Chapter -10 Q&A CA.
Yagya Raj Joshi
Subjective Questions
1. What is breach of a contract? Mention the types of breach of contract.
Following section 535 of the MCCA, 2074, 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. In case a party has breached the
contract, or in case his/her action or conduct shows that he/she has not basically complied with
the contract, the other party shall not be compelled to perform the contract, and may cancel the
contract by furnishing a notice thereof to the other party.
Breach of contract may be of following two types:
a. Actual Breach: Actual breach occurs when one person refuses to fulfill his or her
side of the bargain on the due date or performs incompletely. The actual breach
of contract may be discussed under the following two heads:
i. Actual breach of contract on the due date of performance:
Sometimes, on the due date of performance, one party fails to
perform his obligations. In such cases, the other party is discharged
from the performance of his obligations and can hold the guilty party
liable for the breach of contract. But sometimes the party, who has
failed to perform the contract on due date, subsequently expresses
his willingness to perform the same. In such cases, whether he can
perform the contract or not will depend upon the fact whether or not
the time was the essence of the contract.
If the time was the essence of the contract, the failure to perform the
contract within the specified time results in breach of the contract.
And if the time was not the essence of the contract, the other party
may accept performance and claim compensation for delayed
performance.
ii. Actual breach of contract during its performance: Sometimes, one
party performs his obligations under the contract and the other party
fails or refuses to perform these obligations. It is an actual breach of
contract during its performance. And sometimes, one party, no
doubt, performs his obligations but not strictly according to the
contract. It is also an actual breach of contract. This type of breach
of contract occurs when the party, performing the contract, commits
a breach of the essential conditions to contract. However, the
breach of non-essential terms does not discharge the contract. It
only entitles the aggrieved party to claim damages from the
defaulting party.
b. Anticipatory Breach: Where a party to a contract has refused to perform or
disabled himself from performing his promise in the entirety, the promise may put
an end to the contract, unless he has signified, by words or by conduct, his
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acquiescence in its continuance. The anticipatory breach of contract may be
discussed under the following two heads:
i. Renunciation: It occurs when one party announces, in advance of
the due date for performance, that he intends not to fulfill his side of
the bargain. It occurs when prior to the due date of performance, the
promisor absolutely refuses or disables himself from the
performance of his obligations. In other words, it is a declaration by
one party of the intention not to perform his obligations under the
contract. It is the premature destruction of the contract, i.e., the
repudiation of the contract before due date of performance.
ii. Creating impossibility: It occurs when on party to the contract,
before due date of performance does anything which makes it
impossible for the contract to occur or to perform his duty under the
contract. In case of an anticipatory breach of the contract, the
aggrieved party may exercise either of the following two options:
1. He may treat the contract as discharged and bring an immediate
action for damages.
2. He may treat the contract as operative and wait till the time of
performance arrives.
2. What is specific performance? Mention circumstances when claims for specific
performance shall not be instituted.
Following section 540 of the MCCA Act, 2074, In case the cash compensation paid in
consideration of the actual loss or damage suffered by the aggrieved party as a result of breach
of contract is not reasonable or adequate; the aggrieved party may demand the execution of the
contract as stipulated specific performance instead of making a claim for compensation.
However, specific performance cannot be claimed in these circumstances:
a. In case the amount paid in cash as compensation for breach of contract is
adequate, to be performed under the contract has been actually performed;
b. In case the court cannot supervise whether the contract has been actually
performed or not.
c. If it involves personal skills or qualifications.
d. If the contract can’t be performed for some or the other reason.
e. If violating party himself is demanding the specific performance of the contract.
3. What remedies are available to an aggrieved party in case of breach of contract?
Where there is a breach of contract, the parties to the contract suffer some loss which needs to
be compensated by the defaulting parties. Following section 500 of MCCA Act, 2074, the
remedies are generally in the form of monetary compensation and sometimes in the form of
performance by defaulting parties where monetary compensation may not be sufficient. In case
the loss or damage takes place because the person to fulfill liability has not fulfilled liability by
fraud or by ill intention or recklessness the person as such shall bear compensation for the loss
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or damage as such. In case the person to fulfill the liability has not fulfilled liability or delays to
fulfill liability resulting in loss or damage to any one he/she shall bear compensation for the
actual loss or damage. Generally, there are two types of remedies available for breach of
contract:
a. Legal remedies:
i. Compensatory or general or ordinary damages
ii. Special damages
iii. Nominal damages
iv. Punitive or vindictive or exemplary damages
v. Liquidated or calculated damages
b. Equitable remedies:
i. Rescission
ii. Quantum meruit
iii. Specific performance
iv. Injunction
v. Restitution
4. Write short notes on:
a. Quantum meruit
A court can award one party payment for what they deserve for any work that she performed
before the other party breached the contract. Translated from Latin, the term means, “as much
as earned”. The aggrieved party may claim payment in proportion to the work performed or the
amount paid by him/her in cash or in kind in case any party breached the contract or the
contract is terminated by any other reason.
