Remedies for Breach of a Contract

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What is a Contract?

In general, the term contract implies a legally binding arrangement concluded between the two parties which should include terms and conditions over which the courts have the power and the responsibility to enforce them.

Breach of Contract

In a general sense, breach is a failure to act in a way that is expected or promised. Failure to enforce the conditions of a contract, written or oral, without a legal justification, is a breach of contract. This may include not completing a job, not paying in full or on time, failure to deliver all the goods, substituting inferior or significantly different goods, not providing a bond when required, being late without excuse, or any act which shows the party will not complete the work. One of the most common reasons for filing lawsuits for damages or claims for “specific performance” of the contract in court is breach of contract. The court must meet any of the following conditions in order to support a case of breach of contract:

  1. The contract must have validity. It must include all the necessary elements of the contract in order for a court to hear it. If all the necessities are not present, the contract is not deemed to be a valid contract; the court is therefore not liable for any action.
  2. The claimant must prove that the defendant has violated the terms of the contract.
  3. The plaintiff did everything possible for the execution of the contract.
  4. The complainant must have given the defendant fair notice of such a violation. This would prove to be better than an oral warning if the notice is in writing.

Remedies for Breach of a Contract

A breach of contract arises when a party to the contract renounces its responsibility under it or, by its own act, makes it difficult for it to satisfy its obligations under it, or fails to fulfil those obligations in full or in part. A breach of contract can be Anticipatory or Present. Breach of Contract leads to the infringement of the rights of the non-breaching party and the breaching party suffers a loss. Hence, his rights are needed to be restored and he must be reimbursed. For this, various remedies for breach of a contract are available to the aggrieved party. Remedies for breach of a contract are based on the Latin theory that ‘Ubi jus, ibi remedium‘ signifies ‘where there is a right, there is a remedy.’

The way a court enforces or satisfies a right when any damage or injury is imposed on a person, accepted by society as a wrongful act, is called a remedy. Remedies for breach of a contract can be taken into consideration in relation to:

  1. The execution of contracts.
  2. The rectification of wrong doings or accidents.

Generally, the solutions for the execution of contracts are by intervention. The type of these remedies for breach of a contract depends on the terms of the contract.

Suit for Damages

The term ‘damages’ may be defined as the monetary compensation payable by the defaulting party to the aggrieved party for the loss suffered by him. The aggrieved party, may therefore bring an action for damages against the party who is guilty of the breach of the contract. And the party, guilty of the breach, id liable to pay damages to the aggrieved party.[1] The primary purpose of damages is to compensate the complainant and, if the breach of contract did not occur, put him in the same position he would have held. Accordingly, it should be noted that the damages are awarded by way of compensation for the injury suffered by the complainant and not for the penalty of the default party.

 In Common Cause v. Union of India[2], the meaning of the term “damages” was derived by the Supreme Court, as suggested by Mc Gregor at para 127, as follows:

“Damages are the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum which is awarded unconditionally.”[3]

Essentials of Damages

The three fundamental elements of claims for damages, as pointed out by the Supreme Court, in Organo Chemical Industries v. Union of India[4]:

  • detriment to one by the wrongdoing of another;
  • reparation awarded to the injured through legal remedies, and
  • its quantum being determined by the dual components of pecuniary compensation for the loss suffered and often, not always, a punitive addition as a deterrent-cum-denunciation by the law.[5]

Damages can be described as the disadvantage suffered by a person as a result of another’s act of default. ‘Injuria’ is an injury that gives rise to a legitimate right to compensation; if no redress is given by statute, absque injuria or damage shall take place without the right to compensation. The definition of ‘damage’ in a statute is therefore a matter of great significance. The most prevalent recourse available to the injured party is compensation by way of damages. It entitles the injured party to recover compensation from the party causing the violation for the damage sustained by the injured party due to the infringement of the contract. The sum of damage is measured by the severity of the breach-induced failure.

