Actual breach
Sections 39, 53 to 55 and 73 to 75 of the Indian Contract Act, 1872
In one minute
An actual breach happens when a party fails to perform at the time performance is due, or performs badly or only in part, or refuses during performance. The other party can always claim compensation. He can end the contract only if the breach goes to the whole promise or time was of the essence.
Compensation follows sections 73 to 75. In exams, the line between a breach that ends the contract and one that gives damages only earns the marks. In real life, it tells a buyer or owner whether to cancel or to claim the cost of putting things right.
Exam focus
- Frequency: No data
- Usually asked as: No data
Legal provision
- Section 39: where 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 accepted its continuance.
- Section 53: if one party prevents the other from performing, the contract becomes voidable at the prevented party's option. He may claim compensation.
- Section 54: a party who fails in the promise that had to be performed first cannot claim the other party's performance and must compensate him.
- Section 55: where time is of the essence and performance is late, the contract is voidable at the promisee's option. Otherwise the promisee may claim compensation for the delay.
- Section 65, illustration (b): A delivers 130 maunds of the 250 maunds of rice he promised before the date. B keeps the 130 maunds after that date. He must pay A for them.
- Section 73: compensation for loss that naturally arose from the breach, or that the parties knew was likely. No compensation for remote and indirect loss. The means of remedying the inconvenience must be taken into account.
- Section 74: where a sum is named for breach, or a penalty is stipulated, the court awards reasonable compensation not exceeding that amount.
- Section 75: a person who rightfully rescinds a contract is entitled to compensation for the damage he has sustained.
Meaning and definition
Actual breach is a breach committed at the time performance is due or during performance. It differs from an anticipatory breach, which comes before the due date. The Act does not give it a separate name. It deals with it in the sections above.
An actual breach may take four forms.
- Failure to perform at the time fixed.
- Defective or incomplete performance.
- Refusal in the course of performance.
- Prevention of the other party's performance.
The law gives the innocent party a remedy for each. The flowchart shows the questions to ask.
- 1. Did a party fail to perform when due, perform defectively, or refuse during performance?No: there is no actual breach.
- 2. Was the failure without lawful excuse? (not frustration, not a refused tender, not the promisee's own prevention)No: the promisor is excused and there is no breach.
- 3. Does the breach go to the whole promise, or was time of the essence? (sections 39, 55)No: the promisee may claim compensation only (sections 55, 73). He must still perform his own part.
- 4. Result (sections 39, 55, 65, 73, 75)The promisee may end the contract and claim compensation. He must pay for any benefit received. If he accepts the contract's continuance, he can still claim compensation.
Detailed explanation
Step 1: failure at the due time
This is the plainest breach. The date arrives and the promisor does not perform. If time was of the essence, the contract is voidable at the promisee's option (section 55). If time was not of the essence, the promisee may claim compensation for the delay and must accept late performance.
Step 2: defective or incomplete performance
The promisor performs, but badly or only in part. The promisee may claim compensation for the shortfall. The Act's measure is the cost of putting things right. He may not end the contract unless the breach goes to the whole promise.
Example. Asha pays a contractor in advance to repair her house in a stated manner. He repairs it, but not as agreed. She may recover the cost of making the repairs conform to the contract (section 73, illustration (f)).
Step 3: refusal during performance
A party starts performing and then refuses to carry on. If the refusal covers the whole of what remains, the promisee may put an end to the contract (section 39). He must pay for the benefit he received (section 65).
Example. A singer sings on five nights and wilfully stays away on the sixth. The manager ends the contract. He pays her for the five nights and claims compensation for his loss (sections 39, 65, 75).
Step 4: ending the contract or claiming damages only
A promisee may end the contract only where the breach goes to the whole promise (section 39) or time was of the essence (section 55). In every other case he may claim compensation but must keep to his own promises. In the law of sale of goods, the same line is drawn between a breach of a condition and a breach of a warranty.
Step 5: measuring compensation
Section 73 gives compensation for loss that arose naturally from the breach, or that the parties knew, when they made the contract, to be likely. It does not give compensation for remote and indirect loss. The innocent party must also take reasonable steps to mitigate his loss.
Example. Dev contracts to sell 50 quintals of onions to Ela at Rs 1,500 a quintal for delivery on 1 October. He does not deliver. On that date onions cost Rs 1,900 a quintal. Ela buys elsewhere. She recovers the difference of Rs 400 a quintal, Rs 20,000 in all (section 73, illustration (a)). If she had a resale bargain that Dev knew nothing about, she cannot recover the profit from it.
The Act gives other measures. Where a buyer wrongfully refuses to receive goods, the seller recovers the difference between the contract price and the price he could get (illustration (h)). Where a debtor does not pay on the day, he owes only the principal and interest up to the day of payment, even if the creditor is ruined (illustration (n)).
Step 6: liquidated damages and penalty
Where the contract names a sum payable on breach (liquidated damages), or lays down a penalty, section 74 applies. The court awards reasonable compensation, not above the amount named. Proof of actual loss is not needed, but a breach that causes no legal injury gives no compensation. This applies even where the sum is a deposit that the contract says will be forfeited.
Step 7: rightful rescission
A person who rightfully rescinds a contract after a breach is entitled to compensation for the damage he sustained through its non-fulfilment (section 75). In the singer illustration, the manager who rescinds when she stays away claims compensation under section 75.
