Contract Law - Term Paper

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REMEDIES FOR

BREACH OF CONTRACT

A Term Paper
Submitted to:
Prof. Gyandarshan Bhattarai Sir
Course code:
Contract Law

Suveksha Panta
BALLB, 4th Semester, Section: C
Roll no: 101
Feburary 22, 2024
ACKNOWLEDGMENT
First of all, I would like to express my gratitude to Prof. Gyandarshan Bhattarai Sir, for providing me with this
opportunity to prepare a term paper on this topic of Remedies for
Breach of Contract. I enjoyed preparing this term paper, it pushes me to enhance my knowledge on this topic
and helped in improving my research skills.

TABLE OF CONTENTS
S.No. Contents Page No.
1. Introduction to Breach of Contract
2. Remedies of Breach of Contract
3. Types of Remedies of Breach of Contract
4. Conclusion
5. References
1. INTRODUCTION TO BREACH OF CONTRACT
Breach in simple words means the breaking of a duty or failure to honor a promise. Breach of contract means
the failure of a party to perform his obligations. The party committing a breach of contract is called the ‘guilty’
or ‘defaulting’ party and the other party is called the ‘injured’ or ‘aggrieved’ party. There are many ways to
breach a contract, common failures include failure to deliver goods or services, failure to fully complete the job,
failure to pay on time, or providing inferior goods or services.
Examples: a. ABC Company fails to deliver goods for XYZ Shop.
b. Tenant M violates lease with landlord N.

1.1. Breach of Contract in Nepalese Act : Section 535(1) of the Civil (Code) Act, 2074 contain that, the
contract is deemed to have been breached when:
a. Any party does not fulfill liability according to the contract,
b. Any party thereto renounces his liability under the contract,
c. Any party’s conduct / action shows his incapacity of performing the contract.

1.2. Types of Breach of Contract:


a. Actual Breach of Contract: This occurs at the time of Performance. Ram agreed to sell his car to Hari on 19 th
February. But on 19th February, Ram refused to sell the car to Hari. On Ram’s refusal to sell the car, there
occurred a breach of the contract, and Hari can hold Ram liable for the breach of the contract.
Cases: Hadley v Baxendale (1854): In this landmark case, the claimant, Hadley, operated a mill and required
a replacement part for his broken shaft. The defendant, Baxendale, a carrier company, was tasked with
delivering the broken part to the manufacturer to create a replacement. However, Baxendale delayed delivery
by several days, causing Hadley to suffer financial losses due to the prolonged downtime of his mill. The court
ruled that Baxendale's delay in delivering the part constituted a breach of contract. Hadley's losses were
deemed foreseeable and thus, he was entitled to recover damages for the losses directly resulting from the
breach. This case established the principle that damages for a breach of contract should be those that arise
naturally from the breach or were reasonably foreseeable by the parties at the time of contracting.

b. Anticipatory Breach of Contract: This occurs before the time of Performance. If X agrees to sell her car to Y
in Seven days, but on third day she sells her car to Z. this is an anticipatory breach of contract.
Cases: Hochster v De La Tour (1853): In this case, the claimant, Hochster, had been hired by the defendant,
De La Tour, as a tour guide for a three-month period starting in June. However, in May, before the
commencement of the contract, De La Tour informed Hochster that his services would no longer be required.
Hochster immediately sued De La Tour for breach of contract, even though the performance was not yet due.
The court ruled in favor of Hochster, recognizing that De La Tour's clear repudiation of the contract before the
commencement date amounted to an anticipatory breach. Hochster was entitled to treat the contract as
terminated immediately and to seek damages for the loss of income he would have earned during the contracted
period.

