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LAB/U1 Topic 12 Termination of Contract

Breach of Contract:

Contract is made between the parties who are intended to bind together in a legal obligation i.e.to serve the interest of both the parties. The parties, in order to govern themselves and to safeguard their interest make their own terms and conditions. And when such terms and conditions are accepted by both the parties, there is an enactment of the contract i.e. the liability is imposed on the party to the contract and to function in accordance with the terms and conditions of the contract.

Though many a times, the contracting parties work according to the terms and conditions of the other party, there are instances when one party back steps, thus leading to the loss to other party.

This is referred as repudiation. According to the section 39 of the Indian contract Act, “Any intimation whether by words or by conduct that the party declines to continue with the contract is repudiation, if the result is likely to deprive the innocent party of substantial the benefit of the contract”

Thus, repudiation can occur when the either party refuses to perform his part, or makes it impossible for him to perform or even fails to perform his part of contract in each of the cases in such a manner as to show an intention not to fulfill his part of the contract.

Breach of contract is defined is a legal cause of action in which a binding agreement or bargained for exchange is not honored by one or more parties to the contract by non-performance or interference with the other party’s performance. It the party does not fulfill his contractual promise, or has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to be breach of contract.

Thus 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 the one party, the other party is discharged of his obligations to perform his part of the obligations.

Breach of a contract does not discharge the contract, thereby automatically termination the obligation of the innocent party. It gives an opinion to the innocent party to regard itself as discharged. The innocent party rescinds the contract, the primary obligation of both the parties is over, but the defaulting parties become liable for payment of compensation for the breach. The innocent party may also waive the defective performance and elect to accept damages instead of ending the contract.

The breach of contract may be either: (i) actual, i.e. non-performance of the contract on the due date of performance, or (ii) anticipatory, i.e. before the due date of the performance has come. Thus, when the party to the contract refuses to do an act or does an act at the time of the performance of the contract then it is said to be the actual breach of the contract, but when the party to the contract refuses to do an act or does an act before the time of performance by which the performance of the contract is not possible, the such breach is known as the anticipatory breach of contract.

Fundamental Breach of Contract

In today’s globalized world, thousands of companies engage in business which involves millions of consumers. Thus, it would be difficult for these companies to draw up separate contract with every individual, they came out with Standard Form Of Contract, whereby a standard form with a large number of terms and conditions are there restricting the liability of the party to the contract. The individuals can hardly bargains with the massive organizations and therefore the only option available to them is either to accept it or reject it.

The doctrine of “Fundamental Breach” in the Law of Contract has developed mainly in the areas of sale (and hire-purchase), bailment and carriage.

RELEVANT FACTORS IN DETERMINING THE FUNDAMENTAL BREACH

According to the statement of the unofficial Secretariat Commentary on the 1978 Draft Convention,

12 scholars from different legal systems debated on standards for determining whether a breach is fundamental. A consensus was reached that the determination must be made in the light of the circumstances of each case. There is no such agreement, however there are some relevant factors, as generated by scholars and practitioner, in determining whether an injury is substantial enough to amount to fundamental breach which are roughly categorized under the following headings: a) nature of the contractual liability; b)gravity of the circumstances of breach; c) remedy-oriented approach; d) (in)ability of performance; e) (un)willingness to perform; f) lack of reliance on the other’s party’s future performance; g) offer to cure; and h)possible cure.

  1. Nature of the Contractual Obligation: the nature of the contractual obligations is one factor in determination of fundamental breach. Where the parties have expressly or implicitly agree that in the case of a breach by one party, the other party may terminate the contract, strict compliance with the contract is essential and any deviation from the obligation is to be regarded as a fundamental breach. Absent such an express provision, the duty of the strict compliance may also be inferred from the language of the contract, the surrounding circumstances, custom usage or a course of dealing between the parties. The court often looks at the nature of the contractual obligation in considering whether strict performance is the essence of the contract. In the absence of the contract
  • Quality of the Goods
  • Timely delivery
  • Disregard of the Seller’s

Distribution System

  1. Gravity of the Consequences of the Breach: Gravity of the consequences of the breach is another factor in determining fundamental breach. Whether or not the consequences of the breach actually deprive the party’s to the contract of the expectation under the contract as
  • Contract’s overall Value and the Monetary Loss suffered by the Aggrieved Party
  • Frustration of the purpose of the contract; and
  • Remedy-oriented approach.

3. (In) ability of the Performance: One of the considerations in the determination of fundamental breach of contract is party’s (in ) ability to perform at all, that is to say either to deliver the ordered well or to pay the purchase price and to take delivery. Regardless of whether performance is due or non-performance is considered a fundamental breach where performance is objectively impossible, namely where the object of the transaction is unique and has been destroyed.

4. (Un) Willingness of Performance: This is another factor in determining whether fundamental breach is there or not. For e.g. one party refuses to deliver the goods or taking the goods, it therefore constitute the fundamental breach. Except in the cases, where the promisor is entitled to refuse the performance, the breach is not amounted to exist.

5. Lack of Reliance on

The other’s Party Future Performance: – In determining fundamental breach, consideration is also given due importance. The party’s contention is that whether the breach gives the aggrieved party reasons to believe that he may not rely on the other party’s future performance. For example, that even where the contractual terms broken is minor and the consequences of the breach do not substantially deprive the  aggrieved party of his expectation under the contract.

6. Offer to Cure: There is much controversy among the scholars as to whether fundamental breach should be determined in the light of the offers to cure. Many authors favor the consideration whether such offer in determining is fundamental breach or not. Their contention is that the breach is not fundamental as long as the repairs is possible within a reasonable time and without causing the aggrieved party unreasonable inconvenience or uncertainty of reimbursement by the seller of expenses advanced by the buyer.

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