Part I The Indian Contract Act

Chapter 7
Remedies for Breach of Contract

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Learning Objectives

Breach of Contract and Remedies

Rescission
Damages

Specific Performance

Injunction

Quantum Meruit

Quasi-contract : Other Remedies

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 What is Breach of Contract

A breach of contract is refusal by one party to abide by its terms, without lawful
excuses such as, impossibility of performance, defective or even late
performance by the other party etc.
Many commercial agreements contain express provisions for remedies available
to the aggrieved  party. For example, in a contract for the sale of goods, the buyer
may be entitled to ask the seller to make good or replace defective items. By
incorporating such a clause, the contracting parties, perhaps, intended to
displace any rights and remedies provided by law, which are not specified in the
contract.
Contd.

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Remedies for Breach of Contract

A remedy is a relief provided to an aggrieved party should the other side commit a
breach. Once a party fails to perform or performs inadequately, the other (non-
breaching) party can choose one or more of several remedies.

The most common remedies available to an aggrieved party are: Rescission,

Damages, Specific performance, Injunction, and Quantum Meruit.

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 Remedies for Breach of Contract

Rescission is the revocation of a contract.

When a party to a contract has refused to perform, or disabled himself from
performing in its entirety, the promisee may put an end to the contract.
[Section 39]
In such a case, the other (aggrieved) party can refuse further performance and is
absolved of all of its obligations under the contract.
A promises to supply a PC for B’s office on a certain date on COD basis. However, A
fails to deliver the computer on the agreed date. B is absolved of the liability of
paying the price and can rescind the contract.
Rescission is done to bring the parties, as far as possible, back to the position in which
they were before entering into the contract. This is known as status quo ante. It is an
equitable remedy and is discretionary.
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 Damages

A breach of contract entitles the non-breaching or injured party to sue for

monetary damages besides rescinding the contract. Damages are designed to
compensate the aggrieved party for the loss sustained in the bargain.
When a contract has been broken, the aggrieved party is entitled to receive,
from the breaching party such damages which
• naturally arose in the usual course of things from such breach. This relates to
ordinary damages, and
• which the parties knew, when they made the contract, to be likely to result from
the breach of it. This relates to special damages. [S 73]

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 Damages: A Claim for Damages raises the
Following Issues

Remoteness of damage, which means for what kind of damage should the plaintiff,
be compensated? That is, whether the courts will take the step of recognizing that a
breach of contract can, in principle, give rise to a claim for damages to the injured
party.
Assessment of damages, which means what monetary compensation or damages
should the plaintiff receive in respect of the damage, which is not too remote or
indirect?

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 Types of Damages

Depending upon the nature of the awards in compensating the injured

or aggrieved party, damages have been classified as follows:
1. Compensatory damages
2. Nominal damages
3. Consequential damages
4. Punitive damages
5. Incidental damages
6. Liquidated damages and Penalty

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 Compensatory Damages

Damages compensating the non-breaching party for the loss in the bargain are known as
compensatory damages. These are also called ordinary damages. Since these damages
compensate the aggrieved party for injuries actually sustained and proved to have arisen
directly from the loss in the bargain due to the breach, the measure of ordinary damages is
the difference between the contract price and the market price on the date of the breach.
Accordingly, they simply replace the loss caused by the wrong or injury. The aim of awarding
compensatory damages is thus to protect the claimant’s ‘expectation of interest’ or his
‘performance interest’.
A contracts to sell and deliver 50 kgs of saltpetre to B, at a certain price to be paid on
delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the
sum, if any, by which the contract price falls short of the price for which B might have
obtained 50 kgs of saltpetre of the same quality at the time when the saltpetre ought to
have been delivered.

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 Nominal Damages

Nominal damages are awarded in cases where the aggrieved party has suffered
no loss as a result of the other's breach. When a seller fails to deliver the goods,
but the buyer is able to purchase elsewhere at no extra cost. An award of a
small sum such as Rs 100 is granted to the non-breaching party to reflect the
view that any loss or damage is purely technical.

