1. What is Breach of Contract? Explain the types of breach of contract.

BREACH OF CONTRACT:-

The term “BREACH” means the act of breaking,Violation,infringement, and now used only figuratively of
the violation or neglect of a law,contract, or any other obligation or of a custom.

Where a Promisor has neither performed his contract,nor tendered performance and where he is not
excused from performance,by consent express or implied,then he has committed a breach of contract.

Parties to a contract are bound to perform their respective obligations.If any party fails to perform the
obligation imposed upon him,he is said to have committed breach of contract. Thus Breach means
“Failure or refusal of a party to perform his obligation under a contract without any lawful excuse “.

When a party having a duty to perform a contract fails to do that,or does an act whereby the performance
of the contract by him becomes impossible,or he refuses to perform the contract,there is said to be a
breach of contract on his part. On the breach of contract by party, the other party is discharged from his
obligation to perform his part of the obligation.

In the following circumstances,one party repudiates its contractual obligation and gives rise to discharge
of a contract by breach.

I) Renunciation or Refusal of a party of his liabilities under it.

II) Impossibility of Performance created by his own act.
III) Total or Partial Failure or Performance.

Illustration:- “A” enters into a contract with “B”, offering to sell his house for 50 lakhs of rupees and “B”
accepts to purchase the same.Here the parties have contractual obligation. “A” has an obligation to sell or
deliver the house for sale price of 50 lakhs of rupees. Similarly,”B” has an obligation to pay the price.If
either of the parties “A” and “B” fails to perform the contractual obligation,it amounts to breach of contract.

TYPES OR KINDS OF BREACH OF CONTRACT:-

The Breach of Contract may be of two types:-

1. Anticipatory Breach [ Before the due date of performance has Come]

2. Actual Breach [ Non- Performance of the contract on the due date of Performance]

EXPLANATION:-

1. ANTICIPATORY BREACH:- Anticipatory Breach of Contract is a premature destruction

of the contract rather than a failure to perform it. It may arise either
(a) By an Impossibility of Performance created by a Party,

(b) By Repudiation of contract by one party before the date of its performance.In other words,the
Promisor,before the promised date may express his intention not to perform it.
 Example:- I) “A” agrees to marry “B” before a certain date.But before the agreed date,”A” marries
“C”. The contract has been repudiated by “A” by his conduct before due date of its performance.

II) “A” agrees to supply certain goods to “B” on 15th January.Before this date,he informed “B” that he is
not going to supply the goods.This is Anticipatory Breach of Contract.

Regarding to anticipatory breach of contract Section 39 of the contract Act 1872 provides “ where a
party to a contract has refused to perform,or disabled 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:-

I) By anticipatory breach, the other party is excused from performance or from further performance
II) The injured party is entitled to sue the other party immediately or to wait till the time the act is to be
done.
III) An Agreement is concluded between the Promisor and Promisee for future date.

2. ACTUAL BREACH:- Actual or Present Breach means a Breach committed either by :-

I) Breach of Contract at the time when performance is due. ( Time is the essence of a contract)

II) Breach During the Performance of the Contract.

Example:- “A” agrees to deliver to “B”, 5 tons of sugar on 5th July.He fails to do so on 5th July.There
is a Breach of Contract by “A”.

Explanation:-

I) BREACH OF CONTRACT AT THE TIME WHEN PERFORMANCE IS DUE :- Where a person

fails to perform a contract,when performance is “DUE “the other party can hold him liable for breach.

Section 55 of the Contract Act,1872 provides “Effect of failure to perform at fixed time,in contract
in which time is essential “

• EFFECT OF SUCH FAILURE WHEN TIME IS NOT ESSENTIAL :- If it was not the
intention of the parties that time should be of the essence of the contract,the contract does not become
VOIDABLE by the failure to do such things at or before the specified time; but the promisee is entitled to
compensation from the Promisor for any loss occasioned to him by such failure.

• EFFECT OF ACCEPTANCE OF PERFORMANCE AT TIME OTHER THAN THAT

AGREED UPON :- If,in case of a contract VOIDABLE on account of the Promisor’s failure to perform
his promise at the time agreed,the promisee accepts performance of such promise at any time other than
that agreed,the promisee cannot claim compensation for any loss occasioned by non-performance of the
promise at the time agreed,unless at the time of such acceptance he gives notice to the Promisor of his
intention to do so.
The party accepting performance after the due date must give notice while accepting,that he
intends to claim compensation;otherwise,he is deemed to have waived the right to compensation.

