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This article is written by Raj Chourasia, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from Lawsikho.com.

Contract

Every day we are dealing in day to day life, everybody we are buying a product from the shop and we are purchasing goods from an online store, signing the terms and conditions online or offline directly or indirectly which is regulated by the rule of contract law. 

In the Indian Contract Act, 1872 defines the term contract under Section 2(h) “An  Agreement enforceable by law is a contract”. A contract is an agreement which is enforceable by law, between one or more than one parties to create a legal obligation between party and parties. When one or more than one party comes to enter into a contract to perform the same thing and the same senses to achieve a common goal. In contract, both parties enter into consideration to perform the contract. When parties to the agreement agree to give up on something to get something in return, this something in return called the consideration without consideration there are no contracts. 

Breach of Contract

Section 39 of the Indian Contract Act, 1872 defines the term of Breach of Contract in the Indian contract Act. This section states that when a party has refused to do or non-performance his promises in contract, omit to do or disable himself from performing his promise, this promise may put an end to the contract, unless he has signified by words or conducted his acquiescence in its continuance. This means if one party has promised to perform his promise in a contract and is legally binding to perform that promise if the party fails to perform that promise then he creates Breach of Contract. 

Example:

A is science professor is specialized to teach 8 to 10th standards student, he enters into a contract B, who is an owner of Manoj Classes in Mumbai, B offer proposal for teaching student in B classes every Saturday and Sunday till next 4 week, A accepts B’s offer and came into a legal binding and enter into a contract, in consideration A will get 1100 rupees per class lecture. On 4th week A was wilfully absent from their class without intimate B. A is not performing his promises in the contract then B has the liberty to put an end to the contract.

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Provision Governing Breach of Contract

Section 73 to 75 defines the Consequences of Breach of Contract in the Indian contract Act, 1872 which deals with the consequence of Breach of Contract. 

  • Compensation for damage due to breach of contract (Sec 73)

When one party can break the contract and another party can suffer by such breach of contract then it is an obligation to get and receive from another party who broke the contract. 

Those compensation will not be given for any remote and indirect damages because of the breach. 

This means when the contract was broken the party suffers a loss from the broken contract is entitled to receive compensation from who broke the contract and such compensation is not to be given any remote and indirect loss which is sustained because of the breach. 

Example:

A contract to buy B house for Rupees 50,00,000/- but breaks his promise. A must pay to B, by way of the compensation to B. 

  • Compensation for failure to discharge obligation of contract. 

When a contract is made between parties then who are injured by the failure to discharge, it is entitled to receive the same as the form of compensation. 

Explanation – In damage arising from a breach of contract, the inconvenience caused by the non-performance of the contract.

Example:

A has entered into a contract with B to repair his farmhouse in a certain manner and receive the payment in advance. Not as per contract, B is entitled to recover from A the Cost of Repair. 

  • Compensation for breach of contract where penalty stipulated (Section 74)

When a contract is made between parties then who are injured by the failure to discharge, it is entitled to receive the same as the form of compensation. The penalty and amount should be paid in case of such breach which is not exceeding the amount the penalty stipulated.

Explanation — A stipulation for increased interest from the date of default may be a stipulation by way of penalty.

Example: 

A contract with B to pay B Rs. 68,00,000/-  if he fails to pay B Rs. 34,000/- on a given day. A fails to pay B Rs. 34,000/- on that day. B is entitled to recover from A such compensation, not exceeding Rs. 68,00,000/- as the court considers reasonable. 

  • Party rightfully rescinding contract entitled to compensation (Section 75)

A person who rightly rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract. 

Example:

A is maths professor are specialized to teach 8 to 10th standards student, he enters into a contract B, who is an owner of MJ Classes in Mumbai, B offer proposal for teaching student in B classes every Saturday and Sunday till next 3 week, A accepts B’s offer and came into a legal binding and enter into a contract, in consideration A will get 1000 rupees per class lecture. On 3rd  week A was wilfully absent from their class without intimate B. A is not performing his promises in the contract then B has the liberty to put an end to the contract.

Remedies for Breach of Contract 

Every problem there is some remedy available the same as in breach of contract there are five types of remedy available.

  • Money Damages 

Money Damages is a Damages information of Monetary Damages which the breaching party has to give to another party for breaking the contract or violating the terms or conditions of the contract. If its total breach, the plaintiff can recover the sum of total value, however, if its total breach the plaintiff can recover sum which is equal to the amount. There are different types of damages such as Compensatory Damages and Punitive Damages. 

  • Restitution 

Restitution is a remedy in contract for use to restore the injured party to the position occupied before the contract. For instance, the defendant is used to return or give back any money or property received form the plaintiff. In other words, the same as Restitution is not used to compensate the plaintiff because of the breach of contract. 

  • Rescission

Rescission is a remedy used in breach of contract in contract act, Rescission defines that contract which is terminated by the order of the court, this remedy use when the parties enter into a contract because of fraud, undue influence or mistake there is the only way to do justice is that to terminated the contract. 

  • Reformation

Some time in contract reformation remedy may be used in which the court can reform or change the contract to correct any inequities. In this instead of setting aside the entire contract, only terms of the contract may be rewritten to do justice.

  • Specific Performance 

This Specific Performance remedy is used in the contract when the monetary damages are not adequate to compensate the plaintiff, this remedy is used when in the case which involves giving a piece of land or a valuable item to the plaintiff. 

Damages

In Contract where two or more than two parties can come to enter into a contract to perform certain object when one party cannot perform his obligation then its create breach of contract and another party can suffer loss from this injury, damages or losses are either in monetary form or specific performance that injured party can claim damages from another party. 

Kinds of Damages

  • Compensatory Damages

Compensatory Damages are damages in breach of contract in the form of monetary form, whose party suffers can get monetary damages in compensatory damages. 

