Remedies of breach of contract
1) Introduction:
Breach of Contract" is a term used to describe a situation where one party fails to meet their obligations as specified in a contract. This failure can take various forms, such as not delivering goods or services, missing deadlines, or performing contractual duties inadequately. In simpler terms, it occurs when one party doesn't fulfill their promises as outlined in the contract. For instance, if you hire someone to paint your house by a specific date, but they fail to do so, that would be considered a breach of contract.
Now, let's delve into the concept of "Remedy." When a breach of contract happens, the innocent party (the one who didn't breach the contract) has the right to seek a remedy, which essentially serves as a solution to compensate for the harm caused by the breach. The objective of remedies is to restore the innocent party to the position they would have been in if the breach had not occurred. Contract law provides various types of remedies to address breaches of contract.
2) Where is a right, there is a remedy:
In the legal context, a right is essentially meaningless without a corresponding remedy to enforce it in a court of law when a breach of contract or infringement occurs. A remedy refers to the legal means available to uphold and protect one's rights. If one party breaches a contract, the other party has the right to take legal action to seek a remedy.
3) Remedies For Breach of Contract:
When a Contract is broken, the aggrieved party (the party who is not in breach) has one or more of the following remedies -
- (1) Recession of the Contract
- (2) Suit for Damages
- (3) Suit upon Quantum Meruit
- (4) Suit for Specific Performance
- (5) Suit for Injunction
(1) Recession -
In the event of a breach of contract, the party who has been harmed has the option to take legal action, consider the contract as canceled, and decline to fulfill any further obligations. This means they are released from all responsibilities outlined in the contract.
Example - A promises to B to supply 5 bags of sugar on a certain Day. B agrees to pay the price after the receipt of the goods. A does not supply the goods. B is discharged from liability to pay the price.
I've made a more descriptive version of the text for you:
Rescission may be granted by the Court in the following cases:
(a) when the plaintiff has the right to void the contract; or
(b) when the contract is unlawful due to reasons not immediately obvious, and the defendant is more at fault than the plaintiff.
The Court may also refuse to rescind the contract under the following circumstances:
(a) when the plaintiff has either explicitly or implicitly confirmed the contract; or
(b) when, due to changes in circumstances (not caused by the defendant's actions), the parties cannot be returned to their original positions; or
(c) when third parties have, in good faith and for value, acquired rights during the existence of the contract; or
(d) when only a portion of the contract is being sought to be rescinded, and that portion cannot be separated from the rest of the contract (Section 27 of the Specific Relief Act, 1963).
Consequence of rescission of voidable contract -
According to Section 64 of the Indian Contract Act 1872, when a person at whose option a contract is voidable rescinds it, the other party thereto needs to perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall if he has received any benefit thereunder from another party to such contract restore such benefit, so far as may be, to the person from whom it was received. However, if A person who rightfully rescinds a contract is entitled to consideration for any damage which he has sustained through the no fulfillment of the contract. (Section 75 of I.C.A 1872)
(2) Suit for Damages -
The term "damage" should not be confused with the term "damages." Damage refers to physical or emotional harm, while damages refer to the monetary compensation awarded to the aggrieved party in a breach of contract. When damages are awarded for a contract breach, the goal is to place the injured party in the same financial position as they would have been if the contract had been fulfilled. This means compensating them for the loss suffered and restoring them to the position they would have been in if the contract had been carried out as intended.
Hadley V. Baxendale (1854) 9 Ex 341
In this case, the Plaintiff's Flour mill was stopped by the breakdown of a crankshaft. He delivered the crankshaft to Defendant, a common carrier, to be taken to a manufacturer to copy it and make a new one. The plaintiff did not know to Defendant that delay would result in a loss of profits. By some neglect on the part of Defendant, the delivery of the shaft was delayed in transit beyond a reasonable time (so that the mill was idle for a longer period than otherwise would have been the case had there been no breach of the contract of carrying).
The House of Lords held that the defendant was not liable for the loss of profit accrued during the period of closure since the plaintiff did not disclose to the defendant that the mill was closed for want of the Crankshaft. If the plaintiff had informed that the work disclosed for want of a crankshaft, the defendant could have made alternative arrangements for quick transportation of the crankshaft.
Alderson, B. Observed in this case as follows:
"When two parties have entered into a contract and one of them fails to fulfill their obligations, the compensation that the other party is entitled to receive as a result of this breach should be a fair and reasonable amount. This compensation should either naturally arise from the breach itself or be something that both parties could have reasonably anticipated at the time of making the contract as the likely outcome of a breach."
Principle Laid Down :
"Compensation for loss or damage caused by breach of contract" is based on the judgment of the above case.
The rule in Hadley V. Baxendale :
When a contract has been broken, the injured party is entitled to -
a) such damages which naturally arose in the usual course of things from such breach. This relates to ordinary damages arising in the usual course things;
b) Such damages which the parties knew, when they made the contract, to be likely to result from the breach. This relates to special damages
c) Such compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach and
d) Such compensation for damages arising from breach of a quasi-contract shall be same as in any other contract.
Kinds of Damages -
Damages may be classified under the following heads namely -
a) Ordinary Damages -
In contract law, ordinary damages, also known as general or substantial damages, are those that naturally result from a contract breach. These damages depend on the information that the parties are assumed to have. For instance, in the case of Hadley v. Baxendale (1854), the plaintiffs communicated to the defendants that the item to be transported was the broken shaft of a mill and that the plaintiffs were the millers of that mill. Since this was the only information provided, the plaintiffs were entitled to recover only the general damages resulting from the contract breach.
b) Special Damages -
Special damages are given to the person filing the lawsuit in special situations when they experience losses due to a contract breach. To claim special damages, it must be shown that both parties could have reasonably expected these losses as a probable result of the contract breach at the time they made the contract.
c) Nominal Damages -
Nominal damages simply mean "very small". Where the injured party has not suffered any loss because of the breach of contract, the court may award a very nominal sum as damages.
d) Exemplary Damages -
Exemplary damages, also known as positive, vindicated, compensatory, or retributive damages, are allowed in cases of breach of marriage or wrongful dishonor of a banker's check.
e) Liquidated Damages -
If the parties determine the amount of damages in case of a breach when entering into a contract, it is called "liquidated damages." For example, if one party fails to make a payment as specified in a promissory note.
Liquidated damages are a fair and genuine pre-estimate of the probable loss that might occur due to the breach. On the other hand, a penalty is a sum named in the contract at the time of its formation, which is disproportionate to the damages likely to result from the breach. In India, the courts only allow 'reasonable compensation'.
(3) Suit upon Quantum Meruit :
The term "Quantum Meruit" means "as much as earned." A right to sue on a quantum meruit arises when one party partially performs a contract, but the other party breaches the contract, leading to its discharge. This right is based on an implied promise by the breaching party, who accepted a benefit from the partial performance.
(4) Suit for Specific Performance :
"Specific performance" means the actual carrying out of the promise. In certain cases, the Court may direct the party in breach of contract for the actual carrying out of the promise, exactly according to the terms of the contract. This is called the specific performance of the contract.
(5) Suit for Injunction :
An Injection is an order of the Court of Justice directing the defendant to do some positive act or restraining the commission or continuance of some Prohibitory Act (causing injury or loss to the plaintiff ).
Conclusion
In essence, the remedies available for breach of contract not only aim to compensate the aggrieved party but also serve to uphold the sanctity of contracts, promote fairness, and maintain the stability of commercial transactions. Understanding these remedies is essential for both parties involved in contracts to protect their rights and interests effectively.
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