II) BREACH DURING THE PERFORMANCE OF THE CONTRACT :- Where a party appropriately
performs the promise,but the other party says that it is not a proper performance according to contract, it
becomes a difficult question whether performance offered is so defective as to permit the other party to
treat the contract as broken and claim exoneration from performance of his part of the bargain.

REMEDIES:- Chapter-VI , Containing section 73 to 75, lays down the provision about “the
consequence of Breach of Contract “. There are four remedies available to the aggrieved party:-

1. Compensation for loss or damage caused by breach of contract (sec 73)

2. Compensation for failure to discharge obligation resembling those created by conduct
(sec 73)
3. Compensation for breach of contract where penalty stipulated for (Sec 74)
4. Party rightfully rescinding contract entitled to compensation (sec 75)

RELATED CASE LAWS

1. HOCHESTER. V/S DE LA TOUR (1853).

Facts:- The defendant engaged the plaintiff a courier to accompany him on a tour which would
commence from 01-06-1852 for 3 months at 10 pounds per month. On 11-05-1852, the defendant wrote
to the plaintiff that he had changed his mind and declined to take the service of the plaintiff.On
22-05-1852,the plaintiff sued the defendant for the anticipatory breach of contract. The defendant
contended that there could be no breach of contract before 1st June.

Judgement:- The House of Lords held that a party to an executory contract may make a breach of
contract before the actual date of performance, and the plaintiff,in such a case,was entitled to put an end
to the contract and he can bring an action before the actual date of performance had arrived. The plaintiff
action,therefore succeeded.

2. Frost V/S Knight (1872)

Facts:- The defendant promised to marry the plaintiff on his father’s death.While defendant’s
father was still alive,he married another woman,by breaking his promise. The plaintiff did not wait till the
defendant’s father’s death and she immediately sued him for the breach of contract.
Judgement:- The Court gave the judgement in favour of the plaintiff.

3. Simpson V/S Crippin (1872)

The buyer, who has to send wagons for 8 thousand tones of coal sent only wagons for 158
tons. It was held that the default in performance of the buyer would not entitle the seller to repudiate the
contract and refuse to supply further coal.
 4. Hoare V/S Ronnie (1859)

The seller had to deliver iron in four monthly instalments of about 150 tons each but did not
deliver more than 21 tons in first month. It was held that the buyer was discharged from further
performance.

5. Vairavan V/S K S Vaidyanadam (1996)

There was no express stipulation making the time of performance in a sale of immovable
property as essential of the contract. It was,however,stipulated that the performance must be completed
within 6 months by executing and registering sale deed,otherwise the advance paid by the purchaser
would not be returned.
It was held that the time had not become the essence of the contract, and the contract had not
come to an end merely by non-performance within the stipulated time.
2. DISCHARGE BY APPROPRIATION OF PAYMENT:- [Sec 59 to 61]
Explain the law relating to Appropriation of Payments.

MEANING OF APPROPRIATION OF PAYMENTS:-

The word “Appropriation “ means the act of setting apart, or assigning a thing or substance to a
particular use or person to the exclusion of others;application to a special use or purpose.

The term “Appropriate “ means to make a thing ones own;to set apart for or assign for a particular use to
the exclusion of all other uses; to claim on use as by an exclusive right.

“Appropriation” means “Application of Payment “ or “Adjusting the payment towards the debts “.

When a debtor owes several distinct debts to the same creditor and makes a payment which is
insufficient to discharge the whole debt,there is a problem of appropriating this payment. The creditor
would like to appropriate the payment towards a debt which he is not likely to recover.But appropriation is
a right given generally to the debtor for his benefit. The debtor may expressly point out to which particular
debt the payment be applied.Appropriation of Payments is the application by a creditor to one of several
debts owing to him of money paid by the debtor without indicating to which debt it is to be applied.

RULES RELATING TO APPROPRIATION OF PAYMENT UNDER INDIAN LAW

The rules with regard to the appropriation of payments made by the debtor to his creditor have been
laid down in sections 59 to 61 of the contract Act 1872.

