A breach of contract is one party’s failure, without a legal excuse, to live up to any of its promises under a contract. A contract terminates by breach of contract. If the promisor has not performed his promise in accordance with the terms of the contract or where the performance is not excused by tender, mutual consent or impossibility or operation of law, then this amounts to a breach of contract on the part of the promisor. The consequence of this is that the promisee becomes entitled to certain remedies.
Explain the remedies for breach of contract?
Remedies for breach of contract is based on the Latin maxim ‘Ubi jus, ibi remedium’ denotes ‘where there is a right, there is a remedy’.
When someone breaches a contract, the other party is no longer obligated to keep its end of the bargain. From there, that party may proceed in several ways:
As soon as either party commits a breach of the contract, the other party becomes entitled to certain reliefs. These remedies are available under the Indian Contract Act, 1872, as also under the Specific Relief Act, 1963.Remedies under the Indian Contract Act, 1872 are:
There are three remedies under the Specific Relief Act, 1963:
Remedy means course of action available to an aggrieved party when other party breaches the contract. The manner in which a right is enforced or satisfied by a court when some harm or injury, recognized by society as a wrongful act, is inflicted upon an individual, it is called remedy. Remedies may be considered in relation to:
The remedies for the enforcement of contracts are generally by action. The form of these remedies depends upon the nature of the contract.
Breach of contract is failing to perform any term of a contract, written or oral, without a legal excuse. According to Black Law Dictionary: - “Breach of contract means failure to live up to the terms of a contract.” Therefore, breach of contract is a legal term that denotes a violation of a contract or agreement in which one party fails to fulfil its promises. In order to upheld a case of breach of contract the court must satisfy itself of all the following requirements:-
In contract law, the term rescission refers to the undoing, or unmaking of a contract between parties. The breach of contract no doubt discharges the contract, but the aggrieved party may sometimes need to approach the court to grant him a formal rescission, i.e. cancellation, of the contract. This will enable him to be free from his own obligations under the contract. The basic reasons for rescission can be stated as follows:-
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.
The theory of damages is that they are a compensation and satisfaction for the injury sustained, i.e. the sum of money to be given for reparation of the damages suffered should as nearly as possible, be the sum which will put the injured party in the same position as he would have been if he had not sustained the wrong for which he is getting damages.
The word “damage” is simply a sum of money given as compensation for loss or harm of any kind. The term “damages” in general sense, is compensation for causing loss or injury through negligence or a deliberate act, or an estimate of court or award of a sum as a fine for breach of a contract or of a statutory duty. It is the amount of money which the law awards or imposes as pecuniary compensation. Damages are a monetary payment awarded for the invasion of a right at common law.
Justice Greenwood defines the term as: “Damages generally refer to money claimed by, or ordered to be paid to, a person as compensation for loss or injury.”
Black’s law dictionary: “Damages are the sum of money claimed by or ordered to be paid to a person as compensation for loss or injury.”
According to Frank Graham: “Damages are the sum of money which a person wronged is entitled to receive from the wrong doer as compensation for the wrong.”
Damages may be defined as the disadvantage which is suffered by person as a result of the act for default of another. “Injuria” is damage which gives rise to a legal right to recompense; if the law gives no remedy, there is absque injuria, or damage, without the right to recompense. Therefore, the meaning of “damage” in a statute is a matter of great concern. Remedy by way of damages is the most common remedy available to the injured party. This entitles the injured party to recover compensation for the loss suffered by him due to the breach of the contract, from the party who causes the breach. The quantum of damages is determined by the magnitude of loss caused by breach.
The damages which may be awarded to the injured party may be of the following kinds:
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage cause to him thereby, which naturally arose in the usual course of things from such breach, or which the parties know, 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 damage sustained by reasons of the breach.
In Hadley vs. Baxendale, The crankshaft broke in the Claimant’s mill. He engaged the services of the Defendant to deliver the crankshaft to the place where it was to be repaired and to subsequently return it after it had been repaired. Due to neglect of the Defendant, the crankshaft was returned 7 days late. The Claimant was unable to use the mill during this time and claimed for loss of profit. The Defendant argued that he was unaware that the mill would have to be closed during the delay and therefore the loss of profit was too remote.