Generally, one cannot claim performance from another unless one has performed his obligation
in full. But in certain cases, a person who performed some work under a contract can claim
remuneration for the work which he has already done. It is because the aggrieved party has
already received the benefit of the defaulting party’s performance.
Quantum meruit is a claim under quasi contract. The claim of quantum meruit arises only when
the original contract is discharged.
b. Rescission
Rescission is the process in which the parties cancel the contract and are returned to the
positions they occupied prior to the contract’s formation. For mutual rescission to take place, the
parties must make another agreement that also satisfies the legal requirements for a contract
there must be an offer, an acceptance and consideration.
c. Suit for injunction
It is also known as preventive relief or stay order. This is an order by the court to make a party
complete an action or to make them refrain from doing an action. It is awarded to protect a legal
right rather than compensate for the breach of one. If a party breaches this court order it is a
serious offence and can merit arrest or possible jail sentence. The reason for injunctions is that
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money would be an inadequate remedy for breaching the person’s right. An injunction is a
discretionary remedy which courts will only grant if they feel it is just and equitable in the
circumstances to do so.
In case it becomes impossible to execute the contract because any party about to take any
action or behave in a manner contrary to the nature of the contract, the party aggrieved by such
action or conduct may file a complaint with the Appellate Court to stay such action or conduct.
In case a complaint is filled for stay, the court may issue an appropriate order to any party to
immediately stop his/her specific action or conduct with a provision to settle the dispute resulting
that contract according to the contract or prevailing law, notwithstanding, anything contained in
prevailing law. In case such order is issued, the aggrieved party may also realize the additional
loss or damage resulting from the failure of the other party to comply with the order issued.
Past Questions
1. In which circumstances the principle of Quantum Meruit is applicable? [June-13]
The principle of quantum meruit is applicable in the following circumstances.
a. Where received goods or services are not of gratuitous nature.
b. Where the act has been done as per the contract and the contract is terminated by
default or dependent under Section 531(5)(c) of MCCA, 2074.
c. Where the act to be performed is impossible, due to legal and technical causes.
d. Where the goods or services of others are acquired by mistakes.
e. Where a remuneration or compensation is not prescribed in the contract a
reasonable payment should be paid.
f. Where one of the parties is not satisfied by the work done; the dissatisfied party can
terminate the contract and is liable for payment of finished work.
2. Explain the concept of Anticipatory and Actual Breach of Contract. [Dec-15]
Breach of contract is an actual failure by a party to a contract to perform his obligations under
that contract or an indication of his intention not to do so.
a. Anticipatory Breach of Contract: A breach that occurs when one contracting party
informs the other party that he or she will not perform his or her contractual duties when
due, it is called anticipatory breach of contract. In the same way, where the promisor
refuses to perform his obligation even before the specified time for performance and
signifies his unwillingness, then there is an anticipatory breach. It is a prior
announcement of intention by one party not to perform his contractual obligations or a
refusal of performance by the promisor before the due date of performance.
Muluki Devani Samhita Ain, 2074 has provided the conditions where anticipatory breach
occurs. Section 535(1) of the Act, reads as, “If any party to a contract fails to fulfill the
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obligation under the contract or gives a notice to the other party that he or she will not
perform the act to be performed by him or her under the contract or his or her action and
conduct demonstrate that he or she is incapable of performing the act under the contract,
the party shall be deemed to have breached the contract.”
Where anticipatory breach of contract occurs, the aggrieved party can take the following
steps:
i. He/she may treat the contract as discharged; therefore, he is no longer bound to
perform his obligations and he can repudiate the contract by furnishing the notice
to other party.
ii. He may sue immediately for available legal remedies.
iii. He may keep the contract alive for the benefit of promisor and his own to the due
date of performance, which enables the promisor to perform the contract in spite
of his earlier refusal.
b. Actual Breach of Contract: Actual breach occurs where one party fails or refuses to
perform the obligations during the performance or on the due date of performance. Thus,
where one of the parties breaches the contract by refusing to perform the promise on
due date, it is known as actual breach of contract. In such a case, the aggrieved party to
contract has the right to sue against one who breaches contract for remedies.
