Section 39 of Indian Contract Act, 1872 deals with what happens when a party in a contract refuses to perform his part of duty. It specifies as to what to do in case someone breaches his promise in an agreement. It is ensured by Section 39 of Indian Contract Act, 1872 that both the sides would honour their obligations and if one party refuses to do so. Section 39 provides the means of settlement regarding the breach of contract. Under section 39 of Indian Contract Act, 1872 the parties to the contracts are made to abide by the terms of their contract, with the objective of ensuring seriousness of taking the contracts. It also reinforces the notion that when you make promises of a contract, you must keep those promises because the penalty for breaking terms of a contract is widely known to have consequences.
Elevate your career with a 4-month Certification in Contract Drafting & Negotiation, focusing on AI tools. Gain expertise in drafting contracts across sectors, handling negotiations, and mastering contract life cycle management.
Understanding Section 39 of the Indian Contract Act, 1872
Section 39 of Indian Contract Act,1872 is related to the effect of breach of the contract by one of the parties to the contact. In particular, it explains the consequences of non-fulfilment of obligations in the course of contract performance or breach of contract as described in the contract. This section is very important because it sets out the rights of the party seeking remedy and assists the party to decide whether to seek damages for breach of contract or to repudiate the contract.
For example, a business person Mr. A, makes an order with a supplier P for the supply of 500 units of raw materials. The delivery is planned for the 1st of Feb, but on the 31st of Jan, Mr P tells Mr. A That they are unable to deliver the raw materials within the needed time due to financial constraints. As per the Indian Contract Act of 1872, Section 39, Mr. A can decide to cancel the contract because the supplier has rendered himself unable to fulfill the contract.
However,if the supplier fails to supply the raw materials and the delay is only for a few days then Mr. A may still decide to enforce the contract and wait for the delivery based on the facts of the case.
Know What are the 10 Essential Elements of a Valid Contract
Key Elements of Section 39 of Indian Contract Act
Before delving into the legal implications it is important to understand the essential elements of Section 39 of Indian Contract Act, 1872:
1. Refusal to Perform:
This happens when one of the parties to the contract breaches the contract by refusing to perform as agreed. The refusal can be expressed in words, in writing or by conduct.
For Example: A agreed to supply 1000 bags of cement to B before the 10th of January. On the 5th of January B sent a notice to A that he will be unable to deliver the cement as requested because of the high prices in the market. This failure to perform before the due date enabled A to institute a suit under Section 39 of Indian Contract Act, 1872 and claim for breach of contract.
2. Inability to Perform:
If one of the parties is unable to meet the contractual requirements due to some reason, then such party is deemed to have a lack of ability. This may include financial disability, legal constraints or any other factors that may occur in the process.
For Example: A construction company, ABC Ltd., hires another company XYZ Ltd. for procuring the scaffolding equipment for a project. Before the delivery date, the company XYZ Ltd. goes into liquidation and becomes unable to deliver the equipment. This failure is a breach under Section 39 of Indian Contract Act, 1872 which opens the door for ABC Ltd to terminate the contract and possibly seek compensation.
Also, Learn about What are the Roles & Responsibilities of a Contract Lawyer
3. Breach of the Entire Contract:
Under Section 39 of Indian Contract Act, 1872, the breach must be such that it goes to the root of the contract or is a material breach. This provision shall not apply in cases of minor breaches that do not essentially alter the purpose of the agreement.
For Example: The enterprise has an agreement with a farmer to supply supermarket with fresh products on a daily basis using the services of a transport company. If the transport company is unable to deliver their product for one day because of a vehicle failure, it can be seen as a minor breach. But if the transport company totally fails to deliver products then it will be a fundamental breach of contract under Section 39 of Indian Contract Act, 1872 where the farmer can unilaterally terminate the contract.
Also, Get to Know the Common Clauses in Legal Contracts
4. Right to Terminate:
Where the party entitled to performance makes a claim and the other party refuses or is unable to perform, the first party may either elect to withdraw from the contract or proceed with it. This depends on the extent of the breach and the possibility of the parties to continue with the agreement.
For Example: A publisher pays an author a certain amount of money to produce a manuscript for submission by a certain time. In case the author tells the publisher that he or she cannot finish the manuscript, the publisher is at liberty to cancel the deal and look for another author to fill the gap with a view of reducing losses.
Also, Get Familiar with How to draft a Business Contract
Remedies Available Under Section 39 of Indian Contract Act, 1872
Section 39 of Indian Contract Act, 1872 not only allows the aggrieved party to terminate the contract but also provides several remedies to safeguard their interests:
Damages for Breach: If a party wants to terminate the contract, they may claim for damages. These damages are intended to place the aggrieved party in the position that would have been occupied had the contract been performed as required. The party that is seeking redress has to prove that the breach has resulted in a real loss.
Specific Performance: If the breach of contract relates to something specific such as a painting or a piece of land, the aggrieved party can seek the court’s order to compel the defaulting party to perform the contract as agreed. This is known as specific performance.
Quantum Meruit: This occurs if a contract comes to an end without notice, and the party that has done some work or offered services should be compensated. This idea is called quantum meruit, a Latin term meaning "as much as one has earned." It provides for appropriate remedy in as much as the value of work or services delivered till the time of breach is concerned.
Learn the Differences between a Contract of Indemnity and a Contract of Guarantee
Summing Up
Section 39 of the Indian Contract Act 1872 has an immense role to play in sanctioning breaches of contract. This entails cases where one party is indifferent, or has become unable to deliver on the agreed contractual expectations. The section is an enabling clause for the offended party to decide whether or not to reject the other party and bring the contract to an end or to continue the contract despite the breach if the breach is not fatal to the purpose and objectives of the contract. Such areas as refusal to perform, inability to perform, the concept of material breaches and the right to termination should be well understood by the parties in question so that the proper decision can be made if a breach is to be addressed. Contract law is further provided for under section 39 of Indian Contract Act, 1872 to provide for remedies for the aggrieved party to protect all fairness in contract agreements.
Learn about void agreements given under Section 19 of Indian Contract Act, 1872
Related Posts
Section 39 of Indian Contract Act, 1872: FAQs
Q1. What is Section 39 about?
It concerns cases of non-performance wherein a party fails or is unable to fulfill their contractual duties hence the other party may either bring the contract to an end or not.
Q2. What can the aggrieved party do?
The affected party can either rescind the contract or continue with it and claim for damages or specific performance.
Q3. Is Section 39 available also for minor breaches?
No, it is only applicable to fundamental breach that is a breach of the material term of the contract.
Q4. What sanctions are available for an offence under Section 39?
Cessation, remedies, specific performance, or payment for services rendered or work done.
Q5. Can the aggrieved party seek for damages after he decides to terminate the contract?
Yes, they can seek damages for the loss caused by the breach.