Held: The court held that claimant was entitled only to ordinary damages and defendant was not liable for the loss of profits because the only information given by Claimant to Defendant was that the article to be carried was the broken shaft of a mill and it was not made known to them that the delay would result in loss of profits.
Special damages would be the compensation for the special losses caused to the aggrieved party by the special circumstances attached to the contract. At the time of making the contract, a part may place before the other party some information about the special circumstances affecting him and tell him that if the contract is not performed properly, he would suffer some particular types of losses because of those special circumstances. If the other party still proceeds to make the contract, it would imply that he has agreed to be responsible for the special losses that may be caused by an improper performance of his obligation. Compensation for such special losses is called special damages.
In the case of Simpson v. London & North Western Railway Company, Plaintiff, a manufacturer, used to exhibit his samples of his equipment at agricultural exhibitions. He delivered his samples to Railway Company to be exhibited at New Castle. On the occasion he wrote “must reach at New Castle on Monday certain”. On the account of negligence on the part of Railway Company, the samples reached only after the exhibition was over. Plaintiff, claimed damages from Railway Company for his loss of profits from the exhibition.
Held: The court held that the railway company was liable to pay these damages as it had the knowledge of special circumstances, and must have contemplated that a delay in delivery might result in such loss.
In Govind Rao v. Madras Railway Company, Govind Rao was a tailor and consigned through rail some sewing machines to a place in Tamil Nadu. He planned to take part in a village fair, where he hoped to stitch garments and make profits. However, the train reached the town, after the fair concluded. Hence, Govind Rao could not participate in the fair. He sued the railway company for the loss of profits. It was held that he could not recover, as the special circumstances were not brought to the notice of the Railway company in the beginning itself.
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. These may be taken as an exception to the general principle that damages are awarded only for the financial loss caused by breach of contract.
Nominal damages are awarded where the plaintiff has proved that there has been a breach of contract but he has not in fact suffered any real damage. It is awarded just to establish the right to decree for the breach of contract. The amount may be a rupee or even less.
Compensation for loss or damage caused by breach of contract- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage 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 damage sustained by reason of the breach.
The term ‘remoteness of damages’ refers to the legal test used for deciding which type of loss caused by the breach of contract may be compensated by an award of damages. It has been distinguished from the term measure of damages or quantification which refers to the method of assessing in money the compensation for a particular consequence or loss which has been held to be not too remote. The rules on the remoteness of damage in the contract are found in the Court of Exchequer’s judgment in Hadley v Baxendale, as interpreted in later cases.
In Hadley v Baxendale, the plaintiff’s mill had come to a standstill due to their crankshaft breakage. The defendant carrier failed to deliver the broken crankshaft to the manufacturer within the specified time. There has been a delay in restarting the mill. The plaintiff sued to recover the profits they would have made if the mill was started without delay. The court rejected the claim on the ground that the mill’s profits must be stopped by an unreasonable delay in the carrier’s delivery of the broken shaft to the third person.
The damages which the other party should be entitled to receive in respect of such breach of contract should either be deemed to have arisen naturally, fairly and reasonably, i.e. according to the usual course of things, from such breach of contract itself, or as might reasonably have been deemed to have arisen in the contemplation of the contract. The rule in Hadley v. Baxendale consists of two parts:
Under this branch of the rule, compensation can be claimed for any loss or damage that arose in the usual course of things from the breach of contract. If the loss is one which does not arise in the usual course of things but in special loss arising out of special circumstances, then the situation would be covered by the second branch of the rule.
The first part of this section operates to affix liability on the person who has committed a breach of those matters as may fairly and reasonably be considered as arising naturally from the breach. Such matters would include the normal circumstances prevailing within the type of transaction in question. It is assumed for the purpose that a reasonable businessman must be taken to understand the ordinary business practices and exigencies of the other’s trade or business without the need for any special discussion or communication.
If the carrier causes the delay in delivering the goods at the destination, he can be made liable to pay the difference between the prices prevailing on the agreed date of delivery and that date on which the goods are actually delivered, because the loss arising on account of difference in prices on different dates can be considered to be arising naturally i.e. according to the usual course of things from the breach.
In Wilson v. Lancashire and Yorkshire Railway, The plaintiff, who was a cap manufacturer, gave a consignment of cloth meant for manufacturing caps to the defendants for carriage. The defendants made a delay in the delivery of the cloth at the destination. The plantiff could not execute the orders for caps as the season for the same had passed away. It was held that the plaintiff could claim only the difference between the value of the cloth between the agreed date of delivery and the actual date of delivery of the consignment. The plaintiffs, however, were not entitled to recover compensation for the loss of profits due to the caps not having been prepared or sold.
