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Critical analysis of breach of contract and remedies available


INTRODUCTION

If a party has an “obligation to execute a contract fails to do so, or performs an act by which it becomes difficult to execute the contract, or refuses to execute the contract, it is said that it is in violation of the contract. In the case of a contractual violation by one of the parties, the other party shall be exempted from its obligation to fulfill its part of the duty and shall therefore be entitled to sue the guilty party for damages. The concept applies only where a contract has been broken; and breach of contract must be proved before setting about the question of damages. No damages can be awarded by the court without coming to any conclusion about breach, merely on the ground that the defendant has been profited by the contract.

Damages have been awarded to an employee for the employer's failure to carry out his undertaking to promote an employee to a post of responsibility. Where the tenderer did not deposit the earnest money and the contracted sum as stipulated for in a contract for purchase of goods from the Food Corporation, it was held that he was liable to pay the storage charges, and could not blame the Corporation for non-delivery of the goods.

There must be a causal connection between the defendant’s breach of contract and the plaintiff’s loss. A person is not liable to pay damages unless there is a breach of contract by him. Damages for a breach of contract cannot be claimed for a wrongful act or event. unconnected with the contract. Nor can a plaintiff claim losses which arise due to” his own neglect.

LITEREATURE REVIEW

The literature available on the topic at hand is abundant. The Indian Contract Act,1872 and the book “Contracts and Specific Relief Act” by Avtar Singh have been the primary source of information. However, many secondary sources have also been considered for research.

The article “Remedies under Breach of Contract” by Gaurang Jajodia gives an indepth understanding of the various remedies available under the Contracts Act while also mentioning the various methods of enforcing the remedies.

“Studies in the Contract Laws of Asia: Remedies for Breach of Contract” by Paula Giliker is a comparative analysis of remedies of breach of contracts of countries in Asia and gives a comprehensive idea of the topic at hand.

“Importance and significance of Damages as a Remedy for Breach of Contract” by Sankalp Jain deals with the various kinds of damages specified in the Indian Contract Act. The article further examines the position of damages in the English law and Indian Law. The Article also talks about the remedies available in the United Nations Convention on Contracts for the International Sale of Goods.

Another article that played a major role in clearing the ambiguity regarding the concerned topic was “Adjudication of claim for Damages under Sections 73,74 and 75 of the Indian Contracts, 1872” by B.V.R. Sarma. This article gives a clear-cut understanding of the types of damages and measure of damages under the sections 73,74 and 75. The article also provides many illustrations so as to make it easier for the reader to understand the concepts easily.



TYPES OF BREACHES OF CONTRACT

  1. Anticipatory Breach: The parties “to a contract which is wholly executory have a right to something more than the performance when the time arrives. They have a right to the maintenance of the contractual relation right up to that time, as well as to a performance of the contract when due. The renunciation of a contract by one of the parties before the time for performance has come does not, of itself, put an end to the contract, but the ‘anticipatory breach’ entitles the other to choose to be discharged and to sue at once for damages. A contract is a contract from the time it is made, and not from the time that performance” is due.

In Sooltan Chand v Schillar, it was observed that “even absence on one night in this illustration is breach of contract in its entirety. When one person makes anticipatory breach of contract, the other party has two alternatives open to him, viz. (i) He may rescind the contract immediately and may bring an action for the breach of contract without waiting for the appointed date of the performance of contract, (ii) He may not put an end to the contract but treat it as still subsisting and alive and wait for the performance of the contract on the” appointed date.

In Hochster v.De La Tour, A engaged B “on 12th April, 1852 as a courier for accompanying him on a tour of Europe, which was to begin on 1st June. B was to be paid £10 per month for his services. On 11th May, 1852, A informed B that B's services were not needed. On 22nd May, 1852, B sued A for the breach of contract. Held that even though B had brought an action on 22nd May (i.e. before the due date of performance of the contract), he had a right to do so and his action was successful.

If a man promises to marry a woman on a future day, and before that day marries another woman, he is instantly liable to an action for breach of promise of marriage. The principle applies to contingent” contracts.


Actual Breach: The right “of a contracting party to terminate a contract for actual breach must be assessed objectively. In Maple Flock Co Ltd v Universal Furniture Products (Wembley) Ltd , the plaintiff (Maple) entered into a contract to sell certain goods to the defendant (Universal). One term of the contract provided that the goods were to conform to prescribed government standards as to chemical composition. Another term provided for deliveries to take place three times per week. Subsequently, one of the delivered loads contravened the prescribed chemical standard. The defendant argued that, given this breach, it was entitled to terminate the contract. The court disagreed. In reaching its decision, the court looked at two factors:

(a) the seriousness of the breach in relation to contemplated” performance;

(b) Likelihood that such a breach may occur again.

