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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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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QUASI CONTRACT
[Contracts implied in law or implied contract]

It means a contract which lacks one or more of the essentials of a contract.

Quasi contract are declared by law as valid contracts on the basis of principles of equity i.e. no
person shall be allowed to enrich himself at the expense of another the legal obligations of
parties remains same.

Nature of Quasi contracts:-

(a) A quasi contract does not arise from any formal agreement but is imposed by law.

(b) Every quasi contract based upon the principle of equity and good conscience.

(c) A quasi contract is always a right to money and generally though not always to a
liquidated sum of money.

(d) A suit for its breach may be filed in the same way as in case of a complete contract.
(e) The right grouted to a party under a quasi contract is not available to him against the
whole world but against particular person(s) only.

(f) A suit for breach of a quasi contract may be filed in the same way as in case of an
ordinary contract

(g) Although there is no contract between the parties under a quasi contracts, yet they are put
in the same position as if he were a contract between them .

Provisions relating to various quasi contracts are contained in section 68 to sec 72 of the
contract Act, 1872.

TYPES OF QUASI CONTRACTS

Sec. 68 Sec. 69 Sec. 70 Sec. 71 Sec.72
Supply of Reimbursement Obligation to pay for Responsibility of Person receiving
Necessaries of money due benefit out of non – Finder of Goods goods are money
gratuitous act by mistake

Sec. 68: If a person, incapable of entering into a contract, or anyone 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.
1. Meaning of Necessaries:
(a) Necessaries normally include articles required to maintain a particular person in
the state, degree and station in life in which he is.

(b) They are essentials to run a life.

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(c) An item will not be considered necessary, if a person already has sufficient
supply of things of such kind.

(d) Necessaries include Services rendered to a person.

(e) What constitutes necessaries depends on the circumstances of each case.

2. Only property liable: person not liable:

(a) It is only the property (movable and immovable) of the incapable person they
shall be liable.
(b) He cannot be held liable personally.
(c) Where he doesn’t own any property, nothing shall be payable.

3. Example: (i) A supplies B, a lunatic, with necessaries suitable to his condition in life. A
is entitled to be reimbursed from B’s property. (ii) A who supplies the wife and children
of B, a lunatic, with necessaries suitable to their condition in life, is entitled to be
reimbursed from B’s Property.

Payment By a person who is interested in a transaction [69]

Condition of section [69]

Sec. 69; A person, who is interested in the payment of money and pays such money, which
another is bound by low to pay, is entitled to be reimbursed by the other.

(a) one party is legally bound to make a payment

(b) Some other persons make such payment
(c) The person making such payment is not legally bound to make such payment
(d) The person making such payment is interested in paying such amount

Legal effect of sec 69.:- If all the conditions of sec 69 are satisfy the person who is interested in
paying such amount shall be entitled to recover the payment made by him.

Ex.:- The goods belonging to A were wrongfully attached in order to realize arrears of
Government revenue due by G. A paid the amount to save the goods from sale at was held that
A was entitled to recover the amount from G.

Obligation of person enjoying benefit of non-gratuitous act [70]

Conditions of section 70.

Sec.70 : 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 benefits thereof, then he is
bound to make compensation to the other in respect of, or to restore the thing so done or
delivered.
(a) A person has lawfully done something for another person or delivered something to
another person.
(b) Such person must have acted voluntarily and non – gratuitously.
(c) The other person has enjoyed the benefit of the act done for him or the thing delivered to
him.

Legal effect of sec 70.

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¾ If the conditions of sec70 are satisfied, there will be quasi contract between the parties.
¾ Consequently, the party who has done something or delivered a thing shall be entitled to
recover its value from the person who obtained the benefit of the same.
Ex.:- A a trades man leaves goods at B’s house by mistake, B treat the goods as his own, He is
bound to pay A for them.

¾ A saves B’s property from fire. A is not entitled to compensation from B if the
circumstances show that be intended to act gratuitously.

Finder of Goods [71]

A person who finds goods belonging to another and takes them into custody, is subject to the
same responsibility as a Bailee.

A finder of goods has same rights and duties at that of bailee.

