INDIAN CONTRACT ACT ,1872

REMEDIES FOR BREACH OF CONTRACT

Principle for Assessment of Damages

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CONSENT IS FREE
 When not caused by
 I)Coercion
 ii)Undue influence
 Iii)fraud
 Iv)Misrepresentation
 V)Mistake
 --

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COERCION
 15. ‘Coercion’ defined.—‘Coercion’ is the committing, or
threatening to commit, any act forbidden by the Indian Penal
Code (45 of 1860) or the unlawful detaining, or threatening
to detain, any property, to the prejudice of any person
whatever, with the intention of causing any person to enter
into an agreement.

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Chikham Amiraju v Chikham Seshamma

 By threat of suicide,a Husband induced his wife and son to

execute a release in favour of his brother in respect of certain
properties which they claimed as their own.
 It was held by the Madras High Court by majority, “that the
threat of suicide amounted to coercion within Section 15 and
the release deed was ,therefore,voidable”.

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 Coercion is a legal term that is used to describe a situation in
which one person forces another person to do, or to refrain
from doing, something against his will.
 A don threatens an actress to work in his film and instructs to
sign a contract to this effect.

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 Under the Andhra Pradesh Sugarcane (Regulation of Supply
and Purchase ) Act,1961,the factory owners were bound to
accept the sale offer of sugarcane grown by the farmers in the
‘factory zone’.
 The factory owners contented that the contract was caused
by coercion and,therefore voidable.

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 The Supreme Court ruled:
 ‘The compulsion of law is not coercion as defined in Section
15 of the Act.
 Inspite of the compulsion,the agreement is neither void nor
voidable.In the eye of the law,the agreement is freely made.
 The Supreme Court took the position that it would be a case
of coercion only if the contract was entered into by
committing or threatening to commit an offence under the
IPC.
 The imposition of the law is not coercion within Section 15

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15. ‘Coercion’ defined
 .—‘Coercion’ is the committing, or threatening to commit,
any act forbidden by the Indian Penal Code (45 of 1860) or
the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement.
—‘Coercion’ is the committing, or threatening to commit,
any act forbidden by the Indian Penal Code (45 of 1860) or
the unlawful detaining, or threatening to detain, any
property, to the prejudice of any person whatever, with the
intention of causing any person to enter into an agreement."

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Undue influence
 A contract is said to be induced by ‘undue influence’ where
the relations subsisting between the parties are such that one
of the parties is in a position to dominate the will of the
other and uses that position to obtain an unfair advantage
over the other.

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 For instance, a person may intimidate a testator to write a
will in a certain way against the testator’s desire. If the
wrongdoer is a fiduciary, who is held to certain standards of
trust, confidence, and good faith, this is referred to as undue
influence. If a will has been created under duress or undue
influence, the document will likely be rendered invalid
during probate.

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Shrimati v. Sudhakar R. Bhatkar, Air 1998 Bom 122.

 If the transaction appears to be unconscionable then the

burden of proving that the contract was not induced by
undue influence is to lie upon the person who was in a
position to dominate the will of the other;

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Fraud

 The suggestion, as a fact, of that which is not true, by one

who does not believe it to be true.
 The active concealment of a fact by one having knowledge or
belief of the fact.
 a promise made without any intention of performing it;
 any other act fitted to deceive;
 any such act or omission as the law specially declares to be
fraudulent.

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 A sells, by auction, to B, a fake painting which A knows to be
fake. A portrays to B that the painting is original. This is a
fraud committed by A.
 Body cure
 Builders taking booking money for pre launch project with
the sole intention of deceiving .
 To ask booking amount at a particular price and then hike the
price forcing the buyer to exit and the Builder replaces by a
New Purchaser.

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Delhi Development Authority vs Skipper
Construction Co. (Pvt.)
 A Builder had made bookings for three times the number of
units actually available.
 The SC construed it to be a fraud under Section 17(3),as this
amounted to a promise which could never be fulfilled.