2. REMEDIES FOR BREACH OF CONTRACT


A remedy can be described as a cause of legal action resulting from a breach of contract. The remedy is known
as legal treatment provided by the court of law or other formal legal agency formed under the law. A remedy is
the course of action available to an aggrieved party (i.e. the party not at fault) for the enforcement of his right
under a contract.
The Latin maxim Ubi jus, ibi remedium denotes “where there is a right, there is a remedy”. So, in case of
breach of contract, the aggrieved party would have one or more, remedies against the guilty party.
3. TYPES OF REMEDIES FOR BREACH OF CONTRACT:
1. Self-help Remedies:
The remedy which is exercised by the non-breaching party himself without going to the court is called self help
remedy. Self-remedies are defined as actions that a party may take to resolve a breach of contract without the
need to go to court. Making your own rights without the intervention of the judiciary. It does not involve a court
order but the court gives permission to a plaintiff to act in a particular way.
For example: the action of debtor’s property by the bank and financial institution, seizure of bank guarantee by
the government in construction, carriage and supply contracts.
a. Sell, forfeiture or use of property/security: It can be one of the option for the aggrieved party when the
contract is broken. Injured party may sell, forfeiture or use of property to recover his loss caused by the party
who breaches the contract.
Sell (Contract Act-2056 Section-37(1)): If the innocent party of the contract get the remedy by selling the
property of the guilty party it’s known as remedy for breach of contract by selling. It is especially applicable in
the loan contracts.
Forfeiture: Forfeiture simply means fine or penalty. If the innocent party get remedy through the means of fine
or penalty whenever there is breach of contract it’s called forfeiture. It is especially applicable in lease contract.
For example: A gives his house to B in lease under certain conditions. If either of the party violates any of the
condition of the lease contract then innocent party can claim for the compensation, which is paid in the form of
forfeiture.

b. Forfeiture of bank guarantee: The aggrieved party may also forfeiture of bank guarantee as self-help
remedies to breach of contract by guilty party.
c. Recovery from advance or deposit: The victimized party can also recover his/her loss from advance or
deposit of defaulting party.
d. Exoneration: Exoneration, in the context of breach of contract, refers to a legal remedy that relieves a party
from its contractual obligations or liabilities when certain conditions are met. It typically arises when one party
has fulfilled its obligations under the contract, but the other party fails to perform, thereby freeing the
performing party from further obligations.
Cases: Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd (1962): In this case, Hong Kong Fir
Shipping Co. chartered a ship from Kawasaki Kisen Kaisha for a specified period. However, the ship turned out
to be unseaworthy and required extensive repairs, causing significant delays and financial losses to Hong Kong
Fir. Hong Kong Fir sued Kawasaki for breach of contract. The court held that Kawasaki had breached the
contract by providing an unseaworthy ship, which substantially deprived Hong Kong Fir of the benefit they
expected under the contract. Hong Kong Fir was entitled to damages for the losses suffered due to Kawasaki's
breach, and Kawasaki was not exonerated from liability.
2. Judicial Damages
Judicial remedies refer to the legal actions that a court may take to resolve disputes arising from breaches of
contract or other legal wrongs. These remedies are intended to provide relief to the aggrieved party and to
enforce the rights established under the law or the terms of the contract. Several judicial remedies are available
in cases of breach of contract:
a. Rescission of the contract (Sec.536):
Rescission is the process in which the party cancel the contract and are returned to their original state as though
the contract had never been formed. For example, A contracts B to supply 100 quintals of rice on a certain date.
B agrees to pay on delivery. A fails to deliver on the date fixed. B does not need to pay as the contract is
rescinded. In the same way the rescinding party can get compensation also if there is the loss or damage to him
by the breach of contract.
The basic reasons for rescission can be stated as follows:-
1) Innocent or Fraudulent representation; or
2) Mutual mistake; or
3) Lack of capacity to contract; or
4) An impossibility to perform a contract not contemplated by the parties; or
5) Duress; or
6) Undue influence.
Cases: Smith v. Hughes (1871): In this case, the plaintiff, Smith, agreed to purchase a quantity of oats
described as old oats. However, the oats delivered were new oats, which were of inferior quality and cheaper.
Smith argued that the contract should be rescinded because he believed he was buying old oats, and the
difference in quality was significant. The court held that there was no misrepresentation on the part of the seller
because the oats were accurately described as "old oats," which referred to the type of oats, not their age. As
there was no misrepresentation, rescission was not granted.
McRae v. Commonwealth Disposals Commission (1950): In this case, McRae agreed to purchase a ship from
the Commonwealth Disposals Commission based on the belief that it was seaworthy. However, it was later
discovered that the ship was not seaworthy as represented. McRae sought to rescind the contract due to the
misrepresentation. The court granted rescission, holding that there was a material misrepresentation regarding
the ship's condition, and McRae was entitled to rescind the contract.
b. Suit for Damages :

