Remedies for Breach of Contract

Introduction

When one thinks about “Remedies” in any form of contract, the only Latin maxim that comes to mind, “Ubi Jus Ibi Remedium” which denotes that where there is a right there is a remedy. There is no value of a contract, being the foundation head as a set of rights and obligations to the parties if there had been no remedies to enforce the rights. The party committing the breach of contract is called the guilty party and the party bearing the loss caused due to the breach is known as the aggrieved party or an injured party. In case there is a breach of contract the aggrieved party can have one or more than one but cannot have all of the remedies against the guilty party.

Types of remedies

Suit of Rescission

When there is a breach of contract and the contract is discharged by the injured party, the aggrieved party may have to approach the court to grant a formal recession. i.e. Cancellation of the contract which enables him to be free from his own obligations under the said contract.[1] The reasons for  recession can be stated as follows:-

  1. Innocent or Fraudulent representation; or
  2. Mutual mistake; or
  3. Lack of capacity to contract; or
  4. An impossibility to perform a contract not contemplated by the parties; or
  5.  Duress; or
  6. Undue influence.

A party can rescind a contract because of a breach by another party, but the breach must be so substantial that it defeats the purpose of the contract. One can also rescind a contract by agreement. If all parties to a contract agree to cancel it, they can do so.

Suit of Damages

The words “Damages” refers to monetary compensation of loss suffered.[2] The court desires that the guilty party should accept responsibility for any such loss of the aggrieved party and compensate him adequately. 

The theory explained by justice greenwood was that damages are satisfaction and compensation of any injury sustained which means that the sum of money to be given for reparation of the damages suffered should be as similar as possible from the sum which will put the injured party in the same position as he would have been if he has not sustained the wrong for which he is getting damages. Black law’s Dictionary defines damages as “the sum of money claimed by or ordered to be paid to a person as compensation for loss or injury.”

Types of Damages under Section 73 of The Indian Contract Act, 1872

When the aggrieved party claims damages as consequences of Breach, the court would first identify the losses keeping in view the provisions of Section 73[3] of the Act and the judgements received by the court of law.[4] On the source of such judgements, the accused party is entitled to one of the types of damages, depending upon the circumstances of the case.

  1. General or Ordinary Damages.

Losses that can be seen arising naturally and directly out of the breach in the usual course of things, that are unavoidable and logical consequence of the Breach. Damages for such losses are called General or ordinary Damages.

  • Special Damages

Special damages are the compensations for the special losses caused to the aggrieved party by the special circumstances attached to the contract, if the other party still proceeds with the contract it would be implied that he has agreed to be responsible for the losses.

  • Exemplary or Vindictive Damages

The court’s award damages for mental or emotional suffering also caused by the breach. Such damages are called exemplary or vindictive damages.

  • Nominal Damages

If the breach of contract causes no loss to the aggrieved Party, no damages need to be awarded to him. However, in order to record the fact of breach by a guilty party, the courts may award nominal or token damages.

Rules regarding the awards of damages are as follows

  1. Compensation not penalty

The principle of awarding damages is to compensate the aggrieved party for the loss they suffered and not to punish the guilty party for causing a breach.

  • Limited Damages

The aim is to place the aggrieved party to the extent that money can do it, in the same position in which he would have been if the contract had been performed properly.

  • Damages for attributtal Losses

The losses that are qualified as a violation of the Contract are awarded.

  • Mitigation of losses

The accused party is expected to sincerely minimize losses that are resulting out of the violation of a contract.

  • Damages in case of contracts of sale of goods

The accused party should take quick action to protect itself, in case a party breaks a contract.

  • Stipulation for liquidated damage

Sometimes the parties to contract, themselves stipulate the amount payable to the injured party by the guilty party as damages for the breach of contract. This stipulation of the amount is by the way of liquidated damages or by way of penalty.

  • Cost of Suit

The infringement of the contract by a party forces the other to initiate a legal action against the guilty party which initiates legal action against the guilty party entailing the expenditure.

Section 74[5] relates to the arrival of the amount stipulated for the damages caused to the injured party. The stipulated damages are determined by the parties in one of the following ways. the parties might have made an assessment of the losses that the aggrieved party would actually suffer in the event of a breach.[6] The pre-estimate of damages would be called by a stipulation by way of liquidated damages or that the parties might have mentioned an imaginary random amount and is the damage of the injured party, the purpose being the burden of the guilty party with a punishment to discourage him from committing a violation of contract, which is called a stipulation by way of “penalty”.

Difference Between Liquidated Damages and Special Damages

Liquidated damages are different from Special Damages. Special Damages are compensation determined by the court for the losses anticipated by the parties. Under liquidated damages the amount of damage itself is pre-estimated.

