BREACH AND QUANTUM MERUIT

This Article is written by Manvi Verma of The Law School, University of Jammu, an Intern under Legal Vidhiya

ABSTRACT

This article addresses instances of contract violations, particularly focusing on the concept of quantum meruit as a remedy for breach of contract. The research problem is the lack of understanding of quantum meruit and its applicability in cases of contract breaches. The aim is to provide a comprehensive understanding of quantum meruit and its use as a legal remedy. The methodology includes a review of the Indian Contract Act of 1872 and relevant case laws to analyze the legal provisions and implications. The findings include the different types of breach of contract and the legal provisions dealing with breach of contract. The implications of this study are that it provides clarity on the application of quantum meruit as a remedy for breach of contract and highlights the legal consequences of contract violations.

KEYWORDS

Contract, breach of contract, quantum meruit, Indian Contract Act, legal remedies, case laws.

INTRODUCTION

An agreement that two parties mutually enter into is called a contract. A contract is a crucial legal document, particularly when it comes to trade and business, as those activities rely heavily on the agreement. A breach of contract occurs when one party doesn’t carry out their end of the bargain. This article will primarily address instances of contract violations. There is always a chance that a contract will be broken, and there are a lot of different reasons why this can happen.[1] Any breach of contract must also be followed by the making or providing of remedies by a court. Among the five remedies that are accessible to the party who feels wronged; one is a suit on quantum meruit.

Applying this remedy in a lawsuit necessitates a deep comprehension of quantum meruit. It’s also important to understand how and when to use quantum meruit, as well as when the party who feels wronged can use it. [2]

CONTRACT

A verbal or written or agreement with terms and conditions that establishes legal obligations between two or more parties is called a contract. A contract’s terms are legally binding and have explicit penalties and remedies in the event that they are broken. Any failure to perform any part of the contract without a valid reason is considered a breach of contract.[3]

ESSENTIALS OF CONTRACT

For Contract to be valid there must be following essentials: –

1. Offer
2. Consideration
3. Acceptance

OFFER

An offer is a promise that, according to its terms, must be fulfilled in exchange for an act, a promise of forbearance, or a return promise. It is an act of willingness to enter into a contract, made in order to justify to a third party that their consent to the contract is requested and will bring it to an end. Any offer must include a declaration of the parties’ current intent to enter into a contract, a specific proposal with agreed-upon terms, and notification of the offer to the named potential offeree. There is no offer to serve as the foundation for a contract if any one of these components is absent.[4]

CONSIDERATION

In contract law, consideration refers to an inducement provided to enter into a contract that is adequate to make the promise enforceable in court. The technical requirement is either a benefit received by the other party or a harm incurred by the one making the promise. Therefore, in order to enforce the promise, the party wishing to do so must have made a financial payment or committed to making a financial payment, given up goods, put in labor, or given up a profit or legal right. The money paid to the vendor and the property sold to the purchaser represent consideration in a contract for the sale of goods.[5]

ACCEPTANCE

The Indian Contract Act 1872 defines acceptance in Section 2 (b) as “When the person to whom the proposal has been made signifies his assent thereto, the offer is said to be accepted. Thus, the proposal when accepted becomes a promise.”

According to the definition, an offer is considered accepted when the person to whom it is made unconditionally accepts it. Such an offer becomes a promise once it is accepted.

Say, for instance B accepts an offer from A to buy his car for two lakh rupees. This is now being promised.

The proposal becomes irrevocable as soon as it is accepted and becomes a proposal. An offer becomes a promise once it is accepted; it does not impose any legal obligations. Furthermore, since a promise establishes legal responsibilities between parties, it cannot be broken. An offer may be withheld prior to acceptance. However, acceptance cannot be withheld or withdrawn once it has been communicated.[6]

BREACH OF CONTRACT

When one of the parties does not fulfill his or her obligation under the terms of the agreement, it is considered a breach of the contract. In essence, a breach of contract occurs when one of the parties to the agreement does not perform the work for which the agreement was made. In these kinds of situations, the parties that violated the contract (the “breaching party”) must either compensate the party that lost out on compensation or fulfill the breached obligation in accordance with the demands of the party that lost out, since these kinds of obligations are pre-listed when a contract is signed. The Indian Contract Act, [7]1872 (hereinafter referred to as “the Act”) addresses damages and losses resulting from contract breaches in Section 73.

