, B must pay for the 50 bales received.

13
Equitable RemediesSpecific Performance and Injunction

Suit for Specific Performance

Where damages are not adequate remedy, the court may direct the defaulting party to perform the contract according to its terms.

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Typical Use Specific performance is usually relevant where goods/property are unique, rare or not easily replaceable by money compensation.

Suit for Injunction

Where a party does something which he promised not to do, the court may restrain him through injunction.

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Film Star Exclusivity Illustration
Injunction

Facts N, a film star, agreed to act exclusively for one producer for one year. During that year, she contracted to act for another producer.

Issue Can the first producer restrain her from acting elsewhere?

Held Yes. She could be restrained by injunction from acting for another producer during the agreed exclusive period.

Exam Memory Line Court may restrain breach of negative promise.
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Singer Exclusive Performance Illustration
Injunction

Facts A singer agreed to perform at B’s theatre for two months and promised not to perform anywhere else during that period.

Issue Can B stop the singer from performing elsewhere?

Held Yes. B can seek injunction restraining A from performing in other places.

Exam Memory Line Negative covenant can be enforced through injunction.
14
Section 75Compensation after Rightful Rescission
Section 75
A person who rightfully rescinds a contract is entitled to compensation for any damage sustained through non-fulfilment of the contract.
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Singer Absenting from Theatre
Section 75

Facts A singer contracted with a theatre manager to sing for two nights every week for two months. The manager agreed to pay ₹10,000 for each night. On the sixth night, the singer wilfully absented herself.

Issue Can the theatre manager rescind and claim compensation?

Held Yes. The manager could rescind and claim compensation for damage caused by non-fulfilment of the contract.

Exam Memory Line Rightful rescission carries right to compensation.
15
CompactCase Law / Illustration Bank
Case / IllustrationTopicPrinciple
Hochster v. De La TourAnticipatory breachPromisee can sue immediately after clear pre-performance refusal.
Frost v. KnightAnticipatory breachFuture obligation repudiated before due date gives immediate cause of action.
Hadley v. BaxendaleOrdinary damages / remotenessRemote loss is not recoverable unless special circumstances were communicated.
Gibbons v. Westminster BankExemplary damagesWrongful dishonour of cheque can justify exemplary damages.
Sri Chunni Lal v. Mehta & Sons Ltd.Section 74Court cannot award more than named sum; may award less if reasonable.
Rice price rise exampleOrdinary damagesDifference between contract price and market price is recoverable.
Machine delay exampleSpecial damagesSpecial loss is recoverable only if special circumstances were communicated.
Film star / Singer illustrationsInjunctionNegative promise can be restrained by court.
Singer absenting from theatreSection 75Rightful rescission gives compensation for loss.
16
Exam FocusQuick Revision

One-Line Revision

  • Breach: Failure to perform contractual obligation.
  • Anticipatory Breach: Breach before due date.
  • Actual Breach: Breach on due date or during performance.
  • Section 39: Promisee may rescind immediately unless he elects to continue.
  • Section 73: Compensation for natural or contemplated loss only.
  • Remote Loss: Not recoverable.
  • Special Damages: Recoverable only if special circumstances were known.
  • Hadley v. Baxendale: Foundation case for remoteness of damages.
  • Exemplary Damages: Promise to marry and wrongful dishonour of cheque.
  • Nominal Damages: Breach without actual loss.
  • Section 74: Reasonable compensation not exceeding named sum.
  • Quantum Meruit: As much as earned.
  • Specific Performance: Court compels performance where damages are inadequate.
  • Injunction: Court restrains breach of negative promise.
  • Section 75: Rightful rescission gives right to compensation.

High-Frequency ICAI Traps

  • Do not call every advance refusal actual breach; it is anticipatory breach.
  • If aggrieved party keeps contract alive, the other party may still perform later.
  • Remote and indirect losses are not recoverable.
  • Special damages require notice of special circumstances.
  • Exemplary damages are exceptional, not ordinary.
  • Indian law awards reasonable compensation, not automatically the full penalty amount.
  • Quantum meruit requires claimant not to be in default.
  • Specific performance is discretionary, not automatic.
  • Injunction restrains; it does not compel positive performance.
17
RevisionMind Map
Revision Mind Map

Breach of Contract and Remedies — One Page Recall

Start with type of breach, then select remedy. Damages are central, but rescission, specific performance, injunction and quantum meruit are equally examinable.
1. Breach of Contract
  • Failure to perform contractual obligation.
  • Gives injured party right of action.
  • Two modes: anticipatory and actual.
2. Anticipatory Breach
  • Before time for performance.
  • Express: spoken or written refusal.
  • Implied: conduct disables performance.
  • Promisee may rescind now or wait.
Core Memory: Natural loss is recoverable. Special loss is recoverable only if communicated. Remote loss is never recoverable.
3. Actual Breach
  • On due date.
  • During performance.
  • Refusal or failure to perform.
  • Immediate right of action.
4. Suit for Damages
  • Section 73.
  • Natural loss.
  • Contemplated loss.
  • No remote or indirect loss.
  • Duty to mitigate.
5. Types of Damages
  • Ordinary damages.
  • Special damages.
  • Exemplary damages.
  • Nominal damages.
  • Deterioration by delay.
  • Pre-fixed damages.
6. Penalty / Liquidated Damages
  • Section 74.
  • English law distinguishes them.
  • Indian law awards reasonable compensation.
  • Cannot exceed named sum.
  • Government bond exception.
7. Other Remedies
  • Rescission: contract cancelled.
  • Specific performance: court compels performance.
  • Injunction: court restrains prohibited act.
  • Quantum meruit: as much as earned.
  • Section 75: compensation after rightful rescission.
8. Case Law Recall
  • Hochster v. De La Tour — sue immediately.
  • Frost v. Knight — future refusal is breach.
  • Hadley v. Baxendale — remoteness rule.
  • Gibbons v. Westminster Bank — exemplary damages.
  • Sri Chunni Lal — no more than named sum.
Last-Minute Recall: Identify breach type → choose remedy → measure damages → check remoteness → apply case law.