What are the remedies for breach of contract?
The parties to a contract are expected to legally perform their obligations. Therefore, when either of the parties does not keep their end of the agreement or does not fulfil their obligation as per the terms of the contract, it is a breach of contract. There are a few remedies for breach of contract available to the wronged party.
He may seek to obtain: –
- Damages for the loss sustained, or
- A decree for specific performance, or
- An injunction.
The laws relating to damages are governed by the Contract Act, whereas the laws relating to injunctions and specific performance are governed by the Specific Relief Act, 1963.
What is a contract?
Meaning of Contract: – A contract means an agreement, which is enforceable by law. An agreement consists of reciprocal (mutual) promises between the two parties. In the case of contract each party is legally bound by the promise made by them. A contract is legally enforceable when it meets the requirements of applicable law.
What is a breach of contract?
Meaning of Breach of Contract: – A breach of contract by a party is a failure to fulfill obligations under a contract. A breach of contract is a violation of any of the agreed-upon terms and conditions of a binding contract. It is of two types, namely the anticipated breach and the present breach. Breach occurs when a party to a contract fails to fulfill its obligation(s), whether partially or wholly, as described in the contract, or communicates an intent to fail the obligation or otherwise appears not to be able to perform its obligation under the contract.
A contract can be said to be broken or breached when either party fails or refuses to perform its obligations or promises made under the contract. Therefore, it can be said that when a binding agreement is not honoured by one or more parties by non-performance of his promise, the agreement can be said to be breached.
Therefore, it is said that when a binding agreement is not honoured by one or more parties for not fulfilling its promise, the agreement can be said to be breached.
What are the remedies for breach of contract?
There are a few remedies for breach of contract available to the plaintiff or the wronged party, those are as follows: –
- Recession of Contract: – When one of the parties to a contract does not fulfil his obligations, then the other party can rescind the contract and refuse the performance of his obligations. Rescission allows a non-breaching party to cancel the contract as a remedy for a breach. Rather than seeking monetary damages, the nonbreaching party can simply refuse to complete their end of the bargain. Rescission puts the parties back in the position they would have been in had they never entered into the contract.
- As per section 65 of the Indian Contract Act, the party that rescinds the contract must restore any benefits he got under the said agreement. And section 75 states that the party that rescinds the contract is entitled to receive damages and/or compensation for such a recession.
- Sue for Damages: – Section 73 of Indian Contract Actclearly states that the party who has suffered, since the other party has broken promises, can claim compensation for loss or damages caused to them in the normal course of business. Such damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of business. There are three types of damages according to the Indian Contract Act: –
- Liquidated Damages: – Sometimes parties might agree to pay a certain amount on breach of the contract. When such provisions are created in the contract, they are known as liquidated damages. Liquidated damages are a specific amount the parties agree to in the contract as compensation for a breach.
- Unliquidated Damages: – Here the amount payable due to the breach of contract is assessed by the courts or any appropriate authorities. Unliquidated damages are damages that are payable for a breach, the exact amount of which has not been pre-agreed. The sum to be paid as compensation is said to be ‘at large’ and is determined after the breach occurs, by a Court.
- Nominal Damages: – A court may award nominal damages as a legal remedy for breach of contract when the plaintiff cannot support their claim for compensatory damages. With nominal damages, the court recognizes that a breach of contract occurred, but no harm can be calculated.
- Sue for Specific Performance: – Specific performance is a type of remedy for breach of contract in which a court orders the breaching party to perform their end of the bargain. Monetary damages are typically favored over specific performance as a remedy for breach of contract. However, specific performance may be available when monetary damages won’t adequately compensate you. This means the party in breach will actually have to carry out his duties according to the contract. In certain cases, the courts may insist that the party carry out the agreement. So if any of the parties fails to perform the contract, the court may order them to do so. This is a decree of specific performance and is granted instead of damages.
- Injunction: – An injunction is a court order restraining a person from doing a particular act. Injunctions serve a similar purpose as specific performance. The difference is that with specific performance, the court orders a party to do something. With an injunction, the court often orders a party not to do something. There are two types of Injuctions, as follows: –
- Temporary Injunction or Interim Injunctions: – Temporary or Interim Injunctions are governed by Order 39 of Civil Procedure Code 1908 and are those injunctions that remain in force until a specified period of time, e.g. 15 days, or till the date of the next hearing. Such injunctions can be granted at any stage of the suit.
