Discharge by Breach
Sections 39, 53 to 55 and 73 to 75 of the Indian Contract Act, 1872
In one minute
A breach happens when a party fails or refuses to perform his promise without lawful excuse. A breach does not end the contract by itself. It gives the innocent party a choice. He may treat the contract as ended and claim compensation, or he may keep it alive.
A breach may come before the due date (anticipatory) or on or after it (actual). In exams, the choice, the sections and the difference from frustration earn the marks. In real life, it tells a wronged party what he can do the day the other side lets him down.
Exam focus
- Frequency: No data
- Usually asked as: No data
Legal provision
- Section 39: when a party has refused to perform, or has disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract. He cannot do so if he has signified, by words or conduct, his acquiescence in its continuance.
- Section 53: if one party to a contract with reciprocal promises prevents the other from performing, the contract becomes voidable at the option of the party prevented. He may claim compensation for his loss.
- Section 54: if a promisor fails to perform the promise that had to be performed first, he cannot claim the reciprocal performance and must compensate the other party.
- Section 55: if time is of the essence and a party fails to perform at the fixed time, the contract becomes voidable at the promisee's option. Otherwise the promisee gets compensation.
- Section 73: a party who suffers by a breach is entitled to compensation for loss that naturally arose in the usual course of things, or that the parties knew to be likely. Remote and indirect loss is not compensated.
- Section 74: where a sum is named as payable on breach, or a penalty is stipulated, the court may award reasonable compensation not exceeding that amount.
- Section 75: a person who rightfully rescinds a contract is entitled to compensation for any damage he has sustained through its non-fulfilment.
- Section 65, illustration (c): where a theatre manager rescinds after a singer stays away on the sixth night, he must pay her for the five nights on which she sang.
Meaning and definition
Breach of contract is the failure or refusal of a party to perform his promise without lawful excuse. The Act does not define it. It deals with its effects in sections 39, 53 to 55 and 73 to 75.
The law gives the innocent party a choice because he did nothing wrong. He should not be forced to stay bound to a party who has let him down. He should also be free to keep the contract if he wants performance. The tree shows the kinds of breach and what follows.
- Breach of contract sections 39, 53 to 55
- Anticipatory breach
- Refusal or disabling act before the due date section 39The promisee may end the contract and sue at once, or wait for the due date.
- Actual breach
- Failure to perform at the due time section 55Time of the essence: voidable at the promisee's option. Otherwise compensation only.
- Refusal during performance section 39The promisee may end the contract.
- Prevention by a party section 53The prevented party may avoid the contract and claim compensation.
- Anticipatory breach
Detailed explanation
Step 1: what counts as a breach
A breach may take several forms.
- A clear refusal to perform.
- A failure to perform at the time fixed.
- An act that makes performance impossible, such as selling the very goods promised to another buyer.
- Performance that is defective or incomplete.
The failure must be without lawful excuse. A party is not in breach if performance was excused by frustration (section 56), by a refused tender (section 38), or by the other party's prevention (sections 53 and 67).
Step 2: a breach does not end the contract by itself
This is the most important rule. Under section 39, the promisee may put an end to the contract. The word is "may". He can also choose to carry on. This is the key difference from frustration, which ends a contract automatically.
Step 3: ending the contract
If the promisee ends the contract, he is freed from his own promises. He may claim compensation for his loss (sections 73 and 75). He must pay for any benefit he received from the other side's part performance.
Example. A singer contracts to sing at a theatre two nights a week for two months at Rs 100 a night. On the sixth night she wilfully stays away. The manager may end the contract (section 39, illustration (a)). He must pay her for the five nights she sang (section 65, illustration (c)). He may claim compensation for his loss (section 75).
Step 4: keeping the contract alive
The promisee may choose to affirm the contract. If he signifies by words or conduct that he accepts the contract's continuance, he loses the right to end it for that breach. He keeps his right to compensation for the loss it caused.
Example. On the sixth night the singer stays away. With the manager's assent she sings on the seventh night. The manager has accepted the contract's continuance. He cannot now end it, but he may claim compensation for the sixth night (section 39, illustration (b)).
Step 5: breach by prevention and by default in order
Under section 53, a party who prevents the other from performing is in breach. The prevented party may avoid the contract and claim compensation. Under section 54, a party who fails in the promise that had to be performed first cannot claim the other party's performance.
Step 6: other remedies
The innocent party may also ask the court for specific performance or an injunction in suitable cases. Those remedies, and the rules on assessing damages, are separate topics. They are covered under remedies for breach, kinds of damages and specific relief. The duty to take reasonable steps to reduce the loss applies in all cases (section 73, Explanation).
