Abandonment of Contract, How is it different from Breach of Contract?

13th May, 2022 - 7:44 am Categories: Corporate Law 0 Comments

Contract, as according to Section 2(h) of the Indian Contract Act, 1872 is any agreement that can be enforced in the court of law. An Agreement as under section 2(e) of the act means any promise(s) made by one party for a standard consideration.

When such promise or consideration is not fulfilled, the contract is said to be breached and such breach can be enforced in the court of law.

Breach of Contract

When both the parties fulfil their promises, a contract is disposed, in layman’s terms the contract is fulfilled. When one of the parties fails to fulfil such promise made, it is said to be a breach. Breach of contract is not expressly defined in the Indian Contract Act.

Section 73 of Indian Contract Act 1872, states that when a contract is broken, the party who broke the contract is entitled to pay compensation to the damage caused by him due to such breaking to the party who suffers from such breach.

Abandonment of Contract

Abandonment of a contract is a concept not included in any provisions in the Indian Legislations. However, courts have time and again considered this situation when dealing with the issues regarding breach of contract.

Abandonment means desertion or neglecting of something. Abandonment of contract means neglecting the contents in a contract. When the promisor or a promisee refuses to fulfil the terms in a contract, such contracts can be said to be abandoned, provided that the other party has expressly or impliedly consented to such non fulfilment. Hence, if the promisor fails to perform his promise as according to the contract and the promisee allows for such failure, the contract is said to be abandoned. The contract is abandoned only when either both the parties have failed to fulfil the contract or one of them has failed and the other does not dispute such failure. A situation where the promisee fails to bring an action against a failure for performance of promise by the promisor within a reasonable time is also considered abandonment. What is a reasonable time is to be determined by the courts on a case to case basis.

Position Through The Years

The position of Abandonment of Contracts has remained the same through the years. Since there is no legislation expressly dealing with Abandonment, the concept is left for the courts to interpret according to the circumstances in the court, considering the intention of the parties and the situation leading to the breach of performance.

Difference between Breach of Contract and Abandonment of Contract

It is seen that for both these concepts, i.,e., Breach and Abandonment, a common condition is that one of the party has to fail to perform his promise. But the difference between the two lies on the way the aggrieved party reacts to the failure. If the aggrieved party approaches the court for such failure within a reasonable time, it is said to be breach; whereas, if the aggrieved party either encourages, or they themselves fail to perform their part of the promise, or fails to bring to the court a pleading seeking redressal, the contract is said to be Abandoned.

Shripati Lakhu Mane V Member Secretary, Maharashtra Water Supply And Sewerage Board & Ors[1].

The Supreme Court in its recent judgement decided on a question of Abandonment.

The facts of the case are as follows:

The appellant is a registered contractor with the Government of Maharahshtra. On 03.07.1986, the appellant received a work order for execution of work for an amount of INR 80,45,034/- and a time period of 30 months were allotted for the same. The respondents, vide a letter dated 28.07.1986 informed the appellants to keep the work order in abeyance. Further, on 17.12.1986, the respondents issued another letter asking the appellants to start the work allotted. On starting the work, the appellants found that the pipes needed by them was not available. The appellants notified the same and demanded fresh rates to be finalized vide letter dated 20.02.1987.

Through a letter dated 02.03.1987, the respondents informed the appellants to stop the pipe-line work and start the work at Panchanadi. The appellant thereafter sent a representation on 04.11.1987 raising two issues, 1. Non-payment of bills due to insufficient balance and 2. Delay in the issue of modified rates as sought in letter dated 20.02.1987.

The respondents issued another letter dated 22.02.1988 threatening the appellants to pay a fine of INR 10/- per day for every non-appearance to work. And also ordered the appellants to start work by 01.03.1988. Subsequently, more letters were sent ordering the appellants to start the work, increase in fine and disagreement on the revised rates.

Issue considered by the court:

The only issue to be considered by the Supreme Court was whether there was an abandonment of contract in this case.

The court held as follows:

The Supreme Court of considering the facts and submissions of both the parties, the court observed as follows-

• In the Law of Contract, whenever there is a material change in the contract, such contracts need not be performed by the parties. And this does not amount to abandonment.
• A party can abandon the rights provided in the contract and not the duty or the obligations. In this case, the appellants refused to perform his obligations and hence can be called a breach and not abandonment.
• If a contractor refuses to continue his promise until his reciprocal promises are met cannot be said to be abandonment of contract.

Hence held that there was no abandonment of the contract and the decision of the trial court was upheld.

Conclusion:

The difference between breach of contract and abandonment of contract is still unclear. The non-inclusion of abandonment in the Indian Contract Act makes it increasingly difficult to interpret. Since the concept is left for the courts to adjudge on, it will be puzzling to understand and determine what stand the court may take. A thin line of difference between the two concept makes legislation on the topic of abandonment of contracts a need of the hour.

Author: Anusha R, a student of Ramaiah Institute of Legal Studies, in case of any queries please contact/write back to us via email chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

References:

[1]Shripati Lakhu Mane  V Member Secretary, Maharashtra Water Supply And Sewerage Board & Ors (Civil Appeal No.556 Of 2012)