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DAMAGES UNDER INDIAN CONTRACT ACT, 1872


Table of cases:
 Ram Kumar v Lakshmi Narayan
 Bostock & Co v Nicholson & Sons
 Palsgraf v Long Island R.R. Co
 Hadley v Baxendale
 Horne v Midland Railway Co.
 British Columbia Saw Mill Co v Nettleship
 Simpson v London & North Western Railway Co
 Watts v Morrow
 Long v Lloyd
 Jamal v Moola Dawood sons & Co
 Jackson v Walson & Sons
 Neki v Pribhu
 Derbshire v Warran
 Panna Singh v Arjun Singh
 Shree Hanuman Cotton Mills v Tata Aircraft Ltd.
INTRODUCTION
Contract: A contract is an agreement entered into voluntarily
by two parties or more with the intention of creating a legal
obligation, which may have elements in writing, though
contracts can be made orally.
A contract is an agreement between two or more
persons, creating an obligation upon them to fulfill or not to
fulfill some duties laid down specifically in the agreement.
The agreement creates a legal relationship of rights and duties
on the parties and if these obligations in the agreement are not
fulfilled, then action could be taken against the defaulting
party in the court of law.1
According to Section 2(h) of Indian Contract Act
1872, “An agreement enforceable by law is a Contract.’’2
Black’s Law Dictionary defines a contract as “an
agreement between two or more parties creating obligations
that are enforceable or otherwise recognizable at law.”3
An agreement with specific terms between two or
more persons or entities in which there is a promise to do
something in return for a valuable benefit known as
consideration. Since the law of contracts is at the heart of
most business dealings, it is one of the three or four most
significant areas of legal concern and can involve variations
1
http://en.wikipedia.org/wiki/Contract
2
Indian Contract Act, 1872
3
http://www.blackslawdictionary.com
on circumstances and complexities. The existence of a
contract requires finding the following factual elements: a) an
offer; b) an acceptance of that offer which results in a meeting
of the minds; c) a promise to perform; d) a valuable
consideration (which can be a promise or payment in some
form); e) a time or event when performance must be made
(meet commitments); f) terms and conditions for performance,
including fulfilling promises; g) performance.4

4
http://dictionary.law.com/Default.aspx?selected=337
Breach Of Contract
Breach of contract is a legal cause of action in which
a binding agreement or bargained-for exchange is not honored
by one or more of the parties to the contract by non-
performance or interference with the other party's
performance. If the party does not fulfill his contractual
promise, or has given information to the other party that he
will not perform his duty as mentioned in the contract or if by
his action and conduct he seems to be unable to perform the
contract, he is said to breach the contract.5
The Latin maxim ‘Ubi jus, ibi remedium’ denotes
‘where there is a right, there is a remedy’
The basic principle contemplated in the maxim is that,
when a person's right is violated the victim will have an
equitable remedy under law. The maxim also states that the
person whose right is being infringed has a right to enforce
the infringed right through any action before a court. All law
courts are also guided with the same principle of Ubi Jus Ibi
Remedium.6

5
http://bizlawfirm.com/all-practice-areas/breach-of-contract/
6
http://definitions.uslegal.com/u/ubi-jus-ibi-remedium/
REMEDIES FOR BREACH OF CONTRACT
The remedies fall under three heads:7
1. Every breach of contract entitles the injured party to damages
for the loss he or she has suffered.
2. The injured party may obtain the enforcement of the promise by
an order of specific performance of the contract, an injunction to
restrain its breach or for the payment of the sum due under the
contract.
3. The parties to a contract that has been broken may be entitled to
return of money paid, recompense for services rendered or
goods transferred, or money paid, recompense for services
rendered or goods transferred, or a money award reflecting the
gain to the defendant. These are restitutionary remedies.
Although some of them are based on a distinct branch of the law
of obligations, restitution, and are not based on breach of
contract, others are based on contract.

Every action for damages raises two problems. The first is the
problem of “Remoteness of damage’’ and the second that of
“Measure of damages’’.

