Legal Remedies for Breach of Contract: A Comprehensive Guide

Theoretical overview

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: –

1. Damages for the loss sustained, or
2. A decree for specific performance, or
3. 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.

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: –

1. 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.
2. Sue for Damages: – Section 73 of Indian Contract Act clearly 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.
3. 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.
4. 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. 
5. 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.

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: –

1. 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.
2. 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.
3. 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.
4. 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.

Relevant sections

• section 65 of the Indian Contract Act, the party that rescinds the contract must restore any benefits he got under the said agreement.
• section 75 states that the party that rescinds the contract is entitled to receive damages and/or compensation for such a recession.
• Section 73 of Indian Contract Act clearly 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.

Important case laws

1. 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.”

2. 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.

Points to remember

• 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.
• 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.
• 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
• 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. 
• 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.
• 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.
• 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.

OVERVIEW

In this topic, we are going to discuss the remedies which are given in the Indian Contract Act 1872, for breach of contract. In this, we will see some of the provisions which are given in the case of breach of contract. Let us take a look at the details that are available for the breach of the contract. Let us begin with the topic.

REMEDIES FOR BREACH OF CONTRACT

When a party to the contract does not perform for the contract and does not do their obligations of the contract in a specific manner, it is known as a breach of contract. There are few remedies available in the case of breach of contract which is available for the wrong party, through which he had to compensate the aggrieved party. Now let us see the damages that are given in the Indian Contract Act, of 1872.

1. RECESSION:

• In this case, if one person does not fulfill his obligations under the contract then the other party to the contract can rescind and refuse to perform his obligations.
•  Under section 65 of the Indian Contract Act, a party after rescinding the contract should have to give all benefits that he had got under the contract.
•  And under the 75 section of the Indian contract act, the aggrieved party is entitled to take damages, and compensation for that recession.

2. SUE FOR DAMAGES:

• Under this type, the person who had suffered loss by non-performance of duty can claim compensation for that loss which was caused in the normal course of business, or other.
•  The compensation can be in two forms liquidated and unliquidated.
•  liquidated means when a party agrees upon the pay amount in case of breach of contract, which means that is primarily fixed.
•  Unliquidated damages refer to that situation where the parties had not fixed the sum of money in case of breach of contract, that is not fixed.

3. SUE FOR SPECIFIC PERFORMANCE:

• This kind of remedy means when a party breaches a contract will carry out his duties and obligations of the contract.
•  In this case, the court can insist that the party carry out the agreement.
•  But sometimes if the party fails to perform certain obligations of contract, in this case, the court can order to do that act. 
• This will be the decree of specific performance and can be granted instead of damages.

4. INJUNCTION:

• Injunctions refer to the decree of the court which is for specific performance which is a negative contract. 
• In the decree of injunction, the court can order to restrain from doing a particular act. 
• So, in this, the court can announce the decree of injunction to stop the party from doing a particular act of the contract. 
• The injunction can be permanent, mandatory, or temporary.

5. QUANTUM MERIT:

• Quantum merit refers to the legal maxim which means as much is earned. 
• When one party of the contract has performed his part of the performance from finishing his performance of the contract by another one, then he can claim for quantum meruit. 
• Then he must be payable for the act which he had performed in the contract.
•  This could be remuneration for his work or services which he had provided to the other person in the contract.
•  And it will be the value of the work which he has done.

CONCLUSION

So, here in this topic, we have learned some remedies which are given to the aggrieved parties who have suffered loss, and damages in their business, or other things by the breach of contract. These remedies help a person to take compensation from another party who does not fulfill certain obligations under the contract. These remedies are helpful to take compensation and damages through the defendant with the help of the court. The damages can be in various manners. It can be liquidated and unliquidated also, which we have discussed in the topic.

REFERENCES

https://www.toppr.com/guides/business-laws-cs/indian-contract-act-1872/remedies-for-breach-of-contract