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Mithoolal Nayak v LIC
 The appellant took out a policy with LIC by making a false
statement in the policy that he had not been treated by any
doctor.
 “Whether the appellant is entitled to a refund of the money
he had paid to the respondent company. Here again one of
the terms of the policy was that all moneys that had been
paid in consequence of the policy would belong to the
company if the policy was vitiated by reason of a fraudulent
suppression of material facts by the insured.

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Mahboob Khan v. Hakim Abdul Rahim, AIR
1964 Raj 250.
 Undue influence is said to be a subtle species of fraud
whereby mastery is obtained over the mind of the victim, by
insidious approaches and seductive artifices;

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 We agree with the High Court that where the contract is bad
on the ground of fraud, the party who has been guilty of
fraud or a person who claims under him cannot ask for a
refund of the money paid. It is a well established principal
that courts will not entertain an action for money had and
received, where, in order to succeed, the plaintiff has to
prove his own fraud.

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MISREPRESENTATION
 A Consent given under misrepresentation of facts is no
consent at all.
 A statement made which in fact is not true ,under the belief
that it is true,is misrepresentation.
 If there is no intention to deceive , it is misrepresentation
 If there is intention to deceive ,it is fraud.

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Mohanlal v Shri Gungaii Cotton Mills
CO.
 A told B that one C would be the director of a Company.
 A obtained this information not from C directly but from
another person D.
 B acting on A’s information subscribed for shares in the
company.
 C did not become the director.
 This was misrepresentation.

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MISREPRESENTATION V FRAUD
 Misrepresentation
 No Intention to deceive
 False innocent statement
 Contract voidable
 Fraud
 Intention to deceive
 False statement with intention to deceive
 Contract voidable and independent action in tort.

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 Karl is looking to buy a house in the Salt Lake City area of
Utah. Karl contacts John, a realtor, and arranges to see
several houses that are on sale. After picking out the house he
likes, Karl asks the owner if the house has a termite problem.
The house does have a termite problem. However, the owner
is unaware of the problem. The owner tells Karl that there is
no termite problem and Karl and the owner sign a contract
under which Karl will buy the house for $250,000.

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 After the contract is signed, Karl finds out about the termite
problem. In this case, the contract will also be voidable by
Karl. Although the misrepresentation that the owner made
was not fraudulent (because he himself was unaware of the
termite problem), it was still a material misrepresentation
that Karl relied on.

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 Voidable contracts are those which can be set aside at the
option of the suffering party to a contract.
 A void contract does not come into being and cannot lead to
any rights and obligations.
 A voidable contract is a binding contract if not set aside by
the innocent party.

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Misrepresentation
 Contracts of insurance
 Failure to disclose material facts
 Duty between buyer –seller, creditor-debtor

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Mistake
 An erroneous belief about something is called mistake.
 When an agreement is entered into under a mistake ,consent
is not free.
 When both the parties to an agreement are under a mistake
as to matter of fact essential to the agreement , the
agreement is void(Section 20)

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Tarsem Singh v Sukhminder Singh
 The buyer and seller had different units of measurement in
mind for sale.
 The Supreme Court held
 Bigha and Kanal are different units of measurement.
 Defendant-Kanals
 Plaintiff-Bighas
 The area of land was essential to the agreement as the price.

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AD IDEM
 The parties were mistaken about an essential aspect of the
contract.
 Parties not ad-idem and hence contract not enforceable.
 Section 20
 When both the parties to an agreement are under a mistake
as to a matter of fact essential to the agreement ,the
agreement is void.

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 A contract entered in to on an erroneous belief as to a law in
force in India is very much valid and cannot be avoided.
 Ignoratia juris non-excusat
 Ignorance of law is not an excuse.
 Cheques deposited in 3 months.

