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What is the Period of Limitation for a Suit for Compensation for the Breach of Any Contract?

December 20, 2018 0 Comment

In Subba Raju v. Village Panchayat, [(1965) 1 Andh.WR 207], it has been held that Article 55 is applicable when the following conditions are fulfilled:

(i) The suit should be based on contract;

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(ii) The contract has been broken;

(iii) The suit is for compensation;

(iv) The suit is not covered by any other Article specifically providing for it.

The Article 55 has no application to suits for compensation for tort independent of the breach of any contractual obligation. In Y.C. Rattayva v. Venkataramayya, (AIR 1959 AP 551), it has been held that a suit for compensation for the wrongful taking of the trees already cut by the plaintiff does not attract the Article 55 of the Limitation Act.

The word ‘compensation’ in Art. 55 means a monetary compensation which has become due on account of a breach of contract. The word ‘compensation’ denotes money or anything given to recompense a person who has suffered through the act of the person committing the breach of contract.

The words ‘compensation for breach of contract’ in Article 55 denotes a sum of money payable to a person on account of loss or damages caused to him by breach of contract. The ‘damages’ means the estimate of some loss and injury actually sustained. But the term ‘compensation’ used in the Article 55 in a sense is wide enough to denote what is claimed which has been fixed by the parties for payment as compensation to the injured party in the event of breach of contract.

In Union of India v. Steel Authority of India Ltd., (AIR 1997 Ori. 77), it has been held that the word ‘compensation’ in Art. 55 is to be understood to denote the payment which a party is entitled to claim on account of loss or damage arising from the breach of contract and it cannot be restricted to a claim of unliquidated damages only, but can be held to include a claim of certain sum or, in other words, the expression ‘compensation ‘ for the breach of contract’ does not only point to claim for unliquidated damage which is used in a very wide sense but also includes a claim for payment of a certain sum.

The following are the examples of suits for compensation for breach of contract attracting the Article 55 of the Limitation Act, 1963:

(i) A suit for compensation based on wrongful dismissal of service [Surendranath v. Indian Airlines Corporation, (AIR 1966 Cal 272)].

(ii) A suit for money due on a registered bond on payment being i refused or not forthcoming [State Bank of India v. Bhagwan Pillai, 1969 Ker.L.R. 572)].

(iii) A suit under which he was liable to pay share of produce annually to the plaintiff [State of Rajasthan v. Bundi Electric Supply Co. Ltd., (AIR 1971 Raj. 24)].

(iv) A suit where a debt sought to recover by the plaintiff represents the commission payable under the contract of sole selling agency [LA. Dixit v. Official Liquidator, (AIR 1963 All. 284)].

(v) A suit by the Government against a contractor for recovery of balance due under an agreement for collecting the tolls of a hat [Gobinda Sabat v. State of Orissa, (AIR 1964 Ori. 189)].

(vi) A suit by lessee for recovery of premium with interest thereon for breach of conditions in the lease is a suit for compensation for breach of contract [Abdul Rahim v. Raghunatli Singh, (AIR 1957 All. 263)].

(vii) A suit which is brought for recovery of loan made on the basis of an agreement specifying fixed time for repayment by instalment [Jailebden v. Md. Basheer, (AIR 1992 Ker. 31)].

(viii) A suit for reimbursement by the lessee for the amount spent by him for repairs is a suit for compensation for breach of contract [Koduri Krishnarao v. State of A.P., (AIR 1962 AP 249)].

(ix) A suit for damages for use and occupation of land under a lease which is found to be invalid [Jainarayan Chowdhury v. Bisweshwar Prasad, (AIR 1954 Pat. 30)].

(x) A suit for enforcement of the personal covenant by the mortgagor to pay the mortgage money [Manimala Devi v. Indu Bata, (AIR 1964 SC 1295)].

In case of continuing breach of contract the limitation period under Art. 55 is subject to the provisions of Section 22 of the Limitation Act, 1963, which provides that in the case of continuing breach of contract a fresh period of limitation begins to run at every movement of the time during which breach continues.

Art. 55 is not confined to cases of implied contracts only. A contract may be express or implied. The suit based on implied contract also attracts the Art. 55. A suit for compensation for use and occupation of land under a void lease is a claim under an implied contract and to such suit Article 55 applies. In Pitchayya v. Chandrapait, [(1964) 2 Andh.W.R. 387], it has been held that a suit for damages for use and occupation against the tenant who continues in occupation after the expiry of the lease is a suit based on implied contract and the Article 55 applies to such suit.

In Bhawanilal v. Bhadrilal, (AIR 1964 MP 153), it has been held that when the plaintiff deposited money with the defendant on the implied promise that he would purchase cloth from the manufacturers and deliver the same to the plaintiff but did not supply any cloth and set up a false plea that the money had been stolen, the suit to recover such deposit made is a suit based on implied contract attracting the Article 55.

In K.K. Rao v. State of A.P., (AIR 1962 AP 249), it has been held that when the lessee of a ferry-right had to repair the steamer which the Government under the agreement had to give in good repairing condition, the suit to recover such costs of repair is based on implied contract.

In R. Chakrakar v. Dena Bank, [AIR 1994 NOC 266 (MP)], it has been held that when the bank loan was given to the principal debtor with a guarantee by the guarantor, the suit to recover the loan against the principal debtor and the surety is governed by the Article 55 and the period of limitation commences from the date of breach of the contract of loan by the debtor.

In Radhamony v. Canara Bank, (AIR 2003 Ker. 140), it has been held that by filing a suit for realisation of default amount, the guarantee would cease to continue and time would start running from the date of default and the suit should be filed against the guarantor within the time prescribed by Art. 55 of the Limitation Act. So the period of limitation for suing against the principal debtor as well as the guarantor for the realisation of the amount would start from the date of default in paying the amount i.e. from the date of breach of contract.

Under the Art. 55, the starting point of limitation commences — (i) when the contract is broken; or (ii) where there are successive breaches when the breach in respect of which the suit is instituted occurs; or (iii) where the breach is continuing, when it ceases.

In Delta Foundation v. K.S.C.C. Ltd., (AIR 2003 Ker. 201), it has been held that the moment breach of contract occurs the time begins to run and the starting point of limitation for a suit for compensation for breach of contract is when the contract is broken.

In R. Chandrakar v. Dena Bank, [AIR 1994 NOC 266 (MP)], it is held that for recovery of bank loan when there is a continuing guarantee and the letter of continuity was signed by both the debtor and the guarantors the period of limitation for a suit to enforce the bond would commence only from the date of the breach.

In the case of anticipatory breach time begins to run against the plaintiff the moment he would have been able to obtain judgment against the defendant in respect of the breach which has occurred.

In Jawaliar Lai v. Haripada, (AIR 1989 SC 606), the Supreme Court has held that the party aggrieved has the first option in case of the anticipatory breach of the contract as to put an end to the contract and to claim damages and in such case the cause of action would arise from the date of anticipatory breach.

In a suit for breach of a contract to be performed at different times, the period of limitation must be calculated from each of contract as it arises.

In Brickfield Properties Ltd. v. Newton, [(1971) 1 WLR 862)] (CA), it has been held that when an architect or engineer had produced a faulty design for a building the cause of action will initially accrue upon the completion of the design. He will be under a continuous duty to check that his design will work in practice and to correct any error which may emerge and such duty will continue till the building is constructed.

In Spoor v. Green, [(1874) LR 9 Exch 99], it has been held that the repairing clause in a tenancy agreement is a continuing breach where the obligation of the tenant or the landlord to repair is broken every day the property is out of repair.

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