1. APPROPRIATION BY DEBTOR (Right of Debtor) [Sec 59]

Section 59 of the contract Act confers the right of appropriation upon the debtor where debt to
be discharged is indicated.

“Application of payment where debt to be discharged is indicated “.

When one man owes several different debts to another and makes a payment to the creditor, he
is entitled to say to his creditor,you must apply this particular sum that “I now pay to you to a particular
debt and if the creditor accepts the payment he must apply the money accordingly “.
The section 59 further provides that if the payment is made under circumstances implying that it is to be
applied to the discharge of a particular debt,it must be applied accordingly.

The principle underlying Section 59 is that when a debtor makes a payment,he may appropriate it to
any debt he pleases and the creditor is bound to apply it accordingly.

Appropriation is the primary right of the debtor and for his benefit, and the creditor can under no
circumstances receive it under protest. It deals only with the case of several distinct debts and does not
apply where there is only one debt,though payable by instalment.
Hence If the debtor intimates at the time of payment that the payment should be applied towards the
discharge of a particular debt,the creditor must do so.

Ramchandra Dattatraya V/S Vaidhya Chand Manikchand (1956)

It was observed that the tenants require appropriation to be made in terms of the deposit
receive,it would be responsible to confine their claim to the terms of the receipt itself and if the terms of
receipt plainly confine their right to the rent payable in respect of only one of the tenancies,the landlord
should and is bound to appropriate adequate amount in respect of the rent is due.

Fazal Husain V/S Fiwan Ali (1906)

It was observed that where the amount of a decree was by consent payable by five annual
instalments,the decree holder was not bound to appropriate payment to the specific instalments named
by the judgement debtor.

Illustration:-

“A” owes “B” among other debts,1000 rupees upon a promissory note which falls due on the first June.
“A” owes “B” no other debt of that amount.On the first June,”A” pays “B” 1000 rupees. The payment is to
be applied to the discharge of the promissory note.
[ owes means have an obligation to pay or repay(something,especially money) in return for something
received.]

Example:- “A” owes to “B” Rs 5,000/- , 8,000/- and 3,000/- on different debts/occasions. Later, “A” sends
Rs 3,000/- asking “B” to adjust it against the 3rd debt. “B” is bound to do so.

2. APPROPRIATION BY THE CREDITOR ( Rights of the Creditor) [ Sec 60]

Section 60 of the Contract Act 1872 provides that if the debtor does not intimate and the
circumstances are not indicative,then the creditor may apply the payment to any of the lawful debts
payable to him.

If the debtor has omitted to intimate his intention of appropriating a payment to a particular
debt,impliedly or expressly, the creditor may apply the payment at his discretion to any lawful debt
actually due and payable to him from the debtor,although the debt be time barred. The creditor is to
exercise his right after the debtor has had the opportunity to exercise his right but has omitted to do so.

In Manmal V/S Dhanraj (1930)

It is observed that the right given by sec 60 could be exercised only when the creditor receives the
payment and he could not unilaterally consolidate all the debts due to him and treat the payment as one
towards the consolidated debt.

In Imperial Bank of India V/S Avanasu (1930)

It was held that if an appropriation made by the creditor was not communicated to the debtor,then the
creditor was entitled to change and re-appropriate it to another debt.
 3. APPROPRIATION BY LAW ( Application of payment where neither party appropriates)
[sec 61]

If neither the debtor nor the creditor makes any appropriation the payment shall be applied in the
discharge of the debts in order of time,whether the debt be barred by limitation or not.

In Sha Manmall V/S Radhakrishna (1972)

The ledger and day books showed that debits and credits were made seriatim and defendant had
not instructed the plaintiff to appropriate the sums towards any particular debt and the plaintiff had also
not made any appropriation towards any particular debt.
It was held that on the principles set out in section 61,the debts would be discharged in order of time
by the credits whether the debts were or were not Barred by limitation.

In Venkatadri Appa Rao and other V/S Parthasarathi Appa Rao

It was observed by the privy council the upon taking an account of principal and interest due,the ordinary
rule with regard to payment by the debtor unappropriated either to principal or interest is that they are first
to be applied to the discharge of the interest.

RULE in CLAYTON’S CASE ( Rule relating to appropriation of payment under English Law)

This is an important case in appropriation of payments by Bank.

