Breach of contract
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This article is written by Shreya Mazumdar, pursuing an Executive course in Introduction to Legal Drafting: Contracts, Petitions, Opinions & Articles from LawSikho.

Introduction

“Herein” “Heretofore” “Wherefore” “Wherein” “Wherefrom”, you might be joking? 

It is still believed that using mostly complicated legal language and archaic words shall somehow add more meaning to the legal document and impress the client. Some believe that an over embellished write up may bring in more dollars and maybe more clients. I am not sure how far these concepts are true but it was absolutely false in my case. I worked in an International Chinese law firm and when I wrote anything that identified as loaded language and jargon, I was asked to rework on it. From writing very complicated legal articles or advocating in the moot courts in my college days I had to travel to the pragmatic side of law. A legal notice, an article or just a legal opinion, everything had to be explained effectively and using clear concise language so that my clients could understand. 

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I changed my job eventually and my new boss opined about my work that I should “jazz it up a little”; my work was too simple and my drafted legal notices were not “threatening ” enough. So, I started demeaning and belittling my opposing party in my legal notices. Personally, I did not like the idea because it felt unprofessional and counterproductive but considering that the opposing party had past criminal records, I had to do as I was told. I think it is a personal choice as to how one writes but the highlight of the matter is that it should be received the way it is written, in other words, be crystal clear. A legal document does not lose any of its strength if it is written in the clear, concise and in simplest of the language but it can definitely lose its values if it is ambiguous, baseless and/or works against you.       

This article talks about ways to draft a legal notice especially in case of breach of contract. The limitation of this paper is that it only talks about legal notices in particular and it does not include any other legal drafting. Another limitation to this paper is that it focuses on the drafting of the legal notice with respect to breach of contract only.

Damages for Breach of Contract includes the following:

  • Claim for damages
  • Rescinding of the Contract

And in order to sue for specific performance, the following can be followed:

  • Injunction
  • Claim under quantum meruit

This article solely focuses on damages as a legal remedy for breach of contract.

Breach of contract

As per the Indian Contract Act, 1872 an agreement can only become a contract if it can be enforceable by law that is, it has to meet the legal obligation. Statutorily, a contract should be a bunch of reciprocal promises which can either be written or oral between the parties, binding the parties into a legal relationship. Therefore, a contract is a legal obligation that is imposed upon the parties entering into the contract who have agreed to deal with each other.  Merriam Webster’s Dictionary defines a breach to be when there is infraction or violation of the law.  

Black’s Law Dictionary mentions that a breach of contract happens when one party fails to live up to the terms of the contract. Therefore, one can understand that a breach of contract occurs when there is a failure on the part of any of the parties to abide by the terms of the contract and perform a specific obligation that was expected out of the party.  

In order to perform the contract, the Indian Contract Act lays down the rules and also the provision in case of breach of contract by either of the parties. Ordinarily, a breach is when there is non-performance of an act that was required to be done in order to fulfil a promise or an agreement or a contract. 

Statutorily, a contract is legally binding as per the Indian Contract Act, 1872 which is followed when there is a breach of contract that is violative of legal duty.

Discharge by breach

In a 1937 case law Associated Cinemas of America, Inc v. World Amusement Co. the Supreme Court of Minnesota defined breach of contract to have occurred when a party has abdicated his/her liability or in a way of his/her actions have made it impossible to perform his/her obligation under the contract or have partially stopped to performed such obligation. Therefore, failure to perform or renunciation may occur when it is time to perform or even before that. Broadly, a breach is of two types, that is:

  1. Anticipatory Breach
  2. Present Breach

An anticipatory breach occurs when anticipatory repudiation occurs when before the promised date of performance, the promisor absolutely repudiates the contract.  An anticipatory breach is a breach that has not happened yet but it is predicted to happen. This breach occurs either by way of expressed words of one of the parties which might be orally expressed words of one party or by way of certain action that presents non-completion of obligation. This expression of this non-performance must be clear enough to be reasonably comprehended by the other party. 