Common breaches and the response
| Breach | Section or illustration | Response |
|---|---|---|
| Goods not delivered on the due date | 73, illustration (a) | Difference between the contract price and the market price |
| Late performance, time of the essence | 55 | Contract voidable at the promisee's option |
| Work done, but not as agreed | 73, illustration (f) | Cost of making the work conform to the contract |
| Buyer refuses to take goods | 73, illustration (h) | Difference between the contract price and the price the seller could obtain |
| Money not paid on the day | 73, illustration (n) | Principal and interest to the day of payment |
| One party prevents the other | 53 | The prevented party may avoid the contract and claim compensation |
Don't confuse: a breach that ends the contract and a breach that gives damages only
Every actual breach gives a right to compensation. Only some give a right to end the contract.
| Point | Breach going to the whole promise or to time of the essence | Other breach, such as a defect in part |
|---|---|---|
| Right to end the contract | Yes (sections 39, 55) | No |
| Right to compensation | Yes | Yes |
| The promisee's own duties | End if he rescinds | Continue |
Inside the idea. A builder abandons the work half-way and says he will not return. He refuses the whole remaining promise. The owner may end the contract.
Just outside it. A builder finishes the house but uses cheaper paint on one wall. The owner may claim the cost of repainting. He may not cancel the whole contract.
Common mistakes
- Saying every breach lets the promisee cancel the contract. He may always claim compensation, but cancellation needs a breach of the whole promise or time of the essence.
- Giving compensation for remote loss. Section 73 excludes it, and the loss must have been known to be likely.
- Forgetting the duty to reduce the loss.
- Forgetting that a party who rescinds must pay for benefits received (section 65).
Apply it
Problem
Dev contracts to sell Ela 50 quintals of onions at Rs 1,500 a quintal for delivery on 1 October. He does not deliver. On 1 October onions sell at Rs 1,900. Ela buys 50 quintals elsewhere at that price. She had also agreed to resell the onions to a restaurant at Rs 2,200 a quintal, a deal she never told Dev about. What can Ela recover?
Issue. What compensation does section 73 give?
Rule. Compensation is for loss that arose naturally from the breach, or that the parties knew to be likely when they made the contract (section 73). The measure for non-delivery is the difference between the contract price and the market price (illustration (a)).
Application. Ela's natural loss is Rs 400 a quintal on 50 quintals, Rs 20,000. She bought at once, so she took reasonable steps to reduce the loss. Dev did not know of the restaurant deal, so the profit on resale was not in his contemplation.
Conclusion. Ela recovers Rs 20,000. She cannot recover the lost resale profit.
Leading case laws
- Fateh Chand v. Balkishan Dass (1963)
Facts. A buyer paid Rs 25,000 on a Delhi house and failed to complete the sale. The contract said the whole sum would be forfeited. The Supreme Court, AIR 1963 SC 1405, allowed the seller to keep only the Rs 1,000 earnest money.
Principle. Section 74 applies to a clause forfeiting money already paid. The court awards reasonable compensation, not above the amount named. Proof of actual loss is not needed, but a breach that caused no legal injury gives no compensation.
Why it matters. It limits what a wronged party may keep after an actual breach.
- Hadley v. Baxendale (1854)
Facts. Millers in Gloucester sent a broken crank shaft by carrier to Greenwich to be copied. The carrier delayed delivery and the mill stayed idle for extra days. The Court of Exchequer ordered a new trial.
Principle. Damages are those arising naturally from the breach, or reasonably contemplated by both parties when they made the contract. Special circumstances count only if communicated.
Why it matters. It is the source of the rule on remote loss in section 73.
- Saradamani Kandappan v. S. Rajalakshmi (2011)
Facts. A buyer agreed to buy 24 acres 95 cents for Rs 3,75,000 and paid Rs 2,25,000 in instalments. She missed the last two payment dates. The sellers cancelled the agreement.
Principle. The clauses made time for payment of the balance the essence, so her default justified the cancellation (paras 17, 19, 20).
Why it matters. It shows a breach of a time-essential term giving the seller the right to end the contract.
How to write this answer in the exam
5-mark answer
- Define actual breach: failure at the due time or during performance.
- Give the forms: non-performance, defective performance, refusal, prevention.
- State the promisee's rights: end the contract in the cases of sections 39 and 55, and claim compensation.
- Cite section 73 and give one example.
10-mark answer
- Meaning, and the contrast with anticipatory breach.
- Forms of actual breach with examples.
- When the promisee may end the contract: sections 39, 53, 54, 55.
- Compensation: section 73, remoteness and mitigation, with Hadley v. Baxendale.
- Liquidated damages and penalty: section 74 and Fateh Chand.
- Rescission and section 75, then a short conclusion.
Key points to remember
- Actual breach is a breach at the due time or during performance.
- Every actual breach gives a right to compensation (section 73).
- The right to end the contract needs a breach of the whole promise or time of the essence (sections 39, 55).
- Remote and indirect loss is not compensated. The innocent party must reduce his loss.
- Where a sum is named for breach, the court awards reasonable compensation not above it (section 74).
- A party who rescinds must pay for benefits received and may claim compensation (sections 65, 75).
Quick self-test
1. When can a promisee end the contract after an actual breach?
When the breach goes to the whole promise (section 39) or time was of the essence (section 55).
2. What loss does section 73 compensate?
Loss that arose naturally from the breach, or that the parties knew to be likely when they made the contract. Remote and indirect loss is excluded.
3. A debtor does not pay on the day, and the creditor is ruined. What does the debtor owe?
Only the principal and interest up to the day of payment (section 73, illustration (n)).