Ghaziabad Development Authority v. Union of India: The Ghaziabad development authority has announced through advertisements scheme for allotment of developed plots. There was unreasonable delay by the Authority in completing the scheme for development of plots. It was held that the purchaser could claim the loss of profit which occurred due to delay by the vendor of the plots. It was held that the buyer of plots could not claim any compensation for mental anguish caused by the delay in the performance of the contract.SC held that mental anguish cannot be a head of damages for breach of ordinary commercial damages.
In a breach for promise to marry, there results injury to feelings and disappointment and for that exemplary damages may be claimed. In Laxminarayan v. Sumitra, After the engagement, the husband continued to promise to marry the girl and had sexual contact with her, as a consequence of which she become pregnant. Then he refused to marry her. It was held that she was entitled to damages on various counts, such as physical pain, agony, indignity, chances of marriage becoming dim and social stigma. In this case Rs. 30,000 awarded by the lower court, was affirmed by the M.P. High Court.
If the loss on the breach of the contract does not arise naturally i.e. according to the usual course of things but it arises due to some special circumstances, the person making the breach of contract can be made liable for the same provided than those special circumstances were brought to his knowledge at the time of making the contract. If he had no knowledge of the special circumstances which result in the particular loss, he cannot be made liable for the same. Liability stated to be depending upon some knowledge and acceptance by one party of the purpose and intention of the other in entering into the contract. The liability of the defendant increases with the degree of knowledge he possesses.
After it has been established that a certain consequence of the breach of contract is proximate and not remote and the plaintiff deserves to be compensated for the same, the next question which arises is: What is the measure of damages, for the same, or in other words, the problem is of the assessment of compensation for the breach of contract. Damages are compensatory in nature. The object of awarding damages to be aggrieved party is to put him in the same position in which he would have been if the contract had been performed. Damages are, therefore, assessed on that basis.
In State of Kerala v. K.Bhaskaran , There was a breach of works contract by the government and the contractor brought an action to recover the loss of 10% profit in that contract. It was held that generally 10% profit is taken as an element in the estimation of the contract and the contractor was entitlted to claim compensation on that basis. In a contract for sale of goods, the measure 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 as on the date of breach of contract. Thus,
What are the rules under the Indian contract act for estimating the loss or damage arising from a breach of contract?
Define damages? Explain different type of damages awarded on breach of contract?
Liquidated damages are a kind of actual damages. Mostly, the term “liquidated damages” are found in a contract. In commercial agreements, liquidated damages are a useful contracting tool, but there is a problem that, if they are not considered properly or drafted correctly, they may be construed as a “penalty clause” and therefore becomes unenforceable. In Common Law, a liquidated damages clause will not be enforced if its purpose is to punish the wrong-doer or the party in breach rather than to compensate the injured party.
“Liquidated Damages” means a sum which the parties have assessed by the contract as damages to be paid whatever may be the actual damage. The parties to the contract may agree at the time of entering into the contract that, in the event of a breach, the breaching party shall pay a stipulated sum of money to the non-breaching party, or may agree that in the event of breach by one party any amount paid by him to the other shall be forfeited. It is an actual “pre-estimate of damages” likely to flow from the breach.
However, liquidated damage are distinguished from the term “penalty” which is an amount intended to secure the performance of the contract. If the compensation to be paid on the breach of contract is the genuine pre- estimate of the prospective damages, it is known as liquidated damages. If the compensation agreed to be paid in the event of breach of contract is the excessive and highly disproportionate to the likely loss, the amount is fixed in terrorem, with a view to discouraging breach of contract, it is known as penalty. Liquidated damages should be a reasonable estimate of actual damages that might result from a breach. But if specified sum is disapprotionate to the damages, it is called penalty.
Indian Law: Under Indian law, the position is somewhat different. In India, in every case of a stipulation of amount of damages in the contract, the court will work out the amount of loss suffered by the aggrieved party and award that as damages subject to the maximum of the stipulated amount.
