Breach of Contract
MEANING OF REMEDY:
A remedy is the course of action available to an aggrieved party for the enforcement of a right under a contract. The various remedies available to an aggrieved party are as follows:
- Recession of contract
- Suit for Damages
- Suit for Specific Performance of the contract
- Suit for Injunction
- Suit for Quantum Meruit
RECESSION OF CONTRACT:
Recession means a right not to perform obligation. In case of breach of a contract, the promise may put an end to the contract. In such a case, the aggrieved party is discharged from all the obligations under the contract and is entitled to claim compensation for the damages which he has sustained because of the non-performance of the contract.
Example: X agrees to supply 10 tons of wheat to Y on 20th October. Y promises to pay the goods on its receipts. X does not supply the goods on the due date. Here, Y is discharged from the liability of paying the price. Y is entitled to rescind the contract and to claim compensation for the damages which he has sustained because of non-supply of goods on the due-date.
SUIT FOR DAMAGES:
Damages are monetary compensation allowed for loss suffered by the aggrieved party due to breach of a contract. The object of awarding damages is not to punish the party at fault but to make good the financial loss suffered by the aggrieved party due to the breach of contract.
The rules relating to damages are based on the judgement of Hadley vs. Baxendale. The facts of this case were: H’s mill was stopped due to the breakdown of a shaft. He delivered the shaft to B, a common carrier, to be taken to a manufacturer to copy it and make a new one. H had not made it known to B that delay would result in a loss of profits. By some neglect on the part of B, the delivery of the shaft was delayed in transit beyond a reasonable time. Held, B was not liable for loss of profits during the period of delay as the circumstances communicated to B did not show that a delay in the delivery of shaft would entail loss of profits to the mill. The following rule was laid down in the case: Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally i.e. according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.
Compensation for loss of damage caused by breach of contract:
Sec 73 of the Act, states that the aggrieved party may claim any of the following types of damages as suitable for the situation:
- Ordinary Damages:
Ordinary damages are those which naturally arise in the usual course of things from such breach. These damages can be recovered if the aggrieved party suffered by breach of contract and the damages were proximate consequence of the breach of contract and not the indirect consequence.
Example: On 1st December, X contracted to sell and deliver 50 tons of wheat at Rs.8000 per ton to Y on 1st January, On 20th December Y, afterwards, contracted to sell those goods for Rs.10,000 per ton. X failed to deliver the goods on 1st January when the price of goods were Rs.9500 per ton. Y is entitled to recover Rs.75,000 [(9500-8000) x 50]. Y is not entitled to recover Rs.1,00,000 as profit which have arisen to Y from the sale to Z because the profit is the indirect consequences of the breach of contract.
- Special Damages:
Special damages are those which may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach of a contract. These damages can be recovered if the special circumstances which would result in a special loss in case of breach of a contract are communicated to the promisor.
Example: A, a builder, contracts to erect and finish a house by 1st January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house with low quality material, such that the house falls down before 1st January and has to be rebuilt by B, who in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost, and for the compensation made to C.
- Exemplary or Punitive or Vindictive Damages:
Exemplary damages are those which are in the nature of punishment. The court may award these damages in case of:
a) Breach of promise to marry, where damages shall be calculated on the basis of mental injury sustained by the aggrieved party.
b) Wrongful dishonour of cheque by a banker. In this case the rule is, smaller the amount of the cheque, larger will be the damages awarded. A trader may recover such damages as wrongful dishonour of cheque which adversely affects his goodwill, but a non-trader whose cheque is wrongfully dishonoured will have to prove that there was loss of goodwill before claiming such damages.
- Nominal Damages:
Nominal damages are those which are awarded where there is only a technical violation of a legal right but the aggrieved party has not in fact suffered any loss because of breach of contract. These damages are called nominal because they are very small. The court may or may not award these damages.
- Damages for Inconvenience and Discomfort:
If a party has suffered physical inconvenience and discomfort due to breach of contract, that party can recover the damages for such inconvenience and discomfort.
Example: H with his wife and children booked a ticket for a midnight train, to be transported to a particular place where he lived. They were however transported to a wrong place and they had to walk several miles on a drizzling night and as a result, his wife caught cold and he had to incur some medical expenses. It was held that he could recover compensation for inconvenience and not for medical expenses for the sickness of his wife because it was very remote consequence. (Hobbs vs. London & S.W. Rail Co.)
- Liquidated Damages and Penalty:
When the parties to a contract at the time of formation of contract, specify a sum which will become payable by the party responsible for breach, such specified sum is called liquidated damages. Liquidated damages are a fair and genuine pre-estimate of the damages likely to result due to breach.
- Stipulation for Interest:
The stipulations for interest may or may not be in the nature of a penalty. If the stipulation for interest is in the nature of a penalty, the court may award reasonable compensation only.
- Forfeiture of security deposit:
A clause in a contract which provides for forfeiture of security deposit in the event of failure to perform is in the nature of a penalty. In such cases, the court may award reasonable compensation only.
SUIT FOR SPECIFIC PERFORMANCE:
Where damages are not an adequate remedy in the case of breach of contract, the court may in its discretion on a suit for specific performance direct party in breach, to carry out his promise according to the terms of the contract.
Example: X agreed to sell an old painting to Y for Rs.50,000. Subsequently, X refused to sell the painting. Here, Y may file a suit against X for the specific performance of the contract.
Cases where suit for specific performance is not maintainable:
- Where damages are considered as an adequate remedy.
- Where the contract is of personal nature. E.g. contract to marry.
- Where the contract is made by a company beyond its powers as laid down in its MOA.
- Where the court cannot supervise the performance of the contract.
- Where one of the parties is a minor.
- Where the contract is inequitable to either party.
SUIT FOR INJUNCTION:
Suit for injunction means demanding court’s stay order. Injunction means an order of the court which prohibits a person to do a particular act. Where a party to a contract does something which he promised not to do, the court may issue an order prohibiting him from doing so.
Example: N, a film star, agreed to act exclusively for a particular producer, for one year. During the year she contracted to act for some other producer. Held, she could be restrained by an injunction.
SUIT UPON QUANTUM MERUIT:
The phrase ‘quantum meruit’ literally means “as much as is earned” or “according to the quantity of work done”. When a person has begun the work and before he could complete it, the other party terminates the contract or does something which makes it impossible for the other party to complete the contract, he can claim for the work done under the contract. He may also recover the value of the work done where the further performance of the contract becomes impossible. The claim on quantum meruit must be brought by a party who is not at default. However, in certain cases, the party in default may also sue for the work done if the contract is divisible.
Following are the cases in which a claim or quantum meruit may arise:
- Where an agreement is discovered to be void:
Where the work has been done and accepted under a contract which is subsequently discovered to be void, in such a case, the person who has performed the part of the contract is entitled to recover the amount for the work done and the party, who receives and accepts the benefit under such contract, must make compensation to the other party.
- Where something is done or delivered without intention to do gratuitously:
Where a person does some act or delivers something to another person with the intention of receiving payments for the same (i.e. non-gratuitous act), in such a case, the other person is bound to make payment if he accepts such services or goods, or enjoys their benefit.
- Where the contract is divisble:
The compensation for the work done may be recovered on the basis of quantum meruit, where the contract is divisible and a party performs part of the contract and refuses to perform the remaining part. In such a case, the party in default may sue the other party who has enjoyed the benefits of the part performance.
Example: X wrongfully revoked Y‘s (his agent) authority before Y could complete his duties. Held, Y could recover, as a quantum meruit, for the work he had done and the expenses he had incurred in the course of his duties as an agent