Introduction: Remedies for Breach of Contract | Law of Contracts - CLAT PG PDF Download

Introduction 

A breach of contract happens when one party either refuses to fulfill their part of the agreement or makes it impossible for them to do so. This can be either a complete failure to perform or just a partial one. Breaches can be classified as  anticipatory  or  present . When a breach occurs, it infringes on the rights of the non-breaching party, who suffers a loss, necessitating the restoration of their rights and reimbursement. Various remedies are available to the aggrieved party to address the situation, based on the Latin maxim  'Ubi jus, ibi remedium'  , meaning 'where there is a right, there is a remedy.

 Remedies for Breach of Contract 

• Suit for rescission
• Suit for damages
• Suit for specific performance
• Suit for injunction
• Suit for quantum meruit

Meaning of Remedy 

• A remedy refers to the way in which a court enforces or satisfies a right when an individual suffers harm or injury due to a wrongful act recognized by society.
• Remedies can be considered in two main contexts:

 1. Enforcement of Contracts 

• When it comes to enforcing contracts, remedies usually involve legal action. The specific form of these remedies depends on the nature of the contract involved.

 2. Redress of Torts or Injuries 

• Remedies for torts or injuries involve legal actions taken to address wrongs or injuries caused to individuals.

Meaning of "Breach of Contract" 

Breach of contract refers to the failure to fulfill any term of a contract, whether it is written or oral, without a lawful excuse. According to Black's Law Dictionary, breach of contract means not adhering to the terms of a contract. It signifies a legal violation of a contract or agreement where one party does not meet their obligations.

To establish a case of breach of contract, the court must be satisfied with the following requirements:

• The contract must be valid, containing all essential elements for it to be recognized by the court. If these elements are lacking, the contract is not considered valid, and legal action cannot be taken.
• The plaintiff must demonstrate that the defendant has indeed violated the contract.
• The plaintiff must have fulfilled all obligations required for the performance of the contract.
• The plaintiff must have given the defendant reasonable notice of the breach. Written notice is generally more effective than oral notification.

Remedies Available for the Breach of Contract 

 Suit for Rescission: 

Rescission in contract law refers to the process of undoing or canceling a contract between parties. When a contract is breached, it is typically discharged, but the affected party may need to approach the court for formal rescission to be released from their obligations under the contract.

 Basic Reasons for Rescission: 

• Innocent or fraudulent representation
• Mutual mistake
• Lack of capacity to contract
• Impossibility of performance not contemplated by the parties
• Duress
• Undue influence

A party can seek rescission due to a breach by another party, but the breach must be significant enough to undermine the purpose of the contract. Additionally, contracts can be rescinded by mutual agreement if all parties consent to cancel it.

Suit for Damages

 Concept of Damages 

• Damages are about giving  money  to someone to make up for the harm or loss they suffered. The goal is to give an amount that helps put the injured person back to where they would have been if the wrong action hadn't happened.
• In simple terms, damages mean a  financial payment  given as a way to compensate for any loss or harm. This can happen because of  negligence  ,  intentional actions  , or decisions made by a court about things like breaking a contract or not following a law.

 Definition of Damages 

• Damages are a type of  monetary award  given when someone's right is violated under  common law  . Justice Greenwood explains that damages are the money someone claims or is ordered to receive as compensation for their loss or injury. Black's Law Dictionary also describes damages as the sum of money claimed or ordered to be paid as compensation for loss or injury.
• Frank Graham adds that damages are the  monetary compensation  that a wronged person is entitled to receive from the wrongdoer for the harm caused.

 Legal Perspective of Damages 

• In legal terms, damages represent the  disadvantage  experienced by an individual due to the actions or defaults of another party. The concept of "injuria" refers to damage that entitles a person to legal compensation. If the law does not provide a remedy, the damage is considered "absque injuria," meaning damage without the right to compensation.

 Importance of Damages 

• The significance of damages in legal contexts lies in the fact that they provide one of the most common remedies for injured parties. This allows individuals to seek compensation for losses incurred due to a breach of contract from the party responsible for the breach.
• The amount of damages awarded is determined by the extent of the loss caused by the breach, reflecting the principle of making the injured party whole again.

Kinds Of Damages

Damages that may be awarded to an injured party in case of a breach of contract can be classified into the following types:

 Ordinary damages 

• When a contract is breached, the injured party is entitled to compensation for any loss or damage that naturally arises from the breach. This includes losses that the parties were aware of at the time of making the contract as being likely to result from a breach. However, compensation is not provided for remote or indirect losses resulting from the breach.
•  Example:  In the case of  Hadley vs. Baxendale  , the claimant's mill suffered a broken crankshaft. The claimant hired the defendant to deliver the crankshaft for repairs and return it. Due to the defendant's negligence, the crankshaft was returned seven days late. This delay caused the claimant to lose profits because the mill could not operate. The defendant argued that he was unaware of the mill's closure during the delay, making the loss of profit too remote.
• The court ruled that the claimant was entitled only to ordinary damages. The defendant was not liable for the loss of profits because the claimant did not inform the defendant that the delay in returning the crankshaft would lead to a loss of profits.

 Special Damages

Special damages refer to the compensation awarded for specific losses incurred by the aggrieved party due to the unique circumstances surrounding a contract. When entering into a contract, one party may inform the other about particular circumstances that could lead to specific types of losses if the contract is not fulfilled properly. If the other party agrees to the contract, it implies their acceptance of responsibility for these potential special losses. Compensation for such losses is termed as special damages.

 Case Example: Simpson v. London & North Western Railway Company 

• In this case, the plaintiff, a manufacturer, used to showcase his equipment samples at agricultural exhibitions. He entrusted the Railway Company to deliver his samples to Newcastle for the exhibition, specifying that they must arrive by a certain Monday. Due to the Railway Company's negligence, the samples arrived after the exhibition had concluded.
• The plaintiff sought damages from the Railway Company for the loss of profits resulting from the missed exhibition opportunity. The court ruled in favor of the plaintiff, holding the Railway Company liable for the damages because they were aware of the special circumstances and should have anticipated that a delay in delivery could lead to such losses.

 Case Example: Govind Rao v. Madras Railway Company 

• In this case, Govind Rao, a tailor, consigned sewing machines through the railway to a location in Tamil Nadu with plans to participate in a village fair where he intended to stitch garments and make profits. However, the train's arrival was delayed, and Govind Rao missed the fair as a result.
• He sued the railway company for the loss of potential profits, but the court ruled against him. The decision was based on the fact that Govind Rao had not communicated the special circumstances to the railway company at the outset, leading to his inability to recover damages.

In summary, special damages are awarded for losses that arise from specific circumstances known to both parties at the time of the contract. The cases of Simpson and Govind Rao illustrate how the presence or absence of communication regarding special circumstances can impact the outcome of claims for damages.

 Vindictive or Exemplary Damages 

• When one party breaches a contract, it can lead not only to financial loss but also to feelings of disappointment and mental distress for the other party. In such situations, just offering monetary compensation may not be enough to address the emotional suffering caused. This is where vindictive damages come into play.
• Vindictive damages are an exception to the usual rule that damages are meant only to cover financial losses resulting from a breach of contract. They recognize the non-monetary impact of the breach on the injured party.

 Nominal Damages 

• Nominal damages are awarded when the plaintiff can prove that a breach of contract has occurred, but they have not actually suffered any significant harm or damage as a result.
• The purpose of awarding nominal damages is to establish the plaintiff's right to a legal remedy for the breach of contract, even if no substantial loss has been incurred. The amount awarded is often minimal, such as a token sum of one rupee or even less.