Basavashree College of Law

Law of Contract - I
UNIT - IV

4.1 REMEDIES FOR BREACH OF CONTRACT

Contract may be classified under the following three heads

1. Damages

In order to establish a right to damages, the first thing the plaintiff must show is that the
loss which he has sustained was caused by the breach. But assuming this can be proved, the law
will nevertheless, not compel the defendant to assume liability for all the loss which the plaintiff
may conceivably have suffered as a consequence of the breach.

Remoteness of Damages

Even if it is proved that the plaintiff suffered loss because of the breach of contract, the
plaintiff, cannot claim all the loss which he might have suffered. In this connection the general
principle is that the law will not compel the defendant to pay damages which are remote.

In Handley v/s Baxendale

In this case, the plaintiff's mill stopped due ti the breakage of the crankshaft, a vital part
of the mill. The plaintiff, wanted to send the shaft to a certain maker at Greenwich as a pattern for
a new one to be manufactured by them. The plaintiff delivered the shaft to the defendant, a
common carrier for the purpose of being delivered to the makes at Greenwich. The only
circumstances communicated by the plaintiffs to the defendant at the time of the contract were
that the article to be carried by them was the broken shaft of a mill and that the plaintiffs were
the millers of that mill. Delivery of the shaft to the manufacturers at Greenwich was delayed due
to some negligence of the defendant. The plaintiff, could not receive the shaft for several dsys and
consequently the mill could not start in time resulting in the loss of profits to the plaintiffs which
they would have earned, had the shaft been received in time. The defendant resisted the claim of
the plaintiff on the ground that the damages were too remote.

Finally the court held that 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 thins, from such breach of contract itself, or such as may
reasonably be supposed to have been in contemplation of both parties, at the time they made the
contract, as the probable result of the breach of it.

The rule in Hardly v/s Baxendale

1. The first branch deals with damages "as may fairly and reasonably be considered either
arising naturally i.e. according to the usual courser of things." For the sake of brevity we may refer
it as "general damages".
2. The second branch deals with damages "as may reasonably be supposed to have been in
contemplation of both parties, at the time they made the contract, as the probable result of the
breach of it". This may be referred as "special damages".

General Damages

General damages depend on the knowledge which the parties are presumed to possess.

Ex: The plaintiff delivered to the defendant to be shipped on defendant's vessel certain cases of
machinery intended for the erection of a saw-mill at Ratlam. The defendant failed to deliver one
of the cases, but was unaware of the fact that it contained a material part of the machinery
without which the saw-mill could not be erected at all. The plaintiff claimed as damages not only
the cost of replacing the lost parts, but also the loss incurred by the stoppage of their works
during the time the rest of machinery remained unless owing to the absence of the lost parts.

Special Damages

Special damages may be successfully claimed only when they 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.

In Simpson v/s London and North Railway Company

In this case, the plaintiff used to send specimens of his goods for exhibition to agricultural
shows. After having exhibited them at Bedford he gave his samples to an agent of the defendant
company to be carried to a show-ground at Nwecastle. His consignment note contained the
words: "Must be a t Bwecastle Monday certain". Due to negligence of the company, the sample
reached late and could not be exhibited at Newcastle show. The plaintiff brought an action to
recover damages for his loss of profits at Newcastle show. The plaintiff brought an action to
recover damages for his loss of profits at Newcastle show. In this case the company was held
liable for its agent had the knowledge about the goods to be exhibited at the Newcastle show and
hence it was in the contemplation of the company that delay in the delivery might lead to losses
of such kind.

Section 73 of the Act provides that when a contract has been broken, the party who
suffers by such breach is entitled to receive, from 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.

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 a person had contracted to discharge it and had
broken his contract.

Ex: 1. A contracts to sell and deliver 50 maunds of saltpeter to B, at a certain price to be paid on
delivery. A, breaks his promise. B is entitled to receive from a by way of compensation, the sum, if
any, by which the contract price falls short of the price for which B might have obtained 50
maunds of saltpeter of like quality at the time when the saltpeter ought to have been delivered.

2. A contracts to buy of B, at stated price, 50 maunds of rice, no time being fixed for delivery. A
afterwards informs B that he will not accept the rice if tendered to hi. B is entitled to receive from
A by way of compensation the amount, if, any, by which the contract price exceeds that which B
can obtain for the rice at the time when a informs b that he will not accept it.

Measure of Damages

After the extent of loss which the plaintiff can recover has been determined, it will be
necessary to evaluate it in terms of money.

