REMEDIES FOR BREACH OF CONTRACT

FINAL DRAFT SUBMITTED IN THE FULFILMENT OF THE COURSE OF

LAW OF CONTRACT

NAME:  Rahul Raj

COURSE: B.B.A., LL. B (Hons.)
ROLL NO: 1845
SEMESTER: 2nd Semester
SUBMITTED TO: Ms. Sushmita singh
 ACKNOWLEDGEMENT

I would like to thank my faculty Ms. Sushmita singh whose guidance helped me a lot with
structuring my project. I will also like to thank my teacher for providing an interesting and
important topic.
I owe the present accomplishment of my project to my friends, who helped me immensely
with materials throughout the project and without whom I couldn’t have completed it in the
present way.
I would also like to extend my gratitude to my parents and all those unseen hands that helped
me out at every stage of my project.

Thanking You,

Rahul Raj,
2nd Semester,
B.B.A.LLB.
 RESEARCH METHODOLOGHY

Method of Research

The researcher has adopted a purely doctrinal method of research. The

researcher has made extensive use of the library at the Chanakya National Law
University and also the internet sources.

Aims and Objectives

The aim of the project is to present an overview of the ‘remedies for breach of
contract’ through qualified information.

Limitation
The presented research is confined to a time limit of one month and this
research contains doctrinal works, which are limited to library and internet
sources and empirical research.
 CONTENTS

1. Introduction
2. Nature of contract
3. Effects of breach
4. Remedies
5. Remoteness of damage
6. Quasi contract
7. Conclusion
INTRODUCTION

NATURE OF BREACH

A breach of contract occurs where a party to a contract fails to perform, precisely and exactly,

his obligations under the contract. This can take various forms for example, the failure to
supply

goods or perform a service as agreed. Breach of contract may be either actual or anticipatory.

• Actual breach occurs where one party refuses to form his side of the bargain on the due

date or performs incompletely.

• Anticipatory breach occurs where one party announces, in advance of the due date for

performance, that he intends not to perform his side of the bargain. The innocent party

may sue for damages immediately the breach is announced.

The party committing the breach of contract is called the “Guilty party” and the other party is

called the “Injured” or the “aggrieved party”.

Effects of breach

A breach of contract, no matter what form it may take, always entitles the innocent party to

maintain an action for damages, but the rule established by a long line of authorities is that
the

right of a party to treat a contract as discharged arises only in three situations. The breaches

which give the innocent party the option of terminating the contract are:

(a) Renunciation

Renunciation occurs where a party refuses to perform his obligations under the contract. It
may

be either express or implied. Renunciation is implied where the reasonable inference from the

defendant’s conduct is that he no longer intends to perform his side of the contract. For
.(b) Breach of condition

The second repudiatory breach occurs where the party in default has committed a breach of

condition.

(c) Fundamental breach

The third repudiatory breach is where the party in breach has committed a serious (or

fundamental) breach of an innominate term or totally fails to perform the contract. A

repudiatory breach does not automatically bring the contract to an end. The innocent party
has two options:

He may treat the contract as discharged and bring an action for damages for breach of
contract

immediately.

He may elect to treat the contract as still valid, complete his side of the bargain and then sue
for payment by the other side.

In case of breach of contract, the aggrieved party would have one or remedies against the
guilty

more, but not all, of the following

1. Suit for rescission,

The breach of contract no doubt discharges the contract but the aggrieved party may

sometimes need to approach to the court to grant him a formal rescission , i.e.

cancellation, of the contract. This will enable him to be free from his obligations under

the contract.

2. Suit for damage

The word damage means monetary compensation for loss suffered. Whenever the breach

of contract takes place the remedy of “damages” is the one that comes to the mind

immediately.

The breach of contract may put the aggrieved party under some kind of loss or
inconvenience. The court would desire the guilty party to accept the responsibility for any

such loss to the aggrieved party and compensate them adequately.

The quantum of damage is determined by the magnitude of losses caused by the breach

of the contract and is determined in accordance to the sec.73

Nature:

The major remedy available at common law for breach of contract is an award of damages.
This is a monetary sum fixed by the court to compensate the injured party.

In order to recover substantial damages, the innocent party must show that he has suffered
actual loss; if there is no actual loss he will only be entitled to nominal damages in
recognition of the fact that he has a valid cause of action.

In making an award of damages, the court has two major considerations:

• Remoteness

For what consequences of the breach is the defendant legally

responsible?