The court held that since there is no chance that such an event may occur again the defendant cannot renounce the contract neither can he reject the supplies.


Minor Breach: Every minor irregularity in “the performance of the contract cannot be seized upon as a repudiation so as to put a premature end to the contract. The court has to take into account the effect of the breach upon the contract as a whole. Where out of the several deliveries by instalments, one delivery was below the standard, it could not be treated as a breach of the contract. In a contract for supply of iron by two instalments, payment to be made within 14 days of delivery, the buyer claimed reduction in price on account of the delay in the first delivery and the seller treating this as repudiation refused to make further deliveries, it was held that the conduct complained of did not amount to intimation to abandon and altogether refuse performance of the” contract. A enters into two contracts with B regarding the supply of milk which is to be supplied on separate days. When A did not deliver the goods according to the first contract, B wanted to revoke the existing contract as well the second one. It was maintained that since A didn’t refuse the Contract, according to Sec. 39, B was not eligible to revoke the contract.



Fundamental Breach: The core duty which is to be performed cannot be refused by another point in the contract. An immunity stipulation in the contract cannot license the person performing the contract to not perform the activity which is basic and fundamental to the contract. Hence, a computer mechanic is held accountable in case the computer is lost though there are several exemptions present in the contract. Another means of getting round the injustice of exemption clauses is with the doctrine of fundamental breach. It is a method of controlling the unreasonable consequences of wide and sweeping exemption clauses. Even where adequate notice of the terms and conditions in a document has been given, the party imposing the conditions may not be able to rely on them if he has committed a breach of the contract which can be” described as "fundamental".


Every contract contains a ‘core’ or “fundamental obligation which must be performed. If one party fails to perform this fundamental obligation, he will be guilty of a breach of the contract whether or not any exempting clause has been inserted which purports to protect him. Where a dry cleaner's receipt stipulated that in case of damage to the garment only three times of the amount of cleaning charges would be payable, it was held that this limitation upon the amount of liability was not applicable because damage to the garment was caused by a sub-cleaner to whom the garment was handed over. This was quite outside from the scope of contract. The cleaner was liable for the full amount of loss. In Alderslade v Hendon Laundry Ltd, on the other hand, the plaintiff's handkerchiefs”were lost in the laundry itself and, therefore, the exemption clause effectively limited the defendant's liability to twenty times the charge made for laundering.

TYPES OF REMEDIES AVAILABLE FOR BREACH OF CONTRACTS

  1. Common Law remedies

  2. General and Special Damages: In relation to “liability, general damages are those which arise naturally and in the normal course of events; whereas special damages are those which do not arise naturally out of the defendant's breach, and are recoverable only where they were in the reasonable contemplation of the parties at the time they made the contract.

In relation to pleadings, general damages are those which will be presumed to be the natural or probable consequence of the wrong complained of, with the result that the plaintiff is required only to assert that such damage has been suffered, whereas special damage refers to those losses which must be specifically pleaded and” proved.

In Cedrick Makara vs. Newmark Realty, Makara claim “compensation as he hurt his thumb while leaving the restroom at his workplace, due to injury he was not able to come for 6 months for work. The injury was so bad that he required surgery and jury awarded him a compensation of $ 2 as compensatory damages for pain and suffering and $2,00,000 under special damages for any kind of medical need he might be” required in future.


Nominal Damages: Nominal “damages are awarded when there is a violation of a legal right; it gives no right to any real damages, yet gives the right to a verdict because the right has been violated. Nominal damages are awarded when the breach has not caused any loss to the plaintiff, or where the plaintiff fails to prove the loss, or where there is no basis for ascertaining the amount.18. Nominal damages might not be awarded where the buyer of goods has sustained no actual loss from the sellers” failure to deliver goods.


Liquidated Damages: The parties to a contract may agree at the time of contracting that, in the event of a breach, the party in “default shall pay a stipulated sum of money to the other, or may agree that in the event of breach by one party any amount paid by him to the other shall be forfeited. Section 74 of the Indian Contract Act provides that “if a contract stipulates a sum to be paid if there is a breach, or contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage is proved to have been caused by the breach,’ to receive reasonable compensation not exceeding the amount named or as the case may be, the stipulated penalty”. Supreme Court also pronounced its verdict in the same lines in Fateh Chand v. Balkishan Das.