i. Compensatory or General or Ordinary Damages


Damages that arise in the ordinary course of events from the breach of contract are called general or ordinary
damages. It is the actual loss suffered by the party as a result of breach of contract. For example, A contracted to
sell and deliver B 50 bags of rice at Rs. 1, 450 per bag, the price to be paid at the time of delivery. The price of
rice rose to Rs. 1, 500 per bag and A refused to sell the rice. B can claim damages at the rate of Rs.50 per bag.
1. Special Damages
Special damages are that type of damages which is caused by breach of contract in special situations. Those
damages that are payable for the loss arising on account of some special or unusual circumstances. For example,
A contracted with B to supply a particular type of machinery at Rs. 5,000 to be delivered on a fixed day. A did
not deliver the machinery on the day specified. So B had to purchase the same from another dealer at Rs.6,500.
Moreover, B was also prevented from performing a contract with C which he had already made based on the
contract with A, and was compelled to make compensation to C for the non-performance of the contract. Here
the amount of compensation paid by B to C are the special damages because they arise on account of the special
circumstances i.e. B’s contract with C at the time of the contract. These damages can be recovered only
if A was informed of the contract between B and C. However, the difference amount of Rs.1,500 between the
contract price and the price paid by B to another dealer is the ordinary damages and can be recovered from A.
2. Nominal Damages
Nominal damages are awarded to the aggrieved party when there is only technical violation of the legal rights.
These damages are very small in amount. They are awarded simply to recognize the right of the party to claim
damages for the breach of the contract. For example, A contracted to purchase a Scooter from B, a dealer. But
he failed to purchase the scooter. However, the demand for the scooters far exceeded the supply, and B could
sell the scooter agreed to be purchased without loss of profit. B is entitled only to nominal damages.
3. Punitive or Vindictive or Exemplary Damages
These are the damages awarded to punish or make an example of a wrongdoer who has acted willfully,
intentionally. Punitive damages are awarded in addition to compensatory damages. Examples: Mr. Ram issued a
check of RS. 70,000. The bank wrongfully dishonored the cheque even when there are sufficient fund in his
account. In such case court may awarded a punitive damage.
Cases: Parker v. South Eastern Railway Co. (1877): In this case, the plaintiff purchased a season ticket for a
railway journey. Due to the negligence of the defendant railway company, the plaintiff was unable to use the
ticket for a considerable period, resulting in lost wages as he was unable to attend work. The plaintiff sought to
recover these lost wages as damages. The court held that the plaintiff was entitled to recover the lost wages as
special damages resulting from the breach of contract by the railway company. The court emphasized that the
damages must flow naturally from the breach and be reasonably foreseeable at the time of contracting.
Robinson v. Harman (1848): In this case, the plaintiff sold a horse to the defendant, who subsequently refused
to accept the horse and breached the contract. The plaintiff sued for damages, seeking to recover the difference
between the contract price and the market value of the horse at the time of the breach. The court held that the
plaintiff was entitled to recover damages for the breach of contract. The measure of damages in such cases is
generally the difference between the contract price and the market value of the goods at the time of the breach.
This case established the principle that the non-breaching party is entitled to be placed in the position they
would have been in had the contract been performed.
c. Quantum meruit (Sec 539, 537 (3 & 4) of Muluki Civil (Code) Act, 2074)
The term “quantum meruit” means “as much as he deserved”. ‘Quantum meruit’ means ‘payment in proportion
to the amount of work done. The injured party entitles to sue for quantum meruit, when, works under a contract
is performed by one party and has become discharge by the breach of another party. Thus, an injured party can
claim a reasonable compensation for the performed part.
For example-A engages B, a contractor, to build a three storied house. After a part is constructed A prevents B
from working any more. B the contractor, is entitled to get reasonable compensation for work done under the
doctrine of quantum meruit in addition to the damages for breach of contract.
Limitations for Quantum meruit:
a. If a contract is not divisible into parts and a lump sum money is promised for the complete work
b. Only the aggrieved party can claim.
c. In some cases even the party in breach may sue on quantum meruit for part performance of contractual
obligation if it is divisible or severable.
d. If the contract is discharged/ terminated.
e. If the amount of damages cannot be assessed.