Types of Damages

  1. Ordinary/ General Damages: Section 73 of the Indian Contract Act deals with general/direct damages; that is, damages which, inevitably, occurred in the ordinary course of the proceedings as a consequence of the violation, or which the parties realised (when they entered into the contract) were likely to result from the breach thereof.
  2. Special Damages: The remedy for the special damages inflicted to the aggrieved party by the special conditions attached to the contract will be special damages. At the time of making the contract, a party may put some details about the special circumstances affecting it before the other party and warn him that if the contract is not properly executed, due to those special circumstances, he will incur certain specific types of losses. If the other party continues to sign the contract, it would mean that it has agreed to be liable for special damages which could be incurred by the poor performance of its obligations. Compensation for certain special components. Losses are considered special losses.
    • Simpson v. London & North Western Railway Company[6], in this case Plaintiff, a manufacturer, used his samples of his machinery to exhibit at agricultural exhibitions. He submitted his samples for display at New Castle to the Railway Company. He wrote on the occasion, “Must reach at New Castle on Monday.” On account of the Railway Company’s incompetence, the samples were only collected after the show was over. Plaintiff, sought Railway Company tp provide damages for his loss of exhibition income. The court held that, because it was aware of specific circumstances, the railway company was liable to pay these damages and must have considered that a delay in delivery could result in such a loss.
    • In Govind Rao v. Madras Railway Company,[7] Govind Rao was a tailor and some sewing machines were sent by rail to a place in Tamil Nadu. He decided to participate in a fair in the village where he wanted to stitch clothes and make money. The train, however, reached after the fair ended. Govind Rao was therefore unable to participate in the fair. For the loss of income, he sued the railway company. It was held that he was unable to recover, as the special circumstances were not brought to the attention of the railway company at the outset.
  3. Vindictive Damages: At time breach of contract by one party not only results in monetary loss to the injured party but also subjects him to disappointment and mental agony. In such cases monetary compensation alone cannot provide an appropriate remedy to the sufferings of the injured party. Thus there is a need for vindictive damages.[8] Vindictive damages do not form part of the contractual laws. The idea is borrowed from English legislation. There are two forms of contracts where Indian courts consider vindictive damages to be awarded:
  4. Breach of a marital contract. In this situation, the amount of damage would depend on the degree of the feeling of the party’s injury. One would be ruined, the other might not worry so much.
  5. If a banker refuses to honour a customer’s cheque while keeping his money in his hands, the customer experiences a loss of prestige.
  6. Nominal Damages: Often, an individual brings a case for breach of contract and proves that a breach has actually happened but does not prove that any real damage has been sustained. For example, this can occur because of the rules for calculating damage and the requirement that damage should be predictable and confirmed with certainty. In such a case, nominal damages are paid to the injured party. These damages are awarded purely in order to recognise the injured party’s right to seek damages and are of a very limited sum.
  7. Liquidated Damages and Penalty: In the event the contract is violated by either party, the contracting party will stipulate in the contract an amount of money to be paid. Depending on the intent of setting the amount, it can be called ‘liquidated damages’ or ‘penalty’. The goal of setting a sum as ‘liquidated damages’ is to compensate the injured party for the loss caused by the other’s infringement. It is therefore a rational pre-estimation of the loss due to non-performance of the contract. The object of providing a ‘penalty’ in a contract is to prevent a party from violating it and if the contract is broken anyway, to provide a special punishment. It is also an amount that has no relation to the probable loss, and is usually disproportionate to the damages that are likely to accrue as a consequence of the violation.

To understand the role of English Law in this respect, the above distinction is necessary. English law accepts ‘liquidated damages’ as compensation, regardless of whether the amount so defined is greater or less than the real damages. But it does not approve the amount specified as ‘penalty’ on the ground that reasonable remedies for breach of a contract can be assessed only by the government, not by private individuals.

Indian Contract Law differs from English law in this matter. It does not recognise any difference between ‘liquidated damages’ and ‘penalty’. Nor does it allow any sum fixed by the parties as damages. It says that the injured party is entitled to a reasonable compensation in case of breach subject to the maximum of the amount fixed as ‘liquidated damages’ or ‘penalty’ by the parties to the contract.[9]

Section 74 of the indian Contract Act, 1872, provides that, “when a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the other party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be the penalty stipulated for.”[10]

Therefore, the amount stated in the contract is not awarded as compensation in India. The court is left to assess the real loss or fair compensation and to grant the same, which would not, however, exceed the amount stated in the contract.

Remoteness of Damage

The term ‘remoteness of damages’ refers to the legal test used to determine the form of loss can be covered by the award of damages incurred by the violation of the contract. It was distinguished from the term harm or quantification measure that refers to the method of determining the compensation for a specific outcome or loss in cash that was deemed not too distant.

The rules on the remoteness of the damage in the contract are set out in the Hadley v Baxendale [11]judgement of the Court of Exchequer, as interpreted in later cases. The plaintiff’s mill had come to a standstill in Hadley v Baxendale because of its crankshaft breakage. Within the agreed time, the defendant carrier failed to supply the broken crankshaft to the manufacturer. A delay in restarting the mill has occurred. The plaintiff sued if the mill was started without delay to recover the money they would have made. The court dismissed the claim on the ground that the profits of the mill had to be stopped by an unfair delay in the supply of the damaged shaft to the third person by the courier.

The damages which the other party should be entitled to obtain in respect of such a contractual breach should either be considered to have occurred naturally, fairly and appropriately, i.e. in the ordinary course of the case, as a consequence of the contractual breach itself, or as could reasonably have been considered to have arisen in the sense of the contractual breach. The Hadley v. Baxendale clause consists of two parts:

  1. As can be fairly and reasonably considered to occur naturally, i.e. from such violation, according to the ordinary course of things; or;
  2. As may fairly be believed to have been in both parties’ contemplation at the time they made the contract.

