Remedies for Breach of Contract

- Sakshi Shitole and Rhea Samuel

The Indian Contract Act, 1872 classifies the lawful standards that administer the agreements which specify the rights and obligations of different parties in order to facilitate transactions in everyday life. The principal rationale behind the Indian Contract Act, 1872 was to guarantee that any two parties getting into a "contract" ought to enter it with the aim to perform and finish their respective obligations and duties without any breach of contract.

Meaning of Breach of Contract:

As per the Oxford dictionary, a breach is an inability to accomplish something that must be done by law.[1] Breach of Contract simply implies when one party neglects to convey as indicated by the provisions of the agreement in an official understanding which can be failed to deliver according to the terms of the contract in a binding agreement. It can be intentionally or unintentionally. Failure to agree with the conditions of the agreement, Inability to comply with the terms of the contract. Complete failure to perform is some of the many reasons which cause the breach of contract.[2]

A breach can occur in an Anticipatory Contract and Actual Contract.

Anticipatory Contract:

It implies when the promisor won't play out his obligation or commitment even before the predetermined time of execution and manifests his reluctant behavior to the promisee.

[FROST vs. KNIGHT (1872) LR 7 Ex. 111].

Actual Contract:

It characterizes where one party breaches the contract by refusing to deliver the promise on the due date to the other party.

So the main question here is, are there any remedies for breach of contract?

All things considered, indeed, there are numerous remedies as a contract.

As the famous legal maxim goes, ‘Ubi jus, ibi remedium’, that is where there is a right, there is a remedy.

What exactly do we mean when we say remedy in this context?

A remedy is the course of action accessible to an aggrieved party (i.e. the party not at default) for the enforcement of a right under a contract.

Remedies for Breach of Contract:

1. Rescind the Contract

If one party breaks the contract, the other party has the option to rescind the said contract. He therefore becomes absolved from the contract and need not perform or complete his obligations. The aggrieved party who receives some advantage or benefit under the contract is bound to restore it to the person from whom he received it.[3]

Example- A agrees to supply 20 tons of rice to B on 29th November. B promises to pay for the goods on its receipt. A fails to supply rice on the due date. Here, B is discharged from the liability of paying the price. B is entitled to rescind the contract and to claim compensation for the damage he suffered.

2. Suit for Specific Performance

In certain situations of breach of contract, damages may not be an adequate remedy. In such a case, the court may direct the party in the breach for the specific performance of the contract. Suit of specific performance implies that the party must carry out his promise as per the conditions of the contract. Any suffering party can file the suit for specific performance and the court may order to complete the promise for a positive contractual obligation.[4]

Specific Performance is granted in the following cases of Contract:

• Sale/Purchase of land.

• Sale of unique goods.

Specific Performance is not granted in the following cases of Contract:

• Any personal service.

• Damages are an adequate remedy.

• One party is minor.

• Execution cannot be supervised by the court.

Example- A buys a famous painting at an auction. But later he does not receive the painting. The authorities are ready to compensate for the damage but the buyer is not ready to accept it. In this case, the court may order to give the painting to A as it is a unique product.[5]

When the specific performance is impossible:

1. When the contract is too vague

2. When the element of ad-idem-consensus is missing,

3. When the contract was made for no consideration

4. When the contract is void

There is an ongoing debate between legal theorists and economists regarding the desirability of specific performance. Economists, generally, take the view that specific performance should be reserved for the rarest circumstances. This is for two reasons. Firstly, it is costly to administer. Second, it may deter parties from engaging in what is known under law and economics as “efficient breach”. (The idea that it is sometimes better to breach the contract if the compensation to be provided is of a lower cost to the party that breaches as opposed to the actual performance of the contract.

3. Suit for injunction

This remedy is opposite to the remedy of specific performance. In this case, when the suffering party brings a suit against the other party, the court stops the party from performing a particular act. The party breaks the contract by doing something which he promises not to do.[6] Hence, injunction is the method to prohibit the party from doing so. Suit for injunction may also be granted where personal skill or quality is involved in a contract.

Types:

Temporary or interim injunctions - Order 39 of Civil Procedure Code 1908 states that these are injunctions that last for a specified period of time. This can be, for instance, 20 days, or till the next hearing. Such injunctions can be granted at any juncture of the proceeding.

Permanent or perpetual injunctions - Sections 38 to 42 of the Specific Relief Act, 1963 mention perpetual injunctions which are contained in the decree passed by the Court. Such an injunction permanently prohibits the defendant from committing an act which would be contrary to the plaintiff’s rights.

Example- A enters into a contract where he agrees to attend a function at B’s hall on 25th December. During the contract, A made a contract with C to attend a function at another hall and refused to perform the contract with B. It was held that A could be prohibited by injunction from attending the function at C’s hall.

