This Article is written by Akash Singh Yadav of Dattopant Thengadi Law Institute, Veer Bahadur Singh Purvanchal University, Jaunpur Uttar Pradesh, an intern under Legal Vidhiya
ABSTRACT
In this article we will see about when contracts are broken, especially focusing on “quantum meruit” that can provide remedy when a contract is broken. The problem being studied is that not many people understand quantum meruit and how it works when contracts are broken. The goal is to explain quantum meruit well and show how it’s used to fix contract problems. The way this is being studied is by looking at the Indian Contract Act of 1872 and cases related to it, to understand what the law says about it. The research found different ways contracts can be broken and what the law says about it. This study helps people understand how quantum meruit can be used when contracts are broken and what happens legally when contracts are broken.
KEYWORDS
Indian contract act, breach, quantum meruit, contract, legal remedies, agreement, valid, party, compensation, breach of contract, invalid, obligations.
INTRODUCTION
A contract is formed when two parties agree on something to perform or not to perform any particular task. It can be either documented or verbal, establishing rights and responsibilities for the involved parties. It is an important document, especially for business. Breach of contract occurs when one party fails to fulfill their agreed-upon duties or obligations, leading to legal consequences outlined by applicable laws. In order for a contract to be legally binding, it must include essential elements such as an offer, acceptance, and consideration from all involved parties. Moreover, breach of contract may lead to various types of breaches such as minor, material, anticipatory, and fundamental breaches, each carrying different type of legal implications. The Indian Contract Act of 1872 provides legal frameworks and remedies for addressing breaches of contract, encompassing provisions for compensation and cancellation of agreements. Additionally, the principle of quantum meruit, derived from the Indian Contract Act of 1872, entitles individuals to fair compensation for services rendered, even in the absence of a formal contract. This legal concept ensures party equitable remuneration for work performed by them, serving as a recourse for individuals in case of any arising contractual disputes. This article is about when contracts get broken. When a contract gets broken, then the court provides legal remedy. One way they can do this is through quantum meruit. Using this in court needs a good understanding of what it means. It is also important to know when to use it and who can use it.[1]
CONTRACT
A contract is a deal between two or more people that they agree to follow. This deal can be written down or just said out loud. If someone doesn’t keep their side of the deal, there are consequences according to the law. This can include paying money or doing something to make up for not following the contract. For a contract to be valid, there needs to be an offer, something of value exchanged (consideration), and agreement from everyone involved.[2]
ESSENTIAL ELEMENTS OF CONTRACT
OFFER
For a contract to happen, one person needs to make an offer and the other person needs to agree to it. An offer is important because without it, there can’t be a contract. It’s a promise by one person to make a deal if the other person does what’s expected. This involves someone wanting something and someone able to provide it. The offer has to be clear and definite, and the other person needs to know about it. Then, the person receiving the offer needs to agree to the terms, either by saying yes or by their actions. If they agree, then there’s a contract, and it’s legally enforceable.[3]
ACCEPTANCE
The Indian Contract Act 1872, in Section 2 (b), explains acceptance as follows: “When the person who receives the offer agrees to it, the offer is considered accepted. Consequently, once the offer is accepted, it transforms into a promise.” Acceptance means agreeing to the exact terms of an offer. It has to be clear and match what was offered, meaning the person accepting can’t change the terms. They can say yes directly or show agreement through their actions.
It’s crucial to keep talking to the person who made the offer. Also, if someone changes the offer, it might be seen as canceling the original offer. In simple words, changing the offer means it’s not the same offer anymore.[4]
CONSIDERATION
Consideration is what each person involved in a contract gives up or agrees to do to make the contract happen. It could be something valuable like money, goods, services, or property. For example, think about a job contract where an employer offers a job to an employee who accepts it. Here, the employer’s consideration is the job and paying the employee, while the employee’s consideration is promising to work for the employer.[5]
But it can also be something that’s not beneficial, like giving up a right. For instance, if someone asks you not to smoke in your own home, that’s also considered as part of the deal.
BREACH OF CONTRACT
If one party breaks a contract, the other party who is harmed by this breach has the right to receive compensation from the party who broke the contract. This compensation should cover any loss or damage that naturally occurred because of the breach, or that both parties knew could happen when they made the contract. However, compensation won’t be given for losses that are too far removed or indirect because of the breach.[6] Section 73 of Indian Contract Act deals with, when a contract is broken, the person who suffers can get money for the harm done.
ILLUSTRATION
“A” and “B” agree to a contract for the sale of bicycles. According to the contract, “A” is supposed to deliver 10 bicycles to “B” by April 15, 2024, and “B” is supposed to pay “A” $1000 upon delivery. If “A” fails to deliver the bicycles by the agreed-upon date, it would be a breach of contract. Similarly, if “B” receives the bicycles but fails to pay the agreed-upon amount, it would also be considered a breach of contract.