Rules regarding doctrine of quantum meruit:


a. When one party abandons or repudiates the contract.
b. When service is provided and accepted under a void contract.
c. In cases of termination of contract by mutual agreement.
d. Q.M. claim by the breaching party.
e. The breaching party cannot claim on Q.M. if the contract is not divisible.
f. The breaching party will not be awarded quantum meruit.
Cases: Lumley v. Wagner (1892): In this case, Lumley, a builder, agreed with Wagner to construct a hotel for
a specified sum. However, the parties did not enter into a formal contract. Lumley performed the construction
work, but Wagner refused to pay the agreed sum. Lumley sued Wagner on a quantum meruit basis, claiming
the reasonable value of his services. The court held that Lumley was entitled to recover on a quantum meruit
basis for the reasonable value of the work done, even though there was no formal contract. This case
established the principle that a party who performs services at another's request is entitled to reasonable
compensation for those services, even in the absence of a formal agreement.
Simpson v. Lambeth Borough Council (2012): In this case, Simpson, a surveyor, provided professional
services to Lambeth Borough Council in connection with the refurbishment of council properties. Although
there was no formal contract in place, Simpson performed the services at the request of the council. However,
the council refused to pay Simpson for the services rendered. The court held that Simpson was entitled to
recover on a quantum meruit basis for the reasonable value of the services provided. Despite the absence of a
formal contract, Simpson had performed the services at the council's request, and it would be unjust for him to
receive no compensation for his work.
d. Restitution (Section 538):
The word "restitution" was used in the earlier common law to denote the return or restoration of a specific thing
or condition. In modern legal usage, its meaning has frequently been extended to include not only the
restoration or giving back of something to its rightful owner and returning to the status but also compensation,
or reparation for benefits derived from, or for loss or injury caused to, another. The remedy of restitution is
based on the Latin principle ‘restitution in intehrum’. It means returning everything to the state as it was before.
Broadly, it means return to the aggrieved party of the consideration or its value, which he gave to the other
party.
For Example: Mr. B entered into a contract with SB Pvt. Ltd for the purchase of 70 tons of rice. Mr. B paid an
advance of Rs. 30,000. Later at a future date, the company rescinded the contract due to some internal issues.
Now, in this case, the contract becomes void and the company must return Rs. 30,000 to Mr. B.
Cases: Moses v. Macferlan (1760): In this case, Moses had paid money to Macferlan to invest in the South Sea
Company. However, Macferlan failed to invest the money as agreed and instead used it for his own purposes.
Moses sued Macferlan to recover the money on the basis of unjust enrichment. The court held that Moses was
entitled to restitution because Macferlan had been unjustly enriched at Moses' expense. This case established the
principle of restitution, which allows a party to recover the value of benefits conferred on another party in
unjust circumstances, such as where a contract is void or unenforceable.
Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour Ltd (1943): In this case, Fibrosa, a Polish
company, entered into a contract with Fairbairn Lawson, an English company, for the supply of machinery.
Fibrosa paid a deposit, but before the machinery was delivered, Poland was invaded by Germany, rendering
performance of the contract impossible. Fibrosa sought restitution of the deposit. The House of Lords held that
Fibrosa was entitled to restitution of the deposit. The contract had become frustrated due to an unforeseen event,
and it would be unjust for Fairbairn Lawson to retain the deposit without providing the agreed-upon machinery.
e. Specific performance (sec 540.1&2):
Carrying out the performance according to the terms of Contract. The injured party is entitled to sue for
specific performance of the contract in certain conditions. In the case where the damages are not an adequate or
sufficient remedy to the aggrieved party, the court may issue an order or direction to fulfill the obligation to the
breaching party. The order of specific performance is a positive order or it directs to do something to the
breaking party for performing the promised work.
Example: A agrees to sell B a painting of Monalisa for Rs. 4,00,000/-. Subsequently, A refuses to sell the
painting. Here, B may sue for the specific performance of the contract.
Specific Performance Divided into:
1. Specific performance for the sale of personal property
2. for the real property:-