Important points

1. Compensatory nature of damages

Damages for breach of contract are given by way of compensation for loss suffered, and not by
way of punishment for wrong inflicted. The measure of damage is therefore not affected by the
motive or manner of the breach. In fact, the object of awarding damages for breach of contract is
to put the injured party into the position in which he would have been had the contract been
performed.

2. Duty to mitigate damage suffered

Section 73 of the Act provides that in estimating the loss or damage arising from a breach
of contract, the means which existed or remedying the inconvenience caused by the non-
performance of the contract must be taken into account.

In Jamal A.K.A.S. v/s Moolla Dawood Sond and Company.

In this case, the Privy Council held that it is undoubted law that a plaintiff who sues for
damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the
breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be
ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or
did something which mitigated the damage, the defendant is entitled to the benefit of it.

Liquidated Damages and Penalty

Section 74 provides that 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 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.

Essential elements of section 74

1. When a contract has been broken.

2. If a sum is named in the contract payable on breach or any other stipulation by way of
penalty.

3. Whether or not the actual loss is proved to have been caused thereby.

4. The party complaining the breach is entitled to receive reasonable compensation from the
party who has broken the contract.

5. The compensation should not exceed the amount named or the penalty stipulation for.

Ex: A and Q agreed to play a wrestling match on the condition that the party who did not appear
on the day fixed for the match would give Rs. 500 to the opposite party. P did not turn up on the
fixed day. Q sued P for Rs. 500. Q will succeed in his suit but he will get only reasonable
compensation not exceeding Rs. 500. If the court deems firm, it may allow Rs. 500i.e. the sum
named in the contract. If the court does not deed fit to award Rs. 500 in accordance of the facts
and circumstances of the case, it may award any sum below Rs. 500. The Court may award any
sum not exceeding Rs. 500.

Section 74 further says that in case of bail-bond when any person enters into any bail
bond recognizance or any other instrument of the same nature, or under the orders of the Central
Government or of any state government, the person giving the bond for the performance of any
public duty or act in which the public are interested shall be liable upon such breach of the
condition of any such instrument, to pay the whole sum named or mentioned therein.

A person who enters into a contract with the government does not necessarily thereby
undertake any public duty, or promise to do an act in which the public are interested.

Ex: 1. A contracts with B to pay B rupees 1,000, if he fails to pay rupees 500 on a given day. A fails
to pay rupees 500 on that day. B is entitled to recover from A such compensation, not exceeding
rupees 1,000 as the Court considers reasonable.

2. A contracts with B that, if A practice as a surgeon within Calcutta, he will pay B rupees 5,000. A
practice as a surgeon in Calcutta. B is entitled to such compensation, not exceeding rupees 5000
as the Court considers reasonable.

Exceptions to Essential elements

1. A bail-bond, recognizance or to other instrument is entered into with the government.

2. The contract is entered into under the provisions of any law or under the orders of the
Central or State Government.
3. The instrument is for the performance of any public duty or act in which public are
interested.
4. In case of breach of contract, the whole sum named or mentioned in the instrument shall
be payable.

Compensation of Rightful Rescission of the Contract

 Section 75 provides a person who rightfully rescinds a contract is entitled to
compensation for any damage which he has sustained through the non-fulfillment of the contract.

Ex: A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two night in
every week during the next two months, and B engages to pay her 100 rupees for each night's
performance. On the sixth night A willfully absents herself from the theatre, and B, in
consequence, rescinds the contract. B is entitled to claim compensation for the damage which he
has sustained through the non-fulfillment of the contract.

1. Quantum Meruit

It means if the injured party, when the breach occurs, has already done, part, though not all, of
what he was bound to do under the contract, he may be entitled to claim the value of what he has
done. In that case he has to sue upon a Quantum Meruit, he adds, Quantum Meruit is till a
remedy which is alternative to rather than a form of damages.

Conditions

1) It is available only if the original contract has been discharged.

2) The claim must be brought by the party not in default.

Compensation quantum meruit is awarded for work done or services rendered when the
price thereof is not fixed by a contract. For work done or service rendered pursuant to the
contract compensation quantum meruit cannot be awarded where the contract provides for
consideration payable in that behalf.

In State of Rajasthan v/s Motiram

In this case, a clause in the contract provided that the contract shall not become invalid if
alterations in specifications and designs were provided on the basis of quantum meruit. It was
held that even if the work was materially changed outside the contemplation of the parties due to
alterations or subsequent change of circumstances, the payment on the basis of quantum meruit
cannot be claimed for the obvious reason that the express terms of the contract cannot be
ignored. Payment on the basis of quantum meriut can be claimed only when the contract has
been frustrated.