Measure of Damages

After it has been decided that there is a proximate and not a distant result of the breach of contract and that the claimant deserves to be compensated for the same, the next question that arises is: what is the calculation of the damages for the same or, in other words, the issue is the determination of the damages for the breach of contract. Damages are of an offsetting nature. The aim of granting damages to the aggrieved party is to place him in the same role he would have been in if the contract had been executed.

Therefore, losses are calculated on that basis. There was a violation of the works contract by the government in the State of Kerala v. K. Bhaskaran[12] and the contractor brought an action to recover the loss of that contract of 10 percent profit. It was held that 10% profit is usually taken as an aspect of the contract calculation and the contractor was entitled to claim compensation on that basis. In a contract for sale of goods, the calculation of damages is the difference between the contract price and the market price on the date of the breach of contract. The damages are ascertained on the date of the contractual violation. Accordingly,

  1. If the buyer has committed a breach of the contract, the seller may be able to seek damages arising on the date of the breach of the contract, and it is not appropriate for the seller to resell the products on that date;
  2. If the seller has committed a breach of the contract, the buyer may be entitled to seek damages arising on the date of the breach of the contract, and it is not appropriate for the buyer to re-purchase the goods on that date.

Suit for Quantum Merit

A argument on quantum merit is a redress for a breach of contract open to an injured party against the guilty party. Literally, the term quantum merit means “as much as is earned” or “in proportion to the job done.” A right to use on quantum merit typically occurs if there is a breach of contract after part performance of the contract by one party, or the contract is considered invalid or becomes void. This remedy for breach of a contract will be used either without claiming damages (i.e. claiming fair compensation only for the work done) or in addition to claiming damages for the violation (i.e. claiming reasonable compensation for the performance of the part and damages for the remaining part not performed).

Claim for Quantum Merit

The aggrieved party may file a quantum meruit lawsuit and in the following cases may demand reimbursement in proportion to work performed or products supplied:

  1. Where work has been undertaken in pursuance of a contract discharged by the default of the defendant.
  2. Where work has been done in search of a contract that is discovered void, given the contract is divisible, or ‘becomes void.’
  3. There is no express agreement between the parties when anything is done without the intention of doing it free of charge.
  4. A party who is guilty of violation of a contract can also sue a quantum merit if any of the following conditions are fulfilled: the contract must be divisible, and the other party must have gained from the performed section, even if it had the opportunity to refuse it.

Conclusion

The parties who enter into commercial transactions are more vigilant than ever because of the aggressive growth in the field of technology, thereby making the parties deliberate even on the minute information or requirements so that they can better protect their interest. In particular, as a measure to preserve, secure and protect their respective interests in the event of a violation of the terms of the contract, the parties usually discuss and agree on the various remedies for breach of a contract that may be invoked by the injured party to mitigate and compensate for the damages that the injured party may experience as a result of that breach. The courts in India should interpret the above sections, i.e. sections 73 and 74, quite carefully, so that these concepts will help the common citizen. In addition, the legislation is made to encourage, not to intimidate, people. Therefore, these values should be used, not misused.

For more articles on Law of Contracts, Click Here.

For law notes, Click Here.


[1] LegalServicesIndia.com, http://www.legalservicesindia.com/article/411/Suit-For-Damages.html, last visited on : 31st January, 2021

[2] Common Cause v Union of India, 1999 (6) SCC 667

[3] Indian Case Law, https://indiancaselaws.wordpress.com/2017/01/12/damages-under-indian-contract-act-1872/, last visited on : 31st January, 2021

[4] Organo Chemical Industries v Union of India, 1979 SC 0582 MANU

[5] Indian Case Law, https://indiancaselaws.wordpress.com/2017/01/12/damages-under-indian-contract-act-1872/, last visited on : 31st January, 2021

[6]  Simpson v London & North Western Railway Company [1876] 1 Q.B.D. 274

[7]  Govind Rao v Madras Railway Company ILR (1898) 21 Mad 172.

[8] LegalServicesIndia.com, http://www.legalservicesindia.com/article/411/Suit-For-Damages.html, last visited on : 31st January, 2021

[9] LegalServicesIndia.com, http://www.legalservicesindia.com/article/411/Suit-For-Damages.html, last visited on : 31st January, 2021

[10] LegalServicesIndia.com, http://www.legalservicesindia.com/article/411/Suit-For-Damages.html, last visited on : 31st January, 2021

[11]

[12] State of Kerala v. K. Bhaskaran, AIR 1985 Ker 49


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