Remedies for Breach of Contract
If a contracting party is unable to meet their obligations, this is an infraction to the contract. In the Indian Contract Act, 1872 offers a variety of remedies to the party that has been harmed. These remedies are designed to pay the injured party compensation and, in some instances enforce contract obligations.
Contents
1. Damages
The most commonly used recourse for breach of contract. They are financial compensation given to the party who was injured to put them back in the same situation they would be in should the contract had been fulfilled. Sections 73 through 75 in the Indian Contract Act, 1872 and 73 to 75 of the Indian Contract Act, 1872, address damages.
Section 73 Redress for damage or loss resulted from the breach of contract:
This section defines the law that was established in Hadley V. Baxendale (1854), that is the foundation to award compensation in India.
The party who was injured may seek an amount of compensation for:
- Damage or loss that naturally resulted from the normal way of things arising due to the breach. (Direct damages)
- Damage or loss that the parties were aware of, at the time they signed the contract, would likely result due to the violation. (Indirect and consequential damage)
- The compensation cannot be provided for any foreseeable direct or indirect damage incurred as a result of the violation.
- When assessing damages the method that was used to remedy the inconvenience caused due to the non-performance of the contract should be taken into consideration.
Illustration: A agrees to sell and deliver 500 kg wheat to B, at a specific price. A breaks his promise. B can claim from A as compensation, in the amount that the contract price is less than of the price at which B could have gotten 500 kg in cereal gains, at the date and time where the cereal gains was supposed to be delivered.
Types of Damages:
- General Damages and Ordinary damages: They are the damages that result naturally and directly from a infraction of the contract. They are the direct result of the breach.
- Exemplary/Punitive/Vindictive Damages: These damages are awarded not to compensate the injured party for their loss but to punish the party who committed the breach. They are usually not granted in contract law, however they may be awarded in the event of breach of the promise to get married.
- Specific Damages: They are the damages which result from specific circumstances that were not known to both parties prior to signing the contract. To be able to claim special damages the person who was injured must show they were aware by the opposing party of particular circumstances.
- Nominal Damages are awarded when the harmed party has not sustained any real loss, but can prove that the breach of contract occurred. They are a tiny amount of money as a way of acknowledging the breach.
Section 74: Compensation for breaches of contract if penalty provided for:
- This section is about the liquidated damages and penalties.
- If a contract specifies the amount to be paid out in the event of breach, the victim may seek reasonable compensation not exceeding the amount stipulated.
- The court has the authority to decide what a reasonable amount of compensation is.
Liquidated Damages – It is a real estimate of the loss that could result from an unintentional violation of contract. It’s a reasonable estimation of the damages actually suffered.
Penalty amount of money that was negotiated by the agreement to prevent the person from committing the breach. It is not proportional to the risk.
Points to be Noted
Indian law is not able to specifically distinguish between penalty and liquidated damages. The court can award fair compensation to the extent specified regardless of whether it’s called liquidated damages or penalty.
For example’: A contract to pay B 20,000rs if he fails to pay 5,000rs on the specified date. A fails to repay. B is entitled to seek from A any compensation not exceeding 20,000rs, in the amount the Court finds reasonable.
“Section 75”: Partie who is rightfully rescinding a contract is entitled to receive compensation:
One who has the right to decides to revoke a contract has the right to compensation for any loss caused by the inability to fulfill the contract.
Illustration: A agrees to sing with B at a concert, for $1000. A is sick and cannot sing. A isn’t entitled to receive any money from B. B is entitled to a reimbursement from A for the costs A incurred for advertising the concert.
Important Case Laws:
- ONGC v. Saw Pipes – The Supreme Court of india established in detailed guidelines to determine the appropriate amount of compensation pursuant to Section 74.
- Hadley v. Baxendale – This English case is one of the foundations of the law of damages. It set the standards for indirect and direct damages.
2. Specific Performance of Contract
“Specific performance” is a remedy in equity in which a court orders the party in breach to comply with the contractual obligation. It is awarded by the judge and is usually awarded when monetary compensation is not sufficient.
The Specific Relief Act, 1963 is the law that governs specific actions in India. Many contracts in india are governs by this act for feasible and effective justice.