Exemplary or Punitive Damages: In some “cases the quantum of compensation to be paid might be greater than the ordinary damages, this happens depending on the nature of the accused’s behaviour and intention. Such damages may be: (i) "aggravated damages", which are compensatory in that they compensate the victim of a wrong for mental distress, or injury to feelings, in circumstances in which that injury has been caused or increased by the manner in which the defendant committed the wrong, or the defendant's conduct subsequent to the wrong; or (ii) "exemplary damages" are intended to make an example of the defendant; they are punitive and not intended to compensate the plaintiff for any loss, but rather to punish the defendant. While aggravated damages are of compensatory nature, exemplary damages are punitive in nature. Such damages cannot be awarded under Section 73 as motive is of no” relevance.

  1. Equitable Remedies

  2. Specific Performance: Specific performance is the relief given by a court to compel the promisor to perform what he has agreed to do under the terms, to compel a defendant to positively oblige his own under his contract.

Specific performance is not granted

  1. in cases of those contracts for the non-performance of which compensation will be an adequate remedy,

  2. where enforcement of the terms of the contract is difficult, expensive or ineffective,

  3. where the plaintiff conduct disentitles him from seeking the equitable relief. Specific performance for a contract to deliver goods under a contract of sale is granted subject to the same principles.

  4. Injunction: A “plaintiff can seek injunction to enforce a negative covenant, i.e., a promise not to do something, and also to restrain the defendant from interfering with the plaintiffs exercise of rights under the contract. An injunction will not be issued to enforce any promise under a contract for which specific performance will not be granted, except to enforce a negative covenant when it accompanies an affirmative covenant, eg., to enforce a covenant against accepting employment with a competitor contained in a contract of employment, which is not, as a contract of personal service, directly enforceable by a suit for specific performance.

In a suit for injunction restraining the defendant from committing breach of contract, the plaintiff can also seek temporary injunction on the same terms. Such injunction will be granted on the same conditions as permanent injunction; thus, temporary injunction” will not be granted where compensation will be adequate.

  1. Rescission: Rescission of contract for a refusal to perform has been upheld in several instances:

  2. Promoting a collusive suit that would block the performance of obligations under the contract;

  3. Disposal of wagons that would be used to carry supply of timber to the station for further transport;

  4. Getting that son married who was to be given in adoption;

  5. Refusing to furnish an indemnity to an agent which the principal was under an implied obligation to provide;

  6. Failure by a successful bidder to comply with the conditions of an auction;

  7. Failure to store goods for the entire agreed period of contract where the contract stipulated storage of goods for that period;

  8. Refusal to exhibit a film at the theatre stipulated in the contract on the specified date.

  9. Restitution: The restitution interest “lies in the reversal of an unjust enrichment from the defendant to the plaintiff, by compelling the defendant to disgorge the value of the benefits gained. This interest of a contracting party in reversing an unjust enrichment made by the other party at his expense is termed the restitutionary interest. The obligation to do restitution may arise independently of breach of contract. Such an obligation has been recognised in chapter V of the Contract Act . Restitution may also follow the cause of the total failure of consideration. Restutionary obligation may arise from breach of contract where a party to make a contract makes a profit from its breach; in which case he may be obliged to surrender his profits. An award of restitutionary damages is aimed to compel the surrender of profits or economies”derived from breach.


SCOPE OF REMEDIES UNDER THE CONTRACT LAW

There is no such defined scope of remedies under Contract Law. “There are two general categories of remedies—legal and equitable. In the category of legal remedies are damages. Damages are money paid by one party to another; there are several types of damages. In the category of equitable remedies are these three: specific performance, which means a person is ordered to deliver a unique thing (land or a unique personal property, such as a painting or an antique car); injunction, a judicial order directing a person to stop doing what he or she should not do (such as competing with a former employer in violation of a noncompete agreement); and restitution, which means putting the parties back into the position they were in before the contract was made.” In India, these remedies are ingrained under the Specific Relief Act, 1963.


CONCLUSION

“Contract law aims to provide an effective legal framework for contracting parties to resolve their disputes and regulate their contractual obligations. The law of contract is mostly self-regulatory, with the majority of contracts requiring no intervention. The courts make no consideration for whether the contract was fair or not; if it was agreed, it should be enforced. Despite this, on some occasions, the courts are willing to depart from the principal of contractual freedom. This is often where there has been an abuse of bargaining power by one contracting party.”



REFERENCES

https://ssrn.com/abstract=2042652


https://ssrn.com/abstract=2461377 or http://dx.doi.org/10.2139/ssrn.2461377


http://docs.manupatra.in/newsline/articles/Upload/30C28D5D-262B-4A4A-AE17-C4D86F92BCE0.pdf


https://uk.practicallaw.thomsonreuters.com/7-101-0603?transitionType=Default&contextData=(sc.Default)&firstPage=true


https://lawshelf.com/coursewarecontentview/material-v-minor-breach/



Sanjana Parisaboina





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