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BREACH OF CONTRACT AND ITS REMEDIES

 

Breach Of Contract And It’s Remedies.


Contract:

An agreement enforceable by law, is termed as contract.

 


Remedy:

The manner in which a right is enforced by a court when some harm or injury, recognized by society as a wrongful act, is inflicted upon an individual.

 

 

Breach Of Contract:

When a party to contract refuses or fails to perform his part, or does something (disabling himself) which makes the contract impossible to perform, it is termed as breach of contract.

Breach of contract may be:

 a) anticipatory breach(refusal before due date)

 b)actual breach( refusal on due date).

 

Remedies For Breach Of Contract:

1) Suit For Recession: (Sec 75)

A recession of the contract means, the right of a party not to perform the contract. When one party refuses to perform his obligation, the other party is discharged from his obligation under the contract.

The aggrieved party can file a suit for recession of the contract, against the guilty party for breach of contract. When court grants recession, the aggrieved party can claim compensation from the guilty party. (Sec 75 Contract Act)

 

Ø  In case of verbal contract, the aggrieved party can rescind the contract without intervention of court.

Ø  In case of written contract, recession can be granted by court U/S 35 of Specific Relief Act.

Example:

“A” contracts to supply cement to “B”. “B” agrees to pay the price on delivery of cement. “A” does not supply. “B” is discharged from liability to pay. Now “B” can rescind the contract and claim damages.

 

2)Suit For Damages: (Sec 73 & 74)

Damages are a monetary compensation awarded by the court to the aggrieved party for the loss suffered by him as a result of breach of contract.

 

Ø Section 73>> Unliquidated damages( ordinary and special)

Ø Section 74>> Liquidated damages

a) Ordinary Damages: (Sec 73)

Ordinary damages arise directly in the normal course of action as a result of breach of contract. The ordinary damages are usually assessed on the basis of actual loss.

In contract of sale of goods, the damages payable are the difference between the contract price and market price at the time of breach.

 

Example:

“A” agreed to pay Rs 1 lac to “B” on 1st of May. “A” failed to pay on that day. “A” failed  to pay on that day. “A” is liable to pay the principal sum and interest on it.

 

b) Special Damages: (Sec 73)

Special damages are payable to the aggrieved party under some special circumstances. The parties must be aware of the circumstances which may create special damages. These damages may include indirect loss which may arise due to breach of contract.

 

Example:

“S” delivered his samples through NW Railway for an exhibition at New Castle. “S” wrote on the consignment “must be at New Castle on Monday certain”.

Due to negligence, the samples reached after the exhibition. Held, “S” could claim special damages.

   ( Simpson VS London & NW Railway CO).

 

c) Liquidated Damages: ( Sec 74)

Liquidated damages are mentioned in the contract by the parties. In case of a breach of contract, the court allows the aggrieved party to recover reasonable damages not exceeding the amount already agreed. If the actual loss is more than the agreed amount, the damages payable will not be more than the agreed amount.

 

Example:

“A” agreed to pay Rs. 20,000/- as damages to “B”, if he failed to pay Rs. 5 lac on a specified day. “A” failed to pay on that day. “B” can recover damages not exceeding Rs. 20,000/-.

 

 

3) Suit For Specific Performance: ( U/S 12 of Specific Relief Act 1877).

Specific performance means performing the contract according to the terms of the contract.

The court may order the guilty party to compete their obligations according to the contract.

It is a discretionary remedy. It is granted only when the court considers that the remedy for damages is inadequate.

 

Example:

“B” agrees to sell his plot to “C”, who wants to establish a factory. “B” commits breach. “C” sues “B”. The court directs “B” to perform the contract.

4) Suit For Injunction: ( U/S 54 of Specific Relief Act 1877)

A suit for injunction is the order of court by which a party is prevented from doing a particular act which he has promised not to do.

Generally, the court issues such order where the compensation in terms of money is not an adequate relief.     

 

 

                           Injunction

A) Stay order/                   \B) Status-Quo order

 

Example :

“A” agreed to sing at “B’s theatre and for nobody else. Later, “A” contracts to sing at “C’s theatre and refused to sing for “B”.

      Held, “A” could be restrained by injunction from singing for “Z”. (Lumley VS Wagner).

 

5) Restitution: ( under CPC)

It means return of benefit. It may also be granted by the court as a remedy for breach of contract.

 

 

 

6) Suit Upon Quantum Meruit:

The term quantum meruit means payment in proportion to the work done. When a person has done some work under a contract and the other party cancels the contract or an event happens which makes the performance of contract impossible, such party can claim remuneration for the work already done .

 

Example:

Ali contracts to build a three story house for Shaheer.  When one storey is complete,  Shaheer stops Ali from work. Ali can get compensation for the work done.

 

 

         The End

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