TYPES OF BREACH OF CONTRACT[7]
MINOR BREACH
A minor breach, also known as a partial breach, happens when one side of a contract doesn’t fulfill all of its duties, but the breach isn’t big enough to stop the whole contract from being carried out. In this situation, everyone involved can still do what they promised in the contract. For instance, if Company A hires Company B to replace its roof, and Company B finishes the job on time but doesn’t do it perfectly, like using the wrong nails or making the shingles look uneven, it’s a minor breach. Company A can’t usually sue for not completing the job because it was done on time, but it can ask Company B to fix the mistakes or pay for any damage caused.
MATERIAL BREACH
A material breach, also known as a total breach, is the most serious type of breach in a contract. It happens when one side completely fails to do what the contract says. This breach is so big that it ruins the whole point of the contract. Because the party that didn’t break the contract didn’t get anything out of it, they can choose to ignore the contract and ask for payment for any harm caused.
ANTICIPATORY BREACH
This type of breach, also known as anticipatory repudiation, happens when one party knows the other won’t meet the contract terms on time. The party not breaking the contract can then claim a breach. For instance, if Company A hires a painting firm to paint its new 10-building apartment complex inside and out by August 1, and the painting firm hasn’t started by July 31, Company A can sue for damages because the painting firm won’t finish the job by the contract’s date.
FUNDAMENTAL BREACH
This kind of breach is like a major breach. It happens when one party in the contract doesn’t fulfill a duty that’s so important to the agreement that the other party can’t fulfill its duties. The party not breaking the contract can then cancel the whole contract.
LEGAL RULES ON BREACH OF CONTRACT[8]
The Indian Contract Act of 1872 covers rules about breach of contract. It doesn’t have a specific clause explicitly defining or mentioning breach. Instead, the Act talks about breach in the following sections:
Section 37: Each party in a contract must fulfill or offer to fulfill their part of the agreement they signed. They are only free from doing so if the Act excuses or doesn’t require it. If parties die, their representatives must still uphold the promises made in the contract.
Section 39: If one party refuses to fully fulfill their part of the agreement, the other party can cancel it unless the refusing party agrees to continue.
Sections 73 to 75 of the Act deal with consequences of contract breaches:
Section 73: Compensation for loss or damage resulting from a breach of contract. The party suffering loss or damage can claim compensation from the party breaking the contract.
Section 74: Compensation for breach of contract with a specified penalty. The party reporting the breach can claim the penalty stated in the contract, even if the actual loss can’t be proven.
Section 75: Payment to the party rightfully canceling the agreement. If someone cancels a contract properly, they can claim compensation for any losses caused by the contract not being fulfilled.
CASE LAWS[9]
In the Muralidhar Chatterjee vs. International Film Co. Ltd. case (1943), the court allowed the plaintiff to cancel the contract because the defendant didn’t pay royalties.
In the S.B.P. & Co. vs. Patel Engineering Ltd. case (2005), the Supreme Court of India said that cancellation must be very clear, showing an intent not to follow the contract. If the breaching party’s actions clearly show they won’t fulfill their duties, cancellation can be assumed.
If a contract is canceled, the non-breaching party can ask for damages, cancel the contract entirely, or demand that the contract be fulfilled as agreed. In the S.P. Chengalvaraya Naidu vs. Jagannath case (1994), the Supreme Court of India said the non-breaching party can keep the contract active and ask for it to be fulfilled if they can show they’re ready to do their part.
QUANTUM MERUIT
Quantum Meruit is a legal term from the Indian Contract Act, 1872, meaning “what one has earned.” It refers to a fair payment for services or goods provided to someone. Even without a written agreement, it implies the right to receive reasonable compensation for work and materials. In simpler terms, it’s about getting fair pay for the effort put in. It’s a remedy available when there’s no contract or when there’s been a breach of contract. It comes into play when someone has done part of a job and wants to be paid for the work they’ve done so far.[10]
EXAMPLES OF QUANTUM MERUIT:[11]
Providing medical help during an emergency, offering legal assistance without a formal agreement, or determining payment when a task ends unexpectedly are instances of quantum meruit.
In Clay v Yates (1856) 1 H. & N. 73, a printer who had completed most of a job but refused to finish it due to offensive content in the dedication was still entitled to payment for the work already done.
When services are provided based on a supposed contract that turns out to be invalid, the person who rendered the services can seek compensation under the principle of quantum meruit.
In Craven-Ellis v Canons Ltd (1936) 2 KB 403, despite an agreement being made between the plaintiff and the company, which was later found to be invalid due to certain directors lacking the necessary qualifications, the plaintiff was still entitled to compensation for the services provided, as determined by the principles of quantum meruit.
THEORY OF QUANTUM MERUIT[12]
Normally, someone must fulfill their obligations before expecting the same from another party. However, the theory of quantum meruit allows anyone who has partially completed work under a contract to request payment for the work they’ve already done.
SUITS BASED ON QUANTUM MERUIT[13]
A lawsuit based on quantum meruit can be filed in the following situations:
1. When a contract is declared void or invalid [Section 65].
2. When a voluntary act is involved [Section 70].
3. If circumstances arise that prevent the contract from being fulfilled.
4. Case of a divisible contract.
5. When an indivisible contract is fully performed but poorly executed.
ESSENTIAL CONDITIONS FOR APPLYING QUANTUM MERUIT[14]
To apply the rule of Quantum Meruit, two conditions must be met:
1. The contract is terminated.
2. The party not in default initiates the claim in court.
The legal action of Quantum Meruit is recognized in Indian courts under Section 70 of the Indian Contract Act, 1872, which states that if someone performs a service or delivers something to another party with the expectation of payment, and the other party benefits from it, compensation is owed to the performer or restitution must be made.
