What is a Contract?

In general, the term contract implies a legally binding arrangement concluded

between the two parties which should include terms and conditions over which
the courts have the power and the responsibility to enforce them.
Breach of Contract
In a general sense, breach is a failure to act in a way that is expected or
promised. Failure to enforce the conditions of a contract, written or oral, without
a legal justification, is a breach of contract. This may include not completing a
job, not paying in full or on time, failure to deliver all the goods, substituting
inferior or significantly different goods, not providing a bond when required,
being late without excuse, or any act which shows the party will not complete
the work. One of the most common reasons for filing lawsuits for damages or
claims for “specific performance” of the contract in court is breach of contract.
The court must meet any of the following conditions in order to support a case
of breach of contract:
1. The contract must have validity. It must include all the necessary
elements of the contract in order for a court to hear it. If all the
necessities are not present, the contract is not deemed to be a valid
contract; the court is therefore not liable for any action.
2. The claimant must prove that the defendant has violated the terms of
the contract.
3. The plaintiff did everything possible for the execution of the contract.
4. The complainant must have given the defendant fair notice of such a
violation. This would prove to be better than an oral warning if the
notice is in writing.
Remedies for Breach of a Contract
A breach of contract arises when a party to the contract renounces its
responsibility under it or, by its own act, makes it difficult for it to satisfy its
obligations under it, or fails to fulfil those obligations in full or in part. A breach
of contract can be Anticipatory or Present. Breach of Contract leads to the
infringement of the rights of the non-breaching party and the breaching party
suffers a loss. Hence, his rights are needed to be restored and he must be
reimbursed. For this, various remedies for breach of a contract are available to
the aggrieved party. Remedies for breach of a contract are based on the Latin
theory that ‘Ubi jus, ibi remedium‘ signifies ‘where there is a right, there is a
remedy.’
The way a court enforces or satisfies a right when any damage or injury is
imposed on a person, accepted by society as a wrongful act, is called a remedy.
Remedies for breach of a contract can be taken into consideration in relation to:
 1. The execution of contracts.
2. The rectification of wrong doings or accidents.
Generally, the solutions for the execution of contracts are by intervention. The
type of these remedies for breach of a contract depends on the terms of the
contract.
Suit for Damages
The term ‘damages’ may be defined as the monetary compensation payable by
the defaulting party to the aggrieved party for the loss suffered by him. The
aggrieved party, may therefore bring an action for damages against the party
who is guilty of the breach of the contract. And the party, guilty of the breach,
id liable to pay damages to the aggrieved party.[1] The primary purpose of
damages is to compensate the complainant and, if the breach of contract did
not occur, put him in the same position he would have held. Accordingly, it
should be noted that the damages are awarded by way of compensation for the
injury suffered by the complainant and not for the penalty of the default party.
In Common Cause v. Union of India[2], the meaning of the term “damages” was
derived by the Supreme Court, as suggested by Mc Gregor at para 127, as follows:
“Damages are the pecuniary compensation, obtainable by success in an action,
for a wrong which is either a tort or a breach of contract, the compensation
being in the form of a lump sum which is awarded unconditionally.”[3]
Essentials of Damages
The three fundamental elements of claims for damages, as pointed out by the
Supreme Court, in Organo Chemical Industries v. Union of India[4]:
• detriment to one by the wrongdoing of another;
• reparation awarded to the injured through legal remedies, and
• its quantum being determined by the dual components of pecuniary
compensation for the loss suffered and often, not always, a punitive
addition as a deterrent-cum-denunciation by the law.[5]
Damages can be described as the disadvantage suffered by a person as a result
of another’s act of default. ‘Injuria’ is an injury that gives rise to a legitimate right
to compensation; if no redress is given by statute, absque injuria or damage
shall take place without the right to compensation. The definition of ‘damage’
in a statute is therefore a matter of great significance. The most prevalent
recourse available to the injured party is compensation by way of damages. It
entitles the injured party to recover compensation from the party causing the
violation for the damage sustained by the injured party due to the infringement
of the contract. The sum of damage is measured by the severity of the breach-
induced failure.
Types of Damages
 I. Ordinary/ General Damages: Section 73 of the Indian Contract Act deals
with general/direct damages; that is, damages which, inevitably,
occurred in the ordinary course of the proceedings as a consequence of
the violation, or which the parties realised (when they entered into the
contract) were likely to result from the breach thereof.