When Specific Performance May Be Granted:
If there isn’t a method of determining the extent of damages caused by inability to perform the act that was agreed to be carried out. If the agreement to be performed is so that it is unable to provide adequate relief.
When Specific Performance May Not Be Granted:
- If the amount of compensation offered is a sufficient relief.
- Personal service contracts.
- or contracts that are vague or unclear.
- Contracts that are intrinsically irrevocable.
Example:
A is willing to offer a rare artwork to a. A does not want to sell. The court can ordain specific performance, as money might not be enough to be enough to compensate B to compensate for loss its unique painting.
A is willing for B’s performance to perform. A does not want to sing. The court won’t require a specific performance since it is a contract for personal service.
Case Laws:
- Beswick and. Beswick (1968): The English case illustrates the concept that a specific performance could be granted to third-party under certain conditions.
- Shrijee Infrastructure Ltd. v. Ramani Holdings & Finance Pvt. Ltd. (2019): Supreme Court discussed the principles regarding specific performance and the decision-making discretion of the court when giving it.
3. Injunction
Injunctions are a common remedy when a judge orders a person to not perform something specific. It’s employed to stop a party from breaking a contract, or to stop the recurrence of the breach.
*Injunctions are also subject to The Specific Relief Act, 1963.
Types of Injunctions:
- Temporary Injunctions: These are issued to maintain the status of the situation until the court has time to consider the arguments in the case.
- Perpetual Injunctions are granted once the court has considered the arguments in the case. They are meant to stop any party from breaking the terms of a contract.
Illustrations:
- A is willing to sell his home in exchange for B and then attempts for sale to C. B could decide to issue an injunction that stops A from transferring the property to C.
- A want to perform only for B in a theater for a period of time and then begins doing shows to C. It is possible that the court could issue an injunction to stop A in performing only for C.
4. Rescission of Contract
Basicaly, it refers to the termination of a contract. If a contract is breached by one of the parties, the other perty has the option to consider the contract to be rescinded. Means party no longer legally bound to the contract’s obligations.
The section 75 in the Indian Contract Act, 1872 covers the rights of the party who has rescinded the contract to demand compensation.
Illustration: A agrees to provide B with a certain items by a certain date. If B fails to deliver the items. B is able to revoke the contract and isn’t legally bound to pay the amount.
5. Quantum Meruit
Quantum meruit refers to “as much as earned” or “as much as deserved.” It’s a remedy that’s provided when a contract is partially completed, but one party is unable to finishing the work by the other.
The party that has completed a portion of the contract is entitled to an amount that is reasonable for the work that was done. This claim founded on quasi-contractual obligation.
Illustrations: A signs a contract to build a home for B. After having completed a portion or work A cannot be prevented from finishing the house. A can get quantum meruit for the work completed.
A sells products to B without a formal contract. B is able to use and accept the items. A can get quantum meruit from the items provided.
The Case Laws Puran Lal v. State of M.P. (1971) In 1971, the Supreme Court discussed the principles of quantum meruit law.
6. Breach of Service Contract
The breach of service contracts has specific issues, notably in the field of employment law. Redress options include compensation for unfair termination but the specific performance requirement is not usually allowed (due due to the rule of the obligation to perform personal services). Specific laws and labour laws frequently govern these cases.
Common Features – English Law and Indian Law
When we look at the different laws that are both in Indian law as well as English law, we can see the similarity between them. However, the distinction between penalty and liquidated damages isn’t completely irrelevant to the statute.
First, its significance stems because the amount proposed by the parties can be reduced only if it is believed to be a penalty. In other circumstances, the entire amount can be recovered as liquidated damages.
Second, the first explanation for this section utilizes the term “penalty”. It states that the “stipulation for increased interest from the date of default may be a stipulation by way of penalty”.
Another commonality among the English common law system and Indian law is exemplified by the ruling by the Supreme Court in Chunilal V. Mehta &Sons Ltd. in v. Century Spg. & Mfg Co. Ltd where it was decided that by the Court that “by providing for compensation in express terms the right to claim damages under the general law is necessarily excluded”.