Remedies for the breach of contract

Author: Ritika Sharma

REMEDIES FOR THE BREACH OF CONTRACT

Introduction

A contract is an agreement that legally binds the parties making it. Section 2(h) of the Indian Contract Act, 1872 gives the definition of the contract according to which contract is an agreement that is enforceable by law. Section 10 of the Indian Contract Act lays the conditions for a valid contract.

What is Breach of Contract

In case the parties do not perform the obligations set out by the contract then it is called a breach of contract. The purpose of making a contract is to impose some terms which are to be fulfilled by the parties, but when one of the parties fails to perform those terms then it is called the breach of contract. The party who has not performed his/her obligations is called the breaching party.

Now if any party has not performed the terms of the contract then it becomes unjustifiable for the other party. As the contract is enforceable by law, then the law has laid down the remedies for the breach of contract to compensate the other party.

Remedies for Breach of Contract

When one of the parties fails to perform the terms of the contract, then the Indian Contract Act, 1872 along with the Specific Relief Act, 1963 provides for some remedies for this breach of contract. Remedies are as follows:

  • Damages- It means compensation is provided by the breaching party and it is the most common remedy for breach of contract. Section 73 and 74 of the Indian Contract Act, 1872, highlights the provisions for damages.
  • Quantum Meruit- In the cases where the injured party has performed its obligations of the contract, then they are entitled to recover that value from the breaching party using the remedy of quantum meruit.
  • Specific Performance- Sometimes, the injured party is entitled to an alternative remedy of specific performance of the contract in some cases and the provisions for the same are discussed under the Specific Relief Act, 1963.
  • Injunction- Injunction refers to restraint from breaching the contract by the other party.
  1. Damages

Section 73 of the Indian Contract Act, 1872 says that in case of breach of contract, the injured party is entitled to compensation by the breaching party for the loss suffered during the usual course of things. It has been specifically mentioned that no compensation is provided in case of remote or indirect loss.

Illustration: A contract to buy from B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A afterward informs B that he will not accept the rice if tendered to him. B is entitled to receive from A by way of compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs that he will not accept it.

Illustration: A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C  a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.

  • The remoteness of damages- Damages are provided to the injured party only in it relates to the usual course of things. This rule of the remoteness of damages can be understood from a famous case Hadley v. Baxendale[1]. This rule consists of two parts. Firstly, the damages arising in the usual course of things, and there are no special circumstances that have resulted in a loss to the injured party. In Hadley v. Baxendale[2], the plaintiff’s shaft was broken and their mill stopped working. The shaft was given to the defendants to take it to the makers. The defendants were not aware that the plaintiff’s do not have an extra shaft and the delivery of the shaft was delayed. Due to this the plaintiffs had to face severe losses and they claimed damages from the defendants (carriers). It was held that in the usual course of things it could not be apprehended by the defendants that the plaintiffs did not have another shaft in reserve so the plaintiffs were not entitled to recover damages. Secondly, the damages in case of more loss from the special circumstances. The breaching party can be made liable in case the loss has occurred due to special circumstances only when the breaching party was aware of those special circumstances.
  • Measure of damages- The next question is about how much damages are to be paid by the breaching party to the injured party. The basis of calculating the damages is that the injured party is to be put in the same position in which he would have been if the contract had been performed. In State of Kerala v. K. Bhaskaran[3], 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 entitled to claim compensation on that basis.[4] According to Explanation to Section 73, the party suffering the consequences of the breach of contract must take all necessary steps to mitigate the loss and in case the injured party does not do so, he will not be entitled to compensation.
  • Liquidated damages and penalty- Sometimes, the parties to the contract fix the amount to be paid in case of the breach in advance. In the cases where the damages fixed beforehand are genuine and pre-estimate of the damages then these are called liquidated damages while when the damages are fixed in order to prevent the breach of contract then damages are called a penalty.
  • Compensation for breach of contract where penalty stipulated for- According to Section 74 when the penalty is already mentioned in the contract, the injured party is entitled to get compensation irrespective of the fact that actual damages have occurred or not. The amount for damages must be reasonable and should not exceed the amount stated in the contract.

