Remedies for breach of a Contract - Parth Verma

A Contract, as per Section 2(h) of the Indian Contracts Act, 1872 (‘ICA’), is said to be an agreement enforceable by law. It creates an obligation upon both / all parties to perform their respective set of promises under such an agreement.?

However, it happens invariably that either / both / all of the parties, due to some or the other reason fail or refuse to perform their contractual obligations within the stipulated period of time – such a failure / refusal is considered a breach of a contract.?

A breach of a contract is the last thing that either of the parties to a contract would like to witness, particularly the promisee. Such a breach could bring the non-breaching party to a disadvantage. To restore the non-breaching party and to put it them back into the position which it was in before the breach of contract, it is entitled to certain remedies. These remedies are to be provided by the breaching party.

Let us discuss some of these remedies.

Damages under ICA

The legal position pertaining to the payment of damages have been stated in the ICA. The injured party can sue the other and the damages are to be measured as per Section 73. For the purpose of measuring the damages, the following elementary rules have been laid down:

a)????Whenever a contract has been breached by one party due to which the other suffers, the other party is entitled to receive compensation that naturally arose from the usual course of things or which the parties knew to be the likely result of the breach.

b)????The second rule focuses on compensation based on the remoteness of damage. If due to the breach, the person has suffered any indirect loss or damage, they should not be provided with any compensation. Only the persons suffering direct injuries resulting from the breach of contract shall be entitled to receive compensation or damages.

For example, if there is an accident that causes some direct injury to an individual, he/she would be entitled to receive compensation for all the injuries sustained. However, if a stranger (totally unrelated to the injured person) on the road after witnessing that accident suffers a nervous shock, he/she won’t be entitled to receive damages in this case.

c)?????The third rule primarily deals with compensation to be paid in case of non-performance of any Contract. For estimating any such amount of loss or damage, the means that are there for the purpose of remedying the inconvenience caused by its non-performance must be taken into account.?

For example, if a person booked a train ticket but the train failed to take the passenger to his destination, then they shall compensate him for all losses or costs he incurs in terms of paying for accommodation in some Hotel or the cost of walking to his destination since it would be reasonable. They shall, however, not be liable to pay for his expenses for a special class ticket for that train since it would be unreasonable.

d) The fourth rule merely states that all the previous rules must also be equally applicable on quasi-contracts.

These are some of the most important rules for the payment of damages. A person can claim compensation by suing the other party for damages.

Nature of Damages - Liquidated / Unliquidated

As discussed earlier, the party suffering loss due to breach of contractual obligations is entitled to payment of damages. These damages can be primarily categorized into two parts: liquidated and unliquidated damages.?

a.???????????????Liquidated Damages refer to the amount laid down in the contract which is required to be paid in case of a breach by both parties. In other words, this amount is fixed in advance before entering into a contract which helps in avoiding any confusion or dispute in case of contractual breach.

b.??????????????Unliquidated damages refer to the amount which is fixed by the Court or any other appropriate authority, after assessing the breach of contract. These are not fixed by the parties and are rather decided by the Court or other appropriate authorities.

Rescission of Contract

When either of the parties, due to any reason fails to fulfil its contractual obligations, then the other party has the right to rescind the Contract. It essentially means unwinding the Contract. The other party, in this given situation, can also refuse to perform their set of Contractual obligations. They would no longer be obligated to perform the same.

Injunction

The term injunction has been defined under Section 36 of the Specific Relief Act, 1963. It essentially refers to a formal order issued by a Court refraining a party from doing a certain specific act. The basic purpose of any injunction is to restore the status quo in all those situations where the performance or non-performance of any specific act can cause huge losses or damage to the other party. There can be different types of injunctions which are temporary injunction and permanent injunction.?

a.???????????????A temporary injunction refers to an injunction issued by the Court prohibiting a party from committing a particular act for a specific period of time that could lead to an infringement of the legal rights of the other party.

b.??????????????A permanent injunction prohibits a party from performing a specific act permanently for protecting the rights of the other.

Specific Performance

Many a times, when a party fails to perform its contractual obligations, legal action is taken against them by the other party. The Court can, in these situations pass an order for the party to perform its obligations. This is known as specific performance. This could act as a substitute for the payment of damages and could help both parties reconcile. At the same time, the contractual obligations would be easily fulfilled, thereby benefitting both parties.

Quantum Meruit

Quantum Meruit is a term that essentially means ‘as much as he deserves’ or ‘as much as he has earned’. It essentially implies the actual value of the goods rendered or the services that have been performed. Sometimes, one party to the contract doesn't let the other perform their respective set of obligations. In such a situation, one party suffers and gets absolutely nothing from the contract while the other party enjoys the benefits. As a result, they are to be held liable for compensating the other party equivalent to the part of the contract that they performed for all the losses they suffered in that contract.

These are some of the basic remedies that the party which has suffered losses could be entitled to receive. The basic purpose of each and every remedy is to bring both parties to the same level. This should always be kept in mind while deciding upon any remedy both by the Court and the parties to the contract.

Parth Verma is a 2nd year BBA LLB student from Christ University, Bengaluru?