Remedies for Breach of Contract

This article is written by Akshaya V, a student of CMR University, School of Law and Legal Studies, Bangalore.

Synopsis

A contract between two parties determines rights and duties. Where one of them has duties and the other has rights. Without acting beyond the scope of the contract, the parties shall carry out their act. However, the law gives latitude to those contracts which may not be performed as per its terms or may lead to a breach of the same due to a variety of reasons. This article elucidates all the necessary remedies covered under the Indian Contract Act, 1872.

INTRODUCTION

Commercial contracts are entered into on a daily basis. Such contracts intend to bind the parties legally. Contract laws aim to provide an effective legal framework to regulate contractual rights, obligations and resolving of disputes if any. As per Section 2(h) of the Indian Contract Act 1872, a contract is defined as an agreement enforceable by law. It is an agreement between two or more persons. Persons have a wider meaning and include individuals, business organisations and government agencies.

Contracting parties agree to do or to refrain from doing a specific act in return for a consideration which is of value. Contracts are usually written agreements and in some cases, it can be ascertained by the conduct of parties, which are termed as implied contracts provided it is valid and enforceable by law. Void contracts are not recognised by law. Section 10 of the Indian Contract Act, 1872 sets out the essentials that have to be fulfilled to form a valid contract.

Breach of Contract

Where one party refuses to perform his promise wholly, the promise is said to be breached under a contract. Section 39 of the Indian Contract Act 1872, envisages when a party to a contract has refused to perform or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance. The elaboration of this section is that one of the parties has refused by whatever reason, the promise made to him or it may so happen that due to disability which may be pivotal to performance and shall be such in its entirety(wholly). The promisee is not in a position to rescind the contract in a case where the other party has expressed his will to continue with the contract at a later date.

Where a party performing a contract does not do so to the standard essential by the contract or within the set time frame, that party is said to have committed a breach of contract. A contract, being the origin of a correlative set of rights and obligations for the parties would be of no value, if there were no remedies to enforce the rights arising thereunder. The party on whom the breach is committed is the injured or aggrieved party and the party committing the breach is the guilty party. The burden of proof lies on the plaintiff resulted from a breach of contract by the defendant. The loss caused to the plaintiff shall not be remote as he cannot claim remedy for the same. Losses, to be recoverable, must have been within the reasonable contemplation of the parties. There are certain remedies that a plaintiff may resort to sustain injuries suffered by him. The remedies are:

1. Suit for damages

2. Suit for quantum meruit

3. Suit for specific performance

4. Suit for injunction

1. Suit for Damages

This is the most commonly sought remedy in any civil case. Damages are a way of awarding compensation to the plaintiff and widely recognized under the Indian Contract Act, 1872. The quantum of damages is determined by the magnitude of loss caused by the breach. Damages are meant to reimburse the injured party for any magnitudes of the breach of contract. The primary principle is to put the injured party economically as near as possible, into the position he would have been in had the promise been fulfilled. This is the closest possible remedy that can be claimed. It is the responsibility of every plaintiff to alleviate his loss, i.e. to do his best not to intensify the amount of damage done. Punitive’ or ‘exemplary’ damages have no place in the law of contract. Contractual damages shall not be retributive in nature no matter however contemptible the defendant’s conduct may be. There are three ground rules for claiming damages:

a) The plaintiff cannot recover for losses which the plaintiff could have evaded by taking reasonable steps; and

b) The plaintiff cannot recover for any loss he has actually avoided, despite taking more steps than were necessary in compliance with the above rule.

It is vital to note that the damages shall occur within the scope of contract and within the observation of the parties. This rule was held under the case Hadley v Baxendale.

a) Damages which may justly and rationally be considered as arising naturally from the breach;

b) Such damages should have been within the contemplation of parties and the contract to which they are bound by.

Hadley vs. Baxendale

A prominent case in placing down the rule on the subject of the measure of damages. Where contracting parties have made a contract which one of them has breached, the damage ought to be received in respect of such a breach should be such as may reasonably be considered either arising naturally, that is to say, according to the usual course of things.

Facts: 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.

Position of Damages in India

Under Indian Contract Act, 1872, in every case of identifying the amount of damages in the contract, the court will work out the total losses grieved by the plaintiff and award that as damages subject to the maximum of the stated amount. Section 73 of the Contract Act provides for the right to damages arising out of a breach of contract or an obligation resembling that created by contract. There are four kinds of damages that are awarded –

General or Ordinary Damages: Such losses can be seen as arising out of the usual course of things and can be directly linked to the breach so made. Such damages are unavoidable and paid in the event of breach.

Special Damages: At the time of making a contract, parties to the contract agree to give scope for damages that arise out of special circumstances. If the other party still proceeds to make the contract, it would indicate that he has approved to be accountable for the special losses that may be caused.

Exemplary or Vindictive Damages: In England, the court in Addis v. Gramophone Co. stated that in three cases mental suffering and pain of the aggrieved party can also be taken into account:

i. Unjustified dishonor of a cheque

ii. Breach of promise of marriage, and

iii. Failure of real estate vendors to make titles.

In such cases of mental sufferings, the court awards monetary compensation for vexation caused to the aggrieved party.

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

2. Suit for Specific Performance

It is a remedy captivating performance. It is granted at the discretion of the court where the court can administer the application of the contract. The Courts direct the defendant to perform the contract, and in accordance with its terms. In case of personal services, the Court cannot supervise such performance and hence specific performance decree is not awarded to the contract of personal service.

It has traditionally been said that specific performance will not normally be granted where damages provide sufficient relief. Nevertheless, in enabling its decision on specific performance, the court will be disposed to refuse the remedy if, in the particular case before it, damages will fully compensate and will put the claimant in as beneficial a position as if the contract had been specifically performed.

3. Suit for Injunction

Injunction is the discretionary remedy of the Court that is imposed to restrain a person from doing a thing which is not supposed to do under the law. Injunctions are either prohibitory or mandatory. A prohibitory sanction of injunction may be granted to restrain from carrying out negative stipulation in a contract. A mandatory injunction compels the positive performance of an act and may be used to restore the situation to what it was before the breach of contract.

Anton Piller Order – It is an ex-parte decision of injunction whereby the plaintiff is allowed to enter the defendant’s premises to obtain evidence, whether concealed or not and may compel the defendant to answer some questions.

4. Suit for Quantum Meriut

Quantum meruit means “as much as he has earned.” In many cases, it denotes a claim for a reasonable sum in respect of services or goods delivered to the defendant. The plaintiff may have accomplished a part of his duty before the breach of contract for which he is supposed to be paid for. The claimant must prove the defendant expressly or impliedly freely accepted the services or goods in question. The plaintiff may claim for quantum meruit in the following cases –

where the contract is made is a quasi-contract and especially when the price of goods is not agreed upon.
Have an agreement to pay an equitable sum for the services or goods supplied.
Have agreed on the scope of work under the original contract and the work carried out falls outside that scope.

CONCLUSION

It is therefore inferred that whatever remedies are available, it has enriched the rights of the aggrieved party with respect to breach of contract and the party is positioned in the same way as if he has not been affected by such breach. Mostly, breach of contract is caused by the terms which are not clear in the contract. Therefore, it has to be ensured that the parties have clearly set out the rules and regulations so it does not result in the breach of contract.

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