  • Expectation Damages

This means that whatever injured party expected to obtain from the contract on the terms and conditions of the contract. 

  • Consequential Damages

Consequential damages remuneration an injured party for any indirect damages outside of what was covered in the contract. 

  • Liquidated Damages

Liquidated Damages are damages that the state specifically put into a contract when damages are difficult to  and estimate are necessary to breach of damage. 

  • Punitive Damages

Punitive damages are damages based to punish a breaching party and parties from committing a breach of contract. 

  • Nominal Damages

Nominal Damages are a very small amount when the injured party did not suffer heavy monetary loss. 

  • Ordinary or General Damages

These damages are ordinary and general types of damages which damages are very normal or general. 

  • Equitable Remedies

In some cases the injured party’s face losses are not fully filled by in the terms of monetary damages, monetary damages are unable to compensate the aggrieved party in this case, Equitable remedy is awarded by the court to ordering a party or parties to act or not act in a certain way. 

  • Special performance

This Specific Performance remedy is used in the contract when the monetary damages are not adequate to compensate the plaintiff, this remedy is used when in the case which involves giving a piece of land or a valuable item to the plaintiff. 

  • Contract rescission

The old contract was cancelled and a new one is drawn up. 

  • Contract reformation

The new contract was rewritten to reflect the true and factual intent of parties. 

Under English Law

Contract is under English law more defined in that information CLICK HERE for more about English Law in contract. 

Under Indian Law

Contract under Indian law is more defined in that information CLICK HERE for more about Indian law in the contract. 

Difference Between Contract under English Law and Contract under Indian Law

Limitation of Liability

In Indian law: A limitation of liability clause is generally valid and enforceable under Indian law, except that limitation on liability arising because of death or personal injury. Fraud or gross negligence are not enforceable. Additionally the limitation of liability provision must be reasonable and not amount to a penalty to be enforceable. Section 73 of the Indian Contract Act defines the terms of recovery of loss like compensation for any loss or damage from who broke the contract.

In English Law: The position is, therefore, similar to English law.

Case law: Hadley v/s Baxendale

In English Law: we are used to describing the second part of Hadley v/s Baxendale. Loss does not arise naturally from the breach but must still have been within the reasonable contemplation of the parties when the contract was made as indirect law.

The British sugar case, “Consequential loss” does not mean that loss flowing always naturally as a consequence of a breach, which might seem the obvious meaning, but loss “over and above that which arises as a direct result of the breach.”

In Indian Law: It is better not to use that expression to avoid classifying the loss as an irrecoverable loss under Section 73, unless that is positively what is intended.

Liquidated Damages

As per Section 74 of the Indian Contract Act, defines section 74 that if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other penalty, the party complaining of such breach is entitled to whether actual damage or not should be proved to receive from the party who broke the contract that reasonable compensation is not exceeding the amount so named or the case may be the penalty stipulated in which that burden of proof of loss or damage should be always who wants compensation from whom the contract is broken.

In English Law: If the parties have agreed that the sum is a genuine and pre-estimate of damage or loss has suffered then that sum is generally awarded and the act defines that the plaintiff does not have to lead with evidence to prove his actual loss. That plaintiff has to show that he has some legal injury and it is open for the defendant to contend that reasonable compensation In which the claimant is entitled should be less than the stated amount which is likely considered by the court when it is difficult to show the actual damage suffered by the claimant.

Their circumstance is that the liquidated damages provision may be treated as valid, but the plaintiff still not recover the specified amount but instead receive a level of reasonable compensation as determined by the courts not exceeding the stated liquidated damages.

In Indian Law: Indian law does not draw the same distinction as English law between a valid liquidated damages provision and an invalid penalty clause and as per section 74 of the Indian contract Act defines that section and says that they are both to be treated in the same way, the exercise in each case is to determine the reasonable compensation entitlement.

In English Law: In English law we would avoid any use of the expression “Penalty Clause” in our drafting.

Case Law: Maula Bux V/s Union of India (1969) and Oil & Natural Gas Corporation V/s Saw Pipes (2003) in these cases seems that liquidated damages provisions must be drafted and any calculation of liquidated damages should be easy to follow and the claimant ought to be prepared to demonstrate that the amount was a genuine pre-estimate of the loss or damage likely to be suffered if he is not at risk of the court determining a level of reasonable compensation below the stated liquidated damages.

Restrictive Covenants

In Indian Law: In Indian Contract provides a provision that contract will not be enforceable to the extent that it is restraining a person from exercising a lawful profession like trade and business. That Non-Solicitation and Non-Compete provision both fail into this category; this is an exception in the Indian Contract Act. Indian Court will enforce a restrictive covenant which does not constitute an unlawful restraint of trade.

Case Law:

Niranjan Shankar Golikari V/s Centre for Spinning and Manufacturing Company Limited. In this case, the supreme court can give restriction that employee was not to reveal or misuse any trade secrets that the employee had learned during the period of his employment.

Krishna Murgai V/s Superintendence Company of India (1979) this case states that restraints imposed on the employee to operate after the expiry of his period of service was prima facie void.

Data Protection

In Indian Law: In India there is no requirement for a contract under which personal data will be processed in any manner to address, that is no data protection legislation in India that if the contract does not include any such provision then there will be no obligations on the parties.

In English Law: Which lacks a statutory framework for data protection nevertheless expects standards of data security to be met.

Conclusion

When one or more than two parties can enter into an agreement that is enforceable by law and create a contract both parties are binding to fulfill his promises in this contract. If one party fails to perform his duty and breach the contract then the other party can suffer loss form this breach of contract, above here we can discuss which factors to be considered while assessing damages a breach of contract. There are so many remedies available for breach of contract. 


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