Exception to Section 74  of the Indian Contract Act,1872

Section 74 of the Indian Contract Act, 1872 has provided an exception to the main rule. The exception implies that the rule of Section 74 may not apply in some cases and the total amount implied as damages will be paid to the injured party by the guilty party without the assessment of loss suffered.[7] The exception to Section 74 only applies when a person has executed a bail, recognizance before the court. Or where the person has made a contract with any act of government authority to perform a public duty by executing the bond.

Suit for Specific Performance

A suit can be filed by any party of the court competent jurisdiction. In the court of jurisdiction, it does not compel a party to do something that he has refused to do so.

In the case of Nutbrown v Thornton [8] The claimant entered a contract to purchase some machinery from the defendant. The defendant, in breach of contract, refused to deliver the machines. The defendant was the only manufacturer of this type of machinery. The claimant bought an action for breach of contract seeking specific performance of the contract. Specific performance of the contract was granted. Whilst an award of damages would ordinarily be given for non-delivery of goods, damages would be inadequate to compensate the claimant because he would not be able to buy the machines elsewhere. The court has wide discretionary power to award specific performance and in exercising this discretion, the following factors are taken into account:

  1. Delay in asking for the order.
  2. Whether the person seeking performance is ready to perform his part of the Contract.
  3. The difference between the benefit (the order would give to one party) and the cost of performance to the other.
  4. Whether the person against whom the order is sought would suffer hardship in performing.
  5. Whether any third-party rights would be affected.
  6. Whether the contract lacks adequate consideration (the rule “equity will not assist a volunteer” applies so that specific performance will not be ordered if the contract is for nominal consideration even if it is under seal).

Suit for Injunction

It is a mode of securing the specific performance of the terms of the contract, and for the performance of the contract, the injured party may seek another party for the damages.[9]

In the case of Davendra Lal Mehta vs.  Sh. Dharmendra Mehta & Anr.[10] in which the court held that the present application for amendment of the plaint is hopelessly time-barred and there is considerable delay and latches in the filing of this application. Accordingly, application for amendment is also not maintainable and the present appeal, as well as an application for amendment, is not maintainable and the same is hereby dismissed with costs of Rs.20,000/-. Costs to be paid by the appellant to respondent No.1, within one month from today, failing which the trial court shall recover the same, in accordance with the law.

Suit For Quantum Meruit

The term Quantum Meruit means,[11] “as much as earned. It implies a payment a person deserves for his actual work done. When a party does some work under a contract and the other party repudiates the contract, somehow the full performance of the contract is impossible, and then the party who has done the work can claim remuneration for the work under a suit of Quantum Meruit. Even if the person who has done the work is the one who is guilty of breach of contract, he too is entitled to be paid quantum meruit.

In the case, Ram Krishna vs Rangoobed [12] , where A ploughed the field of B with a tractor to the satisfaction of B in B’s presence, it was held that A was entitled to payment as the work was not intended to be gratuitous and the other party has enjoyed the benefit of the same.

A party who is guilty of breach of contract may also sue on a quantum meruit provided both the following conditions are fulfilled: The contract must be divisible, and the other party must have enjoyed the benefit of the part which has been performed, although he had an option of declining it.

Conclusion

After going through all of the remedies given above an aggrieved party can seek justice from the court, and however punish the guilty party for the breach of contract that had taken place on his behalf. One can look upon the cases given for reference on the six remedies for the breach of contract. When the parties reach a sufficient agreement and are legally bound to one another, a contract is concluded between the parties. A contract can also be concluded with the help of acceptance and offer.


[1] Mercantile law, Remedies for breach of contract, jandk icai.org, https://www.jandkicai.org/pdf/16820Remedies.pdf.

[2]  Mercantile Law, supra note 1, at 1.

[3] Indian Contract Act, 1872, No. 9, Acts of Parliament, 1992 (India)

[4] Mercantile Law, supra note 1, at 1.

[5] Indian Contract Act, 1872, No. 9, Acts of Parliament, 1992 (India)

[6] Mercantile Law, supra note 1, at 1.

[7] Mercantile Law, supra note 1, at 1.

[8]  Nutbrown v Thornton (1805) 10 Ves 159

[9] Mercantile Law, supra note 1, at 1..

[10] Davendra Lal Mehta vs Sh Dharmendra Mehta &Anr, CM No.17561/2008.

[11] Mercantile Law, supra note 1, at 1..

[12] Ram Krishna v. Rangoobed, AIR 1959 Bom 519, (1958) 60 BOMLR 459


Authored By: Diti Doshi, 5th Year, BLS LLB, Asmita Law College, Mumbai

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