- Permanent Injunction or Perpetual Injunctions: – Permanent or Perpetual Injunctions as under Sections 38 to 42 of the Specific Relief Act, 1963 are contained in the decree passed by the Court after fully hearing the merits of the case. Such an injunction permanently prohibits the defendant from committing an act which would be contrary to the plaintiff’s rights.
- Quantum Meruit: – Quantum meruit literally translates to “as much is earned”. Even if there is no specific contract this law implies a promise to pay a reasonable amount for the labour and material furnished. At times when one party of the contract is prevented from finishing his performance of the contract by the other party, he can claim quantum meruit. So he must be paid a reasonable remuneration for the part of the contract he has already performed. This could be the remuneration of the services he has provided or the value of the work he has already done.
What are the important rules governing the measure of damages?
Section 73 of the Indian Contract Act 1872 follows four important rules governing the measurement of damages or remedies for breach of contract, as follows: –
- First Rule: – When one party breaks the contract, then the other party who is suffering from such breach is entitled to receive compensation or remedies for breach of contract for any loss or damages from the party who did not perfom his or her part of the contract: –
- Which naturally arose in the ordinary course of things from such a breach, or
- The parties were aware when they made the contract that it was likely to result in a breach of contract.
- Second Rule: – The second law to measure damage relates to the remoteness of the damage. It states, When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, 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 is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those created by contract.
- Third Rule: – When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. The third rule for remedies for Breach of Contract is to be found in the explanation of section 73, which is as follows: –
- “In estimating the loss or damage occurred from a breach of a contract, i.e., existed to remove the inconvenience caused by the non-performance of the contract should be taken into account.” The remedies for the breach of contract should be provided.
- Illustration: – If a railway company, contracted with a passenger to take it to a particular station, fails to do so, the passenger is entitled to compensation for the inconvenience caused and to bear any reasonable expenditure, which he spend to stay in the hotel, and might give some other charges, the railway with that expense if it is appropriate to do so under that particular circumstance.
- Fourth Rule: – It should be noted at the end, that the losses payable for breach of a quasi-contract are the same as those payable for another contract. For re-writing, all of the above rules apply to quasi-contracts in the same manner. It should be noted that when there is no loss from breach of contract, only nominal damages are awarded. Indemnity is granted only through restitution and compensation, not through punishment. Therefore the aggrieved party can recover the actual loss from it as compensation.
Cases in which Specific Performance of Contract Enforceable
According to Section 10 and 14(3) of the Specific Relief Act, 1963, there are cases when the specific performance of a contract may be allowed by the court. They are as follows: –
- When there is No Standard to Detect Actual Damage: – It is the situation in which the plaintiff is unable to determine the amount of loss suffered by him. Where the damage caused by the breach of contract is ascertainable then the remedy of specific performance is not available to the plaintiff. For example, a person enters into a contract for the purchase of a painting of dead painter which is only one in the market and its value is unascertainable then he is entitled to the same.
- When Monetary Compensation will not provide Sufficient Relief: – When the act agreed to be done is such that compensation offered in money for its non-performance would not afford adequate relief. Unless and until the contrary is proved, the court shall presume: –
- The breach of a contract to transfer immovable property cannot be adequately relieved by compensation in money; and
- The breach of a contract to transfer movable property can be so relieved except in the following cases: –
- where the property is not an ordinary article of commerce, or is of special value or interest to the plaintiff, or consists of goods which are not easily obtainable in the market;
- where the property is held by the defendant as the agent or trustee of the plaintiff.
- However, until the Contrary is Proved, it is assumed that: –
- A breach of a contract for transferring immovable property cannot be adequately compensated by payment of money.
- The breach of contract for transferring movable property can be compensated, except in the following cases: –
- Where the property is not a general article of commerce or is of special value or interest to the plaintiff, or includes goods which are not readily obtained in the market;
- Where the property is held by the defendant as the agent or trustee of the plaintiff.
- Generally, courts have the right to hold that, in case of breach of contract for the transfer of immovable property, compensation is not sufficient while specific performance is sufficient relief, whereas in case of movable property, compensation is general relief and specific performance is exceptional. However, it should be noted that these estimates are rebuttable.
- Suit for the Enforcement of a Contract to Execute a Mortgage: – In a suit for the enforcement of a contract to execute a mortgage or furnish any other security for the repayment of any loan which the borrower is not willing to pay at once, specific performance may be allowed. However, where only part of the loan has been advanced by the lender, he must be willing to advance the full amount of the loan.
- The contract for the purchase of any debenture of a company.
- Suit for the execution of a formal deed of partnership.
- Suit for purchase of partner’s share.