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 Consequential Damages

Consequential damages are also called special damages. These are awarded as
monetary compensation for loss suffered as a consequence of the other party's
breach. Consequential damage occurs because of some special or unusual
circumstances of the particular contractual relationship of the parties.
However, an aggrieved party cannot recover special damages for loss that he could
have avoided by taking reasonable steps. This is sometimes expressed as the duty to
mitigate (or minimize) these damages.
A, having contracted with B to supply B with 1,000 tons of iron at Rs 100 a ton, to be
delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at Rs
80  rupees a ton, telling C that he does so for the purpose of performing his contract
with B. C fails to perform his contract with A, and B, in turn, rescinds the contract. C
will have to pay to A Rs 20,000, that being the profit which A would have made by
fulfilling his contract with B.
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 Punitive Damages

Also known as exemplary or vindictive damages, punitive damages are available in a breach of contract very
rarely. These are imposed not with an idea to compensate the injured or aggrieved party but to punish the
wrongdoer so as to deter future such misconduct.
They reflect the court’s strong disapproval of a defendant’s predominantly reprehensible behaviour.
Oppressive, arbitrary, or unconstitutional action by the servants of the insurance and healthcare
undertakings are usually the most frequent targets to recover punitive damages, followed by employers and
bankers who are often subjected to punitive damages.
In case of wrongful dishonour of a cheque (due to the negligence on part of the banker), the governing rule
is – smaller the amount of the cheque, larger will be the amount of damages awarded and vice versa.

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 Incidental Damages

Incidental damages compensate for reasonable costs that the injured party incurs after
the breach in an effort to avoid further loss.
For example, if an employer breaches an employment contract with one of his
employees, the latter could recover as incidental damages those reasonable expenses he
would incur in attempting to procure substitute employment, such as long-distance
telephone calls or the cost of printing new resumes, etc.

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 Liquidated Damages and Penalty

It is common for the contracting parties to expressly state in the contract that a certain sum
of money will be paid to the injured party or that goods will be forfeited (the latter being known
as retention clause) should a breach of contract occur. Clauses covering these areas are known as
liquidated or agreed damages clauses. These are self-help remedies and generally appear in
commercial
The purpose of such clauses is to make recovery of damages easier, avoiding the problems of
proving actual loss; to avoid arguments as to the remoteness of certain types of consequential or
indirect losses; and to assure the other party of their intention to be bound by the contract.
On the other hand, a clause will be construed as a penalty clause if the sum specified is
extravagant and disproportionate to the damage likely to occur. Penalty clauses are generally not
enforceable, whereas liquidated damages clauses are.
Contd.
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 Liquidated or Agreed Damages and Penalty

Whether a particular sum is liquidated damages or a penalty depends on the

intentions of the parties. And the mere use of the words ‘penalty’ or ‘liquidated’
damages are not conclusive evidence of intentions. It is necessary to examine
whether the amount specified is befitting penalty or liquidated damages. The
courts normally seek to determine whether the sum stipulated is extravagant in
comparison with the greatest loss, which could have followed from the breach?
If so it is a penalty. Otherwise the same will represent liquidated damages. Thus,
as a general rule, if the sum specified in the contract, is a genuine pre estimate
of loss it is termed liquidated damages, and if it bears no reflection on the loss
suffered, it is termed a penalty.

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 Specific Performance

Specific performance is a decree issued by the court, which orders the party accused of
breaching a contract to perform his obligations under the contract. Where damages represent
inadequate/unjust remedy (for example, where the subject matter of the contract is unique or
where there are no standards to ascertain the quantum of loss) the non-breaching party may
approach the court for the grant of an order for specific performance of the contract.
The court exercising its discretion it takes into account factors such as:
Whether the person seeking performance is prepared to perform his side of the contract
(Chappell vs Times Newspapers Ltd)
Whether the person against whom the order is sought would suffer hardship in performing it.
(Patel vs Ali) ).
The difference between the benefits that the (court) order would give to one party and the cost
of performance to the other (Tito vs Waddell).
Contd.

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 Specific Performance: When not Granted

Specific performance is usually not granted in the following circumstances:

When monetary compensation is an adequate remedy.
It will be inequitable to either party. Thus, it is not available to an infant in respect
of a contract not enforceable against him.
The contract requires personal services such as employment contracts because
such an order would restrict an individual's freedom.
The contracts which require extensive supervision, for example building contracts.
 The defendant cannot perform exactly in accordance with the original contractual
obligation.
On the basis of above-mentioned constraints, it can be argued that specific
performance is a substitutionary and not a specific remedy.
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 Injunction

 An injunction is a court order directing a person to do or refrain from doing some specified
act, which, of course, has been the subject matter of a contract. Like specific performance, an
injunction is an equitable remedy and is awarded in circumstances where damages would not
be an adequate remedy to compensate the claimant.
For example, A factory begins to allow noxious fumes to escape from its chimney, affecting
the health of people in the neighbourhood. Damages would be inadequate, as the residents
would want the emission of fumes to stop altogether. This can therefore be remedied by an
injunction order. Contd.