II. Special Damages: The remedy for the special damages inflicted to the
aggrieved party by the special conditions attached to the contract will
be special damages. At the time of making the contract, a party may put
some details about the special circumstances affecting it before the
other party and warn him that if the contract is not properly executed,
due to those special circumstances, he will incur certain specific types of
losses. If the other party continues to sign the contract, it would mean
that it has agreed to be liable for special damages which could be
incurred by the poor performance of its obligations. Compensation for
certain special components. Losses are considered special losses.
o Simpson v. London & North Western Railway Company[6], in this
case Plaintiff, a manufacturer, used his samples of his machinery
to exhibit at agricultural exhibitions. He submitted his samples for
display at New Castle to the Railway Company. He wrote on the
occasion, “Must reach at New Castle on Monday.” On account of
the Railway Company’s incompetence, the samples were only
collected after the show was over. Plaintiff, sought Railway
Company tp provide damages for his loss of exhibition income.
The court held that, because it was aware of specific
circumstances, the railway company was liable to pay these
damages and must have considered that a delay in delivery could
result in such a loss.
o In Govind Rao v. Madras Railway Company,[7] Govind Rao was a
tailor and some sewing machines were sent by rail to a place in
Tamil Nadu. He decided to participate in a fair in the village where
he wanted to stitch clothes and make money. The train, however,
reached after the fair ended. Govind Rao was therefore unable to
participate in the fair. For the loss of income, he sued the railway
company. It was held that he was unable to recover, as the special
circumstances were not brought to the attention of the railway
company at the outset.
III. Vindictive Damages: At time breach of contract by one party not only
results in monetary loss to the injured party but also subjects him to
disappointment and mental agony. In such cases monetary
compensation alone cannot provide an appropriate remedy to the
 sufferings of the injured party. Thus there is a need for vindictive
damages.[8] Vindictive damages do not form part of the contractual
laws. The idea is borrowed from English legislation. There are two forms
of contracts where Indian courts consider vindictive damages to be
awarded:
IV. Breach of a marital contract. In this situation, the amount of damage
would depend on the degree of the feeling of the party’s injury. One
would be ruined, the other might not worry so much.
V. If a banker refuses to honour a customer’s cheque while keeping his
money in his hands, the customer experiences a loss of prestige.
VI. Nominal Damages: Often, an individual brings a case for breach of
contract and proves that a breach has actually happened but does not
prove that any real damage has been sustained. For example, this can
occur because of the rules for calculating damage and the requirement
that damage should be predictable and confirmed with certainty. In
such a case, nominal damages are paid to the injured party. These
damages are awarded purely in order to recognise the injured party’s
right to seek damages and are of a very limited sum.
VII. Liquidated Damages and Penalty: In the event the contract is violated by
either party, the contracting party will stipulate in the contract an
amount of money to be paid. Depending on the intent of setting the
amount, it can be called ‘liquidated damages’ or ‘penalty’. The goal of
setting a sum as ‘liquidated damages’ is to compensate the injured
party for the loss caused by the other’s infringement. It is therefore a
rational pre-estimation of the loss due to non-performance of the
contract. The object of providing a ‘penalty’ in a contract is to prevent a
party from violating it and if the contract is broken anyway, to provide a
special punishment. It is also an amount that has no relation to the
probable loss, and is usually disproportionate to the damages that are
likely to accrue as a consequence of the violation.
To understand the role of English Law in this respect, the above distinction is
necessary. English law accepts ‘liquidated damages’ as compensation,
regardless of whether the amount so defined is greater or less than the real
damages. But it does not approve the amount specified as ‘penalty’ on the
ground that reasonable remedies for breach of a contract can be assessed only
by the government, not by private individuals.
Indian Contract Law differs from English law in this matter. It does not recognise
any difference between ‘liquidated damages’ and ‘penalty’. Nor does it allow
any sum fixed by the parties as damages. It says that the injured party is entitled
to a reasonable compensation in case of breach subject to the maximum of the
amount fixed as ‘liquidated damages’ or ‘penalty’ by the parties to the
contract.[9]
Section 74 of the indian Contract Act, 1872, provides that, “when a contract has
been broken, 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 stipulation by way of
penalty, the party complaining of the breach is entitled, whether or not actual
damage or loss is proved to have been caused thereby, to receive from the other
party who has broken the contract reasonable compensation not exceeding the
amount so named or, as the case may be the penalty stipulated for.”[10]
Therefore, the amount stated in the contract is not awarded as compensation
in India. The court is left to assess the real loss or fair compensation and to grant
the same, which would not, however, exceed the amount stated in the contract.