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Mistake of law
 Agreement to sell flat between two parties.
 Sellers one Indian other NRI
 Consideration Rs 1 Crore
 TDS to be deducted 1 % of Indian 50,000/-
 NRI 20 % Rs 10,00,000/-
 The Agreement states only about deduction of TDS 1% and
inadvertently omitting 20% of NRI
 One of the Seller wanted full 1 crore and wanted to rescind
the contract
 Mistake of Law

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Quasi Contract
 Law postulates that a person who receives the benefit to pay
or compensate the person giving the benefit , even though he
receives the benefit without any contract.
 There is no contract in fact but created by law.
 Implied by law –Implied contract Responsibility of finder of
goods
 Liability of a person to whom money is paid or thing
delivered by mistake or under coercion

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 Claim for necessaries to person incapable of contracting
(Minor ,lunatic)
 Reimbursement of money paid,in which he is interested
(Lessee paying govt dues on behalf of Lessor)
 Obligation of person to pay for enjoying benefit of non-
gratuitous act (A saves B’s house from Fire)

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Impossibility and Frustration of
Contract
 When the subject matter of the contract is destroyed the
contract is frustrated by virtue of the same being impossible.
 Impossibility does not include commercial unviability .
 If the performance of the contract becomes onerous .
 Cost of construction rises.
 Changes in TDR ,FSI or government policies.
 Whether demonetization is a case of frustration of contract?

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 The doctrine of frustration or impossibility is not practically
cut off,but only rendered more difficult or costly.Such cases
shall not fall within the purview of Section 56. Agreement
to do impossible act

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GANGA SARAN V FIRM RAM CHARAN
RAM GOPAL
 When there is frustration ,than dissolution of the contract
occurs automatically .It does not depend on the choice of the
party .
 A seller entered into a contract with buyer wherein the Seller
shall supply certain bales of cloth manufactured by the New
Victoria Mills,Kanpur.
 The Contract added “We shall go on supplying goods to you
of the Victoria Mills as soon as they are supplied to us by the
said mills”.
 The mill failed to supply the goods to the Sellers and they
pleaded frustration.

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 The Court held:-
 The agreement does not seem to us to convey the meaning that
the delivery of the goods was made contingent on their being
supplied to the respondents by the Victoria Mills.We find it
difficult to hold that the parties ever contemplated the possibility
of the goods not being supplied at all.
 The words “prepared by Mills” are only a description of the goods
to be supplied, and the expression ‘as soon as they are prepared’
and ‘as soon as they are supplied to us by the said Mills ,simply
indicate the process of delivery.
 It was accordingly held that the contract was neither contingent
under Section 32 ,nor did fall within the second paragraph of
section 56 .

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CASES
 When the subject matter ceases to exist.
 Where circumstances arise which make the performance of
the contract impossible.
 Where the party who is to perform dies or is incapacitated .
 Where the object contemplated by the parties does not
occur.
 Where the enactment or legislation prevents the
performance of the contract
 Where the act becomes unlawful.

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Force Majeure
 An event that is a result of the elements of
nature, as opposed to one caused by human behaviour.
 The term force majeure relates to situation which frequently
used in contracts to protect the parties in
the event that a segment of the
contract cannot be performed due to causes that are outside
the control of the
parties, such as natural disasters, that could not be evaded thr
ough the exercise of due care.

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Discharge of Contract
 By Performance
 Both parties contracted have performed ,the contract is
discharged.
 Performance of obligation by parties to the contract puts an
end to the contract.

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 By Death
 Where a contract is personal in character , or where personal
skill is involved ,death of the promisor discharges the
contract.
 A promises to perform at a theatre .But dies before the
performance.

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 By refusing tender of performance
 The refusal to accept ‘offer of performance”, discharges the
party making the offer.

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Novation Section 62
 If the parties to a contract agree to substitute a new contract
for it,or to rescind or alter it ,the original contract need not
be performed.
 It means the wiping out of the original contract as well as the
creating of a new valid contract.
 When a new contract is substituted for an existing contract
,either between the same parties or between different parties
‘novation’ occurs.
 e.g Reconstitution of the Partnership Firm
 Outgoing partner and incoming partner

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Breach of Contract
 Promisor of a contract has refused to perform, from
performing his promise in its entirety ,the promisee may put
an end to the contract.
 It occurs when one party refuses to perform his part of the
promise.