The innocent party's rights at a glance
| Situation | Section | The innocent party may |
|---|---|---|
| Refusal or disabling of the whole promise | 39 | End the contract, unless he has accepted its continuance |
| One party prevents the other | 53 | Avoid the contract and claim compensation |
| Default in the promise to be performed first | 54 | Refuse the reciprocal performance and claim compensation |
| Late performance, time of the essence | 55 | Avoid the contract. If time is not of the essence, claim compensation only |
| Any breach causing loss | 73, 74, 75 | Claim compensation for loss, and on rightful rescission, for damage |
Don't confuse: breach and frustration
Both release a party from performance. They differ in cause and in effect.
| Point | Breach | Frustration |
|---|---|---|
| Cause | A party's own refusal or failure | A later event beyond the control of both parties |
| Effect on the contract | The innocent party may end it or keep it | It becomes void automatically (section 56) |
| Compensation | The defaulter pays damages (sections 73, 75) | None for the loss. Advantages are restored (section 65) |
Inside the idea. A caterer agrees to cook for a wedding and then books another event on the same day. He does not turn up. The family may end the contract and claim damages.
Just outside it. The wedding hall burns down by accident a week before. The caterer cannot serve. This is frustration. The advance is refunded and no damages are due.
Common mistakes
- Saying a breach ends the contract automatically. The innocent party chooses.
- Forgetting that the innocent party loses the right to end the contract if he accepts its continuance.
- Treating every breach as a ground to end the contract. Section 39 speaks of refusal of the whole promise.
- Forgetting that the innocent party must pay for the part performance he received (section 65).
Apply it
Problem
Naina hires Rohit's band for four nights, from 10 to 13 December, at Rs 25,000 a night. On the third night the band deliberately stays away and says it will not return. What may Naina do? What if she lets the band play on the fourth night?
Issue. What are Naina's rights after the breach?
Rule. When a party refuses to perform his promise, the promisee may put an end to the contract unless he has signified his acquiescence in its continuance (section 39). She must pay for the benefit received (section 65) and may claim compensation (sections 73 and 75).
Application. The band's deliberate absence and its refusal to return is a breach of the whole remaining promise. Naina may end the contract. She owes Rs 50,000 for the two nights the band played.
Conclusion. Naina may end the contract and claim compensation for her loss. If she lets the band play on the fourth night, she has accepted the contract's continuance. She cannot then end it, but she may still claim compensation for the third night.
Leading case laws
- Hochster v. De La Tour (1853)
Facts. De La Tour engaged Hochster as a courier from 1 June 1852. On 11 May 1852 he told Hochster his services would not be needed. Hochster sued on 22 May.
Principle. A clear refusal before the due date is a breach that the innocent party may sue on at once.
Why it matters. It is the origin of anticipatory breach.
- Fateh Chand v. Balkishan Dass (1963)
Facts. A buyer paid Rs 25,000 on a Delhi house sale and failed to complete it. 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.
Why it matters. It shows how the law of breach limits what the wronged party may keep.
- Hadley v. Baxendale (1854)
Facts. Millers sent a broken crank shaft by carrier to be copied. The carrier delayed delivery and the mill stayed idle. The Court of Exchequer ordered a new trial.
Principle. Damages for breach are those arising naturally from the breach, or reasonably contemplated by both parties when they made the contract.
Why it matters. It is the source of the rule on remote loss in section 73.
How to write this answer in the exam
5-mark answer
- Define breach: failure or refusal to perform without lawful excuse.
- Name the two kinds: actual and anticipatory.
- State section 39: the promisee may end the contract unless he accepts its continuance.
- State the claim to compensation (sections 73 and 75).
10-mark answer
- Meaning, and breach as a mode of discharge.
- Kinds of breach with an example of each.
- Section 39 with illustrations (a) and (b), and the innocent party's choice.
- Sections 53, 54 and 55.
- Consequences: sections 65, 73, 74, 75.
- Contrast with frustration, and Hochster v. De La Tour.
Key points to remember
- A breach is a failure or refusal to perform without lawful excuse.
- It may be anticipatory (before the due date) or actual (on or after it).
- A breach gives the innocent party a choice. It does not end the contract automatically.
- He may end the contract and claim compensation, unless he has accepted its continuance (section 39).
- If he ends the contract, he must pay for the part performance he received (section 65).
- Prevention (section 53), default in order (section 54) and delay with time of the essence (section 55) are special cases.
Quick self-test
1. Does a breach end a contract automatically?
No. The innocent party may choose to end it or keep it alive (section 39).
2. When does the promisee lose the right to end the contract under section 39?
When he signifies by words or conduct that he accepts its continuance.
3. How is breach different from frustration?
Breach comes from a party's own default and gives the innocent party a choice and damages. Frustration comes from an outside event and makes the contract void automatically.