Remedies for Breach of Contract

Introduction
As per Section 2(h) of Indian Contract Act, 1872, a contract is an agreement, the object of
which is to create an obligation. So when an agreement enables a person to compel another
to do something or abstain from doing something, it is called a contract.


Breach of Contract
A contract is breached or broken when any of the parties fails or refuses to perform its
promise under the contract. Breach of contract is a legal cause of action in which a binding
agreement is not honored by one or more parties by non-performance of its promise by him
renders impossible.


Section 37 of the Indian Contract Act,1872 provides that the parties to the contract are
under obligation to perform or offer to perform, their respective promises under the
contract, unless such performance is dispensed with or excused under the provisions of the
Indian Contract Act or of any other law.


According to Section 39, where the party has refused to perform or disabled himself from
performing, his promise in its entirely, the other party may put an end to the contract, ,
unless that other party has expressly or impliedly signified its consent for the continuance
of contract. If the other party chooses to put an end to the contract, the contract is said to be
broken and amounts to breach of contract by the party not performing or refusing to
perform its promise under the contract. This is called repudiation. Thus repudiation can
occur when either party refuses to perform his part or makes it impossible for him to
perform his part of contract in each of the cases in such a manner as to show an intention
not to fulfil his part of the contract.
Remedies for the Breach of Contract
Parties to a contract are legally expected to perform their respective obligations, when one
of the parties makes a breach of contract, the following remedies are available to the other
party.

Damages : Remedy by way of damages is the most common remedy available to the
injured party. This entitles the injured party to recover compensation for the loss suffered
by him due to the breach of contract, from the party who causes the breach. Sections 73 to
75 incorporate the provisions in this regard.

Quantum Meruit : When the injured party has performed a part of his obligation under
the contract before the breach of contract has occurred, he is entitled to recover the value
of what he has done, under this remedy.

Specific Performance and injunction : Sometimes a party to the contract instead of
recovering damages for the breach of contract may have recourse to the alternative remedy
of specific performance of the contract, or an injunction restraining the other party from
making a breach of the contract. Provisions regarding these remedies are contained in the
Specific Relief Act, 1963. The first two remedies stated above are being discussed in some
detail, below.
Damages
As per Section 73 of the Indian Contract Act, 1872-Compensation for loss or damage
caused by breach of contract.-


When a contract has been broken, the party who suffers by such breach 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 to be given for any remote and indirect loss or
damage sustained by reason of the breach.


Compensation for failure to discharge obligation resembling those created by
contract.-
When an obligation resembling those created by contract has been incurred and
has not been discharged; any person injured by the failure to discharge it is entitled to
receive the sane compensation from the party in default, as if such person has contracts to
discharge it and had broken his contract.
Explanation.-In estimating the loss or damage arising from a breach of contract, the means
which existed of remedying the inconvenience caused by the non-performance of the
contract must be taken into account.
In action for damages for the breach of contract, there arise two kinds of problems:

Firstly, it has to be determined whether the loss suffered by the plaintiff is proximate
consequence of the breach of contract by the defendant. which is remotely connected with
the breach of contract. In other words, the first problem is the problem of “Remoteness of
Damage”.

If it is found that a particular damage is the proximate result of the breach of contract
rather than too remote, the next question which arises is : How much compensation is to be
paid?
Remoteness of Damage
In the case of Hadley v. Baxendale is considered to be the basis of the law to determine
whether the damage is the proximate or the remote consequence of the breach of contract:
“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, 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 the parties, at the time they made the
contract, as the probable result of the breach of it.”
The rule in Hadley v. Baxendale consists of two parts. On the breach of a contract such
damages can be recovered :-
(1) as may fairly and reasonably be considered arising naturally, i.e., according to the usual
course of things from such breach; or,
(2) as may reasonably be supposed to have been in the contemplation of both the parties at
the time they made the contract. In either case, it is necessary that the resulting damage is
the probable result of the breach of contract.
(1) First branch of the rule in Hadley v. Baxendale Damage arising in the usual
course of things

Under this branch of the rule, compensation can be claimed for any loss or damage that
arose in usual course of things from the breach of contract. If the loss is one which does
not arise in the usual course of things but is special loss arising out of special
circumstances, then the situation would be covered by the second branch of the rule. In thatcase the loss can be claimed if the same was in the contemplation of both the parties at the time of making of the contract.
In J.K. Enterprises v. State of M.P. a valid contract for the sale of Tendu leaves was
constituted after the respondents accepted the petitioners tender. The petitioners failed to
perform the contract. The second auction sale caused loss to the respondents. Thereafter,
the respondents forfeited the earnest money deposited by the petitioners, and also
blacklisted the petitioners for 3 years. It was held that the forfeiture of earnest money was
not unjustified but the blacklisting of the contractor in respect of Government contracts for
3 years, which was done without giving any opportunity of hearing to the petitioner, was
not justified. The blacklisting of the petitioner was quashed.
(2) Second branch of the rule in Hadley v. Baxendale More loss arising from the
special circumstances