Remoteness of Damage:
Every breach of contract upsets many a settled expectation of
the injured party. He may feel the consequences for a long time and in
variety of ways. In the case Ram Kumar v Lakshmi Narayan,8 a

7
Burrows, Remedies for Torts and Breach of Contract, 2nd edn. (1994); Harris, Remedies in Contract and Tort
(1988); Treitel, Remedies for Breach of Contract (1988).
8
AIR 1947 Cal 157.
person contracts to supply to a shopkeeper pure mustard oil, but he
sends impure stuff, which is a breach. The oil is seized by an
inspector and destroyed. The shopkeeper is arrested, prosecuted and
convicted. He suffers the loss of oil, the loss of profits to be gained on
selling it, the loss of social prestige and of business reputation, not to
speak of the time and money and energy wasted on defence and the
mental agony and torture of the prosecution. In another similar case,
Bostock & Co v Nicholson & Sons,9 sulphuric acid sold under
false warranty, seller not knowing what buyer wanted it for, not liable
for buyer’s loss of goodwill and his liability to his customers, but only
for defective goods and damage to other goods.
Thus, theoretically the consequences of a breach may be
endless, but there must be an end to liability. It was laid down in the
case Palsgraf v Long Island R.R. Co,10 that the defendant cannot
be held liable for all that follows from his breach. There must be a
limit to liability and beyond that limit the damage is said to be too
remote and, therefore, irrevocable. The problem is where to draw the
line.

The rule in Hadley v Baxendale:


A very noble attempt was made as early as (1854) in the well-known
case of Hadley v Baxendale11 to solve the problem by laying
down some rules.
Facts
A shaft in Hadley’s (P) mill broke rendering the mill inoperable.
Hadley hired Baxendale (D) to transport the broken mill shaft to an
engineer in Greenwich so that he could make a duplicate. Hadley told
Baxendale that the shaft must be sent immediately and Baxendale

9
(1904) 1 KB 725.

10
(1928) 284 NY 339.
11
(1854) 9 Ex 340
promised to deliver it the next day. Baxendale did not know that the
mill would be inoperable until the new shaft arrived. Baxendale was
negligent and did not transport the shaft as promised, causing the mill
to remain shut down for an additional five days. Hadley had paid 2
pounds four shillings to ship the shaft and sued for 300 pounds in
damages due to lost profits and wages. The jury awarded Hadley 25
pounds beyond the amount already paid to the court and Baxendale
appealed.

Holding and Rule


 An injured party may recover those damages reasonably
considered to arise naturally from a breach of contract, or those
damages within the reasonable contemplation of the parties at the
time of contracting.
The court held that the usual rule was that the claimant is entitled to
the amount he or she would have received if the breaching party had
performed; i.e. the plaintiff is placed in the same position she would
have been in had the breaching party performed. Under this rule,
Hadley would have been entitled to recover lost profits from the five
extra days the mill was inoperable.
The court held that in this case however the rule should be that the
damages were those fairly and reasonably considered to have arisen
naturally from the breach itself, or such as may be reasonably
supposed to have been in the contemplation of both parties at the time
the contract was made.
The court held that if there were special circumstances under which
the contract had been made, and these circumstances were known to
both parties at the time they made the contract, then any breach of the
contract would result in damages that would naturally flow from those
special circumstances.
Damages for special circumstances are assessed against a party only
when they were reasonably within the contemplation of both parties
as a probable consequence of a breach. The court held that in this case
Baxendale did not know that the mill was shut down and would
remain closed until the new shaft arrived. Loss of profits could not
fairly or reasonably have been contemplated by both parties in case of
a breach of this contract without Hadley having communicated the
special circumstances to Baxendale. The court ruled that the jury
should not have taken the loss of profits into consideration.
This decision has always been taken as laying down two rules.
1. General Damages:
General damages are those which arise naturally in the
usual course of things from the breach itself. Another
mode of putting this is that the defendant is liable for all
that which naturally happens in the usual course of things
after the breach.12

2. Special Damages:
Special damages are those which arise on account of the
unusual circumstances affecting the plaintiff. They are not
recoverable unless the special circumstances were brought
to the knowledge of the defendant so that the possibility of
the special loss was in the contemplation of the parties.

