MS EDUCONZ PVT. LTD.

LAW& AUDIT

REMEDIES FOR THE BREACH OF CONTRACT

Remedy means course of action available to an aggrieved party when other party breaches the
contract.
Remedies for
Breach of contract

1. 2.Suit for 3.Suit for 4.Suit for 5.Quantum

Rescission damage specific Injunction Meruit
of contract performance

RESCISSION OF CONTRACT – SEC 39

⇒ It means right to party to cancel contract.

⇒ In case of breach of contract, other party may rescind contract.

Effect of Rescission of Contract

⇒ Aggrieved party is not required to perform his part of obligation under contract.
⇒ Aggrieved party claims compensation for any loss.
⇒ Party is liable to restore benefit, if any.

When can Court Grant Rescind Contract?

Court can rescind the contract in the following situation:

⇒ Contract is voidable.
⇒ Contract is unlawful.

SUIT FOR DAMAGES

⇒ It means monetary compensation allowed for loss.

⇒ Purpose is to compensate aggrieved party and not to punish party as fault.

⇒ In India, rules relating to damages are based on English judgment of Hadley vs

Baxendale.
The facts of case were – H’s mill was stopped due to the breakdown of the shaft. He delivered
the shaft to common carrier to repair it and agree to pay certain sum of repair it and agree to pay
certain sum of money for doing this work. H has informed to B that delay would result into loss
of profit. B delivered the shaft after reasonable time after repair. H filed suit for loss of profit. It
was held that B is not liable for loss of profit. The court laid down rule that damage can be
recovered if party has breach of contract.

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MS EDUCONZ PVT. LTD. LAW& AUDIT

KINDS OF DAMAGES

The following are the different kinds of damages:

⇒ Ordinary damages
These are the damages which are payable for the loss arising naturally and directly as
result of breach of contract. It is also known as proximate damage or natural damage.

⇒ Special damages

These are damages which are payable for loss arising due to some special circumstances.
It can be recovered only if special circumstances which result in special loss in case of
breach of contract and party have notice of such damage.

Example: A sends sample of his products for exhibition to an agent of a railway

company for carriage to “New Delhi” for an exhibition. The consignment note stated:
“Must be at New Delhi, Monday Certain.” Due to negligence of the company, the goods
reached only after the exhibition was over. Held, the company was liable for the loss
caused by late arrival of the products because the company’s agent was aware of the
special circumstances.

⇒ Exemplary or punitive or vindictive damages

These damages are allowed not to compensate party but as mean of punishment to
defaulting party. The court may award these damages in the case of:
• Breach of contract to marry – loss based on mental injury.
• Wrongful dishonor of cheque – smaller amount, larger the damage.

⇒ Nominal damages
Where party suffers no loss, the court may allow nominal damages simply to establish
that party has proved his case and won. Nominal damage is very small in amount.

⇒ Damages for inconvenience

If party has suffered physical inconvenience, discomfort for mental agony as result of
breach of contract, party can recover the damage for such inconvenience.
Example: A photographer agreed to take photographs at a wedding ceremony but failed
to do so. The bride brought an action for the breach of contract. Held, she was entitled to
damages for her injured feelings.

⇒ Liquidated damages and penalty

Party may specify amount at the time of entering into contract. The amount so specified
may be (a) liquidated damage, or (b) penalty.

If specified sum represent, fair and genuine pre – estimate damages likely to result due to
breach, it is called liquidated damage.

But if specified sum is disproportionate to the damages, it is called as penalty.

As regard the payment of liquidated damages and penalty court can’t’ increase amount of
damages beyond the amount specified in the contract.
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Example : 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, the 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.

⇒ Forfeiture of security deposit

Any clause in contract entitling the aggrieved party to forfeit security deposit in the
nature of penalty and court may award reasonable compensation.

⇒ Payment of interest
• It is permissible.
• If interest is in nature of penalty, court may grant relief.
• If no rate of interest is specified in contract party shall be liable to pay as per the
law in force or as per custom or usage of trade.

⇒ Cost of suit or decree

The court has also discretion to award cost of suit for damages in addition to the
damages for breach of contract.

Suit for Specific Performance

It means, demanding an order from court that promise agreed in contract shall be carried out.

⇒ When is specific performance allowed?

• Where actual damages arising from breach is not measurable.
• Where monetary compensation is not adequate remedy.

⇒ When specific performance is not allowed?

• When damages are an adequate remedy.
• Where performance of contract requires numbers of minute details and therefore
not possible for court to supervise.
• Where contract is of personal in nature.
• Where contract made by company beyond its power. (ultra – vires)
• Where one party to contract is minor
• Where contract is inequitable to either party.
Example : A agree to sell B, an artist painting for Rs.30,000. Later on, he refused to sell
it. Here B can file suit against A for specific performance of the contract.

Suit for Injunction

⇒ It means stay order granted by court. This order prohibits a person to do particular act.
⇒ Where there is breach of contract by one party and order, of specific performance is not
granted by court, injunction may be granted.
Example: Film actress agreed to act exclusively for W for a year and for no one else.
During the year she contracted to act for Z.

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