REMEDIES FOR BREACH
The following remedies are available to the other party when one of the parties makes a breach of contract.
- Damages: Remedy by way of damages is the most common remedy available to the injured party. This entitles the injured party to recover compensation for the loss suffered by him due to the breach of contract, from the party who causes the breach. Section 73 to 75 incorporate the provision in this regard.
- Quantum merit: when the injured party has performed a part of his obligation under the contract before the breach of contract has occurred, he is entitled to recover the value of what he has done, under this remedy.
- Specific performance and injunction: sometimes a party to the contract instead of recovering damage’s for the breach of contract may have recourse to the alternative remedy of specific performance of the contract, or an injunction restraining the other party from making a breach of the contract. Provision regarding these remedied are containe in the Specific Relief Act, 1963.
Section 73 states:
Compensation for loss or damage caused by breach of contract-
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 form 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 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 has obligation to discharge it and had broken his contract.
Explanation: “in estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non- performance of the contract must be taken into account”.
In action for damages for the breach of contract:
The person making the breach of contract is liable only for the proximate consequence of the breach of contract. He is not liable for the damage, which is remotely connected with the breach of contract.
If it is found that a particular damage is the proximate result of the breach of contract rather than too remote, then the quantum of compensation has to be determined, i.e.“measure of damages”
REMOTENESS OF DAMAGE:
Alderson B’s statement in the case of Hadley vs. Baxendale (1854) 9 Ex 341 is considered to be the basis of the law to determine whether the damage is the proximate or the remote consequence of the breach of contract:
“where two parties have made, 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 such as may fairly and reasonably be considered either arising naturally, i.e. according to the 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”.
Section 73 (para 1) is similar to the rule contained in the above stated judgment in Hadley vs. Baxendale
- As may fairly and reasonably be considered arising naturally, i.e. according to the usual course of things from such breach; or
- As may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract.
In the either case, it is necessary that the resulting damage is the probable result of the breach of contract.
The principle is the rule of “reasonable foresight”. The liability of the party making the breach of contract depends on the knowledge, imputed or actual, of the loss likely to arise in case of breach of contract. The first branch of the rule allows damages for the loss arising naturally, i.e. in the usual course of things from the breach[Hadley vs. Baxendale, (1854) 9 Ex 341]. The parties are deemed to know about the likelihood of such loss. The second branch f rule deals with the recovery of more loss, which results from the special circumstances of the case. Such loss is recoverable, if the possibility of the same was actually within the knowledge of the parties, particularly the one who makes a breach of the contract, at the time of making of the contract.
MEASURE OF DAMAGES
After it has been established that a certain consequence of the breach of contract is proximate and not remote and the plaintiff deserves to be compensated for the same. Damages are compensatory in nature. The object of awarding damages to the aggrieved party is to put him in the same position in which he would have been if the contract had been performed.
DUTY TO MITIGATE THE LOSS
According to Explanation to Section 73, in estimating the loss or damage arising from breach of contract, the means which existed of remedying the inconvenience caused by the non- performance of the contract must be taken into account.The party suffering from the breach of contract should take reasonable steps to mitigate the extent of damage caused by the breach of contract.
DIFFERENCE BETWEEN LIQUIDATED DAMAGES AND PENALTY
The parties to a contract, at the time of making the contract agree to the amount of compensation payable in the event of the breach of contract. The amount of compemsation payable, which has been agreed beforehand, may be either liquidated damages or penalty. If the compensation to be paid on the breach of contract is the genuine pre-estimate of the prospective damages, it is known as liquidated damages. If the compensation agreed to be paid in the event of breach of contract is excessive and highly disproportionate to the likely loss, i.e. the amount is fixed in terrorem, with a view to discouraging breach of contract, it is known as penalty.
The distinction between penalties and liquidated damages depends on the intention of the parties to be gathered from the whole of the contract. If the intention is to secure performance of the contract by the imposition of any fine or penalty, then the sum specified is penalty; but if, on a the other hand, the intention is to assess the damages of the contract, it is liquidated damages.
In India when the parties agree to the amount of compensation payable in the event of the breach of contract, the provisions is governed by the provisions contained in section 74 of the Indian Contract Act:
Compensation for breach of contract where penalty stipulated for-
Where a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation – A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Exception: when any person enters into any bail bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or nay State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the conditions of any such instrument, to pay the whole sum mentioned therein.
Explanation: a person who enters into a contract with government does not necessarily therby undertake any public duty, or promise to do an act in which the public are interested.
A person is entitled to receive compensation in terms of money only if he has actually suffered damage or loss on account of breach of contract by other party and not otherwise. Therefore sufferance of damage or loss is an essential pre-condition for the award of compensation by way of damages. The determination or assessment of damages can be made by actual proof of damage or loss suffered or it may be a reasonable sum which the court thinks for but not exceeding the amount named in the contract where it is not possible to assess the same on the basis of material on record.
Ordinarily, if a person, having agreed to do some work or render some services, has done only a part of what he was required to do, he cannot claim anything for what he has done. But the law recognizes an important exception to this rule by way of an action for “Quantum Merrit”. Under this section, if A and B have entered into a contract, and A, who has already performed part of the contract, is then prevented by B fro, performing the rest of his obligation under the contract, A can recover from B reasonable remuneration for whatever he has already done.
This action is not an action for compensation for the breach of contract by the other side. It is an action alternative to an action for the breach of contract. This action in essence is one of restitution, putting the party injured by the breach of contract in a position in which he would have been, had the contract not been entered into.
This remedy is available only for the part of the work done by the party other than the onemaking a breach of contract. If the party making a breach of the contract has done a part of the work in connection with it, he cannot claim anything in respect thereof under this remedy.
ESSENTIALS OF AN ACTION OF QUANTUM MERUIT
- One of the parties make a breach of contract, or prevents the performance of it by the other side.
- The party injured by the breach of the contract, who has already performed a part of it, elects to be discharged from further performance of the contract and brings an action for recompensate for the value of the work he has already done.
The remedy by way of quantum meruit is not a contractual remedy although in some cases the remedy is available on the breach of contract by part of it. The real nature of the remedy is quasi – contractual. The remedy has, therefore, been held to be available when work has been done by plaintiff under a void agreement.
In Associated Cement Co. Ltd vs. Union of India AIR 1998 M.P 241 the railways authorities charged excess freight from the appellant on the supposition that cement from one of the appellant’s factories is to be carried by a longer route. The excess fare charged was because of mistake and, therefore, the contract was void ab initio.
It was held that appellants could claim the excess amount paid by them and the respondent, i.e. the railway authorities could retain the freight for carrying the goods to actual distance on the basis of application of the doctrine of Quantum Meruit.