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Limitation Period
 Indian Limitation Act ,the time limit for bringing an action
for breach of contract is 3 years from the date of breach.

 S.S. Shetty v. Bharat Nidhi Ltd., AIR 1958 SC 12: (1958)

SCR 442.
 The principle of awarding damages for a reasonable period or
reasonable period of notice comes into play only when the
contract of employment is not for a fixed period;

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Breach of Contract
REMEDIES
 SUIT FOR SPECIFIC PERFORMANCE
 The court directs the party committing the breach of
contract to perform the promise according to the terms of
the contract.

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SUIT FOR INJUNCTION
 A judicial order restraining a person from beginning or
continuing an action threatening or infringing the legal right
of another, or compelling a person to carry out a certain act,
e.g. to make restitution to an injured party.
 Court can restrain a party by an order of injunction from
committing the breach.

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Suit for damages ,for the loss
occasioned
 Affected parties can claim damages for loss sustained by
breach of contract.

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Measure of damages
 Parties to be put in same situation in which they would have
been if the contract had been performed.
 Purpose of contract to earn profits.
 Breach of contract results in loss of profit.
 Loss of profit is awarded as damages in commercial contracts
.

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73. Compensation of 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, form 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 of damage sustained by reason of the breach.

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 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 had contracted 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 non-performance of the
contract must be taken into account.
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 A contracts to repair B’s house in a certain manner, and
receives payment in advance. A repairs the house, but not
according to contract. B is entitled to recover from A the cost
of making the repairs conform to the contract.


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74. Compensation of breach of contract where penalty stipulated for

 [When 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.

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 a) A contracts with B to pay B Rs. 1,000 if he fails to pay B
Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B
is entitled to recover from A such compensation, not
exceeding Rs. 1,000, as the Court considers reasonable.
 (b) A gives B a bond for the repayment of Rs. 1,000 with
interest at 12 per cent. at the end of six months, with a
stipulation that, in case of default, interest shall be payable at
the rate of 75 per cent. from the date of default. This is a
stipulation by way of penalty, and B is only entitled to recover
from A such compensation as the Court considers reasonable.

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75. Party rightfully rescinding contract, entitled to compensation

 A person who rightfully rescinds a contract is entitled to

consideration for any damage which he has sustained through
the no fulfillment of the contract.
 Illustration
 A, a stand up comedian, contracts with B, the manager of a
theatre, to perform at his theatre for 7 days in every week s,
and B engages to pay her 10000 rupees for each night’s
performance. On the third night, A wilfully absents herself
from the theatre, and B, in consequence, rescinds the
contracts. B is entitled to claim compensation for the damage
which he has sustained through the non-fulfilment of the
contract.
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 Measure of damages is the difference between the contract
price and the market price at the date of the breach.

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M/s Trojan & Co v M/s R.M.N.N Nagappa Chettair
AIR 1953 SC 235

 Supreme Court has held that in the absence of any special

circumstances the measure of damages suffered by a party in
consequence of a breach of contract to supply goods can only
be the difference of the price which he paid and the price
which he would have received if he had resold them in the
market forthwith after the purchase provided that there was
a fair price then.

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McDermott International Inc. v Burn Standard Co.
Ltd(2006) 11SCC 181

 Supreme Court held that the sections 35 to 73 of the Indian

Contract Act, 1872 do not lay down the mode and manner as
to how and in what manner the computation of damages or
compensation has to be made . The method used for
computation of damages will depend upon the facts and
circumstances of each case .In the assessment of damages ,the
Court must consider only strict legal obligations and not
expectations.

