Where a contract is broken, the injured party has several courses of action open to him. The appropriate remedy in any case will depend upon the subject-matter of the contract and the nature of the breach.
Remedies for Breach of Contract: In case of breach of contract, the injured party may:
- Rescind the contract and refuse further performance of the contract
- Sue for damages
- Sue for specific performance
- Sue for an injunction to restrain the breach of a negative term
- Sue on quantum meruit
Damages for breach of Contract:
Under Section 73 of ICA, when a contract has been broken a 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. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
The foundation of the claim for damages rests in the case of Hadley v. Baxendale, (1854) 9 Ex. 341. In this case Hadley owned a mill featuring a broken crankshaft. He engaged Baxendale to transport the crankshaft to the location at which it would be repaired and then subsequently transport it back. Baxendale made an error, causing the crankshaft to be returned to Hadley a week later than agreed, during which time Hadley’s mill was out of operation. Hadley contended Baxendale had displayed professional negligence and attempted to claim for the loss of profit resultant from the unexpected week-long closure. Baxendale retorted that such an action was unreasonable as he did not know that the delayed return of the crankshaft would necessitate the mill’s closure and thus the loss of profit failed to satisfy the test of remoteness. The issue was whether the loss of profits resultant from the mill’s closure was too remote for Hadley to be able to claim. The Court held that viewing that a party could only successfully claim for losses stemming from breach of contract where the loss is reasonably viewed to have resulted naturally from the breach, or where the fact that such losses would result from breach ought reasonably have been contemplated by the parties when the contract was formed. As Baxendale had not reasonably foreseen the consequences of delay and Hadley had not informed him of the same, he was not liable for the mill’s lost profits.
There are various kinds of damages such as:
- Liquidated and Unliquidated damages: Where the contracting parties agree in advance the amount payable in the event of breach, the sum payable is called liquidated damages. Where the amount of compensation claimed for a breach of contract is left to be assessed by the Court, damages claimed are called unliquidated damages.
- Ordinary Damages: These are restricted to pecuniary compensation to put the injured party in the position he would have been had the contract been performed. It is the estimated amount of loss actually incurred. For example, in a contract for the sale of goods, the damages payable would be the difference between the contract price and the price at which the goods are available on the date of the breach.
- Special Damages: Special damages are those resulting from a breach of contract under some peculiar circumstances. For example: A delivered goods to the Railway Administration to be carried to a place where an exhibition was being held and informed the goods clerk that if the goods did not reach the destination on the stipulated date, he would suffer a special loss. However, the goods reached late. Therefore, A was entitled to claim special damages.
- Exemplary Damages: These damages are awarded to punish the defendant and are not, as a rule, granted in case of breach of contract. The court may award such damages in the following circumstances:
- breach of promise to marry
- wrongful dishonor of a customer’s cheque by the banker.
- Nominal Damages: Nominal damages consists of a small token award where there has been an infringement of contractual rights, but no actual loss has been suffered. These damages are awarded to establish the right to decree for breach of contract.
- Liquidated Damages and Penalty: In English law, the difference between a penalty and liquidated damages is that the former is the amount fixed without any regard to probable loss, but is intended to frighten the party and to prevent him from committing breach and the latter is a genuine pre-estimate of the loss in case of breach. In Indian law, there is no such difference between liquidated damages and penalty. Section 74 provides for “reasonable compensation” up to the stipulated amount whether it is by way of liquidated damages or penalty. For example: A borrows Rs. 500 from B and promises to pay Rs. 1,000 if he fails to repay Rs. 500 on the stipulated date. On A’s failure to repay on the given date, B is entitled to recover from A such compensation, not exceeding Rs. 1,000 as the Court may consider reasonable. (Union of India v. Raman Iron Foundry, AIR 1974 SC 1265).
- Specific Performance
It means the actual carrying out of the contract by the parties. Where a party fails to perform the contract, the Court may, at its discretion, order the defendant to carry out his undertaking according to the terms of the contract. A decree for specific performance may be granted in addition to or instead of damages. Specific performance is usually granted in contracts connected with land, e.g., purchase of a particular plot or house, or to take debentures in a company. In case of sale of goods, it will only be granted if the goods are unique and cannot be purchased in the market for e.g., a particular racehorse or one of special value to the party suing by reason of personal or family association, e.g., an heirloom.
Specific performance will not be ordered:
- where monetary compensation is an adequate remedy;
- where the Court cannot supervise the execution of the contract, e.g., a building contract;
- where the contract is for personal service; and
- where one of the parties is a minor.