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CHAPTER- 6 REMEDIES FOR BREACH OF CONTRACT

When one of the parties makes a breach of contract, the following remedies are available to the other party:

1. Damages: Remedy by way of damage is the most common remedy available to the injured party to recover
compensation for the loss suffered by him due to the breach of contract, from the party who causes the breach.

2. Quantum Meruit: When the injured party has performed a part of his obligation under the contract before the
breach of contract has occurred, he is entitled to recover the value of what he has done, under this remedy.

3. Specific Performance and injunction : Sometimes a party to the contract instead of recovering damages for the
breach of contract may have recourse to the alternative remedy of specific performance of the contract, or an
injunction restraining the other party from making a breach of the contract.

DAMAGES

Provisions of the Indian Contract Act, 1872 makes the following provisions regarding the right of the injured party to
recover compensation for the loss or damage which is caused to him by the breach of contract.

“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.”
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the
breach

Illustration I: A contracts to sell and deliver 50 maunds of saltpetre 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 saltpetre of like quality at the time when
the saltpetre ought to have been delivered.

Illustration II: A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a
stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so for the
purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and
B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which A would have made
by the performance of his contract with B.

Types of damages
1. Ordinary Damages or General Damages : Damages that arise in the ordinary course of events from the breach of
contract are called ordinary damages. Damages arising out of natural and probable consequences of breach of contract
are also considered an ordinary damage. General damages are such damages, which the law presumes from the breach
of the contract.

Example I: 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.

They constitute the direct loss suffered by the aggrieved party. They are measured by estimating the ordinary loss
caused by the breach of contract. As per law, compensation is not to be given for any remote or indirect damage.

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2. Special Damages : Special damages are those damages that are payable for the loss arising on account of some
special or unusual circumstances. That is, they are not due to the natural and probable consequences of the breach of
the contract. Indirect loss experienced by the affected party out of breach of contract is treated as special damage.

Example I: 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.

3. Exemplary or Vindictive Damages: These damages are awarded against the party who has committed a breach of
the contract with the object of punishing the erring as defaulting party and to compensate the aggrieved party.
Generally, these damages are awarded in case of action on lost or breach of promise. E.g., breach of contract to marry,
dishonor of cheque by the bank without any proper reason.

Example I: A libel was committed by an author and its publisher against a distinguished naval officer. The officer
sued for damages. He was awarded £ 15, 000 compensatory and £ 25, 000 exemplary damages against both
defendants.

4. Nominal damage: Nominal damages are awarded to the aggrieved party when there is only technical violation of
the legal rights. Here no substantial loss is caused. 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.

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.

Remoteness of Damage (This is to determine whether the damage is the proximate or the remote consequence
of the breach of contract )

On the breach of a contract such damages can be recovered :

1) as may fairly an reasonably be considered arising naturally, i.e., according to the usual course of things from such
breach; or,
2) as may reasonably be supposed to have been in the contemplation of both the parties at the time they made the
contract
I
CASE-I A’s mill had been stopped due to the breakage of a shaft. The broken shaft had to be sent to the makers
at Mumbai port as a pattern for preparing the new one. B who were common carriers agreed to carry the
broken shaft to Mumbai port. The information given to the carriers was that the article to be carried was the
broken shaft of a mill and A were the millers of that mill. Due to B’s negligence, the delivery of the shaft was
delayed. Due to this delay, the mill remained stopped for a longer time. A brought an action to recover
damages for the loss of profits arising out of the delay.

It was held that it could not be contemplated that the mill would be stopped in usual course of things, by
sending the shaft , as the millers might have another shaft in reserve. Moreover, the special circumstances
were not communicated by A to B. A was not entitled to recover the loss

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Measure of Damages
Damages are compensatory in nature. The object of awarding damages to the aggrieved party is to put him in same
position in which he would have been if the contract had been performed.

Example: A agrees to supply B a watch on 1st January for Rs. 1,000. If A fails to supply the watch and the market price
of the watch on that date is Rs. 1,200, B will be entitled to recover from A Rs.200 as damages. The reason is that the
loss suffered by the buyer is Rs.200 because due to rise in the market price of the watch, he will have to pay that much
extra if he purchases the watch from the market. Similarly, if the buyer(B) refuses to take the watch on the due date,
the seller will also be entitled to recover the difference between the contract price and the market price on 1st January.

Q.1 A party who suffers loss as a result of breach of contract can, in the usual course, claim

(A) Ordinary damages

(B) Exemplary damages

(C) Special damages

(D) Penal damages

Q.2 "Exemplary Damages" is related to

A. Damages awarded to set an example

B. Damages for loss arising in special circumstances

C. Damages fixed by the court in ordinary circumstances

D. None of these

Q.3 If the terms of the contract are not fulfilled, the law will endeavour so far as money can go, to place
the aggrieved party

(A) In a position more advantageous than that which would have arisen had the contract been
performed.

(B) In the same position as if the contract has been performed.

