A contract is an agreement that the parties make with understanding and mutual consent. Such a contract is legally binding to the party to perform their duty per the contract’s terms and conditions. If a party of the contract does not fulfil their part due to any circumstances of a breach of contract in that situation, the other party of the contract might suffer loss or damages due to the non-performance of the contract. The contracting party who suffered any loss can file a suit for damages against a party who breached such a contract.
The Indian contract act 1872 has some specific provisions regarding recovering the damages or loss caused by non-performance of the contract. As per that provision, the party can file a lawsuit against the contracting party who breaches conditions of the contract.
(2) What is a breach of contract under the law?
A valid agreement for a suitable object is made by the parties and is legally binding. Sometimes, for some reason, it happens if a party of the contract fails to fulfil their part of the performance. That can be caused a breach of contract.
The non-performing part of the contract might have resulted in another party suffering an unexpected or unnecessary injury in terms of monetary losses. So the sufferer party has a legal right to claim damage that is caused due to the default performance part of the defaulting party.
This way, a sufferer party can approach the court and file a suit for damages under the civil procedure code 1908. After determining the actual fault, the court can order to defrauder party to pay compensation to the suffering party.
Here now, a question arises in our mind what kind of remedies can be laid for the breach of contract? Before getting the perfect answer to this question, we must know what kind of provision is available for a suit for damages under the Indian Contract Act. So let’s first refer to that provisions.
(3) Suit for damages under the Indian contract act:
The Indian contract act 1872, sections 73 to 75, deals with the consequence of the breach of contract. These sections entitlement to the suffering party to get compensation from the other party who actually breaches the contract, resulting in the sufferer party causing losses. Under these provisions, various types of suits for damages can be laid according to the weight of the damages.
According to that section, when a contract is breached, the party suffering from the breach is entitled to compensation. Such a party can make a claim from the party who breaches the contract and, as a result, suffers any loss or harm.
Supreme court judgments under section 73 of the act:
In the case of Oil and Natural Gas Corpn. Ltd. vs. SAW Pipes Ltd.( AIR 2003 SC 2629), the supreme court held that Proof of loss is not necessary when the genuine pre-estimated loss is stipulated in the contract..
In the case of Dwarka Das vs. State of M.P. (AIR 1999 SC 1031), the supreme court rightly observed, Contract found to have been illegally rescinded by Govt. Claim by a contractor for recovery of amount as damages as expected profit out of contract cannot be disallowed on the ground that there was no proof that he suffered an actual loss to the extent of the amount claimed on account of breach of contract..
In the case of Tarsem Singh vs. Sukhminder Singh. (AIR 1998 SC 1400), the supreme court held, Remedies provided under Ss. 73, is available only when the agreement breached is valid and binding and the forfeiture clause contained in a void agreement cannot be enforced..
In the case of M. Lachia Setty and Sons Ltd. vs. Coffee Board, Bangalore. ( AIR 1981 SC 162), the supreme court state that, The principle of mitigation of loss does not give any right to the party who is in breach of the contract but it is a concept that has to be borne in mind by the Court while awarding damages..
According to this section, when a contract is breached. There is no need to prove whether or not actual damage or loss is proven to have been caused thereby. An affected party is entitled to receive reasonable compensation from the party who has broken the contract.
Supreme court judgments under section 74 of the act:
In the case of Chunilal V. Mehta and Sons Ltd. vs. Century. Spinning and Manufacturing Co. Ltd. ( AIR 1962 SC 1314), the supreme court observed, Where parties name in a contract reduced to writing a sum of money to be paid as liquidated damage they must be deemed to exclude the right to claim an unascertained sum of money as damages..
In the case of Union of India v. Rampur Distillery and Chemical Co. Ltd.(AIR 1973 SC 1098), the supreme court held, The party to a contract taxing security deposit from the other party to ensure the due performance of the contract is not entitled to forfeit the deposit on the ground of default when no loss is caused to him in consequence of such default..
According to that section, a person who rightly rescinds a contract is entitled to compensation for any harm he suffered due to the contract’s non-fulfilment.
After referring to the above provision of the contract act, let’s see the below types of damages specified under the contract act.
(4) Types of damages under the Indian contract act
Here the following kinds of damages can be covered under the contract act, which might differ for each contract as per the terms and conditions, and the assessment of damages can count into various types.
(1) Compensatory Damages:
These types of damages can be categorized into two types (a) general damage and (b) special damage. In general, damage means all kinds of damages that come as the natural cause of the breach of contract. But special damages might be different from that. It will arrive due to any circumstances which affect the contract, and if such contract is breached, the defrauder party is liable to pay general damage with special damage too.
(a) General Damages:
This type of damage is also called ordinary damage. That will come naturally due to a breach of contract. In this type of suit for damage, the suffering party likely knows about the damage. If another party breaks such a contract, the sufferer can claim compensation for losses.
(b) Special Damages:
In case of a suit for special damage, Such damage would arise due to any particular circumstances if a defrauder party breached the said contract. In that case, he is liable to pay any special compensation to the affected party of the contract.
(2) Vindictive Damages
Suppose the contract has been breached by one party, then the result is not only counted in terms of loss of money to the sufferer party. It’s also a matter of disappointment and mental harreshment for that party. In that case, providing only monetary compensation is not a proper remedy to the sufferer party. That’s the reason there is required for vindictive damages.
This kind of damage provided for recognizing the right of the sufferer party to claim damages. The amount of such damage is significantly less.
Here, two factors are considered while awarding vindictive gamages, which are;
- Breach of a contract to marry will caution injury to the contract party’s feelings.
- Dishoner of a cheque by the banker in an unlawful manner will result in loss of reputation and credibility of the customer.
