REMEDIES FOR BREACH OF CONTRACT UNDER INDIAN CONTRACT ACT

 

REMEDIES FOR BREACH OF CONTRACT UNDER INDIAN CONTRACT ACT:

 

v INTRODUCTION:

 

According to Section 2(h) of the Indian Contract Act, 1872 an agreement enforceable by law is contract. An agreement is enforceable by law, if it is made by the free consent of the free consent of the parties competent to contract for a lawful consideration and with a lawful consideration and with a lawful object and not expressly declared to be void.

 

Thus, Contract= proposal + acceptance + enforceable by law

 

In general sense, Breach is failure to act in a required or promised way.

 

According to Merriam Webster’s Dictionary of Law: - Breach means ‘a failure to do what is required by a law or an agreement or a duty.’

 

According to Oxford Law Student Dictionary: - Breach means ‘an act of breaking or failing to observe a law, agreement, or code of conduct.’

 

A breach of contract is failure to perform any term, oral or written, as per the contract without a legal excuse. There is various way to remedy a breach assuming contract it has not been waived. Typically. The remedy for ‘breach of contract’ is an award of money damages that due to breach of contract. When dealing with unique subject matter, specific performance may be ordered to contracting party.

 

 

According to Black Law Dictionary: - Breach of contract means failure to live up to the terms of a contract.

 

Breach of contract is the failure to perform what a party is under a duty to perform made in contract. At the happening of non-performance by one party then the other non-breaching party is entitled to choose one or more remedies. Unless damages would be inadequate a court will award money damages. A breach of contract entitles the non-breaching party to sue for money (damages). As in the context of contract law, damaged compensate the non-breaching party for the loss of the contract.  Damages place the innocent party in the same position they would have occupied had the contract been fully performed.

 

v MEANING OF REMEDY:

 

A remedy is the course of action available to an aggrieved party (i.e., the party not at default) for the enforcement of a right under a contract.

 

v REMEDIES FOR BREACH OF CONTRACT:

 

When a contract is breached, there are specific remedies to it. Broadly speaking, there are five remedies available. They: -

 

• 1.  Rescission of the Contract
• 2.   Suit for damage
• 3.   Suit for Quantum Meruit
• 4.   Suit for Specific Performance
• 5.   Suit for Injunctions.

 

Let’s discuss in details.

 

1. RESCISSION OF THE CONTRACT

 

Rescission means a right not to perform obligation. The term rescission refers to the cancellation of contract.

 

When one party to the contract to the contract breaches the contract, the other party need not perform his part of the obligation. The aggrieved party may rescind the contract. In such cases, the injured / aggrieved party can either rescind the contract of file suit for damages. In general, rescission of the contract is accomplished by a suit for damages.

 

For example: A agrees to supply 10 tons of wheat to D on 20^th October. D promises to pay for the goods on its receipt. A does not supply the goods on the due date. Here, D is discharge from liability of paying the price. D is entitled to rescind the contract and to claim compensation for the damage which he has sustained because of non-supply of goods on the due date.  

 

2. SUIT FOR DAMAGES:

 

The aggrieved party of the contract is entitled for monetary compensation when the contract is breached. The objective of suit for damages is to put the aggrieved / injured party in a position in which he would have been had there been performance and not breach. The aggrieved / injured party must be able to prove the actual loss or no damages will be awarded.

 

In India, the rules relating to damages are based on the judgement in English case of Hadley vs. Baxendale. The fact of this case was: H’s mill was stopped due to the breakdown of a shift. He delivered the shift to B, a common carrier, to be taken to a manufacturer to copy it and make a new one. H had not made it known to B that delay would result in a loss of profit. By some neglect on the part of B, the delivery of shaft wad delayed in transit beyond a reasonable time. Held, B was not liable for loss of profit during the period of delay as the circumstances communicated to B did not show that a delay in the delivery of shaft would entail loss of profits to the mail. The following rule of law was laid down in the case: when two parties have made a contract which one of them broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplate of both parties, at the time they made the contract, as the probable result of the breach of it.

Section-73 of the Indian contract Act, 1872; Compensation for loss or damages caused by breach of contract—When a contract has been broken, the party who suffers by such breach is entitled to receive, from the who has broken the contract, compensation for any loss or damages caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.