There was a partnership firm carrying on banking business in the joint names of five partners.
Mr Nathenial Clayton had a current account and deposited huge amounts in the account.Even after one
of the partners died,the firm’s business was carried on by the surviving four partners in the old name of
the firm,despite objections from the executors of the deceased partner. The firm became insolvent in a
further period of 3 years.

At the time of death of one of the partners of the firm,Mr Clayton had 1713 pounds in his current account.

In the period between the death of the partner and insolvency of the firm,Mr Clayton had numerous
transaction,having withdrawn money at the time of insolvency of the firm was again 1713 pounds

After insolvency of the firm,Mr Clayton claimed his money in the current account from the estate of the
deceased partner.His contention was that he did not withdraw 1713 pounds remaining in his account at
the time of the death of the deceased partner.

He had withdrawn only the money which he had deposited after the death of the deceased partner and
the firm was solvent at that time.

Hence the amount of 1713 pounds remained at the time of the death of the partner must be paid by the
legal representatives of the deceased partner.

His contention was rejected by the court and it held that Mr Clayton account was a running current
account and there was no agreement of any specific appropriation between the bank and him
immediately after the death of the deceased partner.
In such circumstances,the presumption is that the money drawn after the death of the deceased partner
was from 1713 pounds only and not from the subsequent deposit made by him.In other words the “ First
deposited amount was first withdrawn “ is the rule of appropriation.

The court also held that the amount 1713 pounds remaining in the current account of Mr Clayton at the
time of insolvency of the firm was a fresh debt and hence the deceased legal heirs were not liable to pay
the amount.
3. Various modes of Discharge

A contract is a legally binding agreement between two or more parties, where one agrees to do or refrain
from doing something in exchange for consideration. Discharge of contract means terminating the
contractual relationship between the two or more parties who entered into the contract previously. When
the rights, obligations and duties of the parties come to an end it is known as the discharge of contract.
Discharge of contract also ceases the legally binding power of the contract. Therefore, once a contract
has been discharged the parties are no more obligated to each other and the contract becomes void.

Various modes are

1.Discharge by performance
2.Discharge by Mutual Agreement
3.Discharge by lapse of time
4.Discharge by operation of law
5.Discharge by supervening impossibly
6.Discharge by breach

1.Discharge By Performance: A contract can be discharged by performance and it is the most common
form of discharge of contract. A contract will be discharged if the duty stated in the contract has been
fulfilled by the parties. If only one person in a contract performs the promise which is mentioned then he
alone is discharged. There are two types of discharge of a contract by performance.
For example; A and B enter into a contract that A will pay B Rs 1,000 if B delivers a package to C’s
house. B does the agreed part specified in the contract and upon doing it A pays B the mentioned amount
in the contract. Thus, the contract is discharged by performance since both parties performed the
specified task in the contract.

● Actual performance: In this case both the parties in a contract must perform their promises.
Unless the Indian Contract Act, 1872 or any law at the time being prohibits the parties from
performing their promises. In case either party dies or is unable to fulfil the promise then the
representatives of such party shall be liable to perform the promise laid down in the contract.
● Attempted performance: When the promisor offers to give his performance under the contract, but
the promisee refuses to accept the same, then it amounts to discharge by attempted
performance.

2.Discharge by Mutual Agreement: In this case, the parties to a contract do not perform the promise
stated in the contract if they arrive at a mutual agreement. This requires substituting or altering the
existing contract with a new one.
Illustration: ‘P’ owes a certain sum of money to ‘Q’ under a contract, but they arrive at a mutual agreement
that henceforth ‘R’ will pay back the money owed to ‘Q’. This results in a mutual discharge of the contract
between ‘P’ and ‘Q’ and a new contract is formed between ‘R’ and ‘Q’.

● Novation
It occurs when a contract is substituted for the old contract between the same or new parties. In order to
enforce novation, the following conditions must be followed. It is laid down in Section 62 of the Indian
Contract Act, 1872.

● There must be a valid reason for substituting the contract.

● Consent of all the parties is required.
● The old contract must be substituted before the expiry or breach of the contract.

