Tuesday, 31 May 2022

Remedies for Breach of Contract

 Remedies for Breach of Contract

By Shweta Nair

When a contract is breached, it is discharged. However, the party aggrieved by such breach gets certain new rights and can take action against erring party. The remedies which are available in case of breach of contract are as follows –

  • Suit for Damages

Damages means monetary compensation. Ordinarily under Indian Civil Law, a party aggrieved by breach of contract has to claim monetary compensation. This is considered to be his primary remedy and the preferred mode of action. 

Types of Damages: 

  1. Compensatory Damages or Actual Damages or Ordinary Damages

These are the damages which is actually caused to the plaintiff i.e., it is the monetary loss which would ordinarily occur in such circumstances. It is the amount of money that shall be granted to the plaintiff to compensate him for the loss caused. 

It is this type of damages which are normally granted by the courts of law in cases of breach of contract. 

  1. Nominal Damages 

Sometimes, it may so happen that even if a contract is breached, the other party does not suffer any loss. However, the fact remains that his legal right has been infringed. Therefore, the court shall grant to such party (Albeit, a small amount because in India, the civil law does not focus on punishment.) This small amount granted as damages to establish the fact that the other party has not honoured his legal commitment is known as Nominal Damages. 

  1. Exemplary Damages or Vindictive Damages

These are damages which are claimed over and above the actual damages caused for the stress, tension, anger, depression etc. caused due to the breach of the contract. Ordinarily, in Indian Law, vindictive damages are not granted. However, traditionally exemplary damages have been granted in India in 2 cases- 

  1. Breach of a promise to marry. 

  2. Unfair Dishonour of a cheque by the bank. 

However, nowadays the trend has been seen to change and the courts have started granting vindictive damages even in other cases. 

For example, in one case, a lady booked a local musical band to play a live orchestra during her wedding reception. The band failed to show up. She was granted exemplary damages. 

  1. Liquidated and Penalty or Punitive Damages

Sometimes, the parties to the contract may decide amongst themselves the amount of money to be paid in case the contract is breached. Such pre-fixed and pre-decided damages are called as liquidated damages. However, the rule regarding this type of damages is as follows: 

Liquidated Damages may be used as a ceiling or an upper limit for the damages to be paid in case of breach i.e., if the amount of damages or loss actually occurred is more than the pre-decided amount. The aggrieved party shall only have to pay the amount which was fixed and not more. 

However, if the amount of loss actually caused is less than that which was decided amongst the parties then only the actual amount will be generated and not the pre-decided amount then only the actual damages shall be allowed because any amount higher than that would serve as a penalty or punishment to the defaulting party. And Indian Civil Law does not propagate punitive damages. Hence, damages by way of penalty are not usually allowed in Indian Law. It is to be noted that in English Law, punitive damages can be granted. 

  • Special Damages

Special Damages are those damages which would not have ordinarily occurred but which have occurred due to the existence of special circumstances. Special Damages cannot be demanded as a matter of right. Special Damages shall only be granted if the existence of special circumstances were communicated to the other party at the time of entering into the contract itself. 

Case- Hadley v. Baxendale 

  • Rules regarding Damages: 

  1. In case of a breach of contract, the aggrieved party shall only be granted the normal and natural damages which would occur in such a situation.

  2. Remoteness of Damages shall not be allowed i.e., only those losses which directly arose due to the breach of contract shall be allowed i.e., the casual connection between the act of breach and the loss has to be without any intervening circumstances. 

  3. The court shall take into existence the means which existed for remedying the loss caused due to the breach of contract. The law feels that it is the moral responsibility of the aggrieved party to keep the losses at the bare minimum possible. Hence, unnecessary expenses incurred due to the excuse of other party’s breach shall not be allowed. 

  4. Quantum Merit- Quantum merit means as much as is merited. If due to any reason, a contract has to be abandoned mid-way (not due to the fault of the party, then any party who has completed a certain percentage of his contractual obligation shall be paid the proportionate amount in relation to the total consideration for the work which he has already done. 

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