Consequence of Breach of Contract

If the party to a contract does not perform his obligations, or expressly refuses to perform
the contract it amount to what is called breach of contract.

In the case of breach of contract, the party who does not, or refuse to perform his obligation
is called the defaulting party, whereas the other party is the aggrieved party in case of
breach of contract.

The consequences of breach of contract depend on the nature of breach. No matter what
the breach is the contract never automatically comes to an end. If there has been a breach
of a very important term of contract then the party is given the option to bring the contract
to an end. Moreover recent if the party does not want to terminate the contract he can
always sue for damages.

Remedies

There are three kinds of remedies for breach of contract, namely;

(i) Damages
(ii) A decree for specific performance or
(iii) An injunction

Damages

The major remedy available at common law for breach of contract is an award of damages.
This is a monetary sum fixed by the court to compensate the injured party. In order to
recover substantial damages the injured party must show that he has suffered actual loss; if
there is no actual loss he will only be entitled to nominal damages in recognition of the fact
that he has a valid cause of action. Damages are given by way of restitution and
compensation only and not as punishment, the aggrieved party can therefore, recover the
actual loss caused to him and not exemplary damages, which can be recovered only in case
of a breach of promise of marriage. The law as the damages for the breach of contract and
the measure of damages are laid down in section 73 to 75 of the Contract Act.

The following are the some of the types of damages

General damages; the contract is broken the natural & direct loss suffered by aggrieved
party is called general damage.

Special damages; a loss that arises out of special circumstances prevailing at the time of
breach of contract damages other than those arising from the breach of contract are special
damages.

Exemplary damages; sometimes the breach of a contract may result in the loss of credibility
of a party & may hurt the party’s reputation.

Nominal damages; when the aggrieved party has not in fact suffered any loss by reason of
the breach of contract, the damages recoverable by him are nominal.

Penalty; when making the contract that in the event of a breach of the contract the party
responsible for the breach would pay a specified sum as damages to the other party.

Interest as damages; when a party to a contract does not make a payment on the stipulated
date, is the party liable to pay damages in the form of interest on the amount.

Specific performance

The law regarding specific performance and injunction are regulated by Specific Relief Act
(S12-30). Specific performance can be granted only when the damages are (i) an inadequate
remedy, or (ii) when the contract is certain, fair and just.

For example;

A agrees to buy and B agrees to sell a picture by a dead painter and two rare China vases. A
may compel B specifically to perform the contract for there is no standard ascertaining the
actual damages which would be caused by its non-performance.
So also A, a singer, contract with B, the manager of a theatre, it sing at his theatre for one
year, and to abstain from singing at other theatre during this period. She absents herself. B
cannot compel A to sing at his theatre, but he may sue her for an injunction restraining her
from singing at other theatres.

Injunction

Injunction is used as a mean of enforcing a contract or a promise to forbear, where a

contract is about to be broken by a party to the contract. Injunction are of two kinds,
namely, temporary or perpetual.

Measure of Damages for Breach of Contract

“Damages” means compensation in money which the party who suffers by a breach of
contract is entitled to receive from the party who has broken the contract.

Such compensation is not to be given for any remote and indirect loss or damage sustained
by reason of the breach.

Remoteness of Damage

Section 73 paragraph (2) deals with what is known as ‘remoteness of damage’. Which says,
“such compensation is not to be given for any remote and indirect loss or damage sustained
by reason of the breach”.

The loss must naturally arise in the usual course of things from the breach or it must be such
as the parties knew, when they made the contract to be likely to result from the breach of
it. Its follows, therefore, that a party is not liable for loss which is too remote, i.e which is
not the natural of probable consequence of the breach of the contract.

For example;

A delivers to B. a common carrier, a machine to be conveyed without delay, to A’s mill

informing B that his mill is stopped for want of the machine B unreasonably delays the
delivery of the machine and A in consequence losses a profitable contract with the
Government and A is entitled to receive from B by way of compensation the average
amount of profit which would have been made by the working of the mill during the time
that delivery of it was delayed but not the loss sustained through the loss of the
Government contract because it is too remote.

Specific Contract

There are four types of specific contract, namely

1. Contract of Indemnity
2. Contract of Guarantee
3. Bailment
4. Agency