12
George T. Washington, Damages in Contract and Common Law, 48 LQR 90 (1932).
Special damages are recoverable when special circumstances exist
which cause some unusual injury to the plaintiff. The plaintiff can
only recover special damages if defendant knew or should have
known of the special circumstances at the time the defendant entered
into the contract.13 Lack of knowledge of special circumstances once
again prevented recovery of special damages in Horne v Midland
Railway Co.14 In this case, the defendant contracted to carry a
consignment of shoes to London by 3 February, but delivered a day
late. As a result of the delay, the plaintiff lost an opportunity of selling
shoes at an exceptionally high price. It was held that the defendant
was not liable for this loss. Although he knew the plaintiff would have
to take the shoes back if they were not delivered by 3 February, he did
not know the plaintiff would lose an exceptionally high profit. But it
was held that this was a damage of an exceptional nature and it could
not be supposed to have been in the contemplation of the railway
company when it contracted to convey the goods by the 3rd.
For the same reason loss of profits was not allowed to be recovered
in British Columbia Saw Mill Co v Nettleship.15

But in subsequent case of Simpson v London & North Western


Railway Co.16 The above suggestion was qualified to this extent that
if the special circumstances are already within the knowledge of the
party breaking the contract, his formality of communicating them to
him may not be necessary. In this case, one manufacturer named
Simpson was in the habit of exhibiting samples of his equipment at
agricultural exhibitions. He delivered his samples to the railway
company for carriage to a show ground at New Castle. On the
consignment, he wrote "must reach at New Castle on Monday certain
by". On account of negligence on the party of the railway company,

13
http://www.west.net/~smith/damages.htm
14
(1873) LR 8 CP 131.
15
(1868) LR 3 CP 499: 18 LT 604
16
(1876) 1 QBD 274
the samples reached only after the exhibition was over. Simpson,
therefore, claimed damages for his loss of profits at the exhibition.
Damages for Negligent Survey Report:
The applicable principles have been stated by the Court of Appeal in
Watts v Morrow.17 Mr and Mrs Watts employed Mr Ralph Morrow
FRICS a surveyor to survey the house for them. He reported that the
house would not need any major repairs, something Mr and Mrs
Watts wished to avoid at all costs. On the basis of this report they put
in an offer of £177,500 and were successful. They soon discovered
that the house needed lots of substantial repairs so sued the surveyor
for breach of contract for the negligent survey. On pure financial loss,
the trial judge used the cost of cure approach and awarded special
damages of £33,961.35 – the cost of the repairs
For distress and inconvenience, he awarded them what he called
‘modest’ damages of £4000 each under this head i.e. £8000. His
Lordship concluded, after a survey of leading cases re surveys
negligently performed, that the amount of damages for financial loss
should be calculated on the diminution in value basis i.e. £15,000
plus interest. He also said that damages were only recoverable for
‘distress caused by the physical consequences of the breach’ - not
available for distress per se. Thus, he awarded them the modest sum
of £750 general damages under this head, plus interest at 15%.
The main points raised in the case were:
i. the 2 main heads of damages at work
ii. the interplay between cost of cure and diminution in value
iii. the approach to physical discomfort and distress caused by
physical discomfort
iv. the link between breach of contract and what physical discomfort
the breach ‘caused’
v. mitigation points – that it is based on reasonableness –

17
(1991) 4 All Er 937 CA.
vi. that in this case they did not succeed in getting damages for pure
distress because this was not seen by his lordship as part of the
surveying contract, either expressly or by implication.

Generally the main remedies for breach of contract are:


 Suit for rescission,
 Suit for Damages,
 Suit for Quantum Meruit,
 Suit for Specific Performance,
 Suit for Injunction.

Suit for rescission:


When a contract is broken by one party, the other party may sue to
treat the contract as rescinded and refuse further performance. In such
a case, he absolved of all his obligations under the contract.
Eg: A promises to B to supply 10 bags of wheat on a certain day. B
agrees to pay the price after the receipt of the goods. A does not
supply the goods. B is discharged from liability to pay the price.
The court may grant rescission-
a) Where the contract is voidable by the plaintiff; or
b) Where the contract is unlawful for causes not apparent on its
face and the defendant is more to blame than the plaintiff.

