Unit 2 Breach and Remedies For Breach of Contract

Class Notes on Business Law
KU, Dhulikhel
Breach of contract and its Remedy
Introduction
Where a party performing a contract doesn’t perform according to the agreed terms and condition or
within the set period then the party is in breach of contract. It is the situation where party fails to carry out
the terms of a contract.
Related Section are – 82, 83, 85, 86, 87, 89 of Nepalese Contract Act 2056
Legal provision
Section 82
In case any party to a contract does not meet liability under the contract, or gives a notice to the other
party that he/she will not perform the work to be performed under the contract, or in case his/her action or
conduct shows that he/she is incapable of performing the work under the contract, he shall be deemed to
have breached the contract.
Three things we need to Know
1. If any parties to the contract doesn’t perform their liability according to the contract.
2. If notice of non performance is send to the another parties to the contract
3. If parties act or behavior shows the impossibility for the performance of the contract.
“Then there is a breach of contract”
Kind of Breach of contract
1. Actual breach of contract
2. Anticipatory breach of contract
Remedies for breach of contract
Remedy is the courses of action which are available to an aggrieved party for the enforcement of a right
under contract
The remedy for breach of contract is in two kinds

KU, Dhulikhel
Remedies for breach of contract
Self Help Remedies Judicial Remedies
Sale of Pledge Property Damages – Sec 83
Seizure of Guarantee Quantum Meriut – Sec 85
Seizure of Advance Specific Performance–Sec 86
Repeal of contract Injunction – Sec 87
Beside the above mention Remedy for the breach of contract, there is another remedy called Arbitration
Arbitration is an alternative dispute settlement mechanism.
To use this forum of dispute settlement, the contract should expressly provide for arbitration clause. If the
agreement does not provide for express arbitration clause, the dispute should be referred to the courts.
Arbitration in Nepal is dealt with by Arbitration Act.
Damages
The aggrieved party is entitled to claim damages caused due to breach of the contract by the other party.
The objective of the award of damages is not punitive i.e not intended to punish the party for breach of
the contract The objective is to place the aggrieved party in the same position (in terms of money) as if
the contract has been performed.
Kinds of Damages
1. General Damages
2. Special Damages
3. Stipulated Damages
4. Penalty or Punishment
5. Delay Damages
KU, Dhulikhel
Rules Regarding Damages
1. The intention of damage is to place the injured party in the same financial position as if the
contract had been performed.
2. The law seeks not to compensate the aggrieved party for more then law true loss
3. The special damages are recoverable only if the contractual parties such special circumstances
when contract is made
4. Indirect damages is not recoverable
5. In contract of sale of goods the damage measure will be the market value
6. The injured party has a duty to mitigate the damage as far as possible.
Quantum Merit (s.84, 85)
This form of compensation mainly applies to the situation where the contract has been frustrated or the
voidable contract has been rendered invalid.
The main objective is to prevent one party to enrich unreasonably due to frustration or invalidity of
contract (PRINCIPLE OF UNJUST ENRICHMENT).
Mainly, the reasonable amount for service received or money paid prior to frustration or invalidity of the
contract.
For example, where advance house rent is given for 6 months and the house is destroyed after 4 months,
rent of remaining two months is recoverable.
When a person has begun the work and before he could complete it, the other party breaches the contract
or does something that makes it impossible to other party to complete the contract, he can claim for the
work done under quantum mereiut.
Rules regarding Quantum Mereuit
1. Contract should have been terminated, declared void, or impossible to perform (contract is
frustrated)
2. Parties to the contract have given some service under the contract already.
3. If there is violation of contract then quantum mereiut can claim by the parties to the contract.
KU, Dhulikhel
Specific Performance (s.86)
The specific performance refers to execution or performance of contract as stipulated in contract even if
party to the contract violate it.
In case the cash compensation paid in consideration of the actual loss or damage suffered by the innocent
party as a result of breach of contract is not reasonable or adequate, the innocent party may demand the
execution of the contract as stipulated, instead of making claim for compensation or damage.
The remedy for specific performance is not available if,
1. If damages is sufficient
2. If performance cannot be supervised by the courts
3. Contract is for providing personal services
4. If specific performance cannot be done (for example, subject matter is already sold)
5. If the party claiming specific performance has itself is in breach of contract.
Injunction (s.87)
If a party to a contract has agreed to not to do something (negative obligation) or if due to the nature of
the contract, party cannot do something, the aggrieved party can apply to the court for restricting the other
party from doing such thing.
Problem to be discussed, what is the remedy available to innocent party?
Mr. Book Seller had agreed to supply 100 books to Mr. Retailer at Rs. 100 per book. Mr. Book Seller
refused to supply the book as the price of the book increased to Rs.150.
Mr. Rock had agreed to sell the guitar actually played by Jimmy Hendrix and bearing his autograph to
Mr. Collector for Rs. 500,000. Mr. Rock later refused to sell the guitar?
Builder Pvt. Ltd and Mr. Land Owner entered into a land lease agreement. The term of lease agreement
was for 25 years. The agreement provided that Builder Pvt. Ltd. can build commercial complex in the
land. The complex was completed in two years and after that the complex was given on sub-lease by
Builder Pvt Ltd. Mr. Land Owner sent a written notice to Builder Pvt. Ltd notifying it to vacate the
Complex within 35 days.
Mr. R and Nepal Soap Pvt. Ltd had entered into an agency agreement. The tenure of the Agency
Agreement was for 10 years. However, after six months, Nepal Soap Pvt. Ltd terminated the Agency
Agreement.

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Class Notes on Business Law

Breach of contract and its Remedy

Three things we need to Know

2. If notice of non performance is send to the another parties to the contract

“Then there is a breach of contract”

Kind of Breach of contract

1. Actual breach of contract

2. Anticipatory breach of contract

Remedies for breach of contract

The remedy for breach of contract is in two kinds

Remedies for breach of contract

Self Help Remedies Judicial Remedies

Sale of Pledge Property Damages – Sec 83

Seizure of Guarantee Quantum Meriut – Sec 85

Seizure of Advance Specific Performance–Sec 86

Repeal of contract Injunction – Sec 87

Arbitration is an alternative dispute settlement mechanism.

Rules Regarding Damages

4. Indirect damages is not recoverable

Quantum Merit (s.84, 85)

Rules regarding Quantum Mereuit

Specific Performance (s.86)

The remedy for specific performance is not available if,

2. If performance cannot be supervised by the courts

3. Contract is for providing personal services

5. If the party claiming specific performance has itself is in breach of contract.

Problem to be discussed, what is the remedy available to innocent party?

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