ILLUSTRATION

A contract was made for the sale of pens by “A” and “B.” As per the terms of the contract, “A” will pay “B” Rs. 10,000 on March 31, 2021, for the delivery of 1000 pens. In this instance, there will be a breach of contract if A doesn’t sell the pens or doesn’t sell them by March 31st. However, there will also be a breach of contract if “B,” after receiving his order, neglects to pay the sum of Rs. 10,000.[8]

TYPES OF BREACH OF CONTRACT

1. MINOR BREACH: – When you don’t receive a good or service by the deadline, that constitutes a minor breach. For example, take a suit to your tailor to have it tailored to fit exactly. The tailor delivers the altered garment a day later than promised, despite an oral contract stating they will deliver it in time for your crucial presentation.[9]

A minor breach of contract is also known as an ‘immaterial breach.’ This generally happens when a major portion of the contract is fulfilled and only a minor portion has not been fulfilled by the breaching party.[10]

2. MATERIAL BREACH: – A material breach occurs when one of the parties to the contract receives less benefit or a different outcome than what was specified in the agreement. In essence, a major breach of contract occurs when one of the contractual obligations is not fulfilled. This is a major contract violation.[11]

For instance, that your company has an agreement with a supplier to provide 200 bound manual copies for a conference in the auto industry. Upon reaching the conference location, the boxes are found to be filled with gardening brochures.[12]

3. ANTICIPATORY BREACH: – In essence, an anticipatory breach is an expected breach of contract that is anticipated. In this kind of violation, one party expects the other to fail to uphold their half of the bargain. In these situations, there hasn’t yet been a breach. The party’s intention to break the contract is stated in cases of anticipatory breach. In the event of such a breach, the contract may be terminated. The person who lost out can sue for damages under Section 39 of the Act.[13]

4. ACTUAL BREACH: – A breach of contract that has actually occurred is called an actual breach. In this instance, the party who violated the agreement either failed to fulfill the obligations, refused to do so, or did not finish them on time. The person who lost out will be able to get compensation.[14]

LEGAL PROVISION DEALING WITH BREACH OF CONTRACT

The provisions pertaining to breach of contract are covered by the Indian Contract Act of 1872. No particular clause explicitly defining or mentioning a breach exists.[15] The breach of contract is discussed in the sections that follow: –

• According to Section 37 of the Act, each party to a contract has an obligation to carry out or offer to carry out their share of the obligation as specified in the agreement they signed. They are only released from performing the contract in situations where the Act excuses or fails to require performance. It further states that in the event of the parties’ deaths, their representatives are obligated to uphold the promises made by the parties to the contract.[16]
• The consequences of a party failing to fully fulfill their portion of an obligation or promise are outlined in Section 39 of the Act. According to this section, if one party to the contract refuses to carry out their portion of the agreement entirely, the other party may terminate the agreement unless the refusing party gives their express permission for the agreement to continue.[17]
• The Act’s Sections 73 through 75 address the repercussions of contract violations.
• Compensation for loss or damage resulting from a breach of contract is outlined in Section 73. This Section states that the party who suffered loss or damage as a result of a party’s breach of a contract (“breaching party”) is entitled to receive compensation from the party that violated the contract for that loss or damage.[18]
• Compensation for breach of contract where a penalty is stipulated is outlined in Section 74 of the Act. This Section states that in the event that a contract is broken, the party reporting the breach is entitled to a penalty specified in the contract or in any other agreement. This may occur even in cases where the cause of the actual loss or damage cannot be established. As a result, under this Section, the party who complains about the breach is entitled to some compensation from the party that violated it, in any manner.[19]
• According to Section 75 of the Act, payment is due to the party that properly canceled the agreement. This Section states that a person who revokes or rescinds a contract has the legal right to compensation from the party that violated it for any losses or damages they sustained as a result of the contract’s non-fulfillment.[20]

RELEVANT CASE LAWS

In Vesa Holdings (P) Ltd. v. State of Kerala (2015) 8 SCC 293[21]

In this case, Hon’ble Supreme Court has observed that the settled proposition of law is that every breach of contract would not give rise to an offence of cheating and Only in those situations where there was any deception involved from the start would a breach of contract be considered cheating.