When a party treats the contract as rescinded, he makes himself liable


to restore any benefits he has received under the contract to the party
from whom such benefits were received.18 But if a person rightfully
rescinds a contract he is entitled to compensation for any damage

18
See Section 64 of Indian Contract Act, 1872.
which he has sustained through non-fulfillment of the contract by the
other party.19

Long v Lloyd20 is
an English contract law case
concerning misrepresentation. It exemplifies that if a contract is
affirmed by a misrepresentee, rescission will be barred.
Lloyd advertised a lorry as being in ‘exceptional condition’. Mr. Long
went to Mr. Lloyd's premises to see it. Mr. Lloyd then said it could do
40 mph. On a trial run from Hampton Court to Sevenoaks, he said it
did 11 miles to the gallon. Mr. Long bought it for £750. Two days
later, driving to Rochester and back the dynamo stopped working, the
oil seal was defective, there was a crack in the wheel and it did only
five miles to the gallon. Mr. Lloyd then said he would repair for half
price of a reconstructed dynamo. Mr. Long accepted. Then on another
journey, being used by his brother on a business trip
to Middlesbrough, it broke down. Mr. Long sued to rescind.
Pearce LJ held that the contract had been affirmed when it was taken
back after having been fixed. He emphasized that Mr. Long ‘chose’
not to have an expert examine the lorry. On fuel consumption he had
a reasonable time to test it, so ‘on any view he must have accepted the
lorry before he purported to reject it.’

Suit for Damages:


The term ‘damages’ may be defined as the monetary compensation
payable by the defaulting party to the aggrieved party for the loss
suffered by him. The aggrieved party may therefore bring an action
for damages against the party who is guilty of the breach of the
contract. And the party, guilty of the breach, id liable to pay damages
to the aggrieved party. The primary aim of damages is to compensate
the aggrieved party, and to place him in the same position which he

19
See Section 75 of Indian Contract Act, 1872.
20
[1958] 1 WLR 753
would have occupied had the breach of contract not occurred. It may,
therefore, be noted that the damages are given by way of
compensation for the loss suffered by the aggrieved party, and not for
the purpose of punishing the default party.
The court would first identify the losses caused and then assess their
monetary value. There are some basic guidelines for identifying the
losses. Keeping in view the provisions21, and the court judgments, the
aggrieved party (plaintiff) would be entitled to one of following types
of damages, depending upon the circumstances of the case:
1. Compensatory damages
a) General or Ordinary damages,
b) Special damages.
c) Measuring of Compensatory damages,
d) Duty to mitigate damages suffered.

2. Vindictive Damages
3. Nominal Damages
4. Liquidated Damages and Penalty

Compensatory damages:
As I have mentioned about general and specific damages earlier, let’s
go on to measuring of compensatory damages.
c) Measuring of compensatory damages-
Section 73, of the Indian Contract Act, 1872, provides that, “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
21
See Section 73 of Indian Contract Act, 1872.
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 given for any
remote and indirect loss or damage sustained by the reason of the
breach.”22

This section warrants the need to assess such damages, general or


special, according to the facts of the case.

In the case of a contract for sale or purchase general rule as regards


to measuring of the damage is that –
i. The damage would be assessed on the difference between the
contract price and the market price on the date of the breach.

In the case of Jamal v. Moola Dawood Sons & Co.23, M agreed


to purchase certain shares from J on a particular date and
subsequently declined to purchase them on that date. The difference
between contract price and market price on that date was Rs. 1, 09,
218. J later on sold those shares and the actual loss amounted Rs. 79,
862. J sued M claiming Rs. 1, 09, 218 as damages. The courts held
that he was entitled to Rs, 1, 09, 218, because the damages are
measured according to the circumstances existing on the date of
breach.

ii. Under a contract of sale of goods, damages can be claimed for


breach of condition, or warranty and such damages include all
damages flowing from the breach.