Illustration: A contracts with B to pay B Rs. 1000 if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A such compensation, not exceeding Rs. 1000 as the Court considers reasonable.

Also Read, Types of Contract

  1. Quantum Meruit

The concept of Quantum Meruit can be understood from an example. A and B have made a contract, and A has already performed a part of the contract. After that B prevents him from performing the rest of his obligation. In this case,  A can recover from B reasonable remuneration for whatever he has already done.

There are two essentials of this rule which are as follows:

  • One of the parties makes a breach of contract or prevents the performance of it by the other side.
  • The party injured by the breach of the contract, who has already performed a part of it, elects to be discharged from further performance of the contract and brings an action to compensate for the value of the work he has already done.[5]

It should be taken into account that no compensation would be paid in case the party has not suffered any loss or damage. Therefore, the sufferance of damages is a precondition for the applicability of the rule of quantum meruit. In Kamit v. Central Dairy Farm[6], there was a contract to supply 3000 live sheep and goats to the respondent at the rate of Rs. 786/- per quintal. The plaintiff had deposited a sum of Rs. 2,60,000 as security for the good performance of the contract but was not able to do his obligations. The security was claimed to be forfeited. It was held that since there was no sufferance of actual damages by the respondent, he cannot forfeit the security amount.

  1. Specific Performance

After the Specific Relief (Amendment) Act, 2018, the specific performance of contracts has been made a rule rather than an exception. Sections 9 to 25 of the Specific Relief Act contain provisions regarding the specific performance of the contracts. Section 10 specifies the cases in which specific performance of a contract can be enforced. According to this provision, in two cases, specific performance of any contract may, in the discretion of the court, be enforced-

  • Firstly, when there is no standard for calculating the actual damages in case of breach of contract by either party;
  • Secondly, in the cases where compensation in the form of money cannot provide adequate relief to the injured party. The example of this is the breach of contract to transfer the immovable property or the transfer of any property which is not ordinary article of commerce or has special value or that product is not easily available in the market.

Further, Section 14 lays down the exhaustive provisions for the contracts which are not specifically enforceable. Important examples of such contracts are as follows:

  • Contract where compensation in money is not an adequate relief.
  • Contracts which are dependent on the personal qualifications or volition of parties for example, contracts with a singer or dance to perform on stage.
  • Contract which involves the performance of continuous duty which courts cannot supervise.
  • Contracts which refer the differences to arbitration.
  1. Injunction

Injunction refers to the orders of the court restraining a person from doing an act. Sections 36 to 42 of the Specific Relief Act, 1963 have the provisions regarding an injunction. It is generally categorized with specific performance but in this, a party is restrained from doing some act instead of performing some obligation. It is a prohibitive writ which is issued by a court forbidding a party to do some act. An injunction can be only for a specified time which is called a temporary injunction and it can also be a mandatory or perpetual injunction.

In M. Gurudas and Ors. case[7], it was observed that before considering the application of injunction, some factors are to be taken into account. It should be decided whether it is the prima facie case and whether there is an irreparable injury to the applicant party.

Conclusion

A contract is an important element in trade, business, and the day to day activities. The provisions of contract implicit under the Indian Contract Act, 1872, make it easy to enforce these contracts and in case of a breach, the injured party can opt any of the ways depending upon the circumstances of the case. The main object behind providing these remedies is to put the injured party in a position in which he was before. Therefore, ensuring adequate relief by means of damages, quantum meruit, specific performance, and the injunction is the motive behind laying down provisions for the remedy for breach of contract.


[1] (1854) 9 Ex. 341, at 354

[2] Ibid

[3] AIR 1985 Kerala 49

[4] R.K. Bangia Indian Contract Act 296 Allahabad Law Agency

[5] Supra note 4 at 309-310

[6] AIR 2008 All. 33

[7] AIR 2006 SC 3275

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