• The measure of damages

The principles upon which the loss or damage is evaluated or quantified in monetary

terms.

The second consideration is quite distinct from the first, and can be decided by the court only

after the first has been determined.

Remoteness of loss

The rule governing remoteness of loss in contract was established in Hadley v Baxendale.
The

court established the principle that where one party is in breach of contract, the other should

receive damages which can fairly and reasonably be considered to arise naturally from the
breach of contract itself (‘in the normal course of things’), or which may reasonably be
assumed to have been within the contemplation of the parties at the time they made the
contract as being the probable result of a breach.

Thus, there are two types of loss for which damages may be recovered:

1. what arises naturally; and

2. what the parties could foresee when the contract was made as the likely result of breach.

As a consequence of the first limb of the rule in Hadley v Baxendale , the party in breach is

deemed to expect the normal consequences of the breach, whether he actually expected them
or not. Under the second limb of the rule, the party in breach can only be held liable for
abnormal

consequences where he has actual knowledge that the abnormal consequences might follow
or

where he reasonably ought to know that the abnormal consequences might follow .

The measure (or quantum) of damages In assessing the amount of damages payable, the
courts

use the following principles:

• The amount of damages is to compensate the claimant for his loss not to punish the

defendant.
• Damages are compensatory – not restitutionary.

The most usual basis of compensatory damages is to put the innocent party into the same

financial position he would have been in had the contract been properly performed. This is

sometimes called the ‘expectation loss’ basis. In Victoria Laundry v Newman Industries, for

example, Victoria Laundry were claiming for the profits they would have made had the boiler

been installed on the contractually agreed date.

Sometimes a claimant may prefer to frame his claim in the alternative on the ‘reliance loss’
basis and thereby recover expenses incurred in anticipation of performance and wasted as a
result of the breach.

In a contract for the sale of goods, the statutory (Sale of Goods Act 1979) measure of
damages is the difference between the market price at the date of the breach and the contract
price, so that only nominal damages will be awarded to a claimant buyer or claimant seller if
the price at the date of breach was respectively less or more than the contract price. In fixing
the amount of

damages, the courts will usually deduct the tax (if any) which would have been payable by
the

claimant if the contract had not been broken. Thus if damages are awarded for loss of
earnings,

they will normally be by reference to net, not gross, pay. Difficulty in assessing the amount
of

damages does not prevent the injured party from receiving them.
Liquidated damages clauses and penalty clauses

In general, damages are not awarded for non-pecuniary loss such as mental distress and loss
of

enjoyment. Exceptionally, however, damages are awarded for such losses where the
contract’s

purpose is to promote happiness or enjoyment. The innocent party must take reasonable steps
to mitigate (minimise) his loss, for example, by trying to find an alternative method of
performance of the contract:

If a contract includes a provision that, on a breach of contract, damages of a certain amount

or

calculable at a certain rate will be payable, the courts will normally accept the relevant figure
as a measure of damages. Such clauses are called liquidated damages clauses. The courts will

uphold a liquidated damages clause even if that means that the injured party receives less (or

more as the case may be) than his actual loss arising on the breach. This is because the clause

setting out the damages constitutes one of the agreed contractual terms .

However, a court will ignore a figure for damages put in a contract if it is classed as a penalty

clause – that is, a sum which is not a genuine pre-estimate of the expected loss on breach.

This could be the case where:

1. The prescribed sum is extravagant in comparison with the maximum loss that could follow

from a breach.

2. The contract provides for payment of a certain sum but a larger sum is stipulated to be
payable on a breach.

3. The same sum is fixed as being payable for several breaches which would be likely to
cause

varying amounts of damage.

All of the above cases would be regarded as penalties, even though the clause might be
described in the contract as a liquidated damages clause. The court will not enforce payment
of a penalty, and if the contract is broken only the actual loss suffered may be recovered.

Equitable remedies

1. Specific performance

In certain cases of the breach of contract the damages may not be an adequate remedy

, Then the Court may direct the party in breach to carry out his promise according to the

terms of the contract. This is a direction by the Court for specific performance of the

Remedies for the breach of contract contract at the suit of the party not in breach.

Chapter 2 of the Specific Relief Act, specific performance of Contracts. 1963 lays down

detailed rules on the specific performance of the contracts.

Cases where the specific performance can be ordered:-

(i) Where there exists no standard for ascertaining the actual damage caused to the

aggrieved party by the non- performance

(ii) Where monetary compensation will not be adequate relief.

