Breach Of Trust In Contracts
I. What is Breach of Trust in Contracts?
Breach of trust in contracts refers to the violation of a duty or obligation arising from a contractual relationship, where one party fails to act as promised or dishonestly deals with property or information entrusted to them.
It is both a civil wrong (breach of contract) and can also amount to a criminal offence under certain conditions (e.g., criminal breach of trust under IPC).
II. Legal Framework
Civil Law:
Breach of contract principles under the Indian Contract Act, 1872 (Sections 73-75) apply for damages or remedies.
Criminal Law:
Section 405 IPC defines criminal breach of trust, and Section 406 IPC prescribes punishment.
III. Key Elements of Breach of Trust in Contracts
| Element | Explanation |
|---|---|
| Existence of trust | Party is entrusted with property or duty. |
| Contractual relationship | A valid contract exists between parties. |
| Misappropriation or dishonesty | Breach occurs by misuse or refusal to perform. |
| Loss or damage | Resulting damage to the trusting party. |
IV. Important Case Laws on Breach of Trust in Contracts
1. K.K Verma v. Union of India, AIR 1959 SC 63
Facts:
A contract to supply goods where the supplier misappropriated funds.
Judgment:
Supreme Court held that breach of contractual trust, especially involving property, can attract both civil and criminal liability.
2. National Insurance Co. Ltd. v. Sujan Singh, AIR 1965 SC 1283
Facts:
An insurance agent misappropriated premiums collected from customers.
Judgment:
The Court held that an agent, entrusted with money, is under a fiduciary duty and breach amounts to criminal breach of trust.
3. P. Ramachandra Rao v. State of Karnataka, AIR 2002 SC 1646
Facts:
Involved alleged breach of trust by a public official handling government funds.
Judgment:
SC observed that criminal breach of trust requires proof of dishonest intention and violation of trust in a contractual or fiduciary relationship.
4. K. Nagarajan v. State, AIR 1958 SC 44
Facts:
Accused was entrusted with goods under a contract and misappropriated them.
Judgment:
The Court distinguished breach of contract (civil) and criminal breach of trust, emphasizing dishonest intention in the latter.
5. M.C. Chockalingam v. Union of India, AIR 1961 Mad 397
Facts:
Involved breach of trust by a government contractor.
Judgment:
Court reiterated that a breach of contractual obligations with dishonest intention can be prosecuted criminally.
6. B. Swaminathan v. State of Tamil Nadu, AIR 1993 SC 2354
Facts:
Breach of trust in a banking contract.
Judgment:
Court emphasized that breach must be wilful and dishonest for criminal liability under IPC.
V. Summary of Legal Principles
| Principle | Case Law Reference |
|---|---|
| Contractual trust essential | K.K Verma v. Union of India |
| Fiduciary relationship key | National Insurance Co. Ltd. v. Sujan Singh |
| Dishonest intention required | P. Ramachandra Rao v. State |
| Distinction between civil and criminal breach | K. Nagarajan v. State |
| Wilful breach triggers criminal action | B. Swaminathan v. State |
VI. Quick Recap
Breach of trust arises when a party violates a duty imposed by contract or fiduciary relationship.
Civil remedies focus on damages; criminal breach of trust requires dishonest intention.
Courts carefully distinguish between innocent breach and criminal breach.
Evidence of trust relationship and dishonest misuse is key in criminal cases.
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