 

Explanation- When a contact has been broken, the party who suffers by such breach is entitled to received, from the party who has broken the contract, compensation for any loss or damages caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.  Such compensation is not to be given for any remote and indirect loss or damages sustained by reason of the breach.

 

Compensation for failure to discharge obligation resembling those created by contract. —

 

When an obligation resembling those created by contract has been incurred and has not been discharge, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

 

Explanation- When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

 

Explanation-    In estimating the loss or damages arising from a breach of contract, that means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

 

Damages can be of five kinds.

 

• 1.   Ordinary or General Damages
• 2.   Specific Damages
• 3.   Exemplary or Punitive Damages
• 4.   Liquidated Damages and penalty
• 5.   Nominal Damages

 

1. Ordinary or General Damages- Ordinary damages are those which naturally arise in the usual course of things from such breach. These damages can be recovered if the following two conditions are fulfilled:

 

• a.   The aggrieved party must suffer by breach of contract, and
• b.  The damages must be proximate (i.e., direct) consequences of the breach of contract is the differences between the contract price and the market price of such goods on the date of breach.

 

Example: On 1^st December, A contracted to sell and deliver 50 tons of wheat @ Rs 8000 per ton to Y on 1^st Jan. on 20^th Dec. B, afterwards, contracted to sell those goods to Z at Rs 10,000 per ton. A failed to deliver goods on 1^st Jan. when the price of the wheat was Rs 9,500 per ton. B is entitled to recover Rs- 75,000 [i.e., (Rs 9,500 – 8,000) X 50]. B is not entitled to recover Rs 1,00,000 as profit which would arise to B from the sale to Z because the profit is the indirect consequence of the breach of contract.

 

Example- Company X delivered the wrong kind of furniture to company B. After discovering the mistake later in the day, company B insisted that company X pick up the wrong furniture and deliver the right furniture. Company X refused to pick up the furniture and said that it could not supply the right furniture because it was not in stock. Company B successfully sued for breach of contract. The general damages for this breach could include:

• ·      Refund of any amount Company B had prepaid for the furniture; plus
• ·  Reimbursement of any expense Company B incurred in sending the furniture back to company X; plus
• ·      Payment for any increase in the most Company B incurred in buying the right furniture, or its nearest equivalent, from another seller.

 

2. Special Damages- Special Damages, also called consequential damages, cover any loss incurred by the breach of contract because of special circumstances or conditions that are not ordinarily predictable. These are actual loss caused by the breach, but not in a direct and immediate way. To obtain damages for this type of loss, the non-breach party must prove that the breaching party knew of the special circumstances or requirement at the time the contract was made.

 

Example: In the scenario above, if Company A knew that Company B needed the new furniture on a particular day because its old furniture was going to be carted away the night before, the damages for breach of contract could include all of the damages awarded in the scenario above, plus: payment for company B’s expense in renting furniture until the right furniture arrived.

 

Example: X, a builder, contract to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. X is informed of the contract between B and C. X builds the house to badly that before the first of January it falls down, and has to be rebuilt by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. X must make compensation to B for the cost rebuilding the house, for the rent loss, and for the compensation made to C.

 

3. Exemplary or Punitive Damages- Exemplary damages are those which are in the nature of punishment. The court may award these damages in case of (i) a breach of promise to marry, where damages shall be calculated on the basis of mental injury sustained by the aggrieved party, (ii) wrongful dishonour of a cheque by a banker. In case of wrongful dishonour of a cheque, the rule is smaller the amount of the cheque, larger will be the amount of damage award. A trader may recover such damages as wrongful dishonour of cheque shall adversely affect his goodwill but a non-trader whose cheque is wrongfully dishonoured will have to prove the loss of goodwill before claiming such damages.

 

4. Liquidated damages and penalty- When the parties toa contract at the time of formation of contract, specify a sum which will become payable by the party responsible for beach, such specified sum is called:

•     i.         Liquidated damages if the specified sum represents a fair and genuine   pre-estimate of the damages likely to result due to breach;
•    ii.           Penalty if the specified sum is disproportionate to the damages likely to result due to breach.

 

In India, there is no distinction between penalty and liquidated damages. The Courts in India allow only reasonable compensation not exceeding the specified sum (Section-74).

 

But under English law, liquidated damages are enforceable and not penalty.

