Contract Law-Remedy for

Breach
Tilak Bikram Pandey
Partner
 Mr. Book Seller had agreed to supply 100 books to
Mr. Retailer at Rs. 100 per book. Mr. Book Seller
refused to supply the book as the price of the book
increased to Rs.150. What is the remedy available
to Mr. Retailer.
 Mr. Rock had agreed to sale the guitar actually
played by Jimmy Hendrix and bearing his autograph
to Mr. Collector for Rs. 500,000. Mr. Rock later
refused to sell the guitar? What remedy is available
to Mr. Collector.
 Builder Pvt. Ltd and Mr. Land Owner entered into a
land lease agreement. The term of lease agreement
was for 25 years. The agreement provided that
Builder Pvt. Ltd can build commercial complex in
the land. The complex was completed in two years.
After that Mr. Land Owner send the notice to
terminate the land lease agreement.
 Mr. Retailer and Nepal Soap Pvt. Ltd had entered
into an agency agreement. The tenure of the
Agency Agreement was for five years. However,
after six months, Nepal Soap Pvt. Ltd terminated the
Agency Agreement.
Types of Remedy

 The available remedy depends upon the nature and terms of

the contract.
 The remedy can be broadly divided into two categories on the
basis of enforcement mechanism:
 Self-help Remedy (by Contracting Party itself)
 Judicial Remedy (Court or Arbitration)
Self-Help Remedy
 Sale of security - if the security or collateral is given by the
other party (commonly used by banks).
 Set-off - if anything is payable to and receivable from the other
party.
 Forfeiture-forfeiture of advance or reduction from advance
amount if the advance is provided (e.g. lease with advance rent)
 Terminate –termination of the contract or refuse to perform the
obligation (on the ground the other party has breached its
obligation).
 Confiscation -if the guarantee is provided by the other party
confiscation of the guarantee (generally takes place in
construction contract).
 Judicial Remedy

 Courts- Regular Courts

 Arbitration- Alternative Dispute Resolution (ADR)
 Judicial Remedy

 Arbitration- a method of settlement of dispute by the persons

nominated by the disputed parties. This is an alternative
dispute settlement mechanism.
 Requirement- To use this forum of dispute settlement, the
contract should expressly provide for arbitration clause. If the
agreement does not provide for express arbitration clause, the
dispute should be referred to the courts.
 Advantages of Arbitration – Time and cost effective, expert
judges, confidential, flexible procedure, finality (limited
grounds to challenge the award).
Different Type of Judicial Remedy

 Damages
 Quantum Mereuit
 Specific Performance
 Order of Injunction
Rule on Damages
 The aggrieved party is entitled to claim damages caused due to
breach of contract by the other party.
 The objective of damages is not punitive i.e. not intended to
punish the party for breach of the contract.
 The objective is to place the aggrieved party in the same
position (financially) as if the contract has been performed.
 The party claiming damages should have performed its
obligation.
 The loss should have been caused due to breach. The damages
should not be remote (Hadley v. Baxendale)
 Indirect and imaginary damage cannot be awarded.
 There is also duty to mitigate by the party claiming damage.
 Types of Damages

 Liquidated Damage
 Unliquidated Damage
 The Unliquidated Damage consists of: (a) General Damage
and (b) Special Damage
Types of Damages

 Liquidated Damage- The damage agreed upon by the parties

in the contract to be paid by the party breaking the contract at
the time of breach.
 Liquidated damages –The amount of damages is specified in
the contract.
 The court will only award reasonable damages not exceeding
the damages specified in the contract.
 If the damage is excessive it will be punitive in nature.

E.g. If A and B enter into a contract under which they agree that
the party breaching the contract pay Rs.10 million as damage
to the other party (Rs.10 million-Liquidated Damage).
Types of Damages

 Unliquidated Damage: The damage which has not been

specified by the parties in the contract.
 The unliquidated damage includes (a) general damage, (b)
special damage.
 General Damage- The damage resulted from the breach of
contract. The damage which arises naturally and directly from
the breach of contract to which the parties have foreseen at the
time of contract.
 Special Damage- If the parties have foreseen that the special
loss will be suffered if contract is breached at the time of
entering into contract the damage may be awarded.
Damages (s.537)
537.Compensation for breach of contract: (1) In the case of breach of a contract under Section
535, the party aggrieved by it shall be entitled to recover from the party in breach of the contract
damages for the actual loss or damage caused by the breach or such loss or damage which the
contracting parties knew when they made the contract to be likely result from the breach.
(2) If the parties to a contract, in anticipation, at the time of its formation specify a sum in the
contract, which becomes payable for breach of the contract, the aggrieved party shall be entitled
to recover a reasonable amount not in excess of that sum from the other party, pursuant to sub-
section (1).
(3) If the contract does not provide for compensation referred to in sub-section (2), the party
claiming such compensation shall be entitled to recover a reasonable amount for the direct and
actual loss or damage resulted from the breach of contract or for the breach of contract or for
compensation.
Provided that no compensation may be recovered for any indirect or imaginary loss or
damage.
(4) If a contract, which is concluded for the completion of any act within a fixed period,
contains a provision that compensation as referred to in sub-section (2) is payable if such act
cannot be completed within that period, the party paying such compensation may request for the
extension of the period for the completion of contract in proportion to the amount of compensation
paid by him or her.
(5) The right of a party to a contract to other legal remedies for the breach of contract shall not
be deemed adversely affected by the reason only that the amount of compensation has been paid
pursuant to this Section.
 Quantum Mereuit (s.538)