In the case of Jackson v. Walson & Sons24, J’s wife died from
poisoning caused by the tinned fish supplied by W. in an action for

22
See Section 73 of Indian Contract Act, 1872.
23
[1916] 43. I.A. 6.
24
[1909] 2 KB 193.
damages for breach, the court held that J was entitled to damages
incurred by – employing extra servants by reason of the loss of wife’s
services during illness, medical expenses, pecuniary loss occasioned
by the death of his wife.

iii. If the seller is selling services rather than something tangible and
the buyer breaches the contract, the calculation of general damages is
somewhat different.
d) Duty to mitigate damages suffered-
The way in which liability for contract damages is limited by the
courts imposing a duty on the party who has been harmed by a breach
of contract to mitigate the damages resulting from the breach. In other
words, the party who has been harmed may not sit idly and watch the
damages accumulate. Moreover the party is supposed to act prudently
to minimize such damages.

In the case of Neki v. Pribhu25, A took a shop from B on rent and


paid one month’s rent in advance. B could not give possession of shop
to A. there were other shops available in the vicinity but A chose not
to do business for eight months. After eight months, A sued B for
breach of contract claiming damages including advance rent and loss
of profits for eight months. The court held that he was entitled to a
refund of his advance and nothing more, as he failed in his duty to
minimize the loss by not taking another shop in the neighborhood.

In another case, Derbshire v. Warran,26 D was the owner of ‘X’


brand of car which was damaged in an accident by negligence of W.
D was informed that the pre-accident value of the car was 85 pounds
and the estimated cost of repair was 192 pounds, and as such an
uneconomic proposition. D, however, decided to have the car repaired

25
100 I.C. 662.
26
[1963] 1 WLR 1067
and claimed the damages from W amounting to 137 pounds (192
pounds – 80 pounds claimed from insurance 25 pounds the cost of
hiring another vehicle until his car was repaired). W argued that D
could have purchased a similar vehicle in the open market for 85
pounds; he should have not taken this uneconomic step. The court
accepted this view and awarded the replacement value of the vehicle,
i.e., 30 pounds (85 pounds replacement price 25 pounds cost of hiring
another vehicle – 80 pounds claimed from the insurance).
2) Vindictive Damages
At time breach of contract by one party not only results in monetary
loss to the injured party but also subjects him to disappointment and
mental agony. In such cases monetary compensation alone cannot
provide an appropriate remedy to the sufferings of the injured party.
Thus there is a need for vindictive damages.

Vindictive damages do not form part of the law of contract. The


concept is borrowed from English law. There are two kinds of
contracts where Indian courts consider awarding vindictive
damages:
i. Breach of contract to marry. In this case the amount of damages will
depend upon the extent of injury to the party’s feeling. One may be
ruined, other may not mind so much.
ii. Where a banker refuses to honor the cheque of a customer while
having his money in his hands, and the customer thereby suffers loss
of reputation.

3) Nominal Damages –
Sometimes, a person brings a legal action for breach of
contract and proves that a breach actually occurred but fails to
prove that any actual damage has been suffered. This may
happen, for example, because of the rules for measuring
damages and requirement that damages should be foreseeable
and proved with certainty. In such a situation, injured party is
awarded nominal damages.

Such damages are awarded simply to recognize the right of


the injured party to claim damages, and are of very small
amount.

For ex:
a) A contracted to purchase ‘LML Scooter’ from B, a dealer,
for Rs. 25, 000. But A failed to purchase the Scooter.
However, the demand for the Scooter far exceeded the supply
and B could sell the Scooter to Z for Rs. 25, 000, i.e., without
any loss of profit. Here if B makes a claim upon A for breach
of contract, he will be entitled to nominal damages only.
4) Liquidated Damages And Penalty-
The contracting party may stipulate in the contract a sum of money to
be paid in case the contract is broken by either party. It may be termed
as ‘liquidated damages’ or ‘penalty’ depending upon the purpose to
fix the sum.

The purpose of fixing a sum as ‘liquidated damages’ is to compensate


the injured party for the loss to be incurred by the breach of the other.
Thus it is a fair pre-estimation of the loss to be caused by non-
performance of the contract.

