Updated: Jan 24
BREACH OF CONTRACT AMD ITS REMEDIES
The Indian Contract Act defines the term contract under section 2(h) as "any agreement which is enforceable by law". The elements of a contract are "offer" and "acceptance" by "competent party" having legal capacity who interchange "consideration" to create "exchange of obligation.
Before the ratification of the Indian Contract Act, 1872, there was no single codified law for contract in India. The Indian Contract Act came into being on 1 September 1872.
A contract may be discharged in ways which are as followed:
2. by agreement or consent,
3. by impossibility,
4. by lapse of time,
5. or by breach of contract
When both parties fulfill their respective duty arising under the contract, within the prescribed time and manner in such case, the parties are discharged.
Breach of contract
If the party does not fulfill his prescribed promise, or has given knowledge to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct it seems to be unable to perform the contract, he is said to be breach the contract. A breach of contract is where a party to a contract fails to perform, his duty under the contract. This can take various forms for example, the failure to supply goods to a party or perform a service as agreed in a contract.
The breach of contract may be
(i) actual or,
(ii) Anticipatory breach.
The actual breach: Actual breach of contract occurs when during the performance of the contract or at the time of performance, one party fails or refuses to perform his promise under the contract.
Example: A Agrees to deliver 10 kg of Rice to B on 1st November, A fails to deliver the rice to B on November 1st This is actual breach of contract by A.
The anticipatory breach: An anticipatory breach occurs when a party demonstrates his intention to break a contract. This may also take place in two ways, by the promisor doing something which makes the performance of his promise impossible or by the promisor in some other way showing his intention not to do that act. The other party may begin legal action immediately rather than waiting until a contract's terms are actually broken by the other party.
CASE - In Hochster v/s De La Tour (1853) E.R. 922, A hired B in April to do an act as a courier commencing employment from 1st June, but A wrote it to B in May repudiating the agreement. Afterwards, B sued A for breach of contract immediately after repudiation. A contended that there could not be a breach of contract before the date of employment . It was held by the court that B was immediately entitled to sue and need not wait till the 1st June, for his right of action to accrue.
The remedies for breach of contract are as following:
1. Damages or compensation
5. Quantum meruit or punitive damages
Damages or compensation : The word ‘damages’ means monetary compensation for the loss suffered.
Section 73 of the Indian Contract Act explains that a party is entitled to get, compensation or damages for any loss when a contract has been broken which 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 or damages is not to be given for any distant and indirect loss sustained by reason of the breach. The aggrieved party would be entitled to get any one of the following types of damages, depending upon the circumstances of the case:
1. General or ordinary damages: Damages arising naturally and directly out of the breach in the usual course of the things.
2. Special damages: Compensation for the special losses caused to the aggrieved party by the special circumstances attached to the contract.
3. Exemplary damages: Damages for the mental or emotional suffering also caused by the breach.
When a contract has been broken, the party complaining of breach is entitled to get from the party who has breached the contract a reasonable compensation or damages not exceeding the amount so named.
The Hon’ble Supreme court in Fateh Chand V Balkishan Das [AIR 1963 SC 1405], had held that the party complaining of the breach is entitled to receive reasonable compensation whether or not the actual loss is proved.
Suit for Specific Performance: In certain cases of breach of a contract, damages or compensation may not be an adequate remedy. Then the court may compel the party in breach to carry out his promise according to the terms of the contract. This is an order by the court to the party in breach to do performance of a positive contractual obligation. But in general, courts do not wish to compel a party to do that promise which the party in breach has already refused to do.
Suit for Specific performance is not available in the following circumstances:
1. Damages provide an adequate remedy.
2. Where the order by court could cause undue hardship on the parties.
3. Where the contract needs a constant supervision by the court.
4. Where the party seeking the order from the court has acted unfairly.
Cases where suit to specific performance may be ordered by the court are:
1. There exists no standard for ascertaining the actual damage caused to the aggrieved party by the non-performance.
2. Where monetary compensation by the court will not be adequate relief to the party.
3. Where the act is in the performance of trust.
In general, the court will only grant specific performance to parties where it would be just and equitable to do so.