The present breach includes any minor breach or material breach. As the name suggests minor breach means a partial breach of contract. This beach occurs when a party does not perform a part of his obligation. Material Breach of contract is when there is a substantial loss to one of the parties. 

As per the Indian Contract Act, 1872 the parties to the contract are under an obligation to perform or offer to perform their respective obligations under the contract unless such performance is dispensed with or executed under the provisions of the Act or any other law. 

Section 39 of the Act expressly mentions about the breach of contract when there is a non-performance unless the other party has expressly or impliedly signified its consent for the continuance of the contract. 

Specific Relief Act, 1963 lays down the provision for cases in which specific performance of a contract is enforceable and it also lays down that the courts may grant specific performance of part of a contract. Damage can be divided into two categories which are (i) direct damages and (ii) indirect/ consequential damages. Direct damages can already be estimated. Liquidated damage is a genuine and reasonable per-estimate of damage. Liquidated damages are the one where it shall be taken a genuine and reasonable pre-estimate of damage. It is assessed damage which has to be paid when the actual damage occurs.  

Damages for breach of contract

The term “damage” is not defined under the Indian Contract Act, 1872. Sudesh Prabhakar Volvoikar v. Gopal Babu Savolkar mentions damages as compensation in terms of money for the loss suffered by the injured party.  

Statutorily, Section 73 of the Act mentions the general principle for assessment of damages where the innocent party can be placated by money to such an extent that it would put the parties in the same position if the contract had been performed. The challenging part is when the party can be held liable for the indirect damages/ consequential damages suffered by the injured party. In order to calculate this indirect damage, one can refer to the case of Hadley v. Baxendale. The Court observed that when the parties have entered into a contract and then one party has breached then the damages that the other party shall receive concerning the breach of contract as it should be such as may fairly and reasonably be considered arising naturally. If the special circumstances are mentioned in the contract and these special damages are followed that is already known and communicated in the contract. But in cases where the damages are unknown then the damages will be in contemplation to injury that would arise generally and in a great stretch of cases not affected by any special circumstances from such breach of contract.    

In another Indian case law Kerala & others v. M/s. United Shippers and Dredgers Ltd. the Division Bench of Kerala High Court mentions the difference between ‘Loss’ and ‘Damage’. It was held that ‘loss’ or ‘damage’ means ‘actual or real loss or damage’. The term ‘actual’ means ‘real’. Section 73 and 75 does not use the term ‘actual’ but that does not in any way mean that the claiming compensation need not be real or actual that is, non-existent. Thus, in the absence of the term ‘actual’ in Section 73 and 75 of the Act the compensation could only be claimed under it if the breach is proved to have resulted in loss or damage.    

Section 74 of the Act talks about liquidated damages wherein during the occurrence of the breach the defaulted party has to pay a stipulated sum of money to another or may agree that in the event of breach by one party any amount paid by him shall be paid for. Actual damage or loss does not have to be proved in this case and the aggrieved party will receive compensation even though actual damage or loss has been proved to occur or not. 

Who can sue for breach of contract?

The party that is willing to perform or has already performed his part of the contract can claim damages for the breach of contract. Section 73 and 74 of the Act is for the injured party to claim under this. A third party may also claim for damages when it can be contemplated that the breach of contract that has occurred may cause loss to a third party. Ergo, the third party may recover substantial damage even though it does not personally bear the cost of correcting the defect or directly suffer the retaliation of the breach. Ingredients for the suit for breach of contract must have:

  1. A valid contract;
  2. A non-performance by one of the parties which have led to the breach of the valid contract;
  3. This breach has led to the damage which may not have to be proved (may not be actual if claimed under Section 74 of the Act); or
  4. There has to be existing damage which has to be proved (if the claim is under Section 73 and Section 75 of the Act) for instance, if there is a loss of profit to the claimant when the goods did not reach him on time. Such claims could only be allowed if the contract mentions that the liability to pay for loss of profit would fall on the party for such breach else the loss of profit would be considered as “naturally arose” from the usual course of things from such breach. So, the claim is only limited to delay due to breach and it does not include losses due to such breach unless the contract states otherwise, or
  5. Third-party suffers due to breach of the contract.