In the case of Manohur Koyal v. Thakur Das(1888), the defendant failed to pay the agreed upon sum to
the plaintiff on the due date stated in the contract. However, the defendant promised to pay Rs. 400 to the
plaintiff and to execute a fresh kistibundi bond. The plaintiff agreed to this but the defendant failed to pay
that amount consequently, the plaintiff sued the defendant. The Calcutta High Court stated that since the
new bond was created after the breach of the original contract, therefore the contract cannot be
discharged by novation but by breach of contract.

● Remission

Remission occurs when parties to a contract accept a lesser amount or lesser degree of performance
than what was initially agreed upon in the contract. Section 63 of the Act states that a party may;

● Remit the performance stated wholly or in part.

● Extend the time for performance.
● Accept any other kind of performance apart from the one mentioned in the contract.

Illustration: Paul owes 10 lakh rupees to Peter but due to some unforeseen circumstances Paul can only
repay 6 lakh rupees to Peter within the stipulated time period. But if Peter agrees to accept the amount
which could be paid by Paul and settle the debt then, Peter’s act of remission discharges the contract.

● Alteration

It means changing one or more contract terms, thereby discharging the old contract and forming a new
one. Alterations to a contract must take place with the consent of all the parties to the contract. In the
case, United India Insurance Co. Ltd v. M.K.J. Corporation(1996), the Supreme Court held that utmost
good faith must be observed by the contracting parties and the duty of good faith is of a continuing nature
even after the completion of the agreement no material alterations can be made to the contract without
the mutual consent of the parties.

● Rescission

Rescission takes place when the parties in the contract agree to dissolve the contract. In this case, the
old contract stands discharged and no new contract is formed.

● Waiver
The term waiver means the abandonment of a right. A party to a contract may have their rights
specifically stated under the contract which also helps to release the other party from the contract and the
contract is discharged.

● Merger

When an existing inferior right of a party, in respect of a subject matter, merges into a newly acquired
superior right of the same person, in respect of the same subject matter, then the previous contract
conferring the inferior right stands discharged by the way of merger.

3.Discharge by lapse of time: A contract will be discharged if the performance is not completed within the
given time period. This might also result in a breach of contract. In that case, a person might file a suit
under the court of law stating that his rights have been infringed and also claiming to enforce his rights.
The individual whose rights have been breached can file a suit under the Limitation Act, 1963.

For example; A had to deliver fresh fruits to B’s storehouse within a period of two days but due to A’s
irresponsibility, he delivered the fruits after two weeks. Therefore, in this case, the contract will be
discharged as the required performance was not completed within the specified time.

4.Discharge by operation of law: This mode of discharge of contract does not allow the fulfilment of the
promise laid down in the contract by the provisions of law. Situations such as death, insolvency, merger,
etc. do not enable the fulfilment of the promise, hence it results in the discharge of the contract.

5.Discharge by supervening impossibility: Discharge of a contract by supervening impossibility is a

contract that has become impossible or illegal to perform. In these cases the contract becomes void. It is
also known as the doctrine of frustration. Frustration occurs when it is established that due to subsequent
changes in circumstances, the contract has become impossible to perform or it has been deprived of its
commercial purpose. The ways in which it occurs are mentioned below;

● On the destruction of subject matter, a contract will be discharged and no party will be held
liable.
● If the performance of the promise mentioned in the contract becomes unlawful then the
contract will be void.
● A contract tends to be discharged on accounts of death or personal incapacity.
● When the circumstances surrounding a contract change then it will be discharged.

6.Discharge by breach: When a contracting party refuses or fails to perform or disables himself from
performing or makes the performance of the promise stated in the contract impossible by his conduct,
then the contract is said to be discharged by breach. A party to a contract may discharge it by actual
breach or anticipatory breach.When a default is committed by a party on the due date of performance it
amounts to an actual breach and when the party commits a default before the due date of performance it
amounts to an anticipatory breach.

Thus we can understand that discharge of contract refers to the contractual relationship coming to an end
when the obligations and duties have been fulfilled by the parties to a contract. In this case, the parties
are free from the obligations of the contract. As mentioned earlier there are various modes of discharging
a contract but the best way to do it is by performing the promise within the stipulated time stated in the
contract as the other modes are quite unpleasant ways to release the parties from duties because it leads
to damages.
4.Law relating to the time and place of performance of a contract

As a promisor and promise are essential to a contract, so are the time and place of the performance of
contract. If a time and place for the performance of contract are agreed upon, then the promisor should
perform the promise accordingly. If not, then it should be performed at a reasonable place and time. The
Indian Contract Act, 1872, specifies some rules regarding the time and place for the performance of
contract under sections 46 – 50.