4. Suit for Quantum Meruit

'Quantum Meruit' in a real sense signifies "as much as acquired" or "as per the amount of work done". The suit for Quantum Meruit basically expresses that when an individual or a party has finished their particular work however needs to keep their work incomplete is qualified for get pay on the grounds that another gathering has made the work difficult to finish. Another occurrence is the place where an individual delivers something to someone else with the goal of getting paid; the other individual should pay him in the event that he acknowledges the conveyance.[7]

Example- A, a director who engaged B an actor to act in a movie. After a few days of shooting, the movie got shelved due to low funds. It was held that B could claim payment for the part that he acted in or worked.

5. Suit for Damage

If a party has suffered due to breach of contract he is allowed to receive monetary compensation. The principle intention here is to make good the monetary misfortune endured by the party. The aggrieved party has a right to receive compensation for any damages caused to them due to the breach of contract from the other party.[8] Liquidated Damages and Unliquidated Damages are the types of damages for a breach for Contract.

Liquidated Damages

When the amount of compensation payable is decided and agreed by both the parties in advance, the sum payable is known as liquidated damages.

Unliquidated Damages

When the amount of compensation payable is decided by the court afterwards, the damages claimed are called as unliquidated Damages. Some of the types of unliquidated Damages are as follows

A. Ordinary Damages: The damages which normally emerge in the typical course of things from such breach. In this circumstance, the party must suffer by the breach of contract and these damages must be direct consequences.

B. Special Damages: The damages which are given under only special extraordinary conditions, it cannot be given in any ordinary situation. These damages may reasonably be supposed to have been in the contemplation of both parties as the probable result of the breach of contract.[9]

C. Punitive Damages: They are also called as exemplary or vindictive damages. In these cases, compensation is given according to the nature of breach. Damages are provided on the basis of mental injury caused to the party. Wrongful dishonor of a cheque by a banker and breach of promise to marry are some of the examples.

D. Nominal Damages: These damages are awarded when there is not an actual loss suffered by the party but there is a breach of a legal right of the party. The compensation given is very small.

Chapter VI of the Indian Contract Act deals with compensation for loss or damage caused as a result of a breach of contract. This is Section 73 of the Act and it says that the party who suffers as a result of the breach of contract must be compensated for any loss or damage. However, it must be noted that this damage must have arisen in the natural course of things directly from such a breach. Any remote or indirect loss will not result in compensation.

Section 73 is based on Hadley v. Baxendale (1854) 9 Ex. 354. This leading English Contract Law case sets the rule to determine damages from a breach of contract. The party who breaches will be liable for all losses that the contracting parties should have foreseen, but is not liable for any losses that the breaching party could not have foreseen on the information available to him. This was stated by the Courts as follows, “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 either such as may reasonably and fairly be considered as arising naturally, i.e. according to 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 parties at the time they made the contract as the probable result of the breach of it.”

The Explanation to Section 73, gives this a little more clarity. According to this 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.”

“Any inconvenience caused” is the phrase used in this explanation which means that if a flight gets delayed and there are other expenses which a passenger who has contracted with the air travel agency experiences, the passenger is entitled to compensation for the inconvenience caused such as the need to secure accommodation etc.

Therefore, there are various remedies available to the wronged party if a breach of contract occurs. However, parties must enter into contracts at their own discretion because the time and energy spent in recovering damages or obtaining specific performance/injunctions in itself cannot be worth it.

[1] Definition of Breach, Oxford Dictionary - https://www.oxfordlearnersdictionaries.com/definition/american_english/breach_1#:~:text=breach-,noun,in%20breach%20of%20Article%20119 accessed on 17th January 2021. [2] Shantanu Basu, Breach of Contract & Remedies, May 26, 2011 - https://www.slideshare.net/mereiakali/breach-of-contract-remedies accessed on 19th January 2021. [3] CA Mayur Agarwal, Economic, Business and Commercial Laws, Pg. no. 360 [4] Specific Performance Example: Everything You Need to Know https://www.upcounsel.com/specific-performance-example accessed on 18th January 2021. [5] What Is 'Specific Performance' as a Legal Remedy? January 16, 2018 - https://www.findlaw.com/smallbusiness/business-contracts-forms/what-is-specific-performance-as-a-legal-remedy.html#:~:text=Specific%20Performance%3A%20Overview&text=When%20a%20contract%20is%20for,is%20considered%20to%20be%20unique accessed on 17th January 2021. [6] Kunal Basu, Breach of Contract in India, Mar 16, 2014 - https://www.slideshare.net/shantanu_leo/breach-contract accessed on 20th January 2021 [7] Analysis: Damages for Breach of Contract, March 14, 2020 - https://lexlife.in/2020/05/14/analysis-damages-for-breach-of-contract/ accessed on 19th January 2021. [8] Business Law, Ethics and Communication, The Institute of Chartered Accountants of India, Pg. no. 1.63 - Indian Contract Act, 1872. [9] Diva Rai, General vs. Special damages in Breach of Contract, June 12, 2019- https://blog.ipleaders.in/general-vs-special-damages-in-breach-of-contract/#:~:text=Special%20damages%20occur%20in%20special,in%20a%20special%20situation%20only.&text=Some%20of%20the%20examples%20of,or%20loss%20to%20business%20reputation accessed on 21st January 2021.