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Friday, 10 February 2012

Breach of Contract & remedies, Application of provision of Limitation Act.

BREACH OF CONTRACT

1. A breach of contract is full or part failure to perform an obligation, arising out of contract, by a party.

2. Relevant causes

    i) CLAUSE 39

Effect of refusal of party to perform promise wholly

When a party to a contract ( promisor )  has refused to perform, or disabled himself from performing his promise in its entirety, the promisee may put an end to the contract unless he has signified, by words or conduct, his acquiescence in its continuance.

    ii) CLAUSE 53

Liability of party preventing event on which contract is to take effect

When a contract contains reciprocal promises, and one party to the contract prevents the other from performing this promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.

    iii) CLAUSE 54

Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises

When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.

    iv) CLAUSE 56

Agreement to do impossible act

An agreement to do an act impossible in itself is void.

Contract to do act afterwards becoming impossible or unlawful

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

Compensation for loss through non-performance of act known to be impossible or unlawful

Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

    v) CLAUSE 62

Effect of novation, rescission, and alteration of contract

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter the original contract need not be performed

    vi) CLAUSE 65

Obligation of person who has received advantage under void agreement, or contract that becomes void

When a agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract, is bound restore it, or to make compensation for it, to the person from whom he received it.

    vii) CLAUSE 67

Effect neglect of promise to afford promisor reasonable facilities for performance

If any promisee neglects or refuses to afford the promisor reasonable facilities for the his promise, the promisor is excused by such neglect or refusal as to any caused thereby.

    vii) CLAUSE 75.

Party right fully rescinding contract entitled for compensation.

a person who rightly rescinds a contract is entitled to compensation for any damages which he has sustained through non fulfillment of contract.

3. Breach by Contractor  The eventualities are –

i)         Abandonment or total failure to complete the work either to start the work or midway in execution

ii)        Delay in execution of work

iii)       Defective work.

The case of i) are dealt below. Cass of type ii) & iii)  are dealt under relevant causes of Contract act and provisions clauses of individual contracts .

    3.1. When successful tenderer refuses to perform contract – EMD can’t be automatically forfeited.

EMD is a benefit received by the client. That has to be given back subject to recovery there from of any loss sustained by client. ( If the loss is more he can proceed against contractor as per section 75).

4. Breach by Owner / client.

    4.1 When owner cancels a contract before work begins .

          In such cases the contractor is entitled to receive damages from client. Subject to terms & conditions of Contract. In absence of any specific clause he is entitled to actual damages. The damages may include “ Lost profit”. It will be very diffcult to estimate this to the satisfaction of Owner & Courts.

   

LIMITATION

 

5.1 INTRODUCTION

 

The Statutes of limitations are known as statutes of repose or statutes of peace. “All statutes of limitation have for their object the prevention of the rearing up of all claims at great distances of time when evidences are lost…..to prevent persons from being harassed, at a distant period of time.” The object is to extinguish stale demands.

 

 

5.2 Causes of Action in Building and Engineering Contracts:

 

The rights in relation to building and engineering contracts for the enforcement of which suits may be filed include:

 

i.              For the price of materials sold and supplied.

ii.            For the price of work done ( labour wages only)

iii.           For the price of work done and materials supplied, which in turn may include

a) Claim  for additional completed work.

b) Claim for enhanced rates for work done in view of altered  

    circumstances.

 

5.3 Relevant Provisions of the Indian Limitation Act, 1963.

 

The relevant provisions applicable to the above general causes of actions mentioned in Art above are reproduced below:

 

Art. No.

Descriptions of suit

Period of limitation

Time from which period begins to run

13.

For the balance of money advanced in payment of goods to be delivered.

Three years

When the goods ought to have been delivered.

14.

For the price of goods sold and delivered where no fixed period of credit is agreed upon.

Three years

The date of the delivery of the goods.

18.

For the price of work done by the plaintiff for the defendant at his request, where no time has been fixed for payment.

Three years

When the work is done.

55.

For compensation for breach of any contract, express or implied, not herein specially provided for

Three years

When the contract is broken or (where there are successive breaches) when the breach in respect of suit is instituted occurs or (where the breach is continuing) where it ceases.

 

 

5.4 Recovery of Cost of Materials to be used in works – Cause of action.

 

Where, in a construction contract, a bill of quantity includes certain items for supply and delivery of materials to the site, and separate items for execution of the work with the use of such materials, the limitation for recovery of the cost of materials supplied, would begin not when the materials were supplied, but when the contract was completed or when the contract came to an end.

 

 

5.5 Recovery of Cost of Work done

 

In most standard form contracts, the time for payment of the final bill is fixed by the agreement and to such cases Art.18 will not apply. In such cases Art 113 which stipulates three years period of limitation from the date ‘When the right to sue accrues’ will apply. The right to sue would accrue when the bill was due for payment. The question as to when a bill is due for payment, in construction contracts, is peculiar and not always easy to answer, as will be clear from what follows.

 

5.6 Deductions made in R.A. Bills – Limitations: When it begins

 

Giving due consideration to the contract stipulation of treating all running bill payments as advances and to be adjusted in the account to be settled once and for all in the final bill, it is possible to construe that the fresh cause of action would accrue at the time of settlement of the final bill in respect of all disputes in the payment of running account bills, including disputed recoveries made and the period of limitation for them also will begin to run from the date the final bill was due for payment.

 

 

5.7 Claim for Enhanced Rate – Which Article of Limitation Act Applies?

 

In respect of work not covered by the contract, the claim is not covered by any specific Article under the First Schedule, and must fall within the terms of Art 113 and it provides a period of only three years. Similarly in a suit for payment of escalation cost for labour, Art 113 of the 1963 Act applies.

 

 

5.8 Final Bill – Limitation When Begin

 

For a suit for claim of the Final Bill, article 113 of the Indian Limitation act, 1963 applies.

 

 

5.9 Claim for Refund of Security Deposit

 

The suit, if necessary, has therefore, to be filed within the period prescribed by the Article of the Limitation Act applicable.

 

The Bombay High Court has held in a case that Art 1113 is applicable and not Art 24 or 70 of the Indian Limitation Act. 1963.

 

 

5.10      imitation for Demand for Arbitration

 

The limitation for demand for arbitration begins to run from the date on which a difference arises to which arbitration agreement applies. Where the agreement stipulated that demand for arbitration shall be made within 90 days of intimation of the final bill by the Government but after amounts were withheld and payments were made, it was held hat limitation for demand for arbitration would run from the date of the last payment.

 

 

 

5.11      imitation for filing applications under Arbitration Act, 1996.

 

Section 43 “Limitations

 

  1. The Limitation Act, 1963, arbitrations as it applies to proceedings in Court.
  2. For the purpose of this section and the Limitation Act, 1963n an arbitration shall be deemed to have commenced on the date referred in section 21.
  3. Where an arbitration agreement to submit future disputes to arbitration provides that any claim to which the agreement applies shall be barred unless some step to commence arbitral proceedings is taken within a time fixed by the agreement, and a dispute arises to which the agreement applies, the Court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and notwithstanding that the time so fixed has expired, may on such terms, if any, as the justice of the case may require, extend the time for such period as it thinks proper.
  4. Where the Court orders that an arbitral award be set aside, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 196, for the commencement of the proceedings (including arbitration) with respect to the dispute so submitted.

 

 

5.12 Limitation for Filling Application under Section 34

 

Under the 1996 Act, Section 34 (3) provides that an application for setting aside an award may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal. The proviso empowers the Court, if satisfied that the applicant was prevented by sufficient cause from making the application within the said period, it may entertain the application within a further period of thirty days, but not thereafter.