Breach of Contract and Remedies

Posted on Apr 13 2016 - 11:47am by Preeti

Breach of Contract and Remedies

 

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 failure to perform or renunciation may take place when the time for performance has arrived or even before that. Thus, breach is of two kinds, viz.:

  • Anticipatory Breach

It occurs when prior to the due date of performance, the promiser absolutely refuses or disables himself from the performance of his obligations. In other words, it is a declaration by one party of his intention not to perform his obligations under the contract. Thus, the anticipatory breach is the premature destruction of the contract, i.e., the repudiation of the contract before due date of performance.

  • Present Breach

When the promiser indicates his refusal to perform his obligation at the time of performance it amounts to a present breach.

REMEDIES FOR BREACH OF CONTRACT

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 the following remedies:

  • Rescission of contract

Rescission of the contract is a remedy that allows the non-breaching party to cancel his or her responsibilities under the contract. This remedy might be available when the contract was based on fraud or a mistake by one or both of the parties. It is also available if both parties prefer to cancel the contract and return any money that had been advanced as part of the contract.

  • Suit for damages

Damages‘ means compensation in terms of money for the loss suffered by the injured party. Burden lies on the injured party to prove his loss.

The damages are divided into two categories:

General Damages: General damages are those which arise naturally in the usual course of things from the breach itself. Another mode of putting this is that the defendant is liable for all that which naturally follows in the usual course of things after the breach.

Special Damages: Special damages are those which arise on account of the unusual circumstances affecting the plaintiff. They are not recoverable unless the special circumstances were brought to the knowledge of the defendant; so that the possibility of the special loss was in contemplation of the parties.

Measure of Damages

 Once it is determined whether general or special damages have to be recovered they have to be evaluated in terms of money. This is the problem of measure of damages and is governed by some fundamental principles.

 Claim for damages is not debt

 A claim for damages arising out of breach of contract, whether for general or liquidated damages, remains only a claim till its adjudication by the court and become a debt only after court awards it. Till then and on the basis of the claim alone, the claimant is not entitled to present a winding up petition of the defendant company on the ground of its inability to pay debts.

Damages are compensatory, not penal

 It is well settled that the governing purpose of damages is to put the party whose rights have been violated in the same position, so far as money can do so, as if his rights have been observed.´

Nominal damages (No loss situation)

 Where the plaintiff suffers no loss the court may still award him nominal damages in recognition of his right. But this is in the discretion of the court. The court may altogether refuse to award any damages or may award even substantial damages. ´The court is competent to award reasonable compensation in case of breach, even if no actual damage is proved or shown to have been suffered in consequences of breach of contract.

 Mitigation of Damages

Section 73 imposes a duty on the party seeking damages to mitigate its loss. The Supreme Court of India has decided that the principle of mitigation does not give any right to a party in breach of contract but it is a circumstance to be borne in mind in assessing damages.

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