(iii) Where plaintiff’s property is held by the defendant in the capacity of his agent or
trustee.

This is an order of the court requiring performance of a positive contractual obligation.

Specific

performance is not available in the following circumstances:

• Damages provide an adequate remedy.

• Where the order could cause undue hardship.

• Where the contract is of such a nature that constant supervision by the court would be

required.

• Where an order of specific performance would be possible against one party to the

contract, but not the other.

• Where the party seeking the order has acted unfairly or unconscionably. He is barred by

the maxim ‘He who comes to Equity must come with clean hands’.

• Where the order is not sought promptly the claimant will be barred by the maxims

‘Delay defeats the Equities’ and ‘Equity assists the vigilant but not the indolent’.

In general, the court will only grant specific performance where it would be just and equitable
to

do so.

1. Injunction

Injunction’ is a court order or decree to a person asking him to refrain from doing a
contemplated

act or from continuing an ongoing act.

An injunction is an order of the court requiring a person to perform a negative obligation.

Injunctions fall into two broad categories:

Remedies for the breach of contract

• Prohibitory injunction, which is an order that something must not be done.

• Mandatory injunction, which is an order that something must be done, for example to pull

down a wall which has been erected in breach of contract.

Quasi contract: other remedies

Quasi-contract creates obligations at common law, distinct from obligations under a contract.
It is an area of law in its own right.Quasi-contractual remedies are sometimes available either
as an alternative to a remedy for breach of contract or where there is noremedy for breach of
contract. For example, a claim for quantum meruit (a reasonable remuneration for work done
of goods suppliedunder a contract which is later discovered to be void).

Limitation of actions

 An innocent party will lose his right to bring a claim for breach of contract if he delays for a
certain length of time. The Limitation Act 1980 provides statutory limitation periods. Theses
do not apply to equitable remedies, however, in practice, equity usually applies the statutory
rules. The Limitation Act 1980 distinguishes between simple contracts and deeds. It provides
the following limitation periods: For simple contracts, six years from when the cause of
action accrued. For deeds, twelve years from when the cause of action accrued. If there has
been fraud or mistake, the limitation period does not begin to run until the innocent party has
discovered this or should have discovered this. There is a three year time limit in respect of
damages for personal injuries arising from breach of contract. In acquisition agreements
(which may be deeds) the seller may want a shorter limitation period (commonly six years
from the date of the contract) This shorter period relates to the Inland Revenue's time limit
for making tax assessments. Alternatively, the seller may want an even shorter period in
relation to non-tax matters (perhaps to link in with the audit of the target company).

Self-help remedies

Rather than bringing an action for breach of contract, parties can make use on some self-help
remedies such as retention of title clauses, enforcement of security, withholding payments
and set off and rights against the goods themselves.

Conclusion

 Damages are pecuniary compensation obtainable by success in an action for a wrong which

is either a tort of a contract, the compensation being in the form of a lumpsum which is
awarded unconditionally and is generally
but not necessarily expressed in currency‟.

• The basic principle in relation to contract damages is that there are

compensatory.

• “damages are supposed to place the

innocent party in the same position that he or she would have been had the contract
been properly performed……”

• Where a contract has been breached, damages are available as a matter of right.

• The underlying principle of the damage award is to compensate the

claimant for his losses, rather than to measure the award by the
amount of gain derived by the defendant.

• Damages aims to put the plaintiff as he would have been, if the

performance had been rendered as promised, rather than to punish
the defendant. i.e to fulfill the plaintiff’s expectation by putting
him into as good as position as he would have been in if thecontract had been performed.

• Definition of Damages:
Damages are pecuniary compensation obtainable by
success in an action for a wrong which is either a tort of a contract, the compensation being in
the form of a lump sum which is awarded unconditionally and is generally
but not necessarily expressed in currenc .
The basic principle in relation to contract damages is that there are
compensatory.
• “damages are supposed to place the innocent party in the same position that he or she would
have been had the contract
been properly performed……”
• Where a contract has been breached, damages are available as a matter of right.
• The underlying principle of the damage award is to compensate the
claimant for his losses, rather than to measure the award by the
amount of gain derived by the defendant.
• Damages aims to put the plaintiff as he would have been, if the performance had been
rendered as promised, rather than to punish
the defendant. i.e to fulfill the plaintiff’s expectation by putting
him into as good as position as he would have been in if the contract had been performed.
Bibliography

Law of contract by R. k. bangia