(C) In the equal position as if the contract has not been performed

(D) To status-quo

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PRACTICE SET- VI
Q.1 LEGAL PRINCIPLE: 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. Such compensation is not given for any remote or indirect loss or damage
sustained by reason of the breach. Decide, whether and to what extent B is entitled to damages in the following
situation:

FACTUAL SITUATION: A contracts with B to sell him 1,000 tons of iron at Rs. 100 per tonne. B tells A that he needs the
iron for export purposes, and that he would be selling the iron at Rs. 200 per tonne. A breaks the contract. When the
question comes about damages, A says he will pay only Rs. 5,000 as damages because the same variety of iron was
available in the market at Rs. 105 per tonne. B however contends that he should be given Rs. 1,00,000 because that
was the profit which he would have made had A fulfilled the contract. B had actually bought the iron at Rs. 110 and
had exported it. B is

(a) not entitled to damages

(b) entitled to Rs. 10,000 as damages

(c) entitled to Rs. 5,000 as damages

(d) entitled to Rs. 1,00,000 as damages.

Q.2 LEGAL PRINCIPLE: In case of a breach of contract, compensation can be awarded for the personal inconvenience
suffered by a party by reason of the breach, 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.

FACTUAL SITUATION: Sunita and Sushmita bought bus tickets for a journey from Adyar to Mandaveli. The bus was to
go to St. Thomas Mount via Mandaveli. However, the driver mistakenly took a wrong direction and the two girls were
dropped at a distance of 2½ miles from Mandaveli on the highway. With no other transportation in sight or a place to
stay, the two had to walk 2½ miles at midnight. Later they filed a case against the bus company and claimed Rs. 5000
as damages for inconvenience caused in having to walk and Rs. 6500 for Sushmita having fallen ill by catching cold
during the night.

DECISION:

a) Both the amounts are liable to be paid because Sunita and Sushmita suffered loss for no fault of theirs.

b) The bus company is liable to pay both the amounts claimed because the loss was suffered on account of the fault
of the bus company and the inconvenience suffered and illness arose was in the normal course of things from breach
of contract.

c) The compensation for inconvenience suffered by being forced to walk at night is liable to be paid by the bus
company. However, no compensation for Sushmita’s illness because this was not expected on account of breach of
contract.

d) The bus company is not liable to pay any amount, because it was the driver’s fault.

Q.3 PRINCIPLE: Damages are payable for breach of contract and the purpose of damages is to compensate him for the
loss suffered and not to improve his position more than what it would have been if the contract had been duly
performed.

FACTS: A wanted to buy a house and he contracted with a surveyor S to inspect a particular house and value it for him.
S surveyed the house and valued it for Rs. 10 lakhs. S, however, failed to notice the defective plumbing system in the
house and had he taken note of it, the house would have been worth only Rs. 8 lakhs. A followed S’s advice and bought

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the house for Rs. 10 lakhs and thereafter spent Rs. 4 lakhs for repairing the plumbing system. He filed a suit against S
claiming Rs. 4 lakhs as damages.

a) A should get Rs. 4 lakhs, because that was the amount that he had to spend finally to make the house worth living

b) A should get Rs. 2 lakhs, since he paid additional Rs. 2 lakhs on account of S’s negligence

c) A should get Rs. 4 lakhs, since that loss was attributable to S’s negligence

d) None of the above.

Q.4 Principle :-When there is breach of contract, the resulting damages will have to be paid by the party breaching
the contract to the -aggrieved party. However, the parties are free to -agree as to damages payable in advance in case
there is breach of contract.

Facts : Mr. Ramesh entered into a contract with Mr. Ramakrishna for selling his green Alto Car for Rs. 3 lakhs. Mr.
Ramakrishna was to pay Rs. 3 lakhs on or before 25' April 2005 and take possession of the car. The party failing to
honour the contract has to pay Rs. 40,000/- as damages to the other party. Mr. Ramakrishna has not performed his
part of the contract. Mr. Ramesh is claiming Rs. 40,000/-.

a) Mr. Ramesh can sell the car in the second hand market and if he suffers any loss, then only he can cl aim that amount
from Mr. Ramakrishna.

b) Mr. Ramakrishna is liable to pay the agreed damages.

c) Mr. Ramesh has to prove that he has suffered Rs. 40,000/- as damages to get it.

d) Mr. Ramakrishna is not liable to pay any damages as Mr. Ramesh has not suffered, any loss.

Q.5 Principle: Special damage is the loss of some material advantage; pecuniary or capable of being estimated in
money which flows directly and in the ordinary course of things from the act of the person who is responsible.

Facts: Raju has been sending his Tourist cars for repairs, maintenance and service to Lakshmi Service Centre, who
promptly attended to all the works during the past five years. However, when Raju sent a new Sumo van for servicing
and minor repairs,; he indicated to the Manager of Lakshmi Service Centre that the vehicle must be delivered; duly
serviced, by 10th August 2006 at 5 PM as three foreign tourists had booked the vehicle for a period of 3 months. The
vehicle was not delivered as required, but was delivered only on 12th August 2006. Raju had lost the contract with the
foreign tourist and a loss of revenue to the extent of Rs. 30,000.

(a) Raju can sue the Lakshmi Service Centre for damages including exemplary or special damages to the extent of Rs.
30,000/-

(b) Raju can sue Lakshmi Service Centre only for ordinary damages for two days delay

(c) Raju cannot sue Lakshmi Service Centre for any damages

(d) Raju can sue the Manager of the Service Centre for damages

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