In Anglo American common law (smith and Robertson pg. 331) specific performance is not granted if -
1. There is an adequate remedy at law
2. It is impossible to enforce them
3. The seller has already sold the subject matter of the contract to an innocent third person
4. The contract is without consideration
5. Consideration is grossly inadequate
6. Contract is tainted with fraud, co-ercion, undue influence or other defect
7. The plaintiff is ready and able to perform
8. If the money damages are enough.

Unlike in continental legal system where an innocent party generally has a right to have the contract specifically
performed (Anson 633) but in English law it is a remedy in equity i.e. it is supplementary to the remedy of
money damages. Only in cases when grant of money damage is grossly inadequate as a remedy and the injured
party is without any adequate remedy at law. Only then suit for specific performance of the contract as an equity
remedy is entertained.
Cases: Beswick v. Beswick (1968): In this case, a nephew, Peter Beswick, agreed to purchase a coal business
from his uncle, William Beswick, in exchange for periodic payments to William's widow after his death. After
William's death, Peter refused to make the payments to the widow as agreed. The widow sought specific
performance of the agreement. The court granted specific performance, ordering Peter to make the payments to
the widow as stipulated in the agreement. Specific performance was deemed appropriate because monetary
damages would not adequately compensate the widow for the loss of her expected income.
Warner Bros. Pictures Inc. v. Nelson (1937): In this case, Bette Davis, an actress under contract with Warner
Bros. Pictures, refused to perform in a film as required by her contract. Warner Bros. sought specific
performance to compel Davis to fulfill her contractual obligations and perform in the film. The court granted
specific performance, ordering Davis to perform in the film as stipulated in her contract. Specific performance
was deemed appropriate because Davis's unique talents were integral to the film, and monetary damages would
not adequately compensate Warner Bros. for her non-performance.
f. Injunction (Sec. 541):
Injunction means an order of the court restraining (ordering) a person to refrain from doing something which he
promised not to do. The injunction is an order of the court to stop the contrary action to the contract of the
breaching party. It is also called preventive relief or stay order. An injunction is a Court order which orders a
company or person to stop doing (called a "prohibitory injunction") or to do (a "mandatory injunction") a
particular act or thing. This is also an equitable remedy to relieve the aggrieved party and the grant of an
injunction by the court is based on its discretion. This is only issued in the form of negative order (or not to do
the challenging thing or for restraining to do something).
For example: A lets certain land to B and B contracts not to dig sand. A may sue for an injunction to refrain B
from digging if B starts digging the land or violates the contract.
Injunctions are of three kinds -
1. Prohibitory injunction- (Lumley v Wagner)
2. Mandatory injunction-
3. Interlocutory or interim
Cases: American Broadcasting Companies, Inc. v. Aereo, Inc. (2014): In this case, American Broadcasting
Companies (ABC) sued Aereo, a company that streamed broadcast television content over the internet without
authorization, alleging copyright infringement. ABC sought a preliminary injunction to halt Aereo's
unauthorized streaming pending the outcome of the trial. The Supreme Court granted the injunction, holding
that Aereo's activities likely constituted copyright infringement and that ABC would suffer irreparable harm if
the injunction were not granted. The injunction effectively prevented Aereo from continuing its unauthorized
streaming operations until the trial concluded.
Apple Inc. v. Samsung Electronics Co. (2012): In this high-profile case, Apple sued Samsung for patent
infringement related to smartphone technology. Apple sought a permanent injunction to prohibit Samsung from
selling certain smartphone models found to infringe on Apple's patents. Although Apple initially succeeded in
obtaining a permanent injunction from the district court, the injunction was later overturned by the Federal
Circuit Court of Appeals. The appellate court held that the district court had abused its discretion in granting the
injunction, as Apple had not demonstrated that it would suffer irreparable harm without it.
Nepalese cases- NB hotel v Taj hotel, Lallan PD shah v DDC Parsa NKP 2067 verdict date 2066/2/10 etc
g. Arbitration
Arbitration in the context of breach of contract refers to a method of dispute resolution where the parties to a
contract agree to submit their dispute to an impartial third party, known as an arbitrator or arbitration panel,
instead of pursuing litigation in court. In cases of breach of contract, arbitration provides an alternative means
of resolving disputes without resorting to traditional court proceedings. When a breach of contract occurs, and
the parties have included an arbitration clause in their contract, they are bound by the terms of that clause.
Typically, the arbitration clause outlines the procedure for initiating arbitration, selecting arbitrators, conducting
the arbitration proceedings, and rendering a final decision or award.
AT&T Mobility LLC v. Concepcion (2011): In this case, customers sued AT&T Mobility over allegedly
fraudulent charges on their bills. AT&T invoked the arbitration clause in its contracts, which required disputes
to be resolved through individual arbitration rather than class action lawsuits. The customers argued that the
arbitration clause was unconscionable under California law. The Supreme Court ruled in favor of AT&T,
holding that the Federal Arbitration Act preempted state laws that invalidated arbitration agreements on the
grounds of unconscionability. The decision reaffirmed the enforceability of arbitration agreements, particularly
in the context of consumer contracts.
Stolt-Nielsen S.A. v. Animal Feeds International Corp. (2010): In this case, parties to a commercial contract
disagreed over whether their arbitration agreement permitted class arbitration. Animal Feeds International
sought to compel class arbitration, while Stolt-Nielsen argued that the agreement only allowed for individual
arbitration. The Supreme Court held that the arbitration panel had exceeded its authority by allowing class
arbitration when the agreement was silent on the issue. The Court emphasized the importance of party consent
in arbitration and held that class arbitration could not proceed absent explicit agreement by the parties.