(3) Nominal Damages
In this type of suit for damages, when a contracting party files a suit for breach of contract and proves to the court that an event occurred, however, if the party fails to prove any actual damages, in that case, the nominal compensation is awarded. It will establish the right for the award for a breach of contract. In this situation, the amount of payment claimed by the party will be significantly less.
(4) Liquidated Damages
When the contracting party mentions explicitly in the contract prescribed money to be paid if the other party does not fulfill such a contract. It is well known as liquidated damage or penalty. The aims for the liquidated damages provide a fixed compensation to the sufferer party in the event of a breach of contract. Through liquidation, damages are imposed on the party who breaches the contract. Sometimes, that damage is not related to a probable loss. However, it will count as a result of the breach of the contract from the party.
Here the contracting party mentions that particular clause in the contract, and the party may stipulate a sum amount as compensation if either party breaches such a contract. And such an amount is based on an estimate of probable loss or as a penalty.
We refer the section 74 of the Indian Contract Act 1872. There where a specification that a certain amount mentioned in a contract has to be paid in the event of a breach of contract. And the injured party is entitled to that compensation, which does not exceed the mentioned amount in the contract.
(5) Damages for decay by caused delay
Sometimes it happens that the goods being transported are not delivered within a prescribed time, and that’s why such goods may decay. In that case, the injured party may lay a suit for the damages of decaying goods. Here the decay means not only physical damages but also covers such loss, which is laps of the opportunity to sell those goods.
Now, after referring to the above provision of the contract act, let’s see the remedies available below for the cases of breach of contract.
(5) Remedies available for breach of contract:
(1) Suit for Damages
In case a party wants to file a suit for damages under CPC, mainly the following types of remedies are available for the breach of contract or non-performance of the contract.
Suppose a party of the contract suffers some loss or damages due to a breach of contract. Then the sufferer party is entitled to claim the loss or damages caused by the other party’s violation. The Indian contract act 1872 describes some rules for the protection of loss or damages of this party. Here are some essential rules for damages we have to know that is given below.
- Any sufferer party of the contract is entitled to claim the losses or damages due to the other party’s conduct.
- A party of the contract is entitled to claim compensation for the specific loss, which is not the result of a breach of contract.
- In some events, any Pacific damages would result from the breach of contract. In direct claim of any special damages, the party must send a notice before the claim of that.
However, we should know that in terms of indirect or remote losses, the suffering party cannot claim compensation from the other party of the contract.
(2) Declaration Suit
The declaration is given by the Civil Court to establish a moveable or immovable property or respect any other rights of the aggrieved party. After passing that declaration order, it will always be binding for all. Such declaration may favor the effect or injured party who lays the civil suit against the opposite party.
In the Civil Suit, after receiving the parties’ evidence, if the court thinks it fits accordingly, it may pass the order of declaration. Such may be declared as a right, title, duty, liability, etc., which depends on the subject matter of the issues of the suit. the court cannot pronounce the declaration without praying for that by the party of the suit.
Any person, legal character, or party who has any property rights can be entitled to file a suit or a declaration against those who are trying to deny or harm such rights.
(3) Temporary Injunction
A temporary injunction is one of the court’s orders on the bassed of an application filed by the party. Before passing that order, the court observes all the aspects of the case. And, if satisfied that the applicant party suffers during the final order of the suit. Then, to protect the party’s rights, the court can grant a temporary injunction about the subject matter.
(4) Permanent/ Perpetual injunction
The permanent injunction can be passed after the evidence is led by the suit party and compilation of the final hearing of the suit. That injunction can grant based on the suit’s merits, and the decree is given against the opposite party. Here, through this permanent injunction, the court can prohibit certain rights or acts that result contrary to the rights of the suit party seeking such an injunction.
(5) Interlocutory order
This type of order can be passed during the pendency of the trial of the suit. The purpose of giving this type of order is that the court can avoid the diversity of the case and achieve a final decision on the real issue or subject matter.
(6) Suit for the Specific Performance
The suit for the specific performance can file by the contracting party who suffers the injury of his rights in the event of a breach of contract. In that suit, the court can grant equitable remedies against the opposite party who breaches such a contract. And the court can pass the order to perform his part and obligation as per the contract. In some cases, the court can pass the order to provide compensation to the injured party. Or some cases, the court can order the opposite party who breaches the contract to fulfill their rights and duties according to their part. If the breach of contract will be compensated monetarily, then the court will not pass the order of specific performance of the contract to the opposite party.
How does the limitation period count for the suit of damages?
The limitation period is governed by the India Limitation Act of 1963. there are different provisions available for various claims and suits or types of petitions filed in the court. According to that, the limitation period for the suit of damages generally starts after the breach of a contract. If any contract period is not specified, it applies for three years. The limitation period is counted when the contracting party breaches the contract.
(1) 73. Compensation for loss or damage caused by a breach of contract:
(2) Oil and Natural Gas Corpn. Ltd. vs. SAW Pipes Ltd.( AIR 2003 SC 2629).
(3) Dwarka Das vs. State of M.P. (AIR 1999 SC 1031).
(4) Tarsem Singh vs. Sukhminder Singh. (AIR 1998 SC 1400).
(5) M. Lachia Setty and Sons Ltd. vs. Coffee Board, Bangalore. ( AIR 1981 SC 162).
(6) 74. Compensation for breach of contract where penalty stipulated for:
(7) Chunilal V. Mehta and Sons Ltd. vs. Century. Spinning and Manufacturing Co. Ltd. ( AIR 1962 SC 1314).
(8) 75. Party rightfully rescinds the contract entitled to compensation