Difference Between Breach of Contract and Breach of Trust
The concepts of Breach of Contract and Breach of Trust are foundational in civil and commercial law, but they relate to distinct legal relationships and principles. Here is a detailed explanation of the difference between them, along with relevant case law examples.
🔹 1. Breach of Contract
✅ Definition:
A breach of contract occurs when one party fails to fulfill their obligations as outlined in a legally binding agreement or contract.
✅ Essential Elements:
A valid contract exists.
The contract outlines rights and obligations for both parties.
One party fails to perform their obligation.
This failure causes loss or damage to the other party.
✅ Legal Basis:
Primarily governed by the law of contract (e.g., Indian Contract Act, 1872 in India, or Common Law principles in the UK and USA).
✅ Remedies:
Damages (compensatory, nominal, liquidated).
Specific performance (court orders the defaulting party to fulfill their obligation).
Injunction (to prevent further breach).
Rescission (cancellation of the contract).
✅ Case Law:
Hadley v Baxendale (1854) 9 Exch 341
Facts: A miller’s crankshaft broke, and it was sent to be repaired. Delivery was delayed, and the mill remained shut.
Held: Damages for breach of contract are limited to losses that arise naturally or were in the contemplation of both parties.
Principle: Establishes the test for remoteness of damages in breach of contract cases.
🔹 2. Breach of Trust
✅ Definition:
A breach of trust occurs when a trustee, who holds property or a fiduciary responsibility for the benefit of another (the beneficiary), acts contrary to the terms of the trust or abuses their position.
✅ Essential Elements:
There is a trust relationship (fiduciary duty).
The trustee misuses, misappropriates, or acts against the interest of the beneficiary.
The action causes loss to the beneficiary or gain to the trustee improperly.
✅ Legal Basis:
Governed by trust law (e.g., Indian Trusts Act, 1882; common law principles in the UK; and equity jurisprudence).
✅ Remedies:
Compensation for loss suffered by the beneficiary.
Restitution of property.
Injunction to prevent further misuse.
Removal of trustee or appointment of a new one.
Constructive trust to trace misappropriated assets.
✅ Case Law:
Boardman v Phipps [1967] 2 AC 46
Facts: A solicitor (Boardman) used information obtained in his capacity as an advisor to a trust to make a profit, even though it ultimately benefited the trust.
Held: Boardman was in a fiduciary position and was liable for breach of trust because he gained a personal profit without fully informed consent of the beneficiaries.
Principle: Even where the trust gains, if a fiduciary profits from their position without consent, it constitutes a breach of trust.
🔍 Key Differences: Breach of Contract vs Breach of Trust
| Aspect | Breach of Contract | Breach of Trust |
|---|---|---|
| Nature of Relationship | Contractual | Fiduciary (Trustee-Beneficiary) |
| Source of Obligation | Agreement between parties | Trust deed / fiduciary relationship |
| Duties Owed | Specific to contractual terms | Loyalty, honesty, no conflict of interest |
| Remedies | Damages, Specific Performance, Injunction | Compensation, Restitution, Account of Profit |
| Burden of Proof | On claimant to show breach and loss | On trustee to justify conduct if challenged |
| Standard of Conduct | As per contract | Higher standard—good faith and loyalty |
🧾 Example Scenarios:
Breach of Contract:
A company agrees to deliver 100 laptops by a specific date and fails to do so.
The other party suffers a business loss due to non-availability.
Breach of Trust:
A trustee sells trust property to a relative at undervalue without approval.
Even if done with good intention, this could still be a breach due to conflict of interest.
🔚 Conclusion:
While both Breach of Contract and Breach of Trust involve failure to fulfill obligations, they arise from different types of legal relationships and are governed by distinct principles and laws. Breach of contract is a matter of commercial/legal obligation, whereas breach of trust is a matter of fiduciary and ethical obligation.
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