Group 13Narendra Reddy Yaddula

Sachin RaneSoumen Sarkar

Suman Surendranath Murmu Rohan Mishra

Classification of Contracts & Remediesfor Breach of Contract

Classification According to Validity

Valid ContractAn Agreement that is enforceable at lawCompliance with essential elements in Indian

Contract LawVoid Contract

A contract which ceases to be enforceable by lawA valid contract becomes void due to impossibility

or illegalityA contract cannot be void right from the time of

its formation – void ab initioVoidable Contract

A contract, which can be put to an end at the options of some of the parties to the contract

If the parties opt not to avoid the contract, it is as good as a valid contract

Voidable Contracts Contd..A contract becomes voidable

When the consent of one or more parties (aggrieved parties) is obtained through coercion, fraud or undue influence

When a contract contains reciprocal promises and one party prevents the other from performing promise

When a party fails to perform a contract in the specified time

Status of a voidable contractWhen a party at whose option a contract is voidable decides

not avoid the contract, the contract is as good as validWhen the party decides to avoid such contract

The contract comes to an endThe aggrieved party can claim compensation, if anyThe aggrieved party is liable to restore any benefits received under

the contract

Classification According to Formation

Express ContractTerms of contract expressly agreed upon at the time

of formation of contractExpress Promise - Offer or acceptance made in wordsExpress promise results in an express contract

Implied ContractInferred from the acts or conduct of the parties or

course of dealings between themMay results from continuing course of conduct of the

partiesImplied Promise - Proposal or Acceptance made with

means other than wordsQuasi-Contract

Created by lawLegal obligation imposed on a party to perform itRests on the ground of equity that “a person shall

not be allowed to enrich himself unjustly at the expense of others”

Classification according to performance

Executed ContractA contract where all parties to the contract have

performed their obligations under the contractExecutory Contract

A contract where all parties to the contract have not yet performed their respective obligations under the contract

Bilateral ContractA contract where both the parties in the contract

are bound when the contract is madeObligations of both parties are outstanding

Unilateral ContractA contract where only one party has to fulfill his

obligation at the time of formation of the contract

Breach of Contracts

Breach of contract occurs whenAny party to the contract fails to perform his

part of the contractAny party to the contract makes it impossible for

the other party to perform his obligation under the contract

Breach of contract may occur in two ways –Anticipatory Breach of Contract

A party declares his intention of not performing the contract before the performance is due

Actual Breach of ContractOn Due Date of PerformanceDuring the Course of Performance

Rescission of the Contract

In case of breach of contract by one party, the other party may rescind the contract

The aggrieved party may sit quietly or take legal action

Filing a suit for rescission of the contract necessary if the aggrieved party intends to sue the guilty party for damages

What are Damages

Damages are monetary compensation allowed to the injured party for the loss suffered by him as a result of the breach of contract.

It is compensation, not punishmentTries to put the injured party into the

position in which he would have been had there been performance and not breach.

Different Kinds of DamagesOrdinary damagesSpecial damagesExemplary damagesNominal damages

Ordinary damagesAKA General or CompensatoryThe injured party can always recover

ordinary damages from the guilty“direct or proximate consequences”

of the breach of contract“remote or indirect losses” are not

consideredExamples

Hadley vs. BaxendaleInability to repay debt on timeInability to supply goods

Sale and PurchaseDamages is the difference between the

contract price and market priceElse, market price of nearest substituteElse, price at point of purchase + conveyance

charges + normal profitIn case of instalments market price on the day

of the instalments are consideredExamples

Contract price of rice=Rs 500; Market price=Rs 550; No: of bags decided = 5

Damages = (550-500) * 5 = Rs 250Contract price of bike = Rs 60,000; Actual market

price received = Rs 52,000Damages = 60000-52000 = Rs 8000

Special DamagesCovers remote losses, which are not naturalCannot be claimed as a matter of rightCan only be claimed if the circumstances were

brought to the notice of the other party at the time of entering the contract

ExampleContract price (between A and B) for 1 ton iron = Rs 800

Contract price (between B and C) for 1 ton iron = Rs 1000Market price = Rs 900Total tons = 100Damages = (1000-800) * 100 = Rs 20000

Contract between ‘A’ and ‘B’ to build a house to rent it to ‘C’If house is not built as per agreement then Damages = cost of rebuilding incurred by ‘A’ + rent lost

by ‘A’ + any compensation paid to ‘C’

Exemplary or Vindictive DamagesAwarded as punishmentNot as a compensationThese damages can be claimed only in 2

casesBreach of contract to marry

Depends on the extent of injury of feelings, loss of reputation, marriage prospects

Dishonour of a cheque by a banker when there are sufficient funds to the credit of the customerSmaller the cheque, greater the damagesDepends on status of the party

Nominal DamagesNeither compensation nor punishmentUpholds the rights and obligationsAwarded when the injured party has not

suffered any real damageAmounts may be just Rs. 1 or 2Example

When market price and contract price are equal

Duty To Mitigate Damage SufferedIt is a duty of injured party to mitigate damage

suffered because of breach of contact by the other party

Injured party can not recover any part of damage, which happened because of his negligence to mitigation

Can be proved by the defendant that the plaintiff has failed in his duty of mitigation The plaintiff is free from the burden of proving that

he tried to mitigate the loss

Illustrations a) A servant is dismissed, even though wrongfully, it

is his duty to mitigate the damages by seeking another job.

He can recover only nominal damages if refuses another job

In case he tries to mitigate the damage, then he will be entitled to full salary for the whole period of service as per the contract

b) A took a shop on rent from B and paid one month’s rent in advance but B couldn’t give possession of the shop to A. A chose not to do any business for next 8 months and sued B for breach of contract.