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 Types of Injunction: Prohibitory & Mandatory

Prohibitory injunction  This orders the defendant to restrain from committing a breach of a negative contractual
obligation i.e., where he does something, which he had promised not to do. Such an injunction may be granted to
prevent the breach of a reasonable restraint of trade clause. For instance G agreed to source all the electric power
required for his house from M but started buying part of his requirement from some other company. He was
restrained by an injunction order from buying electricity from the other source.
Mandatory injunction  This, on the other hand compels the performance of a positive contractual obligation, for
example, compel an employee to do any work or attend at any place for the doing of any work.
In exercising its discretion (of injunction) the court will use the balance of convenience test – weighing the
benefit to the injured party and the detriment to the other party. For example, a factory begins to allow noxious
fumes to escape from a chimney, affecting the health of neighbouring residents. Damages here would be inadequate,
as the residents would want to stop the fumes being emitted. This can only be remedied by an injunction order. An
injunction will not be granted if its effect would be to compel a party to do something, which he could not have been
ordered to do by a decree of specific performance.

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 Quantum Meruit

Quantum Meruit is a Latin term meaning, 'as much as is merited' or 'as much as earned'. In the
context of Contract Law, it means something along the lines of ‘reasonable value of services
rendered’.
The concept of quantum meruit applies to the following situations:
When a person employs (impliedly or expressly) another person to do work for him, without any
agreement as to his compensation, the law implies a promise from the employer to the workman
that he will pay for the services, as much as the workman may deserve or merit.
When there is an express contract for a stipulated amount and mode of compensation for
services, the plaintiff cannot abandon the contract and resort to an action for a quantum meruit. 
However, if there is a total failure of consideration, the plaintiff has a right to elect to repudiate the
contract and then seek compensation on a quantum meruit basis. Contd.

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 Quantum Meruit

If a contract is divisible and a party to a contract is prevented from fulfilling its
contractual obligations by the other party then obviously he will not be in default.
For example, in a building contract, if should the owner prevent the builder from
completing, like not allowing him to enter the construction site, the builder can
recover a reasonable price for the work done on a quantum meruit basis.
If an indivisible contract is completely executed, but badly, the person who has
performed will be entitled to a lump sum less deduction to make good the defect in
the performance.
In all the above cases, the claim is not based on the original contract, but on
the implied promise by the other party arising from the acceptance of an executed
contract.
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 Quasi Contract: Other Remedies

Quasi-contractual remedies are sometimes available either as an alternative to a remedy for breach of
contract or where there is no remedy for breach of contract. For example, a claim for quantum meruit (a
reasonable remuneration for work done, or for goods supplied under a contract) which is later discovered to be
void.
Claim for necessaries supplied to person incapable of contracting, or on his account [Section 68]. If a person,
incapable of entering into a contract, or anyone whom he is legally bound to support, is supplied by another
person with necessaries suited to his condition in life, the person who has furnished such supplies is entitled to
be reimbursed from the property of such incapable person.
Reimbursement of person paying money due by another, in payment of which he is interested [Section 69].- A
person who is interested in the payment of money which another is bound by law to pay, and who therefore
pays it, is entitled to be reimbursed by the other.
Contd.

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 Quasi Contract: Other Remedies

Obligation of person enjoying benefit of non-gratuitous act. Where a person lawfully does anything for
another person, or delivers anything to him, not intending to do so gratuitously, and such other person enjoys
the benefit thereof, the latter is bound to make compensation to the former in respect of, or to restore, the
thing so done or delivered. [ Section 70]
Illustrations:
(a) A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is bound to
pay A for them.
(b) A saves B's property from fire. A is not entitled to compensation from B, if the circumstances show
that he intended to act gratuitously.
Responsibility of finder of goods A person, who finds goods belonging to another and takes them into his
custody, is subject to the same responsibility as a bailee. [ Section 71]
Liability of person to whom money is paid, or article delivered, by mistake or under coercion. A person to
whom money has been paid or anything delivered, by mistake or under coercion, must repay or return it.
[Section 72]

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