Remoteness of Damage
The term ‘remoteness of damages’ refers to the legal test used to determine the
form of loss can be covered by the award of damages incurred by the violation
of the contract. It was distinguished from the term harm or quantification
measure that refers to the method of determining the compensation for a
specific outcome or loss in cash that was deemed not too distant.
The rules on the remoteness of the damage in the contract are set out in
the Hadley v Baxendale [11]judgement of the Court of Exchequer, as
interpreted in later cases. The plaintiff’s mill had come to a standstill in Hadley
v Baxendale because of its crankshaft breakage. Within the agreed time, the
defendant carrier failed to supply the broken crankshaft to the manufacturer. A
delay in restarting the mill has occurred. The plaintiff sued if the mill was started
without delay to recover the money they would have made. The court dismissed
the claim on the ground that the profits of the mill had to be stopped by an
unfair delay in the supply of the damaged shaft to the third person by the
courier.
The damages which the other party should be entitled to obtain in respect of
such a contractual breach should either be considered to have occurred
naturally, fairly and appropriately, i.e. in the ordinary course of the case, as a
consequence of the contractual breach itself, or as could reasonably have been
considered to have arisen in the sense of the contractual breach. The Hadley v.
Baxendale clause consists of two parts:
I. As can be fairly and reasonably considered to occur naturally, i.e. from
such violation, according to the ordinary course of things; or;
II. As may fairly be believed to have been in both parties’ contemplation at
the time they made the contract.
Measure of Damages
After it has been decided that there is a proximate and not a distant result of
the breach of contract and that the claimant deserves to be compensated for
the same, the next question that arises is: what is the calculation of the damages
for the same or, in other words, the issue is the determination of the damages
for the breach of contract. Damages are of an offsetting nature. The aim of
granting damages to the aggrieved party is to place him in the same role he
would have been in if the contract had been executed.
Therefore, losses are calculated on that basis. There was a violation of the works
contract by the government in the State of Kerala v. K. Bhaskaran[12] and the
contractor brought an action to recover the loss of that contract of 10 percent
profit. It was held that 10% profit is usually taken as an aspect of the contract
calculation and the contractor was entitled to claim compensation on that basis.
In a contract for sale of goods, the calculation of damages is the difference
between the contract price and the market price on the date of the breach of
contract. The damages are ascertained on the date of the contractual violation.
Accordingly,
I. If the buyer has committed a breach of the contract, the seller may be
able to seek damages arising on the date of the breach of the contract,
and it is not appropriate for the seller to resell the products on that
date;
II. If the seller has committed a breach of the contract, the buyer may be
entitled to seek damages arising on the date of the breach of the
contract, and it is not appropriate for the buyer to re-purchase the
goods on that date.
Suit for Quantum Merit
A argument on quantum meruit is a redress for a breach of contract open to an
injured party against the guilty party. Literally, the term quantum meruit means
“as much as is earned” or “in proportion to the job done.” A right to use on
quantum meruit typically occurs if there is a breach of contract after part
performance of the contract by one party, or the contract is considered invalid
or becomes void. This remedy for breach of a contract will be used either
without claiming damages (i.e. claiming fair compensation only for the work
done) or in addition to claiming damages for the violation (i.e. claiming
reasonable compensation for the performance of the part and damages for the
remaining part not performed).
Claim for Quantum Merit
The aggrieved party may file a quantum meruit lawsuit and in the following
cases may demand reimbursement in proportion to work performed or
products supplied:
 a. Where work has been undertaken in pursuance of a contract discharged
by the default of the defendant.
b. Where work has been done in search of a contract that is discovered
void, given the contract is divisible, or ‘becomes void.’
c. There is no express agreement between the parties when anything is
done without the intention of doing it free of charge.
d. A party who is guilty of violation of a contract can also sue a
quantum merit if any of the following conditions are fulfilled: the
contract must be divisible, and the other party must have gained from
the performed section, even if it had the opportunity to refuse it.
Conclusion
The parties who enter into commercial transactions are more vigilant than ever
because of the aggressive growth in the field of technology, thereby making the
parties deliberate even on the minute information or requirements so that they
can better protect their interest. In particular, as a measure to preserve, secure
and protect their respective interests in the event of a violation of the terms of
the contract, the parties usually discuss and agree on the various remedies for
breach of a contract that may be invoked by the injured party to mitigate and
compensate for the damages that the injured party may experience as a result
of that breach. The courts in India should interpret the above sections, i.e.
sections 73 and 74, quite carefully, so that these concepts will help the common
citizen. In addition, the legislation is made to encourage, not to intimidate,
people. Therefore, these values should be used, not misused.