 Quantum Mereuit- Payment as much as one deserves or the

actual value of the service performed.
 The form of compensation mainly applies to the situation where
the contract has been frustrated or the voidable contract has been
rescind after partial performance.
 The main objective is to prevent one party to enrich
unreasonably due to frustration or invalidity of contract.
 Only the innocent party can claim for the quantum mereuit.
 For example, where advance house rent is given for 6 months
and the house is destroyed after 4 months, rent of remaining two
months is recoverable.
 Quantum Mereuit (s.538)
 538. Consequences of rescission or voidance of contract: (1) If, after a party to a contract has
already received some cash or kind or any other benefit from the other party or after the fulfillment of
the obligations under the contract partially, the contract is rescinded by consent of the parties and the
performance of the contract is not required under this Part or other law, the contract is voided or
declared to be void according to law or the contract becomes invalid or is rescinded under this Part,
such cash, kind or service so received shall be returned upon having settled the accounts of the cash
or kind given until the date of the contract being in force.
 (2) If any service or advantage other than cash or kind has been given pursuant to sub-section
(1), the party receiving such service or advantage shall pay a reasonable amount to the other party in
consideration for such service or benefit.
 (3) If it becomes necessary to institute legal action by the reason of failure to return the cash or
kind or to pay the amount as referred to in sub-section (1), a reasonable expense incurred for that
purpose may also be recovered.

 539. Amount to be recovered in proportion to performed contract (quantum meruit): If a

contract is rescinded by the reason of its breach by any party or for any other reason, the aggrieved
party may claim for the payment by the other party of amount under the contract in proportion to the
work done or the performance of contract made by that party.
Specific Performance (s.540)

 The remedy for specific performance is available if damages is

not sufficient.
 Instead of monetary compensation, party in breach is required
to actually perform what it has agreed in the contract.
 For example, If A had agreed to sell B a house, B can claim
for actual sale of house instead of damages.
Specific Performance

 The remedy for specific performance is not available if,

 damages is sufficient
 performance can not be supervised by the courts
 contract is for providing personal services
 specific performance can not be done (for example, subject
matter is already sold)
 the party claiming specific performance has itself is in
breach of contract.
Specific Performance
540. Specific performance of contract: (1) If monetary compensation is not
reasonable and adequate for the actual loss or damage suffered by the aggrieved
party because of the breach of contract, the aggrieved party may claim for the
specific performance of the contract instead of compensation.
(2) Notwithstanding anything contained in sub-section (1), specific performance
may not be claimed in any of the following circumstances:
(a) If monetary compensation is an adequate remedy for the breach of contract,
(b) If the court cannot supervise the performance of the act under the contract,
(c) If the contract is for providing services of personal ability, skill or knowledge,
(d) If the contract cannot specifically be performed,
(e) If the party in breach of the contract claims for its specific performance.
Injunction (s.541)

 Injunction-preventing a party from doing such act which

makes the contract impossible to perform.
 If a party to a contract has agreed to not to do something
(negative obligation) or if due to the nature of the contract,
party can not do something, the aggrieved party can apply to
the court for restricting the other party from doing such thing.
 The court may prevent the party to carry out any act that
makes the contract impossible to perform.
 E.g. After agreeing to sell the restaurant operated by A to B, if
A negotiates to sell the same to C, B may seek injunction from
the court to prevent A to do such thing.
Injunction (s.541)

541. Power of court to make order: (1) If the performance of a contract is not
possible because any party to the contract is about to perform any act or conduct
which is contrary to the nature of the contract, the party aggrieved by such action or
conduct may file a complaint in the court to prevent such act or conduct.
(2) If a complaint is filed pursuant to sub-section (1), the court may issue an
appropriate order to any party to immediately stop his or her particular action or
conduct, subject to the settlement of the dispute arising out of that contract in
accordance with such contract or law.
(3) If an order is issued pursuant to sub-section (1), the aggrieved party shall be
entitled to also recover additional loss or damage caused from the failure of the other
party to comply with the order so issued.
Remedy

Thank you