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Chapter Chapter 30 and 13 31 Time Termination and Place and ofDamages Contract

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Case: Power Supply

A company was to supply power to its contractor for a construction job. The company failed to provide it. The contractor hired a generator set. It cost the company 2 lakhs. The contractor is claiming the money from the company.

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Breach and Damages

On every breach of a term of a contract, the suffering party has a right to compensation.

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Car Service
Rohan booked a car on the internet from a car rental service to drop him from the Mumbai Airport to the city centre. The followings were the terms of the contract: 1. Rohan would pay Rs. 500 through credit card at the time of making of the contract. 5. The driver would be holding a 24 x 12 plastic placard bearing the name and logo of the company and the passenger. ..
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6. The company would provide an Inova airconditioned car. 7. The car would not have done more than 20,000 Km. 10. The car seats would be in white cover. 11. The car would be fully fuelled before receiving the passenger.
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5. The driver would be holding a 24 x 12 plastic placard bearing the name and logo of the company and the passenger. ..
The driver was holding a big white sheet in his hand with the name of the passenger and the company written in hand with drawing pen.

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6. The company would provide an Inova airconditioned car.
The company sent Tata Indica instead. (Tata Indica is a much smaller car)

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Principles
Every contract has terms which constitute the core of the contract. Other terms are subsidiary aspects. A term which is a part of the core of the contract is called condition and a subsidiary term warranty. For the breach of any term, condition or warranty, the innocent party has a right to receive compensation. However, on breach of a condition, the innocent party gets the option to terminate the contract.
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Principles
The innocent party can elect to continue with the contract or terminate the contract.
Till the decision to terminate the contract is communicated (express or implied), both the parties are bound by the terms of the contract.

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Contract Clause
1. Rohan would pay Rs. 500 through credit card at the time of making of the contract. 5. The driver would be holding a 24 x 12 plastic placard bearing the name and logo of the company and the passenger. .. 6. The company would provide an Inova air-conditioned car. 7. The car would not have done more than 20, 000 Km. 10. The car seats would be in white cover. .. 11. The car would be fully fuelled before receiving the passenger.

18. All the terms of this contract are a condition of the contract.
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Termination clause
The Contract can be terminated in the following situations:
The Purchaser may terminate this contract in whole or in part (a) if the Supplier fails to deliver any or all of the Goods within the period(s) specified in the Contract (b) if the Supplier fails to perform any other obligation(s) under the Contract.
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Case: Union Eagle Ltd.

Time was of essence
If the Purchaser shall fail to comply with any of the terms and conditions of this Agreement the Vendor may this Agreement The purchaser was late by 10 minutes in tendering the money.

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Case: Cochin Chemical Ltd.

Kerala Government was to advance money 2.5 lakhs the Company and the Company was to mortgage its assets in favour of the Government. Over the next five months the Company was to supply goods at the prevailing price and balance out the money given to it.

The Kerala Government failed to pay the money. The Company, however, arranged to supply the goods.
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The company claimed damages. The Government contested that the government receiving the goods was contingent on it advancing the money.

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Supreme Court
Breach of contract by one party does not automatically terminate the obligation under the contract; the injured party has the option either to treat the contract as still in existence, or to regard himself as discharged. If he does not accept the discharge, he may insist on performance. It cannot, therefore, be said that by refusing to advance the loan which the State had undertaken to advance, the obligation to purchase groundnut cake from the Company came to an end.
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Defective ATM
Sun Bank placed order on Ewan Engineering Ltd. for supplying it three ATM Machines. Under the contract, it had already paid 50% of the price. It was to pay another 30% on the first of the month and Ewan Engineering Ltd. was to supply the machines on 15th of the month. Sun Bank was only the third bank to buy that model of ATM. It got report from the other two buyers that the machine had several defects in design and manufacturing.
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Sun bank, citing that the machine delivered to others was defective and the company could deliver them only defective machine, refused to pay 30% of the 1st of the month and demanded back the 50% contract value paid to them in advance.

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Car Service
The car company called Rohan on his cell phone when he was checking in at Delhi for his Mumbai flight. The company told him that they would not be able to supply the car as their drivers had gone on strike. Rohan replied, That is your problem not mine. I booked a car 20 days in advance and you have to provide it.

Rohan in the arrival lounge paid for a pre-paid taxi. On exiting, Rohan saw a driver holding the companys placard bearing his name.
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Anticipatory Breach
An advance notice of intended breach of condition is called anticipatory breach. The other party can elect to accept it. In this case, the contract will be terminated and the innocent party can claim damages.
A party can reject an anticipatory breach. In this case, the contract subsists and both the parties are bound by its terms.
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Damages

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Case: Carriage of Computers

Sudip contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. On the appointed time, Sudip did not turn up. Prakash found Akash to do the work for him. However, the consignment got delayed by two days.