- Suit for enforcement of building contract or any other work on the land, provided the following 3 conditions are fulfilled: –
- The building or other work is described in the contract in terms sufficiently precise to enable the court to determine the exact nature of the building or work;
- plaintiff has a substantial interest in the performance of the contract and the interest is of such a nature that compensation in money for non-performance of the contract is not an adequate relief; and
- After the contract, the defendant has obtained possession of the whole or any part of the land in question.
- It is important to remember that specific performance is an equitable remedy, and it depends on the discretion of the court rather than the right of an individual by law
What is an Injunction?
Meaning of an Injunction: – An injunction is an order by a court to one or more of the parties in a civil trial to refrain from doing, or less commonly to do, some specified act or acts (the former kind of injunction is called prohibitory or preventive, the latter mandatory). The usual purpose of an injunction is to preserve the status quo in situations in which further acts of the specified type, or the failure to perform such acts, would cause one of the parties irreparable harm (i.e., harm that cannot be adequately remedied by an award of monetary damages).
In order to be granted an injunction, the plaintiff must demonstrate that he is likely to suffer irreparable harm without it, that the injunction’s benefit to him outweighs its burden on the defendant, that the injunction is in the public interest, and (in the case of a preliminary injunction) that he is likely to succeed in the eventual trial. Failure to comply with an injunction can result in a charge of contempt of court.
Under Section 36 of the Specific Relief Act 1963, an injunction is defined as an order of a competent court: –
- Forbids the commission of a wrong;
- Forbids continuation of any wrong already started; or
- Orders the restoration of the status quo (pre-course of things).
What are the types of Injunctions?
Under Sections 36 and 37 of the Specific Relief Act, 1963, there are two types of injunctions, temporary and perpetual while Section 39 governs the mandatory injunction.
- Temporary or Interim Injunctions: – Temporary or Interim Injunctions are governed by Order 39 of the Code of Civil Procedure 1908 and those injunctions which remain in force for a specified time, e.g. 15 days, or until the next hearing date. Such injunctions can be given at any stage of the suit. Temporary injunctions are such as to continue until a specified time, or until further order of the court and they may be granted at any stage of a suit, and are regulated by the Code of Civil Procedure, 1908. The procedure for granting temporary injunctions is not governed by the Specific Relief Act, 1963 but governed by the rules laid down in Order XXXIX, Rules 1 and 2 of Civil Procedure Code.
- Permanent or Perpetual Injunctions: – A perpetual injunction can only be granted by the decree made at the hearing and upon the merits of the suit, the defendant is thereby perpetually enjoined from the assertion of a right, or from the commission of an act which would be contrary to the rights of the plaintiff. For obtaining a permanent injunction, a regular suit is to be filed in which the right claimed is examined upon merits and finally, the injunction is granted by means of judgement. A permanent injunction therefore finally decides the rights of a person whereas a temporary injunction does not do so. A permanent injunction completely forbids the defendant to assert a right which would be contrary to the rights of the plaintiff. Permanent injunctions, as under Sections 38 to 42 of the Specific Relief Act, 1963 are contained in the decree passed by the Court after fully hearing the merits of the case.
- Mandatory Injunctions: – Mandatory injunctions are granted in cases where it is necessary to force the performance of certain acts which the courts are capable of enforcing, to prevent the non-performance of an obligation. Thus, the Court may at its discretion grant injunctions to prevent such non-performance and compel the performance of necessary acts. This prohibition applies to any breach of liability. It can be permanent or temporary, although temporary-mandatory injunctions are rare.
Remedies for Breach of Contract instead of or in addition to the injunction
Section 40 of the Specific Relief Act, 1963, states that a plaintiff may claim damages either for or against the suit for or compulsory injunction, and if the court deems it appropriate, it may even grant such damages. It is worth emphasizing that damages and injunction are not alternative remedies. Both can be allowed at the discretion of the court.
Case laws under Remedies for Breach of Contract
- Hadley vs. Baxendale (1854) 9 Ex. 354
In this case, the court held that “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.”
- Madras Railway Company vs. Govinda (1898) 21 Mad. 172
Facts of the case: – The Plaintiff, who was a tailor, delivered a sewing machine and some clothes to the defendant railway company, to be sent to a place where he expected to carry on his business in an upcoming festival. Due to mistakes made by the company’s employees, the goods were delayed and were not delivered until some days after the festival was over. The plaintiff had not given any notice to the railway company that the goods were required to be delivered within a fixed time for any special purpose.
Judgement of the case: – On a suit by the plaintiff to recover a sum of his estimated profits, the Court held that the damages claimed were too remote.