2. Specific Performance and Injunction

Discussed below

4.2 QUAZI - CONTRACTS

It means misnomer. It will not be like a formal contract with a promise, acceptance and
reduced to writing. A legal theory propounds that it is a relation resembling those created by
contract.

Features of Quazi- contracts

1. Right to sum of money

Such a right is always a right to money, and generally, though not always to a liquidated sum of
money.

2. Imposed by law and does not arise by agreement of parties

It does not arise from any agreement of the parties concerned, but is imposed by the law, so that
in this respect a quazi-contract resembles a tort.

3. Right available only against a particular person or persons

It is a right which is available not, like the rights protected by the law of torts, against the
entire world, but against a particular person, persons only, so that in this respect, it resembles a
contractual right.

Important points

1) Necessaries supplied to a person incapable of contracting

Section 68 of the Indian Contract Act says that if a person, incapable of entering into a contract, or
any one whom he is legally bound to support, is supplied by another person with necessaries
suited to his condition in life, the person who has furnished such supplies is entitled to be
reimbursed from the property of such incapable person.

Ex: A supplies the wife and children of B, a lunatic, with necessaries suitable to their condition in
life. A is entitled to be reimbursed from B's property.

Essential Elements

1. If a person supplies necessaries to a person who is incapable of contracting or to any one

whom he is legally bound to support.
2. The necessaries must be suited to his condition in life.
3. The person supplying the necessaries is entitled to be reimbursed
4. The liability of such person incapable of contracting is limited to his property or in other
words he incurs no personal liability for the obvious reason that he is incompetent to
contract.

2) Payment made on behalf of another

A person who is interested in the payment of money which another is bound by law to pay, and
therefore pays it is entitled to be reimbursed by the other.

Ex: B holds lands in Bengal, on a lease granted by A, the Zamindar. The revenue payable by A to
the Government being in arrear, his land is advertised for the sale by Government. Under the
revenue law, the consequence of such sale will be the annulment of B's lease. B, to prevent the
sale and the consequent annulment of his own lease, pays to the Government the sum due from
A. a is bound to make good to B the amount so paid.
3) Obligation of Person Enjoying benefit of Non-gratuitous act

Section 70 of the Act provides that where a person lawfully does anything for another
person, or delivers anything to him, not intending to do so gratuitously and such other person
enjoys the benefit thereof, the latter is bound to make compensation to the former in respect of,
or to restore, the thing so done or delivered.

Essential Elements

1. A person does lawfully anything for another person or delivers anything to him.
2. He does not intend to do so gratuitously.
3. Such other person enjoys the benefit thereof.
4. Such other person is bound to compensate the former.

Ex: A, a tradesman, leaves goods at B's house by mistake. B treats the goods as his own. He is
bound to pay A for them.

4) Responsibility of Finder of Goods

Section 71 of the Act provides that a person who finds goods belonging to another and takes them
in his custody is subject to the same responsibility as a bailee.

Important Points

1. Duty to take reasonable care of goods.

2. Duty to return use of the goods bailed.
3. To take proper use of the goods bailed.
4. Duty not to mix his own goods with the goods of the bailor.
5. Duty not to question the title of bailor.
6. Duty of bailee to pay increase or profit from goods bailed.

When a thing which is commonly the subject of sale is lost, if the owner cannot with
reasonable diligence be found, or if he refuses upon demand, to pay the lawful charges of the
finder, the finder may sell it under the following situation.

1. When the thing is danger of perishing or of losing the greater part of its value.
2. When the lawful charges of the finder, in respect of the thing found, amount two-thirds of
its value.

5) Money paid or things delivered by mistake or under coercion

Section 72 of the Act provides that a person to whom money has been paid, or anything
delivered, by mistake or under coercion, must repay or return it.

Ex: A railway company refuses to deliver up certain goods to the consignee except upon the
payment of an illegal charge for carriage. The consignee pays the sum charged in order to obtain
the goods. He is entitled to recover so much of the charge as was illegally excessive.
In state of Madhya Pradesh v/s Vyankatlal
In this case, the Supreme Court held that the burden of paying the amount in question
was transferred by the respondents to the purchasers and, therefore the respondents were not
entitled to get refund and only the persons on whom lay the ultimate burden to pay the amount,
would be entitled to get a refund of the same. In this case under the Madhya Bharat sugar control
Order, 1949, the supply price of sugar had been fixed higher than its ex-factory price and the sugar
factories were directed to credit the difference to a fund called "Sugar Fund". The validity of the
said notification could not be sustained in the Supreme Court but all the same no refund allowed
on the finding that the burden in question had been transferred to the purchasers.