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Consequential Losses
As a consequence of breach, several events unfold.
All business contracts contain clauses exempting them from consequential losses.

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Specific Performance
As a remedy, should the party be forced to what he has contracted to do? Specific performance is awarded in rare case. In most case, a monetary equivalent is provided to compensate the party for the breach of the contract.

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Principle for Compensation

... such money compensation as will put him in the position in which he would have been but for the breach... In working out the compensation you should as nearly as possible get at that sum of money which will put the party ...in the same position as he would have been in if he had not sustained the wrong.

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Huxley
the law relating to damages for breach of contract has developed almost exclusively in a commercial context, these criteria normally proceed on the assumption that each contracting party's interest in the bargain was purely commercial and that the loss resulting from a breach of contract is measurable in purely economic terms. As a result, the courts award loss of profit as a damages.
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Contract Act: Compensation

73. Compensation for loss or damage caused by breach of contract.- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
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Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

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Case: Carriage of Computers

Raman contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. It was agreed that in the case of a breach of contract, Raman would pay damages worth Rs 50,000. How much should Raman be made to pay in the following different situations: 1. The actual damage came out to be Rs 60,000. 2. The actual damage was Rs. 10,000. 3. There was no damage to Prakash.
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Contract Act: Liquidated Damages

74. Compensation for breach of contract where penalty stipulated for.- 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,

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...whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract, reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

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Remoteness of Damage
1. If the parties have provided on the consequences of breach, by mentioning the consequences or the amount, the stipulation would apply. For example, a courier company may provide that it is not responsible for any losses caused due to late delivery of the consignment.

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2. If the contract has not provided, the only thing we can go with is impliedly, what is agreed between the parties?

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Supreme Court: Compensation

The Indian courts have adopted the judgement in the Hadley case. The Supreme Court stated the principle for awarding compensation thus:

... such money compensation as will put him in the position in which he would have been but for the breach... In working out the compensation you should as nearly as possible get at that sum of money which will put the party
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...in the same position as he would have been in if he had not sustained the wrong.... the rule laid down as to measure of damage is the same, namely, the party in breach must make compensation in respect of the direct consequences flowing from the breach and not in respect of loss or damage indirectly or remotely caused, which is also the rule in English common law.
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Case: Dwarka Das v. State of MP

Dwarka Das is the contractor and State of MP employer. The total value of the contract was Rupees two lakhs. The Superintending Engineer is alleged to have obstructed the progress of the work. As a result, the work could not be completed within the time schedule. Following this, the State of Madhya Pradesh terminated the contract. Dwarka Das moved the court claiming that this was breach of contract and loss of profit at the rate of 10% of the value of the project, amounting to Rs. 20,000, as damages for breach of contract. The Supreme Court emphasised loss of profit as the basis for claiming damages. The court ruled:
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The appellant (Contractor) had never claimed Rs. 20,000/on account of alleged actual loss suffered by him. He had preferred his claim on the ground that had he carried out the contract he would have earned profit of 10% on Rs. 2 lacs which was the value of the contract. damages can be claimed by a contractor where the government is proved to have committed breach by improperly rescinding the contract and for estimating the amount of damages, Court should make a broad evaluation instead of going into minute details. the contractor is entitled to claim the damages for loss of profit which he expected to earn by undertaking the works contract.
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Maula Bux v. Union of India

It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression "whether or not actual damage or loss is proved to have been caused thereby" is intended to cover different classes of contracts which come before the Courts.
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In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation,
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but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.

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The court, thus, interpreted Section 74: 1. The court should assess actual damages even in the contracts where damages are stipulated. Actual damages, not exceeding the stipulated amount should be awarded. 2. In some cases, it may not be possible to assess damages. In such cases, if the stipulated sum is a genuine pre-estimate, it should be awarded or taken into consideration for working out a reasonable compensation.
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ONGC v. SAW Pipes Ltd.

Through a tender, SAW got in a contract with the ONGC to supply it casing pipes for offshore oil exploration and maintenance. Due to strike in Italy, from where SAW was procuring the pipes, the pipes could not be delivered on time. The contract had a liquidated damages clause which stipulated that damages, at the rate of 1% of the contract price per week, would be payable. There was no dispute on this amount. The arbitrator, however, did not allow damages as it was not proved that the ONGC had indeed suffered damages. The case came before the Supreme Court.
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Judgement: Supreme Court

when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arise in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the Court arrives at the conclusion that no loss is likely to occur because of such breach.
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Further, in case where Court arrives at the conclusion that the term contemplating damages is by way of penalty, the Court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same.
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Judgement: Supreme Court

if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine pre-estimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty.
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Judgement: Supreme Court

The Supreme Court, in summary, mentioned the following principles:
(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same;

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(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.

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(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract.
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(4) ... it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.

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