Concept of legal notice

A legal notice is drafted when a party wants to formally intimate the opponent about his/her demands or any claim from them in order to initiate legal proceedings against him if the demands are not met. Once the legal notice is served then the entity or individual that one wishes to take to the court is legalised. A legal notice is supposed to be a formal communication to a person or an entity informing the other party of the intention to undertake legal proceedings against them and this makes the opponent aware of the grievances against them.  

Before taking off in the path of litigation, a legal notice has its importance. A legal notice provides a crystal-clear intent of the sender to file a lawsuit in order to resolve an issue where the other party might respond and would be willing to settle the matter out of court. A legal notice also gives an opportunity to the other party to clarify their stance and dismiss the matter cordially. 

In case of breach of contract, a legal notice can be sent to the defaulting party after the breach has occurred. The injured party may before sending out the legal notice may give a reminder, especially through electronic modes to the opposite party for such breach and payment for the damages. If after repeated reminders the injured party does not do anything to placate the breach then the injured party can take an action to send a legal notice. 

Drafting legal notice

An advocate sends a legal notice on behalf of his/her client. Although it is not essential to send a legal notice through a lawyer and he/she can send a legal notice on his/her own accord without the assistance of an advocate. It is also not an essential factor to include specific provisions/enactments of law in a legal notice. The main objective of a legal notice is to petition a settlement. It is issued either to accept the settlement or to reject it in order to bring in a civil suit or legal remedies. 

Ingredients of Legal Notice:

Ideally, legal notice shall have the following pattern that can be followed:

  • Title of the legal notice

The letterhead of the advocate/party should be with address, phone no. as well as the e-mail id. so that the opposite party can communicate back. It is not mandatory but it is better to have a reference number for the legal notice to keep a track of the notice issued. This legal notice is sent through Registered A.D. or through courier so that it could be tracked and one can know once the defaulting party receives it. The legal notice should have a proper date so that the time to respond to the legal notice can be calculated.    

The subject of the legal notice must be short and informative so that the entire matter is epitomised in seven to eight words. It could be mentioned as:-

“Notice for demand of Rs. _______ with an interest of __% from the date of breach of contract vide contract no.__________ dated _________”.

OR

“Specific Performance of Clause ______ of vide contract no.________ dated _______.”

  • First paragraph

The first paragraph shall mention the client’s name as well as the address and if the person is a company then introduce the client and his representing person. If the opposite party is a company then it can be written as follows:

“Kind Attention: _______________” (mention the name of the representing person of Opposite Party)

Subject: _______________________________

Sir,

I am concerned for our client _________________, having its resident address at ____________ (hereinafter also referred to as “Client” for the sake of brevity) who has given us information, furnished relevant documents and thereby instructed us to address you as under:-    ”  

OR

If both the parties are individual party then in that case following format can be followed:- 

“Under the instruction of my client________ resident of _________ (hereinafter also referred to as “Client” for the sake of brevity) I am under the instruction to address you as under:-”  

  • Content of the notice

This part shall mention the entire content of the notice for which the notice is being issued. The beginning of each paragraph can be drafted as follows:

“My client states that…”

This kind of drafting presents to the opposite party that the statement is directly coming from the client and is not suggested or imposed by the advocate. The reputation of the advocate is also saved and this might help in bringing the settlement sooner. 

The main body of the legal notice shall mention all the details of the entire transaction and the breach. It has to be carefully worded and the entire draft notice has to mention as to how the parties met after which how the parties eventually established trust and then entered into a contract. The process of the entire transaction and the reason that the client thinks led to the beach of the contract. After which reminders were sent that includes the phone calls, as well as the e-mail reminders, have to be mentioned in the legal notice. A good draft mentions a systematic and chronological occurrence of the entire event up until the reminders that were sent to the opposition. If there are facts that may go against the client then such incidents have to be cleverly drafted and imbibed or excluded from the draft. While drafting the notice should always calculate the risk that might boomerang against the client.  