If the loss on the breach of a contract does not arise naturally, ie, according to the usual
course of things but it arises due to some special circumstances, the person making the
breach of contract can be made liable for the circumstances were brought to his knowledge
at the time of making the contract. If he had no knowledge of the special circumstances
which result in the particular loss, he cannot be made liable for the same provided that
those special same.
In Simpson v. London & North Western Railway Co the plaintiff, who was a
manufacturer, used to send samples of his goods for exhibition to various agricultural
shows. Once he gave some samples of his product to the agent of the defendant railway
company for carriage to Newcastle, for an exhibition. This fact was within the knowledge
of the defendant’s agent. The consignment note stated “Must be at Newcastle Monday
certain.” Due to the negligence of the defendant, the goods reached the destination only
after the exhibition was over. The plaintiff brought an action to claim compensation for the
loss of profits owing to the non-arrival of the goods at the show. It was held that since the
defendant company’s agent was having the knowledge of the special circumstances that the
goods were being sent for the Newcastle show, they were liable for the loss consequent on
the late arrival of the goods at the destination. note stated “Must be at Newcastle Monday
certain.” Due to the negligence of the defendant, the goods reached the destination only
after the exhibition was over. The plaintiff brought an action to claim compensation for the
loss of profits owing to the non-arrival of the goods at the show. It was held that since the
defendant company’s agent was having the knowledge of the special circumstances that the
goods were being sent for the Newcastle show, they were liable for the loss consequent on
the late arrival of the goods at the destination.
Measure of Damages
After it has been established that a certain consequence of the breach of contract is
proximate and not remote and the plaintiff deserves to be compensated for the same, the
next question which arises is : What is the measure of damages, for the same, or in other
words, the problem is of the assessment of compensation for the breach of contract.
Damages are compensatory in nature. The object of awarding damages to the aggrieved
party is to put him in the same position in which he would have been if the contract had
been performed. Damages are, therefore, assessed on that basis. If a party takes security
deposit from the other for the due performance of the contract, he is not entitled to forfeit
the deposit on the ground of default, when no harm is caused to him on account of such
default.’


In State of Kerala v. K. Bhaskaran, 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.


Quantum Meruit


Where one party has absolutely refused to perform, or has rendered himself incapable of
performing his part of the contract, he puts it in the power of the other party either to sue
for the breach of it or to rescind the contract and sue on quantum meruit for the work
actually done. It may be noted that this remedy is available only for the part of the work
done by the party other than the one making a breach of contract. If the party making a
breach of the contract has done a part of the work in connection with it, he cannot claim
anything in respect thereof under this remedy.


A decree for Specific Performance
Usually, the Courts are entitled to presume that in case of breach of contract to transfer of
immovable property, mere compensation is not adequate relief, whereas specific
performance is adequate relief, whereas in the case of movable property, compensation is
the ordinary relief and specific performance is exceptional. However, it must be noted that
these presumptions are rebuttable.
According to Section 10 of the Specific Relief Act, 1963, there are seven cases when
specific performance of a contract may be allowed by the Court. They are:
When there is no standard for ascertaining actual damage
When it is impossible to quantify the actual damage caused by the non-performance of the
act agreed to be done, the Court may, in its discretion, grant a decree of Specific
Performance of that act.


Duke of Somerset v. Cookson, 1935
Art, paintings, old furniture, antiques, etc. have a special value to the contracting party,
although such articles may not have much monetary value. For example, an idol which has
been passed down from generation to generation of a family has immense value to that
family, even if it means nothing to someone else. No amount of damages can compensate
for the loss to the members of the family, even if the Court makes an attempt to assess the
damages payable instead of the idol. Therefore, an order will be passed for specific
delivery of that idol, not for damages.


In Vijaya Minerals v. Bikash AIR 1996 Cal. 67, the Hon’ble Calcutta High Court has
observed that since manganese and iron ore are not ordinary items of commerce, if a
contract for sale of iron and manganese ore from a mine has been made, specific
performance of such an act would be allowed.
When monetary compensation would not afford adequate relief

When the act agreed to be done is such that compensation offered in money for its nonperformance would not afford adequate relief. However, until the contrary is proved, it is to be presumed that:
• The breach of a contract to transfer immovable property cannot be adequately
compensated by payment of money.
• The breach of a contract to transfer movable property can be so compensated,
except in the following cases:

Where the property is not an ordinary article of commerce or is of special value or
interest to the plaintiff, or consists of goods which are not easily obtainable in the
market;

Where the property is held by the defendant as the agent or trustee of the plaintiff.
In Bank of India v. Chinoy, AIR 1949 PC 90, it was held that if shares are freely
available in the market, then specific performance would not be granted. If shares of a
particular company, for instance a private company are not readily available in the market,
specific performance would be granted.


Suits for enforcement of a contract to execute a mortgage
In a suit for the enforcement of a contract to execute a mortgage or furnish any other
security for the repayment of any loan which the borrower is not willing to pay at once,
specific performance may be allowed. However, where only part of the loan has been
advanced by the lender, he must be willing to advance the full amount of the loan.

Contracts for the purchase of any debentures of a company.

Suits for the execution of a formal deed of partnership.

Suits for the purchase of partner’s share.

Suits for the enforcement of a building construction contract or any other work on
land, provided the following 3 conditions are fulfilled:
The building or other work has been described in the contract in a reasonably
precise manner, so as to enable to Court to decide the exact nature of building or
work;
The plaintiff has substantial interest in the performance of the contract, and the
interest is such that financial compensation for non-performance of the contract
would not be adequate relief; and
After the contract, the defendant has obtained possession of the whole or any part
of the land in question.
It is important to remember that specific performance is an equitable remedy, and is
therefore left to the discretion of the Court, rather than to the right of a person by law.


Conclusion
Breach of contract is a legal cause of action in which a binding agreement is not honored
by one or another more of the parties. There can be a variety of reasons for breaching a
contract and the consequences of such a breach can be very serious, even if the breach was
unavoidable. When a breach of contract happens, the parties who involved should find out
the remedies and consequences of breaching an enforceable contract. There are main three
remedies which are suit for specific performance, liquidated damages and injunction.

References

Law of Contract By R.K. Bangia

Website- blog.ipleaders

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