Breach of Contract | Meaning, Remedies and kinds of Damages with Examples?

BREACH OF CONTRACT 

Meaning 

When a party to the contract fails to perform his obligation under a contract, it is called breach of contract. When one party to a contract breaches the contract, the following remedies are available to the aggrieved party against the guilty party: 

1. Suit for Rescission

A rescission means a right not to perform the contract. When one party refuses to perform his obligation, the other party is discharged from his obligation under the contract. The aggrieved party can file a suit for rescission of contract against the guilty party for breach of contract. When the court grants rescission, the aggrieved party can claim compensation from guilty party. [Sec. 75] 

Example

A contracts to supply cement to B. B agrees to pay the price on receipt of goods. A does not supply. B is discharge from liability to pay. B can rescind and claim damages. 

2. Suit for Damages 

The damages are a monetary compensation awarded by the court to the aggrieved party for the loss suffered by him as a result of the breach of contract. The aggrieved party can claim the following kinds of damages.[Sec. 73]

Kinds of Damages 

a. Ordinary Damages

These damages arise directly as a result of breach of contract. The ordinary damages are usually assessed on the basis of actual loss. In contract of sale of goods, the damages payable are the difference between the contract price and market price at the date of breach. They are also called General Damages. [Sec. 73]

Example 

A agreed to pay Rs. 1 Lac to B on 1st May. A failed to pay on that day. As a result, B is ruined. A is liable to pay B the principle sum and interest on it. 

b. Special Damages 

The special are payable to aggrieved party under some special circumstances. The parties must be aware of the circumstances which may create special damages. These damages include indirect loss which may arise due to breach of contract. The parties must be aware of the loss which may arise from breach of contract. The other party must be informed about the possibility of special damages. [Sec. 73]

Example 

A contract C to buy 1 ton of iron for Rs. 80,000. A also contracts to sell B, 1 ton iron for Rs. 1 Lac. A informs C about the purpose of contract. C fails to supply. As a result, A cannot supply to B. C is liable for loss of profit which A would have earned from B. 

c. Exemplary Damages 

The exemplary damages are awarded not be compensate the aggrieved party, but to punish the guilty party. The breach of contract causes disappointment to the aggrieved party. 

Example 

OS Bank promised to give a loan to W for a trip to California by crediting his account. OS Bank failed to do so and W's cheque was dishonoured. The court allowed exemplary damages for emotional distress. (Westesen vs. Olathe State bank) 

d. Liquidated Damages 

These are the damages which are mentioned in the contract by the parties. In case of breach of contract, the court allows the aggrieved party to recover reasonable damages not exceeding the amount already agreed. If actual loss is more than the agreed amount, damages will be payable to the agreed amount. [Sec. 74]

Example 

A agreed to pay Rs. 20,000 as damages to B, if he failed to pay Rs. 5 Lac on a specified day. A failed to pay on that day. B can recover damages not exceeding Rs. 20,000

e. Nominal Damages

These are the damages which are awarded when the aggrieved party does not suffer monetary loss. They are small in amount. They are awarded to recognize the rights of the aggrieved party. The court has discretion in this case. The court may refuse to award damages. 

Example 

A promises to sell cement to B for Rs. 500 per bag. A does not supply. At the time of breach, market rate of cement is the same. B is entitled to nominal damages. 

3. Suit upon Quantum Meruit

The term quantum meruit means payment in proportion to the work done. When a person has done some work under a contract and the other party cancels the contract or an event happens which makes the performance of contract impossible, such party can claim remuneration for the work already done. The aggrieved party may sue for quantum meruit in the following cases. 

a. When some work has been done and accepted, the contract becomes void before completion 

b. When a person does some act without an agreement about remuneration, and the party enjoys the benefits 

c. When a person does some act with the intention of receiving payment and other party enjoys the benefit. 

d. When one contract is divisible and the party has enjoyed the benefits of partial performance.

e. When one party prevents the other from completion of the contract. 

f. When an individual work is performed badly. 

Example 

B contracts to build a three storey house for A. When one storey is complete, A stops B from work. B can get compensation for week done. 

4. Suit for specific Performance

Specific performance means performing the contract according to the terms of the contract. The court may order the guilty party to complete his obligation according to the terms of the contract. It is a discretionary remedy. It is granted when the aggrieved party satisfied the court that the remedy of damages is inadequate. The aggrieved party can sue for specific performance in the following cases: 

a. When monetary compensation is not an adequate remedy. 

b. When it is difficult to calculate the actual damages. 

c. When compensation in money cannot be obtained. 

Example

B agrees to sell his plot to C, who wants to erect a factory. B commits breach. C sues. The court directs B to perform the contract 

5. Suit for Injunction

It is the order of court by which a party is prevented from doing a particular act which he has promised not to do. Generally, the court issues such order where compensation in terms of money is not an adequate relief. 

Example 

W agreed to sing at Lu's theatre and for no one else. Afterwards, W contracted Z to sing at another theatre and refused to sing for Lu. Held, W could be restrained by injunction from singing for Z ( Lumly vs. Wagner)