In Uma Shankar Gopalika v. State of Bihar, (2005) 10 SCC 336[22]

In this case, it is well established by the Apex Court that not all contract breaches result in the crime of cheating; rather, cheating only occurs when there was intentional deception involved in the first place. It cannot be considered cheating if the intention to cheat emerges later.

In Manian Patter v. The Madras Railway Company by its Agent and Manager (1905) 16 M.L.J. 37: I.L.R. 29 Mad. 118[23]

In this case, the Supreme Court held that cases of deposit forfeiture for breach of stipulations—even when some of them are trivial and others are not—do not fall under the purview of section 74 of the Indian Contract Act or the legal principles established in cases involving promises to pay specified sums in case of breach of contract.

QUANTUM MERUIT

The Latin expression “quantum meruit” refers to the Indian Contract Act of 1872.

Its meaning is “what one has earned” or “to the extent that one has earned.” Said another way, it speaks to the true worth of the labor or services provided.

This law suggests a promise to pay a reasonable amount for the labor and materials provided, even in the absence of a formal contract.

THEORY OF QUANTUM MERUIT

A situation known as a quantum meruit occurs when one party benefits while the other receives nothing. This term in contracts refers to the advantage or enrichment that one party gets from the deeds of the other party.

Stated differently, it implies that the recipient of the services has benefited unfairly and has to give it back to the source of the benefit.[24]

Illustration: – The father is “M,” and the daughter is “S.” They made a deal wherein “M” requested that “S” give him medical attention while he was ill. In exchange, “M” promised not to draft a will and to leave “S” a reasonable share of his estate upon his passing in order to compensate her for the services she provided. But before long, “M” passed away, leaving nothing for “S” and all of the estates to his brother. In this case, “M” unfairly benefited from the services while “S” received nothing in return.[25]

In this illustration, ‘S’ is attempting to obtain a portion of “M’s” estate through the quantum meruit remedy. This concept is predicated on the notion that a party should be entitled to recovery when they have not been fairly compensated for the services they provided or when another party has been unjustly and unfairly enriched.[26]

SUIT UPON QUANTUM MERUIT

A quasi-contractual claim is known as a quantum meruit. A party may pursue legal action upon quantum meruit as a remedy for breach of contract. When one party performs a portion of a contract and later there is a breach of contract or it is determined that the contract is void or becomes void, a suit upon quantum meruit is brought.[27]

In the following situations, the party who feels wronged can bring a lawsuit under quantum meruit and demand payment based on the quantity of goods or labor completed:

• when one party has completed work in carrying out a contract, but the other party declines to fulfill his obligation. or stops the individual from carrying out the agreement.
• The situation where work is completed in carrying out a contract but it is later found to be void or to have become void is covered by Section 65 of the Indian Contract Act, 1872.[28]
• In the event that one party benefits from a non-gratuitous act (one that is given or received without payment but for which the recipient is required to pay) and no explicit agreement exists between the parties, the beneficiary is required to reimburse the other party or return the item that was delivered.[29]
• When there is an implied or explicit contract to provide services but no agreement regarding compensation, a reasonable compensation is due. The court will determine what constitutes a reasonable compensation, which is the quantum meruit. The Indian Contract Act of 1872 provides an explanation of this idea in Section 70.
• In cases where a contract is divided and one party has fulfilled its obligations, the non-performing party may pursue legal action against the other parties for quantum meruit.

This rule even applies to those who are claiming quantum meruit even though they are at fault for the contract’s breach; however, they must first meet the following two requirements:

• The agreement needs to be splitable.
• Even though he had the choice to decline, the other party must have benefited from the part that was performed.[30]

In cases where a contract is indivisible and poorly executed, the party in default may be entitled to a lump sum payment in addition to a reduction in the amount for the poorly executed work provided certain requirements are met:

There are four requirements for a contract:

• it must be indivisible,
• for a lump sum,
• fully performed, and
•  poorly performed.[31]

RELATED CASE LAWS

Mahanagar Telephone Nigam Limited v. Tata Communications (the MTNL case) [32]:

This 2019 case is one that is comparatively recent. The Honorable Supreme Court ruled in this case that the existence of a contract precludes the raising of a quantum meruit claim. According to section 74 of the Indian Contract Act, only the amount specified in a contract for liquidated damages may be assessed upon breach. Any amount collected over this predetermined threshold must be reimbursed.