4. CONCLUSION
Breach means violation of law. A breach of contract occurs when a party thereto renounces his liability under it,
or by his own act makes it impossible that he should perform his obligations under it or totally or partially fails
to perform such obligations. The person injured by a breach of contract can claim damages from the other party
for compensating the loss suffered. When a there is breach of contract, the injured party has one or more of
remedies including, suit for rescission, damages, injunction, specific performance, and quantum meruit. Mostly,
breach of contract is cause by the terms which are not clear in the contract. It is vital to make sure that the
parties are clear with the terms and regulations in the contract so that there will not have a breach of contract.

5. REFERENCES
1. Addis V. Gramophone Co. Notes. (n.d.). Retrieved from
https://www.oxbridgenotes.co.uk/revision_notes/bcl-law-oxford-commercial-remedies-bcl/sa mples/addis-v-
dot-gramophone-co
2. Quantum Meruit - Definition, Examples, Cases, Processes. (2015, October 05). Retrieved from
https://legaldictionary.net/quantum-meruit/
3. Remedies in contract law. (n.d.). Retrieved from http://e-lawresources.co.uk/Contract-remedies.php
4. CA. Sunil Joshi & CA. Mahesh Gyawali ‘Study Notes on Mercantile Laws for CAP-I’
5. REMEDIES_FOR_BREACH_OF_CONTRACT.pdf
6. Anson, ‘Contract Law’

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