The consequences of actual breach of contract are as follows:
• It terminates the contract
• It discharges the aggrieved party from his obligations
• It enables the aggrieved party to sue for legal remedies
• It gives rise to aggrieved party to be repudiated from contract
• It creates obligation to party breaching the contract to compensate the aggrieved
party
3. What do you understand by suit of Injunction? Explain it in the light of the Muluki Devani
Samhita Act, 2074. [Dec-16]
Suit for injunction refers to the order or decree of court. Sometimes court may issue an order to
a person asking him to abstain from doing a contemplated work or from continuing an ongoing
act. Such order would be a remedy to aggrieved party in some case.
A court may issue an order of injunction to restrain a party from committing a breach of contract.
Such injunctions may be “interlocutory” ones which are designed to regulate the position of the
parties pending a full hearing of a dispute permanent.
Further, an injunction, whether interlocutory or permanent, may be “prohibitory” ordering a
defendant not to do something in breach of contract or “mandatory” requiring a defendant to
reverse the effects of an existing breach. An injunction will not, normally, be granted if the effect
is to directly or indirectly compel the defendant to do acts for which the plaintiff could not have
obtained an order for specific performance.
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Section 541(1) of MCCA, 2074, provides that If the performance of a contract is not possible
because any party to the contract is about to perform any act or conduct which is contrary to the
nature of the contract, the party aggrieved by such an action or a conduct may file a complaint
in the court to prevent such an act or conduct.
It further provides under Section 541(2) of the Act, that If a complaint is filed pursuant to sub-
section (1), the court may issue an appropriate order to any party to immediately stop his or her
particular action or conduct, subject to the settlement of the dispute arising out of that contract in
accordance with such a contract or law.
Furthermore, under Section 541(3) of the Act, If an order is issued pursuant to sub-section (1),
the aggrieved party shall be entitled to also recover additional loss or damage caused from the
failure of the other party to comply with the order so issued.
Hence, Muluki Devani Samhita Ain, 2074 incorporates both the common law remedies as well
as equitable remedies developed by common law and equity.
4. State the remedies that can be claimed by the injured party for the breach of contract.
[Dec-18]
As per Muluki Devani Samhita Ain, 2074, the following are the remedies for breach of contract
to an aggrieved party:
a. Rescission of contract: Rescission means a right not to perform obligation. In case of
breach of a contract the promisee may put an end to the contract. In such case the
aggrieve party is discharged from all the obligations under the contract and entitled to
claim compensation for the damage which he has sustained because of the non-
performance of the contract.
b. Suit for damages: Damages are the monetary compensation allowed for loss suffered by
the aggrieved party due to the breach of contract. It is to make good the financial loss
suffered by the aggrieved party due to the breach of contract. Such compensation for
damages arising from breach of contract may claim as follows: (i) Ordinary damages
(ii) Special damages (iii) Punitive or Vindictive damages (iv) Nominal damages and
(v) Damages for inconvenience
c. Suit for specific performance: Under this claim the non-defaulter party can claim for the
court’s direction against defaulter party to carry out the promise according to the terms of
the contract.
d. Suit for injunction: The aggrieved can demand for court’s stay order prohibiting the
promisor from doing something which he has promised not to do so.
e. Suit for quantum meruit: It is a right to claim the compensation for the work already done
as much as he earned or could have been gained.
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5. What are the provisions on compensation for breach of contract? [Dec-19]
As per Section 535 of the MCCA, 2074, if any party to a contract fails to fulfill the obligation
under the contract or gives a notice to the other party that he or she will not perform the act to
be performed by him or her under the contract or his or her action and conduct demonstrate that
he or she is incapable of performing the act under the contract, the party shall be deemed to
have breached the contract.
Section 537 of MCCA, 2074 contains the provision for compensation for breach of contract. As
per the Section,
a. In the case of breach of a contract under Section 535, the party aggrieved by it shall be
entitled to recover from the party in breach of the contract damages for the actual loss or
damage caused by the breach or such loss or damage which the contracting parties
knew when they made the contract to be likely result from the breach.
b. If the parties to a contract, in anticipation, at the time of its formation specify a sum in the
contract, which becomes payable for breach of the contract, the aggrieved party shall be
entitled to recover a reasonable amount not in excess of that sum from the other party,
pursuant to above.
c. If the contract does not provide for compensation referred to in (b) above the party
claiming such compensation shall be entitled to recover a reasonable amount for the
direct and actual loss or damage resulted from the breach of contract or for the breach of
contract or for compensation provided that no compensation may be recovered for any
indirect or remote loss or damage.
d. If a contract, which is concluded for the completion of any act within a fixed period,
contains a provision that compensation as referred to in (b) above is payable if such an
act cannot be completed within that period, the party paying such compensation may
request for the extension of the period for the completion of the contract in proportion to
the amount of compensation paid by him or her.
e. The right of a party to a contract to seek other legal remedies for the breach of a contract
shall not be deemed adversely affected merely by the reason that the amount of
compensation has been paid pursuant to this section.