Kamlesh Ahuja vs State of Hry. And Ors:[33]

The Punjab-Haryana High Court held in this case that an employee under a higher pay-grade must receive the emoluments as per that pay grade in accordance with the principle of quantum meruit, citing its own ruling in Pritam Singh Dhaliwal v. State of Punjab and Anr. (2004). Therefore, in the event that an employer fails to pay an employee, a quantum meruit lawsuit may be filed to recoup the entire unpaid salary. It is clear that there are several ways in which the concept of quantum meruit can be applied to bring about relief.

CONCLUSION

A contract violation causes harm or loss. Losses are incurred by both contracting parties. Due to the other party’s failure to fulfill the obligation, one party experiences financial or other types of losses, and the other party—the party that violated the agreement—suffers losses primarily in terms of money by having to make compensation payments. As long as it is used properly, quantum meruit is a helpful remedy. As we saw in the MTNL v. Tata Communications case, the doctrine has not been applied by Indian courts in the “pure sense.” Perhaps this peculiarity of Indian courts is a good thing, too, as it forces people to write carefully considered contracts. Nonetheless, Indian legal experts desire the Honorable court to shift its stance to eventually permit payment above the amount stipulated in a contract.[34]

REFERENCES

1. https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws
2. https://blog.ipleaders.in/quantum-meruit/
3. https://www.levelset.com/blog/quantum-meruit
4. https://www.casemine.com/search/in/breach+of+contract+cases
5. https://blog.ipleaders.in/breach-of-contract-case-laws/
6. https://www.investopedia.com/terms/b/breach-of-contract.asp
7. https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance
8. https://law.jrank.org/pages/5690/Contracts-Elements-Contract.html
9.   https://www.britannica.com/topic/consideration
10. https://www.contractscounsel.com/b/what-is-a-contract

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[2] https://blog.ipleaders.in/breach-of-contract-case-laws/

[3] https://www.contractscounsel.com/b/what-is-a-contract

[4] https://law.jrank.org/pages/5690/Contracts-Elements-Contract.html

[5] https://www.britannica.com/topic/consideration

[6] https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-i/acceptance

[7] https://blog.ipleaders.in/breach-of-contract-case-laws/

[8] https://blog.ipleaders.in/breach-of-contract-case-laws/

[9] https://www.investopedia.com/terms/b/breach-of-contract.asp

[10] https://blog.ipleaders.in/breach-of-contract-case-laws

[11] https://blog.ipleaders.in/breach-of-contract-case-laws/

[12] https://www.investopedia.com/terms/b/breach-of-contract.asp

[13] https://blog.ipleaders.in/breach-of-contract-case-laws/

[14] https://blog.ipleaders.in/breach-of-contract-case-laws/

[15] https://blog.ipleaders.in/breach-of-contract-case-laws/

[16] https://blog.ipleaders.in/breach-of-contract-case-laws/

[17] https://blog.ipleaders.in/breach-of-contract-case-laws/

[18] https://blog.ipleaders.in/breach-of-contract-case-laws/

[19] https://blog.ipleaders.in/breach-of-contract-case-laws/

[20] https://blog.ipleaders.in/breach-of-contract-case-laws/

[21] https://www.casemine.com/search/in/breach+of+contract+cases

[22] https://www.casemine.com/search/in/breach+of+contract+cases

[23] https://www.casemine.com/search/in/breach+of+contract+cases

[24] https://blog.ipleaders.in/quantum-meruit/

[25] https://blog.ipleaders.in/quantum-meruit/

[26] https://blog.ipleaders.in/quantum-meruit/

[27] https://blog.ipleaders.in/quantum-meruit/

[28] https://blog.ipleaders.in/quantum-meruit/

[29] https://blog.ipleaders.in/quantum-meruit/

[30] https://blog.ipleaders.in/quantum-meruit/

[31] https://blog.ipleaders.in/quantum-meruit/

[32] https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws/

[33] https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws/

[34] https://blog.ipleaders.in/quantum-meruit-contract-latest-judgments-case-laws/

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