The purpose of providing a ‘penalty’ in a contract is to discourage a


party from breaching it and to provide a special punishment if the
contract is breached anyway. Thus it is a sum which has no relation to
the probable loss, and generally is disproportionate to the damages
likely to accrue as a result of the breach.

The above differentiation is required to understand the position of


English Law in this respect. English Law awards ‘liquidated
damages’ as compensation, irrespective of the fact whether the sum so
specified is more or less than the actual damages. But does not allow
the sum specified as ‘penalty’ on the ground that only the
government, not private individuals can determine appropriate
remedies for breach of contract.

Indian Contract Law differs from English law in this matter. It does
not recognize any difference between ‘liquidated damages’ and
‘penalty’. Nor does it allow any sum fixed by the parties as damages.
It says that the injured party is entitled to a reasonable compensation
in case of breach subject to the maximum of the amount fixed as
‘liquidated damages’ or ‘penalty’ by the parties to the contract.
“when a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, or if the
contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual damage or
loss is proved to have been caused thereby, to receive from the other
party who has broken the contract reasonable compensation not
exceeding the amount so named or, as the case may be the penalty
stipulated for.”27

Thus in India, the sum named in the contract is not awarded as


damages. It is left to the court to ascertain the actual loss or
reasonable compensation and award the same, which will, however,
not exceed the sum named in the contract.

27
Section 74 of the Indian Contract Act, 1872
For ex:
a) A agreed to sell B his house for Rs. 1, 05, 000, provided that on
breach of contract, the defaulting party will pay Rs. 10, 000 as
damages to the other. B broke the contract and A resold the house for
Rs. 1, 04, 000. A sued B and claimed Rs. 10, 000. It was held that A
cannot recover Rs. 10, 000 as liquidated damages or penalty, he could
only get the actual loss suffered by him, i.e., Rs. 1000 28
Exception to the rule in the context of ‘penalty’ –

Section 74 provides that when any person enters into a bail bond,
recognizance or other instrument of the same nature, or under the
provisions of any law, or under the orders of the Central Government,
gives any bond for the performance of any public duty or act in which
the public are interested, he shall be liable, upon breach of condition
of any instrument, to pay the whole sum mentioned therein.

1) Stipulations for enhanced rate of interest –

Such a stipulation occurring in a contract may have twofold


character :

i) Stipulation for increased interest from the rate of bond. This is


always considered as ‘penalty’.

ii) Stipulation for increased interest from the date of default. It may or
may not be in the nature of penalty. It is a question of fact to be
considered in each case. Generally if the rate of interest payable on
default is unreasonable, the court considers it as a penalty.

Explanation to Section 74 provides that – a stipulation for the


increased interest from the date of default may be stipulation by way
of penalty.

2) Stipulations for compound interest – following rules are deduced

28
Panna Singh v. Arjan Singh [1929] 23 CWN 949.
from various past judicial decisions in this regard :
i) A stipulation for payment of compound interest in place of simple
interest at the same rate is not considered as penalty.
ii) A stipulation for payment of compound interest in place of simple
interest at a higher rate is considered as penalty.

3) Stipulations for payment of interest at a lower rate, if interest is


paid regularly on due dates –
A stipulation to accept interest at reduced rate if it is paid punctually
does not make the original rate of interest a penalty.

Other related provisions –


Two important aspects in the context of compensation by way of
damages are:
1) Cost of bringing a suit in the court of law, and
2) Treatment of ‘earnest money’, or ‘security deposit’ in contracts.

Cost of suit – when a party brings upon a suit in the court of law, he
incurs expenditure thereby. If his point is proved in the suit, he is
entitled to recover the cost of suit in addition to the damages from the
defaulter party. However, it is under the discretion of the court to
award or not to award such costs.

‘Earnest Money’ and ‘Security Deposit’ – sometimes a party to the


contract is required to deposit some money with the other party. This
is generally done with a view to ensure performance of the contract.
The money so deposited may be either ‘earnest money’ or ‘security
deposit’.

The ‘earnest money’ is part of the purchase price paid in advance.