It also needs to be understood that liquidated damages are different from special damages. Special damages are a compensation determined by court for the types of losses stipulated by the parties. In other words, the types of losses likely to result out of breach are pre-determined without their quantification. Under liquidated damages, the amount of damages itself is pre-estimated.
Liquidated damages are real or actual, covenanted pre-estimate of damages as mentioned above. However, A penalty is said to be a sum so stipulated in fear (with the object of threatening the party to perform the contract), and thus an amount can be said to be a penalty if the sum named is excessive and unconscionable. It is a penalty if the breach consists in paying of money and the sum stipulated is greater than the sum which ought to have been paid. Both are to be so judged on the facts and circumstances of each case. The question whether a particular stipulation in a contract is in the nature of the penalty has to be determined by the court keeping in view various relevant factors.
The basic difference between liquidated damages and penalty is as follows:-
Thus, mentioning the liquidated damages in commercial contracts is a very popular way of dealing with the possibility of breach of contract. The essence of liquidated damages is that the party in breach of its obligation under a contract is bound to pay a particular sum by way of compensation for that breach. And the sum, so payable, is fixed in advance and is written into the contract.
Liquidated damages are generally recommended in commercial context. The courts have recognised the advantages of liquidated damages for both the parties, as these are related to the general principle of freedom of contract which led to a general view on the part of the courts that these damages should be upheld, especially, where the parties are seen as free to apportion the risks between them. However, liquidated damages which constitute a penalty will not be enforceable. The advantages of liquidated damages can be concluded as:-
The claimant, Dunlop, manufactured tyres and distributed them to retailers for resale. The contract between Dunlop and New Garage contained a clause preventing new garage from selling the tyres below list price. The agreement said that, in the event of such a dispute arising, New Garage would pay ‘by way of liquidated damages and not as a penalty’, a sum of £5 per tyre. The defendants sold some tyres below the list price and the claimant brought an action for damages based on the amount specified in the contract. The defendant argued that the relevant clause was a penalty clause and thus unenforceable. The £5 sum was held by the judge to be enforceable; however, the Court of Appeal held that it was a penalty. Dunlop appealed this decision. The House of Lords held that Dunlop were entitled to enforce the agreement as it was a “genuine pre-estimate” of their potential loss as opposed to being a penalty.
The court held that if the sum is not genuine, or of an unconscionable amount, it may be considered a penalty by the courts and so will be unenforceable.
S.74 of the Indian Contract Act, 1872 emphasizes that I case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not actual loss is proved to have been caused by such breach. The emphasis is on reasonable compensation. If the compensation named in the contract is by way of penalty, consideration would be different and the party is only entitled to reasonable compensation for the loss suffered. But if the compensation named in the contract for such breach is genuine pre- estimate of the loss which the parties knew when they made the contract to be likely to result from the breach of it, there is no question of proving such loss or such party is not required to lead evidence to prove actual loss suffered by him. Burden of proof lies on the other party to lead evidence for providing that no loss is likely to occur by such breach.
Party rightfully rescinding contract entitled to compensation: A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non- fulfillment of the contract. Illustration: A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her 100 rupees for each night’s performance. On the sixth night, A willfully absents himself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfillment of the contract.
Remedy for a breach of contract available to an injured party against the guilty party is to file a suit upon quantum meruit. The phrase quantum meruit literally means “as much as is earned” or “in proportion to the work done.” A right to use upon quantum meruit usually arises where after part performance of the contract by one party, there is a breach of contract, or the contract is discovered void or becomes void. This remedy may be availed of either without claiming damages (i. e., claiming reasonable compensation only for the work done) or in addition to claiming damages for breach (i.e., claiming reasonable compensation for part performance and damages for the remaining unperformed part).
The aggrieved party may file a suit upon quantum meruit and may claim payment in proportion to work done or goods supplied in the following cases:
Where work has been done in pursuance of a contract, which has been discharged by the default of the defendant . For example, in the case of Planche v Colburn , Planche agreed to write a volume on ancient armour to be published, in a magazine owned by Colburn. For this, he was to receive $100 on completion.The claimant commenced writing and had completed a great deal of it when the defendant cancelled the series. The defendant refused to pay the claimant despite his undertaking and the fact that the claimant was still willing to complete. The claimant brought an action to enforce payment. Held: The claimant was entitled to recover £50 because the defendant had prevented the performance.