Suit for Injunction: An injunction is an order by the court requiring a person to perform a negative obligation. An injunction is an order by a Court restraining a person from doing a particular act or compelling not to do an act. The Court may in its discretion issue an order to the defendant restraining him from doing an act what he promised not to do. The right to relief by way of injunction is enshrined in part III of the Specific Relief Act, 1963.
In Lumley v. Wagner (1852) 90 R.R. 125. W came in contract with L and agreed to sing at L's theatre and nowhere else. W, in breach of contract with L entered into a contract to sing for Z in Z’s theatre. Here the court Held that although W could not be compelled to sing at L's theatre, yet she could be restrained by injunction from singing in Z’s theatre.
Suit for Rescission: The breach of contract generally discharges the contract, but the aggrieved party may sometimes need to approach the court to grant him a formal rescission or be free from his own obligations, i.e., cancellation, of the contract. This will enable the Plaintiff to be discharged for performance or discharged from his own obligations under the contract.
E.g. In Hungerford Investment Trust vs Haridas Mundhra & Others on 9 March, 1972 (1972 AIR 1826, 1972 SCR (3) 6902) the court held that Section 27 of the Specific Relief Act provides that the rescission may be adjudged or refused where the contract is:
1. Voidable or terminable by the plaintiff;
2. Where the defendant is more to blame than the plaintiff.
Section 30 of the Indian Contract Act empowers the courts, on adjudging the rescission of a contract, to require the party to whom such relief is granted to restore any benefit which he may have received from the other party and to make any compensation to him which justice may as require.
Quantum meruit or Punitive Damages: Punitive damages are damages intended to reform or deter the defendant. Although the purpose of Quantum meruit or punitive damages is not to compensate the plaintiff as the plaintiff will in fact receive all or some portion of the punitive damage award. Punitive damages are awarded where compensatory damages are deemed as an inadequate remedy.
CASE-- In Rookes v Barnard, AC 1129, the Supreme Court ruled that punitive damages can be awarded in only three categories cases:
1. Where the plaintiff is injured by the oppressive, arbitrary or unconstitutional action by a servant of the Government.
2. Cases in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff,
3. Were provided by statute.
Historically, a plaintiff could not recover damages or get compensation for mental pain and suffering without having a physical injury. But, today, most jurisdictions have modified this rule, allowing recovery for mental pain or suffering.
A breach of contract occurs when a party to a contract fails to perform his obligations under the contract. A Breach of contract can be Anticipatory or Actual. A Breach of Contract leads to the infringement or breach of the rights of the non-breaching party. Hence, the right of the Aggrieved parties are needed to be restored. For this, various remedies or suits are available to the aggrieved party. Here, Remedies available under Common Law are Damages.
The main purpose of Damages is to enable the innocent party to receive Monetary Compensation which are just and reasonable. Monetary Damages can be Compensatory, Nominal or Liquidated. There is also another group of remedies available to the aggrieved party which are Equitable Remedies. These are remedies at Equity and are only given where damages are not an adequate remedy. Equitable Remedies include Recission, Restitution, Specific Performance, Injunction, Quantum Meruit, etc. If the breaching party refuses to follow the judgement ordered by Court , the court may issue Writ of Attachment or Writ of Garnishment to enforce these remedies. Section 73, 74 and 75 of the Indian Contract Act,1872 deals with remedies and damages for Breach of Contract.
1. Hochster v/s De La Tour (1853) E.R. 922
2. Fateh Chand V Balkishan Das [AIR 1963 SC 1405]
3. Lumley v. Wagner (1852) 90 R.R. 125
4. Rookes v Barnard
5. In Frost v. Knight (1872) L.R. 7 Ex. 111
6. Hadley v. Baxendale (1854)
7. Ghaziabad Development Authority V Union of India (AIR 2000 SC 2003)
8. Sitaram Bindraban vs. Chiranjanlal Brijlal (AIR 1958 Bom 291, (1958) 60 BOMLR 689, ILR 1958 Bom 775)
9. Hungerford Investment Trust vs Haridas Mundhra & Others, 1972 (1972 AIR 1826, 1972 SCR (3) 6902)
1. Oxford University Press
2. Avtar Singh: Law of Contract
3. Specific Relief Bangia, RK (2013)
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