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Dwarka Das v State of M.P
 Dwarka Das was awarded a contract to construct boys hostel
in Ujjain.
 The total value -2 lakhs
 The work could not be completed within the time schedule
as the Superintending Engineer was alleged to have
obstructed the progress of work.
 Dwarka Das moved court from breach
 10% of contract Rs 20,000/-

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 The trial court allowed
 High Court disallowed
 Supreme Court held
 The appellant had never claimed Rs20,000/-on account of
alleged actual loss.
 He preferred his claim of 10% of the contract.

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Dwarka Das v State of M.P.
 A.T Brij Pal Singh v State of Gujarat
 Interpreting the provisions of section 73 held
 In works contract ,the part entrusting the work, commits
breach ,the contractor is entitled to claim the damages for
loss of profit which he expected to earn.

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Liquidated Damages
 When the damages are pre determined in the contract it is
Liquidated damages
 Stipulated damages.
 The purpose of awarding damages is to put affected party in
the same position as if the contract was not breached.
 Anything in excess of damages is penalty .
 To penalise individuals is a task of the state.

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Unliquidated Damages
 Such damages as are required to be assessed.

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PENALTY :Reasonable
 Section 74
 Compensation for breach of contract where penalty
stipulated for
 Affected party is entitled ,whether or not actual damage or
loss
 To receive reasonable compensation not exceeding the
amount so named or the penalty stipulated.

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State of U.P v Chandra Gupta & Co AIR
1977 All.28
 Section 74 entitles a person complaining of breach of
contract to get reasonable compensation and does not entitle
him to realise anything by way of penalty.

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Makkala Narsimlu v Gunalal
Ragunandan Rao,AIR 1977A.P.374
 When there is a breach of contract and when the contract
itself has provided that an amount of compensation has to be
paid,the Court has power to award either the entire amount
so fixed or a reasonable portion thereof,whether or not the
actual loss is proved.

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Dharam Chand v Sunil Ranjan AIR
1981 Cal 323
 Measure of damages are in two classes of cases
 i)Where the contract fixes an amount to be paid in case of its
breach.
 Ii)Where the contract provides for any other stipulation by
way of penalty.
 In the second class of cases,the measure of damages is
reasonable compensation ,not exceeding the stipulated
penalty.

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Genuine pre estimate by parties
 In some contracts ,it would be impossible for Court to assess
the compensation arising from the breach and if the
compensation contemplated is not by way of penalty or
unreasonable ,Court can award the same if it is a genuine pre
estimate by the parties as the measure of reasonable
compensation.
 Nature of business

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 Liquidated damages are awarded by the courts.
 If the actual damage suffered is substantially less than the
liquidated damages ,or liquidated damages are not genuine
pre-estimated losses , the court shall award only the actual
damages.

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Maula Bux v Union of India
 The court should assess the actual damages even in case of
contracts where damages are stipulated.
 Actual damages ,not exceeding the stipulated amount should
be awarded.
 Anything amount exceeding the actual damages shall be
penalty.

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Simplex Concrete Piles (India) Ltd v Union of India

 It may be possible in some cases that no compensation is payable

because the aggrieved party has suffered no loss,but it is not
possible to say that no compensation is payable because there is a
provision to that effect in the contract.
 It has been held that contract clauses which disentitle an aggrieved
party to the remedial benefits of Section 55 and 73 would be void
because of violation of the very intent and purport of the Contract
Act.There is public policy and public interest in these sections.
 Section 73 and 55 are the very heart,foundation and basis of the
contractual relation.
 A contract ,which can be broken at will, will be destructive of the
very edifice of the contract.
 55. Effect of failure to perform at fixed time, in contract in which
time is essential.

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Remoteness of damages
 Court may allow remote damages,if special circumstances
were known to both the parties and if such damages may
reasonably be supposed to have been in contemplation of
both the parties at the time of the contract.
 Such damages are also called special damages.
 Hadley v Baxendale
 Madras Railway Co v Gobindas Ram.

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 Remote and Indirect loss or damage sustained by breach will
not entitle the party to any compensation.

