What is a Contract?
The Indian Contract Act of 1872, Section 2(h), clearly describes a contract as:
An agreement which is enforceable by law.
To put it another way, a contract is an agreement whose purpose is to establish an obligation. A contract is described as an agreement that allows one person to force another to do or refrain from doing something.
What is Breach of Contract?
If one of the parties fails or refuses to fulfill his or her contractual obligations or promises, the contract is said to be breached or broken.Therefore, when one or more parties fail to honor a binding agreement by failing to fulfill their promises, the agreement is said to be breached.
What are the remedies?
A contract’s parties are legally required to fulfill their respective commitments, so any violation by any side is frowned upon by the law. As a consequence, if one party violates a contract, the law provides the other party with five remedies. He could try to get:
- Recession of contract
- Specific performance
- Quantum merit
The Contract Act regulates damages, while the Special Relief Act of 1963 regulates injunctions and specific performance.
Recission of Contract
When one of the contracting parties fails to fulfill his obligations, the other party has the right to rescind the contract and refuse to meet his obligations. The party who rescinds the contract must recover any benefits he obtained under the contract, according to section 65 of the Indian Contract Act. Section 75 also states that the party who terminates the contract is entitled to damages and/or compensation as a result of the termination.
The Indian Contract Act of 1872, Section 73, establishes four main rules for calculating damages.
When a contract is breached, the party who suffered loss or harm as a result of the violation has the right to demand compensation from the party who violated the contract which inevitably occurred in the ordinary course of things as a result of such violation, or which the parties knew would possibly result from the breach of the contract when they made it.
The fact that Section 73 is founded on a case rule, Hadley v. Baxendale is a little-known fact. The Court stated the well-known rule in this case as follows:
“Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive *in respect of such breach of contract should be either such as may reasonably and fairly be considered as arising naturally, i.e. according to usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.”
The second rule for estimating damages is remoteness of damages. It reads,
“Such compensation is not to be given for any remote and indirect loss or damage sustained by the reason of the breach.”
Damages are calculated based on the party’s real loss. The loss must occur naturally as a result of the violation; or it must be such as the parties knew would occur as a result of the contract’s breach when they made it. As a result, a party is not responsible for a loss that is too remote, that is, one that is not a natural or likely consequence of the breach of contract.
The plaintiff, a tailor, delivered a sewing machine and some clothes to the defendant railway company in Madras Railway Company v. Govinda, to be sent to a place where he intended to carry on his business during an upcoming festival. The products were delayed due to errors made by the company’s staff, and they were not shipped until several days after the festival had ended. The complainant had not given the railway company any warning that the goods had to be shipped within a certain amount of time for any particular reason. The plaintiff’s suit to recover a portion of his projected earnings was dismissed by the Court because the damages sought were too remote.
The third rule is contained in Section 73’s Explanation, which states:
“In estimating the loss or damage arising from a breach or contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.”
As a result, if a railway company fails to deliver a passenger to a specific station after having contracted with him to do so, the passenger is entitled to damages for the inconvenience of having to walk and any reasonable expenses he incurs, such as staying at a hotel, and he may obtain another mode of transportation and charge the railways with that cost if it is a reasonable thing to do so in that particular case. What is unreasonable is for him to charter a special train to avoid waiting and then bill the railway company for the costs.
Specific performance of contracts has been made a law rather than an exception as a result of the Specific Relief (Amendment) Act of 2018. The basic performance of contracts is addressed in Sections 9 to 25 of the Specific Relief Act. Section 10 outlines the circumstances under which a contract’s particular performance will be implemented. Specific performance of a contract can be imposed in two cases, according to this section, at the discretion of the court:
- First, where there is no standard for determining real damages in the event of any party’s breach of contract;
- second, where monetary compensation is insufficient to offer appropriate redress to the injured party. A breach of contract to move immovable property or other property that is not an ordinary item of trade, has special value, or is not readily available in the market is an example of this.
In Vijaya Minerals v Bikash, since manganese and iron ore are not ordinary objects of trade, the Honble Calcutta High Court held that if a contract for the sale of iron and manganese ore from a mine had been made, specific performance of such an act would be permitted.
It was held in Bank of India v. Chinoy, that if shares are freely available in the market, specific performance would not be given. Specific performance would be awarded if shares in a particular company, such as a private company, are not readily available in the market.
Section 14 also sets out the comprehensive rules for contracts that aren’t expressly enforceable. The following are some important examples of such contracts:
- When monetary compensation is insufficient, the contract is terminated.
- Contracts that are contingent on the parties’ personal credentials or will, such as contracts for a singer or dancer to appear on stage.
- Contracts involving the ongoing execution of a task that courts are unable to supervise.
- Contracts that send disagreements to arbitration.
An injunction is specified by Section 36 of the Specific Relief Act of 1963 as an order of a competent court that:
- Forbids the commission of a threatening wrong,
- Forbids the continuation of a wrong that has already begun, or
- Orders the restoration of the status quo (the former course of things).
Order 39 of the Civil Procedure Code 1908 governs temporary or interim injunctions, which are injunctions that last for a set period of time, such as 15 days or until the next hearing date. Such injunctions may be issued at any point during the course of the case.
Permanent or perpetual injunctions, as specified by Sections 38 to 42 of the Specific Relief Act of 1963, are included in the order issued by the Court after a thorough examination of the case’s merits. An injunction like this forbids the defendant from doing something that will breach the plaintiff’s rights in the future.
Mandatory injunctions are issued when it is appropriate to require the execution of such actions that the courts are capable of implementing in order to prohibit the non-performance of a duty. As a result, the Court can grant an injunction to prevent such non-performance as well as to compel the necessary actions to be performed. This injunction applies to any obligation that has been violated. Although temporary-mandatory injunctions are uncommon, they can be permanent or temporary.
An example will help us understand the principle of Quantum Merit. A and B have signed a contract, and A has already completed a portion of it. B prevents him from completing the remainder of his mission. In this case, A is entitled to fair compensation from B for the work he has already performed.
The following are the two most important aspects of this rule:
- One of the parties breaches the contract or prevents the other from carrying it out.
- The person who has already performed a portion of the contract and has been harmed by the violation chooses to be released from further execution of the contract and brings an action to recover the value of the work he has already completed.
It should be noted that if the party has not sustained any injury or damage, no comoensation would be paid. As a consequence, the infliction of damages is a requirement for the enforcement of the quantum merit law. There was a contract in Kamit v. Central Dairy Farm for the respondent to supply 3000 live sheep and goats at the rate of Rs. 786/- per quintal. The plaintiff had put down a deposit of Rs. 2,60,000 as security for the contract’s good results, but he was unable to fulfill his obligations. It was believed that the security had been forfeited. The court decided that the respondent should not forfeit the security sum because he had not suffered any real damages.
A contract is an essential component of trade, business, and day-to-day operations. The Indian Contract Act, 1872, contains contract clauses that make it simple to execute these contracts, and in the event of a violation, the injured party may choose from a variety of options depending on the circumstances. The main aim of these remedies is to bring the injured person back in the same condition as before. The aim of establishing arrangements for the remedies for breach of contract is to ensure adequate relief by damages, quantum merit, specific performance, and injunction.