When the transaction goes through it is adjusted against the bill.
When transaction fails through by reason of default or failure of the
buyer, the other party can rescind the contract and retain the earnest
money. Thus, the earnest money is liable to be forfeited.

In the case of Shree Hanuman Cotton Mills v. Tata Aircraft Ltd.29, A

29
AIR 1970 SC 1986.
contracted with B to purchase from him aero scrap for Rs. 1, 00, 000
and paid Rs. 25,000 as earnest money, being 25% of the purchase
price. One of the conditions of the contract was that if A failed to pay
the balance, contract would be cancelled and earnest money would be
forfeited. A defaulted in paying the balance and in consequence, B
forfeited the deposit. A filed a suit for recovery of the deposit. The
court held that the deposit was intended as earnest money, and the
seller was entitled to forfeit it.

The ‘security deposit’ is deposited only as a security for performance


of the contract. It is not a part of the purchase price. Thus when a
contract is completed it is not adjusted against the purchase price.
Law considers it as ‘penalty’. Thus it is not liable to be forfeited.

Suit for Quantum Meruit:


‘Quantum Meruit’ means ‘as much as earned’. A contract may come
to end by * breach of contract * contract becoming void or * Voidable
contract avoided by party. In such case, if a party has executed part of
contract, he is entitled to get a proportionate amount i.e. ‘as much as
earned by him’. This is not by way of ‘damages’ or ‘compensation for
loss’. - - The principle is that even when contract comes to a
premature end, the party should get amount proportional to the work
done/services provided/goods supplied by one party. One party
should not get enriched at the cost of other.30
If the contract has not been discharged, the innocent party cannot use
the Quantum Meruit remedy, but can only sue for damages. However,
if the restitutionary remedy is available and the injured party chooses
to sue on a Quantum Meruit, the principle of assessment differs from
that which is applied in assessing damages for breach of contract and

30
http://www.dateyvs.com/gener03.htm
the sum which the innocent party is entitled to recover may differ
from that which is recoverable as damages:31
Suppose that by the terms of a contract A plc is to pave one mile of
road for B plc for £100,00, payable on its completion. B repudiates
the contract when A has done half of the work and A accepts that
repudiation as discharging it from further performance of its
obligations under contract.
Even in the case of where the person who has done the work is the
one who is guilt of breach of contract, he too is entitled to be paid
Quantum Meruit. But there is an exception- such a contract must have
involved work that was indivisible and it must not have been a
contract for lumpsum remuneration.

Suit for Specific Performance:


Specific performance of contract can be ordered, at discretion of
Court, in following cases – (a) Where there exists no standard for
ascertaining damage caused by the non-performance of act agreed to
be done or (b) When the act agreed to be done is such that
compensation in money for non-performance will not give sufficient
relief.32As per explanation (ii) to section 10, breach of contract in
respect of movable property can be relieved (by paying damages)
unless the property is not an ordinary article of commerce or is of
specific value or interest to the tariff, or consists of goods which are
not easily available in the market. - - In other words, Court may order
to deliver specific article only if it is special or unique article,
not available in market. In other cases, Court will order damages but
not order specific performance of contract. - - In case of immovable
property, normally, specific performance will be ordered, as such
property is usually unique. - - Section 12(1) states that Court shall not

31
Heyman v Darwins Ltd. [1942] A.C. 356
32
Section 10 of Specific Reliefs Act, 1963
order performance of part of contract, except in cases specified in that
section.33

Contracts which cannot be specifically enforced – Following


contracts cannot specifically enforced – (a) Where compensation is
adequate relief (b) Contract runs into such minute or numerous details
or depends on personal qualifications of parties or is such that Court
cannot enforce specific performance of its material terms (c) Contract
which in its nature is determinable (d) Contract, performance of
which involves a continuous duty, which Court cannot supervise.34 - -
In other words, in case of movable articles or contract of intricate
nature, specific performance will normally not be ordered by Court. -
- Specific performance of contract of personal nature cannot be o
Discretionary powers of Court – Jurisdiction of Court to decree
specific performance is discretionary. Court will not order specific
performance merely because it is lawful to do so.35 Court will
consider various aspects before issuing decree for specific
performance. - - Court can grant compensation in lieu of even in
addition to specific performance.36