 

5. Nominal damages- In the absence of any concrete material to show the extent of damages suffered by plaintiff, resort will have to the maxim of nominal damages. Nominal damages are those which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of breach of contract. These damages are called nominal because they are very small, say, one rupee. The court may or may not award these nominal damages.

 

Case law- M/s. Vikas Electricity Service Vs. Karnataka Electricity Board.

 

3. SUIT FOR QUANTUM MERUIT:

 

The term Quantum Meruit is derived from Latin word which means “what one has earned”. The injured party can file a suit upon Quantum Merit and may claim payment in proportion to work done or goods supplied. Section 65 to 70 deals with provisions relating to suit for Quantum merit.

 

Ordinarily, if a person, having agreed to do some work or render some services, has done only a part of what he was required to do, he cannot claim anything for what he has done. When a person agrees to complete some work for a lump sum, non-completion of the work does not entitle him to any remuneration even for the part of the work done. But the law recognises an important exception to this rule by way of an action for ‘Quantum Merit’. Under this section, if A and B have entered into a contract and A, who has already performed a part of the contract, is then prevented by B from performing the rest of his obligation under the contract, A can recover from B reasonable remuneration for whatever he has already done.

 

It may be noted that this action is not an action for compensation for the breach of contract by the other side. It is an action which is alternative to an action for the breach of contract. This action in essence is one of the restitutions, putting the party injured by the breach of contract in apposition in which he would have been the contract not been entered into. It merely entitles the injured party to be compensated for whatever work he may have already done, or whatever expense he may incurred.

 

In the word of Alderson, B. where, one party has absolutely refuse to perform, or has rendered himself incapable of performing his part of the contract, he put it in the power of the other party either to sue for the breach of it or to rescind the contract and sue on quantum meruit for the work actually done.

 

The essentials of an action of quantum meruit are as follows:

•     i.       One of the parties makes a breach of contract or prevents the performance of it by the other side.
•    ii.        The party injured by the breach of contract, who has already performed a part of it, elects to be discharged from further performance of the contract and brings an action for recompense for the value of the work he has already done.

 

4. SUIT FOR SPECIFIC PERFORMANCE:

 

The suit for Specific Performance is regulated by the Specific Relief Act, 1963. Specific Performance means the actual carrying out of the contract as agreed. The Court may grant for specific performance where it is just and equitable to do. Specific Performance may be granted under the following grounds:

•     i.          Lack of standard for ascertaining the damages
•    ii.         Where compensation is not adequate relief
•  iii.         Sustainable work done by plaintiff.

 

The Court cannot grant the remedy of specific performance in the following situations:

•     i.         Where monetary compensation is an adequate relief
•    ii.        Where the court cannot not supervise the actual execution of the work
•  iii.        Where the contract is for personal services
•   iv.        Where the contract is not enforceable by either party against the other.

 

Example: X agreed to sell an old painting to Y for Rs 50,000. Subsequently, X refused to sell the painting. Here, Y may fil a suit against X for the specific performance of the contract.

 

5. SUIT FOR INJUNCTION:

 

Injunction is an order of the court restricting a person from doing a particular act. Where the defendant is doing something which he is promised not to do, then the injured party will get a right to file a suit for injunction.

 

In Metropolitan Electric Supply Co. vs. Ginder, (1901) 2 Ch 799, G agreed to take the whole electric energy required by his premises from the plaintiffs. Held that this was in substance an agreement not to take energy from any other person and it could be enforced by injunction. However, in a contract where personal services are involved, a clear negative stipulation is required for the issue of an injunction for enforcing specific performance.

 

Example- A agreed a sing at B’s theatre only during the contract period. during the contract period, A made contract with C to sing at another theatre and refused to perform the contract with B. it was held that A could be restrained by injured from singing from singing for C.

 

v CONCLUSION:

 

The development of the Law of Contract in its modern form is mainly based on the Latin Philosophy called “All Pacts Should Be Maintained” (Pacta Sunt Servenda). With connotation of above principle, the Indian legal system recognized the rules for breach of contract. This protects the contracting party from any damages caused due to non-performance of any contracting party.

Law of Contract can be described as that branch of law which determining the circumstances in which a promise shall be legally bound on the making it. An obligation to perform in the contract includes a duty bound to be answerable on the breach of contract. It creates liability to pay damages for the consequences thereof to the other party.