Time and Place of Performance of Contract

When no application to be made and no time specified (Section 46)

Imagine a contract where the promisor has to perform his promise without any application by the
promisee and there is no time specified for the performance of the same. In such a scenario, the promisor
should perform the contract at a reasonable time.

While the term ‘reasonable’ can have different interpretations, the section specifies that it the
circumstances of every case will determine the definition of reasonable for the parties involved.

Example: Peter promises to pay John Rs 5,000 in cash at his house, within six months, as a repayment of
the loanhe had taken from John. Peter leaves for work at six in the morning which is when John returns
home from his night shift job. As per the circumstances, the only time when Peter and John can meet is at
six in the morning. Hence, the time and place for the performance of contract is 6 a.m. at John’s house.

No Application to be made but Time is Specified (Section 47)

If there is a contract where the promisee is not required to make an application but the promisor needs to
perform the contract only on a Sunday, then the promisor should perform the promise during regular
business hours, unless the time is specified in the contract too.

Example: Peter promises to deliver certain goods to John on payment of an advance of Rs 5,000. John
makes the payment and asks Peter to deliver the goods on a Sunday. Since the time is not specified,
Peter should deliver it between 9 am and 6 pm, assuming those are the regular business hours in the
place they live.

If Peter attempts delivery after the business hours, then John has the right to not accept the goods and
ask Peter to deliver again during business hours.
Application by the Promisee required (Section 48)

Let’s say that there is a contract where the promisee necessarily needs to make an application for the
performance of a contract, then the promisee needs to ensure that the application is made at a proper
place and time. In this case, the phrase ‘proper place and time’ can have different meanings in different
cases.

Example: Peter and John enter a contract where Peter promises to fix John’s car whenever he asks him
to. Peter also takes an advance payment for the same. When John asks Peter to fix his car, he must
ensure that he doesn’t ask Peter to go a lot out of his way. Also, he must preferably ask for repairs during
business hours.

No Application to be made but the Place of Performance is not Specified (Section 49)

Imagine a contract where the promisee is not required to make an application for the performance of
contract. Also, the place of performance is unspecified. In such a scenario, it is the responsibility of the
promisor to apply to the promisee asking him to appoint a reasonable place for the performance of the
promise.

Example: Peter promises to deliver 5 television sets to John on a fixed day and time. However, the
contract does not mention an address. It is Peter’s responsibility to apply to John and ask him to appoint
a reasonable place where he can safely accept the delivery of the goods.

Performance as prescribed by the Promisee (Section 50)

There can also be a contract where the promisor agrees to perform the promise in a manner and at a
place and time prescribed or sanctioned by the promisee.

Example: John’s son is in the hospital. He needs money for his son’s operation. Peter owes money to
John and agrees to repay him in cash/cheque at any place or time decided by John. In this case, John
has the liberty to ask for the performance of the promise in any manner and at any place or time suited to
him.
5. Impossibility of performance:

Impossibility of performance is a legal concept that allows one party to be released from a contract if
unforeseen circumstances prevent the contract's performance.

There are two sorts of performance impossibilities:

● Initial Impossibility:
The objective of every contract is for the parties to fulfil their obligations, and if the parties will
never enter into the contract because it is impossible to fulfil. In simple words, we can say that
Initial impossibility deals with the cases where the contract was impossible to perform from the
beginning only.

For example; If a married man promises to marry again although he is unable to do so, he is
required to compensate the other party.

● Subsequent Impossibility:
Subsequent impossibility is those contracts that deal with the cases where the contract was
possible to perform when entered the contract, but due to some event, the performance became
impossible or unlawful.

For example, If A buys tickets from B to watch a cricket match and pays half the price in advance. If the
match is cancelled, A will be unable to reclaim from B because the termination was beyond A's control.

Examples of Impossibility of Performance

1. One of the parties has been injured and is unable to perform the contract.
2. Property that has been stolen or destroyed.
3. Climate conditions
4. Natural calamity
5. The government enacts legislation making the act unlawful.