Other cases when Court can order specific performance – (a) Order
rectification of instrument if it does not reflect real intention of
parties. This may happen through fraud or mutual mistake.37 (b) Order
rescission of contract38 (c) Cancellation of instrument by
getting declared that it is void.39

33
Section 12(1) of Specific Reliefs Act, 1963
34
Section 14 of Specific Reliefs Act, 1963
35
Section 20(1) of Specific Reliefs Act, 1963
36
Section 21 of Specific Reliefs Act, 1963
37
Section 26 of Specific Reliefs Act, 1963
38
Section 27 of Specific Reliefs Act, 1963
39
Section 31 of Specific Reliefs Act, 1963
Suit for Injunction:
An injunction is an equitable remedy in the form of a court order that
requires a party to do or refrain from doing specific acts. A party that
fails to comply with an injunction faces criminal or civil penalties and
may have to pay damages or accept sanctions. In some cases,
breaches of injunctions are considered serious criminal offenses that
merit arrest and possible prison sentences.40
An injunction is an order issued by a court that forces the defendant––
a person, corporation or government entity––to do something or stop
doing something, depending on what the plaintiff is requesting. In
relatively rare cases, the court may issue a mandatory injunction,
compelling a person, company, or governmental unit to take
affirmative action in carrying out a specified action.
When a plaintiff decides to file a lawsuit, they must specify what type
of legal remedy (or relief) they are asking the court to grant them.
While many plaintiffs seek money to compensate them for their
injury, some injuries require a different type of legal remedy. Instead
of asking a court for monetary damages, a plaintiff could ask the court
for an injunction (or injunctive relief) against the defendant. The
extent of the injunction and the procedures for obtaining it are
generally set out in your state’s rules of civil procedure. Any plaintiff
seeking an injunction should first consult with an experienced
attorney.
An injunction begins with a petition requesting the court to grant
injunctive relief. Because the petition is usually the beginning of a
lawsuit, you will be required to pay a filing fee. Depending on the
extent of the legal remedy you are requesting, the court may also
require you to post a bond. If the court approves your request for an
injunction, the court can order the defendant to temporarily do

40
http://en.wikipedia.org/wiki/Injunction
something or stop doing something they are doing until a final hearing
can be held. This initial injunction is called a temporary injunction
because it only lasts for a specified time period until a hearing can
determine the appropriate legal remedy.

At a final hearing, both sides are allowed to present evidence to the


court. After the court hears evidence from both sides at a final
hearing, the court will then decide whether the injunction should only
be temporary or permanent depending on the issues surrounding the
need for the original injunction. Before you file a lawsuit, you may
want to consult with an attorney to review which type of legal remedy
is best suited for your injuries. If you forget to ask for a particular
type of legal remedy when you file a lawsuit, you could potentially
loose the opportunity to ask for it a later time.41

41
http://law.freeadvice.com/litigation/legal_remedies/what-is-an-injunction.htm
CONCLUSION
The law on breach of contract and remedies is diverse in common law
jurisdictions. In this area, the law in India is mercifully clear and
stable. Subject to some exceptions recognized in the Specific Relief
Act, 1963, the common remedy in India for breach of contract is
damages. Sections 73 to 75 of the Indian Contract Act provide for a
combination of statutory and contractual damages for breaches and
also guidance on the amount of damages. By and large, courts have
not entertained challenges to the amount of damages specified in
contracts. Courts have respected the contracts and held parties to their
terms.
BIBLIOGRAPHY
BOOKS

1. Anson’s Law of Contract, 28th Edn. J.Beaston.

2. Contract & Specific Relief, 10th Edn. Avtar Singh.


3. Law of Contract-1 with Specific Relief Act, 6th Edn. R.K.Bangia.
4. Indian Contract Act, 1872.
5. Specific Relief Act, 1963.

Web Sources
1. www.google.com
2. en.wikipedia.org
3. www.dateyvs.com
4. www.legalservicesindia.com
5. www.indiakanoon.org
6. www.west.net
7. www.blackslawdictionary.com