  • Concluding the legal notice

The demands of the client should always be every drafted and mentioned in the notice. This demand can be either monetary compensation for damages and mental harassment or specific performance of the contract in order to avoid a breach. 

It also has to be clearly stated that if the Legal Notice is avoided and appropriate action is not taken within a reasonable time then such an act would force the client to take legal recourse. This statement could be captured as follows: –

“That my client mentions in light of the above, you are, therefore, called upon to pay the outstanding dues of _________ with an interest of ___% per annum till the date of realization of the entire amount as elaborated in Para. __ and Table No.______ above, to my Client within _______ days from the receipt of this Legal Notice.

Further, please note that if you fail to comply with your legal obligations as has been pointed out to you through this Legal Notice, my Client will be left with no alternative but to approach the judicial forum for redressal of aforementioned grievances at your sole risk and peril.”  

It is advised to send a legal notice through an advocate to present the gravity of the situation and to make the situation more formal. 

Conclusion

To conclude, the following is a draft format for the legal notice that one can follow for the breach of contract:

Advocate’s Letter Head 

(Includes Address, Phone No. and E-mail id.)

Registered Post AD and Electronic Mail

Without prejudice

Ref. No.______ Date:________________

To,

__________

__________ 

__________ 

Kind attention:______________________________

Subject: Notice for demand of Rs. _______ with an interest of __% from the date of breach of contract vide contract no.__________ dated _________.

Sir,

I am concerned for our client _________________, having its resident address at ____________ (hereinafter also referred to as “Client” for the sake of brevity) who has given us information, furnished relevant documents and thereby instructed us to address you as under:

  1. That my Client states that he ______ has a business of __________ and he wanted ________ services for the development of his business.
  2. That my Client states that he met you at _____ Mega Fair where you had a stall of _____________. Upon conversing with my client my client decided to buy ______________.
  3. That my client states that after product satisfaction my client believed your product and the quality and decided to buy bulk with specified product quality and specification.
  4. That my client entered into a contract vide no.________ dated ________ (hereinafter called “Contract”).
  5. That in terms of the said Contract you were required to _________________ as per clause __ of the Contract. 
  6. That my client mentions that you have breached the contract concerning the following conditions:

a._______________ 

b._______________ 

The specific actions which are violated or breached significantly are __________________ and such breach shall draw damages for Rs. _____________ with an interest of Rs. ____ from the date of realisation as per clause ___ of the Contract. 

  1. That you are further requested to refer the attached documents in Annexure I proving the breach of contract on your part.
  2. That my client, in light of the above, called upon you to pay the damages of _________ with an interest of ___% per annum till the date of realization of the entire amount as elaborated in Para. 6 above, to my Client within _______ days from the receipt of this Legal Notice.
  3. That my client mentions that if you fail to comply with your legal obligations as has been pointed out to you through this Legal Notice, my Client will be left with no alternative but to approach the judicial forum for redressal of aforementioned grievances at your sole risk and peril.

A copy of this legal notice is retained in my office for further necessary action.

Name and Signature

Advocate

References

Books, Online Study Material and Unpublished Manuscripts:

  • Fried Charles, Contract Law: From Trust to Promise to Contract, HarvardX, https://courses.edx.org/courses/coursev1:Harvardx+HLS2X+1T2020a/0109cff71f0c4e39b1ab75594364cb47/ 
  • Jain Harsh, Gokhale Nishant & Others, Introduction to Legal Drafting: Contract, Petition, Opinions & Articles (October 07, 2020) (unpublished manuscript).
  • SINGH ARVIND, CONTRACT & SPECIFIC RELIEF (Eastern Book Company, 9th ed. 2005).

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