CASE LAWS[15]
In the Mahanagar Telephone Nigam Limited v. Tata Communications case of 2019, the Supreme Court ruled that if there’s a contract in place, a claim for quantum meruit cannot be made. Instead, if the contract specifies a fixed amount for damages in case of breach, only that amount can be charged, as per Section 74 of the Indian Contract Act. Any excess amount charged must be refunded.
In Mann v Paterson Constructions Pty Ltd, a case from Australia, the High Court determined that compensation for damages is limited to the amount agreed upon in the contract. This decision was noteworthy because, unlike in many other countries, including India, where a quantum meruit claim can exceed the contract price, in Australia, it cannot.
In Kamlesh Ahuja vs State Of Hry. And Ors, the Punjab-Haryana High Court, following its earlier ruling in Pritam Singh Dhaliwal vs. State of Punjab and Anr. (2004), stated as per the principle of quantum meruit, an employee of higher pay grade should receive salary as per the grade. Therefore, if an employer fails to pay the agreed salary, a lawsuit based on quantum meruit can be filed to recover the full salary owed. This case demonstrates the versatile application of the quantum meruit principle in providing relief.
CONCLUSION
In conclusion, contracts form the backbone of legal agreements between parties, ensuring mutual obligations are met and rights are protected. Understanding the essential elements of a contract, such as offer, acceptance, and consideration, is crucial in establishing the validity and enforceability of agreements. Moreover, comprehending the nuances of breach of contract, including minor breaches, material breaches, anticipatory breaches, and fundamental breaches, provides insight into the legal consequences and remedies available to aggrieved parties.
The Indian Contract Act of 1872 serves as a guiding framework, delineating the rights and responsibilities of contracting parties and providing recourse in cases of breach. Sections 37, 39, 73, 74, and 75 of the Act outline the legal principles governing breach of contract and the corresponding remedies, including compensation and cancellation of agreements. Furthermore, case law interpretations offer valuable precedents, elucidating the application of legal principles in real-world scenarios.
Quantum meruit emerges as a significant legal concept, offering redress in situations where contracts are absent or breached. Its applicability extends to diverse circumstances, from incomplete contracts to void agreements, providing a mechanism for fair compensation based on the value of services rendered or goods provided. Case law, both domestic and international, underscores the evolving nature of quantum meruit jurisprudence, enriching legal understanding and fostering equitable outcomes.
In essence, a comprehensive grasp of contract law, encompassing its foundational principles, breach ramifications, and remedial measures like quantum meruit, is indispensable for navigating the complexities of modern business transactions and interpersonal agreements. Through adherence to legal frameworks and appreciation of judicial precedents, individuals and entities can ensure contractual integrity, mitigate risks, and safeguard their interests in the realm of commerce and civil interactions.
REFERENCES
- https://blog.ipleaders.in/breach-of-contract-case-laws/
- https://ironcladapp.com/journal/contracts/what-is-a-contract/
- https://www.legalsifter.com/blog/elements-of-a-contract
- https://beckerlawllc.com/4-main-types-of-contract-breaches/
- https://www.defactolaw.in/post/understanding-breach-of-contract-types-cases-and-remedies
- https://www.complybook.com/blog/meaning-of-quantum-meruit-under-indian-contract-act-1872
- https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws/
- https://www.indiacode.nic.in/showdata?actid=AC_CEN_3_20_00035_187209_1523268996428&orderno=74
[1] Ipleaders,https://blog.ipleaders.in/breach-of-contract-case-laws/ (last visited Apr. 7,2024)
[2] Ironclad, https://ironcladapp.com/journal/contracts/what-is-a-contract/ (last visited Apr. 7,2024)
[3] Legalsifter, https://www.legalsifter.com/blog/elements-of-a-contract (last visited Apr. 7,2024)
[4] Ibid 3
[5] Ibid 3
[6] India Code,https://www.indiacode.nic.in/showdataactid=AC_CEN_3_20_00035_187209_1523268996428&orderno=74 (last visited Apr. 7,2024)
[7] Becker Law LLC., https://beckerlawllc.com/4-main-types-of-contract-breaches/ (last visited Apr. 7,2024)
[8] Ipleaders,https://blog.ipleaders.in/breach-of-contract-case-laws/ (last visited Apr. 8,2024)
[9] De Facto Law, https://www.defactolaw.in/post/understanding-breach-of-contract-types-cases-and-remedies (last visited Apr. 8,2024)
[10] ComplyBook, https://www.complybook.com/blog/meaning-of-quantum-meruit-under-indian-contract-act-1872 (last visited Apr. 8,2024)
[11] Ibid 10
[12] Ibid 10
[13] Ibid 10
[14] Ibid 10
[15] Ipleaders, https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws/ (last visited Apr 8,2024)
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