He will be entitled only to a refund of his advance because he had failed in his duty to mitigate the damage

Liquidated Damages And PenaltyLiquidity Damages

A sum fixed up in the advance, which is a fair and genuine pre-estimate of the probable loss

PenaltyA sum fixed up in advance, which is extravagant and

unconscionable in amount with the greatest loss that could be happened because of breach of contract

According to the Act, the Courts are not bound to treat the sum mentioned in contract as the sum payable for damages

And the mentioned sum is the maximum limit of liability in case of breach

If according to the contract Rs. 1000 is fine for delaying the supply then, the compensation amount claimed can not exceed Rs. 1000

Cost Of Suit

The aggrieved party is entitled to get the cost of suit, i.e the cost of getting the decree for damages done by the defaulter party

This amount is other than the compensation for damages

The cost of suit for damages is decided by the Court

Summary Of The Rules Regarding The Measure Of DamagesDamages awarded to the aggrieved party is the

compensation for the loss and not for the punishment of guilty party

The injured party is to be placed in the same position, with the help of money, as if the contract had been performed

The aggrieved party can recover when the loss arising naturally in the usual course of things after breaching

Special or Remote damages are usually not allowed until they are in the knowledge of both the parties at the time of entering into the contract

Summary Of The Rules (contd.)

The injured party can recover the damages

irrespective of the difficulties to assess them

Nominal damages are awarded in case of no real loss

The Court will allow only reasonable compensation to

cover the actual loss even in case of ‘Liquidated

Damages and Penalty’

Exemplary damages can not be awarded except for Breach of a contract to marry

Dishonour of a cheque by a banker even if there are sufficient

funds

Duty of injured party to minimise the damage suffered

The injured party is entitled to get the cost of suit

Suit upon Quantum MeruitQuantum Meruit: “as much as is earned”

or “in proportion to the work done”Usual causes are violation of contractual

terms by a party after part performance, or the contract is discovered void

Aggrieved party may file suit and claim payment in proportion to work done or goods supplied

Quantum Meruit due to default of defendant

The contract has been discharged due to default of defendant Example (a) P agreed to write a volume on ancient armour to be

published in a magazine owned by C. For this, P was to receive 100 pounds on completion. When P had completed part of the work, but not the whole, C abandoned the magazine. P was held entitled to get damages for breach of contract and payment quantum meruit for the part already completed (Planche vs Colburn).

Example (b) A, engages B, a contractor, to build a three storied house. After a part of the house 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.

The claim is in addition to that for damages for breach of contract

Quantum Meruit due to contract being void

(a) C was appointed as managing director of a company by the board of directors under a written contract, which provided for his remuneration. The contract was found void because the directors who constituted the ‘Board’ were not qualified to make the appointment. C, nevertheless, purporting to act under the agreement, rendered services to the company and sued for the sums specified in the agreement, or, alternatively, for a reasonable remuneration on a quantum meruit. Held, C could recover on a quantum meruit. (Craven‐Ellis vs Canons Ltd. ).

(b) A contracts with B to repair B’s house at a piece rate. After a part of the repairs were carried out, the house is destroyed by lightning. Although the contract becomes void and stands discharged because of destruction of the house, A can claim payment for the work done on ‘quantum meruit’.

Quantum Meruit : Non gratuitous act leading to benefit

When goods/services or both are provided without intention of gratuity

And the benefits of these are enjoyed by another party (a) A, a trader, leaves certain goods at B’s house by

mistake. B treats the goods as his own. He is bound to pay A for them.

(b) Where A ploughed the field of B with a tractor to the satisfaction of B in B’s presence, it was held that A was entitled to payment as the work was not intended to be gratuitous and the other party has enjoyed the benefit of the same. (Ram Krishna vs Rangoobed).

Quantum Meruit : Claim by guilty party

A party guilty of breach of contract can also sue on a quantum meruit provided:The contract is divisibleThe other party must have enjoyed the benefit

of the part, which has been performed, although he had an option of declining it.

Example:Where a common carrier fails to take a complete

consignment to the agreed destination, he may recover pro‐rata freight. (He will, of course, be liable for breach of the contract.)

Suit for Specific PerformanceSpecific performance: the actual carrying out of the

contract as agreed.Aggrieved party may file a suit, resulting in court

directing the defendant to actually perform the promise

Such a suit may be in addition to or instead of a suit for damages

<missing points>Specific performance not granted in following:

Where monetary compensation is adequateWhere it is not possible for the court to supervise

execution of the contractWhere the contract is for personal services (in such

cases “injunction” is granted instead of specific performance)

Suit for Injunction

Injunction: Order of the court restraining a person from doing a particular act

Mode of securing specific performance of negative terms of contract (a party can be in breach of negative terms of contract) (a) A, agreed to sing at B’s theatre for three months

from 1st April and to sing for no one else during that period. Subsequently she contracted to sing at C’s theatre and refused to sing at B’s theatre. On a suit by B, the court refused to order specific performance of her positive engagement to sing at the plaintiff’s theatre, but granted an injunction restraining A from singing elsewhere and awarded damages to B to compensate him for the loss caused by A’s refusal. (Lumley vs Wagnerl)

Another Illustration of Suit for Injunction

(b) G agreed to take the whole of his supply of electricity from a certain company. The agreement was held to import a negative promise that he would take none from elsewhere. He was, therefore, restrained by an injunction from buying electricity from any other company. (Metropolitan Electric Supply Company vs Ginder).

Thank You