CHAPTER 11

REMEDIES FOR BREACH OF CONTRACT

A contract gives rise to correlative rights and obligations. A remedy is the means given by law for the enforcement of a right.

When a contract is broken, the injured party has one or more of the following remedies:

1. Rescission of the contract.2. Suit for damages3. Suit upon quantum meruit.4. Suit for specific performance of the

contract.5. Suit for injuction.

1. RESCISSION When a contract is broken by one party, the

other party may sue to treat the contract as rescinded and refuse further performance. In such a case, he is absolved of his obligation under the contract.

Example: A promises B to supply 10 bags of cement on a certain day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharge from liability to pay the price.

When the contract is rescind by the aggrieved party as a result of the breach of contract, it has the following effects:

1. The aggrieved party is not required to perform his part of obligation under the contract.

2. The aggrieved party can claim compensation for any loss.

3. The party is liable to restore benefit, if any.

2. DAMAGES Damages are monetary compensation allowed to the

injured party by the court for the loss or injury suffered by him by the breach of a contract.

Kinds of damges:1. Damages arising naturally – ordinary damages Example: Amar has agreed to give his car on lease

to Aalap for a period of 1 year for Rs 30,000. Amar later on refuses to give the car on lease and breaches the contract, and therefore, Aalap has to enter in lease for taking the car on lease for Rs 40,000. In this case, Amar is liable to pay Aalap Rs. 10,000, the difference between the contract price and the price. Aalap pays for the lease of the care from some other person. Here, Rs 10,000 is ordinary damage.

2. Special damages: These are damages which are payable for the loss arising due to some special circumstances.

Example: G, a tailor, delivered a sewing machine and some cloth to a railway company to be delivered at a place where a festival was to be held. He expected to earn some exceptional profit at the festival but he did not bring this fact to the notice of the railway authorities. The goods were delivered after the conclusion of the festival. Held, he could not recover the loss of profit.

3. Vindictive or exemplary damages: Damages for the breach of a contract are

given by way of compensation for loss suffered, and not by way of punishment for wrong inflicted.

Exemplary are allowed not to compensate the party but as a means of punishment to the defaulting party.

4. Nominal damages: Where the injured party has not in fact suffered any loss by reason of the breach of a contract, the damages recoverable by him are normal, i.e. very small, for example, a rupee.

5. Damages for inconvenience and discomfort: If the party has suffered physical inconvenience, discomfort, or mental agony as a result of the breach of contract, the party can recover the damage for such inconvenience.

Example: A photographer agreed to take photographs at a wedding ceremony but failed to do so. The bride brought an action for the breach of contract. Held, she was entitled to the damages for her injured feelings.

6. Mitigation of damages: it is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach.

7. Difficulty of assessment8. Cost of decree (An official order issued by a

legal authority).9. Damages agreed upon in advance in case of

breach. Example: A contracts with B to pay B Rs.

1000 if he fails to pay B Rs. 500 on a given day.

Liquidated damages and penalty: Sometimes parties to a contract stipulate at

the time of its formation that on the breach of the contract by either of them, a certain specified sum will be payable as damages. Such a sum may amount to either ‘liquidated damages’ or a ‘penalty’.

Liquidated damages represents a sum, fixed or ascetained by the parties in the contract, which is a fair and genuine pre-estimate of the probable loss.

Penalty means an amount fixed in terroem without any regard to the probable loss.

Payment of interest:1. Payment of interest in case of default.2. Payment of interest at higher rate – a) From the date of the bond.b) From the date of default.3. Payment of compound interest on

default a) At the same rate as simple interest.b) At the rate higher than simple interest.4. Payment of interest at a lower rate, if

interest paid on due date.

3. QUANTUM MERUIT The phrase ‘quantum meruit’ means ‘as

much as earned’. A right to sue on quantum meruit arises

where a contract, partly performed by one party, has become discharged by the breach of the contract by the other party.

4. SPECIFIC PERFORMANCE In certain cases of breach of a contract, damages are

not an adequate remedy. The court may direct the party in breach to carry out his promise according to the terms of the contract.

Specific performance will not be granted where –1. Damages are an adequate remedy;2. The contract is not certain, or is inequitable to either

party;3. The contract is in its nature revocable.4. The contract is made by trustees in breach of their

trust;5. The contract is of personal nature, e.g. a contract to

marry.6. The contract is made by a company in excess of its

powers as laid down in its MOA.7. The court cannot supervise its carrying out. e.g. a

building contract.

5. INJUNCTION Where a party is in breach of a negative term

of a contract (i.e. where he is doing something which he promised not to do), the court may, by issuing an order, restrain him from doing what he promised not to do. Such an order of the court is known as an ‘injuction’.

Example: N, a film actress, agreed to act exclusively for W for a year and for no one else. During the year she contracted to act for Z. held, she could be restrained by injunction from doing so.

RECTIFICATION OR CANCELLATION 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.

Example: A, the owner of a ship, fraudulently representing the ship to be seaworthy induces B, an underwriter, to insure the ship, B may obtain the cancellation of the policy.

CASES A contracts to deliver 1,000 bags of rice at

Rs. 100 per bag on a future date. On the due date, he refuses to deliver. Market price on that day is Rs. 120 per bag. What amount of damage can be recovered from A?

Ordinary damage can be recovered here.

Promisee is entitled to recover the price he has paid to purchase product over and above the contract price.

Here, promisee can recover damage of Rs. 20 per bag from A (Rs. 120 – he has paid – Rs. 100 – contract price).

M Ltd. contracts with Shanti Traders to make and deliver certain machinery to them by 30 June 2004 for Rs. 11.50 lakhs. Due to labour strike, M Ltd. could not manufacture and deliver the machinery to Shanti Traders. Later, Shanti Traders procured the machinery from another manufacturer for Rs. 12.75 lakhs. Advise Shanti Traders the amount of compensation which it can claim from M Ltd., referring to the legal provisions of the Indian Contract Act.

Section 73 – On breach of contract aggrieved party 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 given for any remote and indirect loss or damage sustained by reason of the breach.

Applying the above principle of law to the given case, M Ltd. is obliged to compensate for the loss of Rs. 1.25 lakhs (i.e. Rs. 12.75 - Rs.11.50 = Rs. 1.25 lakhs) which had naturally arisen due to default in performing the contract by the specified date.

A, a singer, agreed with B to perform at his theatre for two months, on a condition that during that period, he would not perform anywhere else. When A performs somewhere else what remedy B would have available to him?

B may apply to court for grant of injunction restraining A from performing at other place.

The injunction may be defined as an order of the courts restraining a person from doing something which he promised not to do. It means a stay order granted by the court. This order prohibits a person to do a particular act. Where there is a breach of contract by one party and the order of a specific performance is not granted by the court, the injunction may be granted. The injunction is granted by the courts at their discretion.