Where work has been done in pursuance of a contract which is discovered void’ or ‘becomes void,’ provided the contract is divisible . For example, in case Craven-Ellis v Canons Ltd., the company accepted the services rendered by the plaintiff. It was found that if the plaintiff did not perform the services, the company certainly would have hired some agent to perform those services. Hence, the plaintiff, on the basis of quantum meruit, succeeded in claiming the remuneration from the company for the work done regardless of the fact that he failed to obtain his qualification share within two months.
When something is done without any intention to do so gratuitously although there exists no express agreement between the parties. For example, in indian case, Ram Krishna vs Rangoobed , 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.
Specific performance was an equitable remedy which was provided by the court to enforce the duty of doing what the plaintiff agreed by contract to do, against a defendant. This remedy was granted by way of exception. Thus, this remedy was in contrast with the remedy by way of damages for breach of contract, which gives rise to pecuniary compensation for failure to carry out the terms of the contract. Both the remedies, Damages and specific performance, are available upon breach of obligations by a party to the contract. So, specific performance is a decree granted by the court to compel a party to perform his contractual obligations. This remedy was usually available where damages were not an adequate relief, e.g., where the subject matter of the contract is unique in nature.
In Nutbrown v Thornton, 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.
Held: 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:
The Specific Relief (Amendment) Act, 2018 introduces a paradigm shift in the prevalent law regarding contractual enforcement in India, shifting the focus from the previous default remedy of award of damages for breach of contract to enforcing specific performance of contracts.
The most important changes in the amending Act are:
Write a short note on “Injunction”.
Injunction is an order of a court restraining a person from doing particular act. It is a mode of securing the specific performance of the negative terms of the contract. To put it differently, where a party is in breach of negative terms of the contract i.e where he is doing something which he promised not to do, the court may, by issuing an injunction, restrain him from doing, what he promised not to do. Thus, injunction is a preventive relief.
In Lumley v Wagner, The defendant Johanna Wagner, an opera singer, was engaged by the claimant to perform in his theatre for a period of three months. There was a term in the contract preventing her from singing for anyone else for the duration of the contract. She was then approached by the manager of Covent Garden Theatre, Frederick Gye, who offered her more money to sing for him. The claimant sought an injunction preventing her from singing at Covent Garden Theatre. The defendant argued that to allow an injunction would in effect amount to specific performance of the contract in circumstances where specific performance would not be available.
Held: The injunction was granted despite it having the effect of forcing the defendant to sing for the claimant.
When through fraud or a mutual mistake of the parties, a contract or other instrument does not express their real intention, either party may institute a suit to have the instrument rectified. In such a case, if the Court finds that there has been a fraud or mistake, it may ascertain the real intention of the parties, and may, in its discretion, rectify the instrument so as to express that intention (Sec. 26 of the Specific Relief Act, 1963). But this must not prejudice the rights acquired by third persons in good faith and for value. If rectification is not possible, the Court orders for the cancellation of the contract.
A written document which is void or voidable against a person may cause him in some cases or serious injury, if it is left outstanding. In such a case, if he has any such apprehension, he may file a suit to have the document adjudged void or voidable and order it to be delivered up and cancelled (Sec. 31 of the Specific Relief Act, 1963)
Example: A, the owner of a ship, fraudulently representing the ship to be seaworthy induce B, an underwriter, to insure the ship, B may obtain the cancellation of the policy.
As soon as either party commits a breach of the contract, the other party becomes entitled to certain reliefs. These remedies are available under the Indian Contract Act, 1872, as also under the Specific Relief Act, 1963. There are three remedies under the Specific Relief Act, 1963:
Thus, the loss or damages caused to the aggrieved party must be such that either (i) it arose naturally or (ii) the parties knew, when they made the contract, was likely to arise. In other words, such compensation cannot be claimed for any remote or indirect loss or damage sustained by reason of the breach of the contract.
What is the most common remedy for breach of contracts. The usual remedy for breach of contracts is suit for damages. The main kind of damages awarded in a contract suit are ordinary damages. This is the amount of money it would take to put the aggrieved party in as good a position as if there had not been a breach of contract. The idea is to compensate the aggrieved party for the loss he has suffered as a result of the breach of the contract.
There are other remedies in a contract suit besides damages. The main one is specific performance. Where damages are not an adequate remedy, the court may direct the party in breach to carry out his promise according to the term of the contract. This is called specific performance of the contract.