¾ Duty to take reasonable care of the goods
¾ Duty not to use the goods for his own purpose.
¾ Duty not to mix the goods with own goods
Right to recover expenses, reward, sell the goods

Ex.:- X a guest found a diamond ring at a birthday party of Y. X told Y and other guests about
it. He has performed his duty to find the own. If he is not able to find the owner he can retain the
ring as bales.

Money paid under a mistake or conversion [72]

Sec. 72: A person to whom money has been paid, or anything delivered by mistake or under
coercion, must repay or return it.
Conditions of Sec. 72
(a) A person has (i) paid money to another person or
(ii) Delivered something to another person
(b) Such person must have acted
¾ Under a mistake or under coercion.

Legal effect – quasi contract, recover its value from the person who obtained the benefit of
same.
Example: (i) A and B jointly owe Rs.1,000 to C.A alone pays the full amount to C and B not
knowing this fact, pays Rs.1,000 again to C.C is bound to repay the amount to B. (ii) A Railway
Company refuses to deliver certain goods to the Consignee except upon payment of an illegal
charge for carriage. The Consignee pays the sum charged in order to take delivery of goods. He
is entitled to recover so much of the charge as was illegally excessive.

(c) A + B . – 100 – A – 100, B – 100, B – return.

Compensation for failure to discharge obligation created by quasi contract [73]

When an obligation created by quasi contract is not discharged the injured party is entitled to
reline the same compensation from the party in default as if such person had, contracted to
discharge is and broken his contract.

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Quantum meruit: - [as much as is earned]

One party preventing the other:- If a party prevents the other party from completing his
obligation under the contract the aggrieved party may claim payment on quantum merit for the
part of contract already performed by him.

(a) In case of void agreement or contract that becomes

¾ Any person who has received any advantage under such agreement or contract is bound
to restore if or to make compensation for it, to the person from who received it.
Ex.:(1)- A – B – 10000 – to marry c (A’s daughter) – C – death of the time of
performance of contract – B must repay A Rs 1000.
Ex.(2):- A – B decline 250 quince of rice before the 1st of May. A delivers 130 qu. Only
before that day and none after. B retains the 130 qu. after the first of May. He is bound to
pay A for them.
Ex(3):-A singer – two nights in every week during the next two month and B any ages to
pay her Rs 100 for each night’s performance on the sixth night, A willfully absent
perfect. B must pay a for the five night on which she had sung.

(b) In case of Act preventing the completing of contract:-

If a party does not complete the contract or prevents the other party to complete the contract the
aggrieved party can sue or quantum meruit.
Ex.c:- owner – P write a book to be published as series in his magazine. After a few
series were published the publication of the magazine was stopped. It was held that P
could claim payment on quantum meruit for the part already published.

(c) In case of divisible contract :-

(1) If the contract is divisible and
(2) If the party not at default has enjoyed benefit of the point performance.
(3) the contract is party performed

If the above condition an satisfied, the party at fault may claim on payment on quantum meruit
for the part of contract performed by him be con recover such proportion of the contract price as
the work done, by him bears to the work under the contracts.

(d) In case of indivisible contract performed completely but Badly.

¾ Contract is indivisible
¾ Lump sum consideration
¾ Completely performed
¾ Performed badly

The party at fault may recover the contract price (Lump sum price) less the deduction made for
done badly.

Ex.:- X agreed to decorate Y’s flat for a lump sum of Rs20,000. X did the complete work but Y
complained of faulty work man stop. It costs Y another Rs3000 to remedy the defect. X could
recover only Rs 17000 from Y.

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(e) In case of Non – gratuitous Act – Three condition

(i) The thing must have been done or delivered lawfully.

(ii) The person who has done or delivered the thing must not have intended to do so gratuitously
And
(iii) The person from whom the act is done must have enjoyed the benefit of the act.

Ex.:- A, a tradesman leaves goods at B’s shop be mistake B treats the good as his own. He is
bound to pay A for them.

Difference between Quasi Contract and Contract

Matter Quasi – contract Contract

Intentionally Form It is not intentionally formed It is intentionally formed by
but law imposes upon the parties.
parties.
Essentials of contract A quasi – contract does not A contract possesses all the
possess all the essential of a essentials of a valid contract.
valid contract.
Obligations Obligations are implied upon Obligations are mutually
by the law. created by the parties.
Foundation It is founded upon the It is founded upon general
principle of equity. principal of law of contracts.

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