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Hadley v. Baxendale
 The crankshaft(a long metal piece that connects a vehicle's
engine to the wheels and helps turn them) of mill owned by
Hadley broke resulting in mill being shut.
 It was necessary to be sent to the engineers based in
Greenwich to serve as a pattern for making a new one.
 The carriers Baxendale promised to deliver the shaft at
Greenwich the next day and collected 2 pounds for the job.

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 The delivery got delayed by one week.
 Sent by canal(waterway) rather than by rail.
 The new shaft was delivered late.
 Due to the same mill was closed resulting in losses to Hadley.
 Hadley claimed 300 pounds as loss of profit for five days.

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Ruling
 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 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."

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Madras Railway Co v Gobindas Ram
 Gobindas was a tailor and he delivered a sewing machine and
some cloth to the Madras railway company.
 To be delivered for festival.
 Delay in delivery by Railways.
 Gobindas claimed compensation for delivery after festival.
 It was held that the damages were too remote as Gobindas
had not informed the Railways the special purpose.

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Special damages
 The court may allow remote damages,if special
circumstances were known to both the parties and if such
damages may reasonably be supposed to have been in
contemplation of both the parties at the time they made the
contract .
 Such damages are called special damages.

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Pannalal Jankidas v Mohanlal
 General damages –damages arising naturally in normal
course of things
 Special Damages-They are not communicated.
 In such a case it would not be fair or reasonable to hold the
defendant responsible for losses which he could not be taken
to contemplate as likely to result from his breach of contract.

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Question about damages
 Where two parties have made a contract which is later
broken, consequential damages should be limited to whose
that could fairly and reasonably be considered as naturally
arising or reasonably contemplated by both parties.

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Judicial Pronouncement
 If we hold defendants accountable for consequences they
might not have known about, we impose on them the risk of
failing to investigate all aspects of the deals in which they're
involved. It would be unjust to penalize defendants for the
effects of special circumstances wholly unknown to them.

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Quantum Merit-as much as merited
 Quantum Meruit is a Latin phrase meaning "what one has
earned".
 As much as earned or deserved.
 In the context of contract law, it means something along the
lines of "reasonable value of services".
 Where a party has rendered some service ,and further
performance has been rendered useless by the other party ,
he is entitled to reasonable compensation for the service
rendered by him.

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Damages-Value of the work done
 Under Quantum merit ,the damages can be measured by
taking into account the value of so much as has already been
done.
 Compensation is usually at the market price of the goods
supplied.

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Case Laws
 Clay v Yates
 Where printer printed most of the work
 Refused to complete the remaining because of libelous
content
 He is entitled to libelous content.
 Obligation to pay reasonable remuneration as imposed by
law.

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Case Laws
 Sumpter v Hedges
 The plaintiff’s agreed to erect certain buildings but failed to
complete the contract.
 The defendant completed the building himself ,using
materials left on the site by the plaintiff.
 Plaintiff could not recover for the work done,but he was
entitled to recover the value of the materials used.

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 Plinche v Colburn
 Where the author had prepared a considerable manuscript
for the publishers’ library but subsequently the publishers
had discontinued the library ,the author was held entitled to
compensation for trouble he had taken.

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Anglia Television Limited v Reed
 Anglia Television Limited was making a film for which they
contracted with an actor Robert Reed.
 However,he did not turn up for the rehearsals and abandoned
the project.
 The contract was terminated.

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Lord Denning
 Anglia Television Limited do not claim their profit.They
cannot say what their profit would have been on this contract
if Mr Reed had come her and performed it.
 So ,instead of claim for loss of profits,they claim for wasted
expenditure.
 They had incurred the director’s fees ,designer’s fees ,the
stage manager’s fees and so on.

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 It is impossible to assess whether the film, had it been made
,would have been a success and would have earned a profit .
 Therefore , Anglia Television Limited were thrown back on
limiting their claim to the expenses incurred .

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