REMEDIES FOR BREACH

REMEDIES FOR BREACH

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  1 BUSINESS LAW -REMEDIES FORBREACH Prepared by, Dr.Sangeetha R Assistant Professor Hindusthan College of Arts and Science, Coimbatore
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  2 REMEDIES FOR BREACHOF CONTRACT  Where there is a right, there is a Remedy  Rescission  Damages - Liquated damages and penalty  Quantum Meruit  Specific Performance  Injunction  Rectification or Cancellation
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  3 Where there isa right, there is a remedy  A contract gives rise to correlative rights and obligations.  A right accruing to a party under a contract would be of no value if there were no remedy to enforce that right in a Law Court in the event of its infringement or breach of contract.  A remedy is the means given by law for the enforcement of a right.  When a contract is broken, the injured party (i.e., the party who is not in breach) has one or more of the following remedies: 1. Rescission of the contract 2. Suit for damages 3. Suit upon quantum meruit 4. Suit for specific performance of the contract 5. Suit for injunction.
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  4 1. RESCISSION  Whena contract is broken by one party, the other party may sue to treat the contract as rescinded and refuse further performance.  In such a case, he is absolved of all his obligations under the contract. Example : ‘A’ promises B to supply 10 bags of cement on a certain day. ‘B’ agrees to pay the price after the receipt of the goods. ‘A’ does not supply the goods. ‘B’ is discharged from liability to pay the price. The court may grant rescission – (a) Where the contract is voidable by the plaintiff; or (b) Where the contract is unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff.
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  5 The Court may,however, refuse to rescind the contract – (a) Where the plaintiff has expressly or impliedly ratified the contract; or (b) Where, owing to the change of circumstances (not being due to any act of the defendant himself), the parties cannot be restored to their original positions; or (c) Where third parties have, during the subsistence of the contract, acquired rights in good faith and for value; or (d) Where only a part of the contract is sought to be rescinded and such part is not severable from the rest of the contract (Sec. 27 of the Specific Relief Act, 1963)  When a party treats the contract as rescinded, he makes himself liable to restore any benefits he has received under the contract to the party from whom such benefits were received (Sec.64).  But if a person rightfully rescinds a contract he is entitled to compensation for any damage which he has sustained through non-fulfilment of the contract by the other party (Sec.75).
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  6 2. DAMAGES  Damagesare a monetary compensation allowed to the injured party by the Court for the loss or injury suffered by him by the breach of a contract.  The object of awarding damages for the breach of a contract is to put the injured party in the same position, so far as money can do it, as if he had not been injured, i.e., in the position in which he would have been had there been performance and not breach.  This is called doctrine of restitution (restitution in integrum).  The fundamental basis of awarding damages is compensation for the pecuniary loss which naturally flows from the breach.  The foundation of modern law of damages, both in India and England, is to be found in the judgement in the case of Hadley v. Baxendale. Sec. 73 of the Indian Contract Act which deals with “Compensation for loss or damage caused by breach of contract” is based on the judgement in this case.
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  7 Damages may beof four types : (a)Ordinary damages : These are damages which actually arise in the usual course of things from the breach of a contract. (b)Special damages : Damages which may reasonably be supposed to have been in the contemplation of both the parties at the time when they made the contract as the probable result of the breach of it, are known as special damages and may be recovered. (c)Vindictive or exemplary damages : These damages are allowed in case of the breach of a contract to marry or dishonour of a cheque by a banker wrongfully. (d)Nominal damages : Where the injured party has not suffered any loss by reason of the breach of a contract, the Court may award a very nominal sum as damages.
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  8 (e) Damages forloss of reputation : Damages for loss of reputation in case of breach of a contract are generally not recoverable. (f) Damages for inconvenience and discomfort : Damages can be recovered for physical inconvenience and discomfort. The general rule in this connection is that the measure of damages is not affected by the motive or the manner of the breach. (g) Mitigation of damages : It is the duty of the injured party to take all reasonable steps to mitigate the loss caused by the breach. He cannot claim to be compensated by the party in default for loss which he ought reasonably to have avoided. (h) Difficulty of assessment : Although damages which are incapable of assessment cannot be recovered, the fact that they are difficult to assess with certainty or precision does not prevent the aggrieved party from recovering them. The court must do its best to estimate the loss and a contingency may be taken into account.
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  9 (i) Cost ofdecree : The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for damages. The cost of suit for damages is in the discretion of the court. (j) Damages agreed upon in advance in case of breach : If a sum is named in a contract as the amount to be paid in case of it breach, or if the contract contains any other stipulation by way of a penalty for failure to perform the obligations, the aggrieved party is entitled to receive from the party who has broken the contract, a reasonable compensation not exceeding the amount so named (Sec.74).
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  10 LIQUIDATED DAMAGES ANDPENALTY  ‘Liquidated damages’ represent a sum, fixed or ascertained by the parties in the contract, which is a fair and genuine pre-estimate of the probable loss that might ensue as a result of the breach.  A ‘Penalty’ is a sum named in the contract at the time of its formation, which is disproportionate to the damage likely to accrue as a result of the breach.  The court in India allow only ‘reasonable compensation’.
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  11 3. QUANTUM MERUIT A Right to sue on a quantum meruit (as much as earned) arises where a contract partly performed by one party, has become discharged by the breach of the contract by the other party.  This right is founded on an implied promise by the other party arising from the acceptance of a benefit by that party.
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  12 4. SPECIFIC PERFORMANCE In certain cases the Court may direct the party in breach of a contract to actually carry out the promise, exactly according to the terms of the contract.  This is called Specific performance of the contract.
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  13 5. INJUNCTION It isa mode of securing the specific performance of the negative terms of a contract. RECTIFICATION OR CANCELLATION  When through fraud or a mutual mistake of the parties, a contract or other instrument does not express their real intention, either party may institute a suit to have the instrument rectified.  In such a case, if the court finds that there has been a fraud or mistake, it may ascertain the real intention of the parties, and may, in its discretion, rectify the instrument so as to express that intention.  But his must not prejudice the right acquired by third persons in good faith and for value.  If rectification is not possible, the court orders for the cancellation of the contract.