legal and Equitable Remedies
Legal and Equitable Remedies in Consequence of Breach of Contract
When a party breaks the contract by refusing to perform his promise, breach of contract takes place. Law of contract provides many remedies to the injured party when the contract is breached. Contract Act 1872 regulate the legal remedies while the specific relief act 1877 deals with the equitable remedies, we are going to explain them one by one with illustrations.
The following remedies are available to the aggrieved party on breach of contract.
- Legal Remedies
- Equitable Remedies
Damages: A legal Remedy
Damages (Legal damages for breach of contract) are monetary compensation awarded to the injured party for the loss occasioned to him.
Object of legal damages:
The main purpose of awarding damages is to put the injured party in the same financial position in which they would have if there were no breach. Every action for damages raises two problems
- Remoteness of damages
- Measure of damages
Kinds of Legal Damages:
Sec 73 of contract Act 1872 Postulates the following kinds of damages:
(a) Compensatory or Ordinary Damages:
When one party breaches a contract, the other party may be entitled to damages. In this situation, the law attempts to compensate the plaintiff so he or she will be placed in as good position as if the defendant had perform contract. The theory is just compensation for losses that are immediate, direct and natural result of the act complained of and that are usual and might have been expected. The injured party is entitled only to damages that were within the contemplation of the parties at the time the contract was made using unexpected damages resulting from facts unknown to the defendant or that he or she could not foresee at the time the contract was made are not recoverable. The amount of Damages recoverable is for the jury to decide and for the court if there is no injury. Court costs (e.g. filing fees, witness fees, jury fees, deposition costs) are usually assessed against the losing party. If the plaintiff did not suffer a loss or cannot prove a loss, the court may award him or her nominal damages.
Following points are taken into consideration while assessing the compensatory/ordinary damages:
Recovery for loss of profit:
Generally, attorney fees are not recoverable for breach of contract. Reasonable fees can be granted, however, when provided for in the contract by statute, or when punitive damages are awarded.
Recovery of interest:
Emotional reactions peculiar to a particular individual that might flow from a breach of contract or too subjective and variable to be contemplated prior to a breach of contract or ascertainable afterward and therefore are generally not recoverable.
Loss of profit:
The injured party may recover for loss of profits if he or she can establish them with reasonable certainty. Reasonable certainty, not mathematical certainty, is all that is required. Where plaintiff is unable to prove loss of profits courts frequently award the amount of expenditures plus the value of his or her own services in preparation and performance in reliance on the contract.
Interest:
Interest at the legal rate is recoverable from the time of breach where amount of money is liquidated or from the time it becomes liquidated otherwise from the date of the Judgment. Even though the demand is not for a specific sum, interest may be recovered where the damages are capable of being made certain by calculation.
(b) Special damages:
These damages arise under some special circumstances affecting the plaintiff. These are not the losses which naturally arise as a result of breach of contract like ordinary damages. These arise when a party makes a special contract through which he expects a large profits and such profits are likely to be lost through the breach of contract. These cannot be claimed as a matter of right. These can only be claimed under the following circumstances.
- The special circumstances must be known to both the parties at the time of contract.
- Subsequent knowledge of the special circumstances will not create such damages.
- The damages must be such as would naturally result from the breach of contract.
- The parties must have the knowledge about the loss which will arrive in case of breach of contract before making the contract.
(c) Punitive/exemplary damages:
Exemplary or punitive damages are awarded to one party in order to punish the other party and to discourage others from similar wrongful conduct. Generally punitive damages are limited to certain situations involving willful, wanton or malicious torts, such as fraud or libel. In awarding punitive damages the more reprehensible the acts the greater the appropriate punishment, and thus the higher award of punitive damages is Justified. Normally punitive damages are not recoverable for breach of contract, but in the following cases these are recoverable.
- In case of breach of contract to marry, the amount of damages will depend upon the extent of injury to the feelings of the party.
- In case of dishonor of a cheque by a banker when there are sufficient funds to the credit of the customer. The rule is, the smaller the cheque dishonored, the greater the damage.
- In case of contract involving a breach of fiduciary duty.
(d) Liquidated damages:
The parties May stipulate in the contract that a certain amount shall be paid to the injured party in case of default (known as a liquidated damage clause).The amount stated must be as a result of a reasonable endeavor by the parties to State an amount that bears a reasonable relationship to actual damages. If the amount specified is not so excessive as to be in the form of a penalty, the clause will be valid. Also the nature of the contract must be such that it would be extremely difficult or impractical for the court to ascertain the actual amount of damages.
Illustration:
A common example of a liquidated damage Clause is found in building contracts where the contractor is required to pay a stated sum for each day of delay.
In Oregon State Highway commission vs DeLong Corp. (1972)
The Court held that $2000 for each day of delay by the contractor was reasonable in view of the losses by the state.
(e) Vindictive damages:
These are neither to compensate the aggrieved party nor to punish the guilty party. When aggrieved party suffers no loss, the court May award him nominal damages in recognition of his right. The court has discretion in this case. The court May refuse to award damages.
(f) Expectation damages:
It is a type of compensation awarded for the loss of what a person reasonably anticipated from a transaction that was not completed. It is also termed as expectancy damages; loss of bargain damages; lost-expectation damages; and damages for lost expectation.
(g) Rescissory damages:
It means damages contemplate to restore a plaintiff to the position occupied before the defendant's wrongful acts. An award rescissory damages may mean returning property to the original owner or, if that is not possible paying the owner the monetary value of the property.
(h) Restitution damages:
These are damages awarded to the plaintiff when the defendant has been justly enriched (make (someone) wealthy or wealthier.) the plaintiff's expense.
Illustration:
A pays money to B in pursuance of a contract which turns out to be void, or perhaps is subsequently frustrated, clearly A cannot sue B for breach of contract B's promise to perform his side of the bargain is vitiated by the mistake or the frustrating so A’s lost expectations are losses which he must just put up with. But his claim to repayment of money is evidently much stronger, for this money is a tangible loss to A and a tangible enrichment to B. So in this sort of case the money will be recoverable.
Equitable Remedies (Specific Relief act 1877)
Equitable remedy is a non-monetary remedy obtained when monetary damages cannot adequately redress the injury. This type of relief is sought in a court which has equity powers. Such kinds of remedies are specifically enacted in the Specific Relief Act 1877, whereas the remedy of damages is governed under the Contract Act, 1872. The main difference between these two remedies is that the equitable remedies are discretionary. It follows that even if a good case for such remedies is established the court may still refuse to grant the same or grant monetary damages in the alternative. These remedies are as under:
Specific Performance:
There are times when a plaintiff is not interested in money damages because he or she feels that money is not the solution to the defendant’s breach. For example, plaintiff finds a rare Rembrandt painting that he wishes to add to his art collection Plaintiff makes a contract with defendant for the purchase of the painting. Later, when plaintiff tenders the money, the defendant refuses to deliver the painting. In such a case, plaintiff is not interested in money damages, which could be only nominal, but wants the painting. Courts have the power to order the defendant to deliver the painting and, if he refuses, to sentence him to prison for contempt of court. This order is called a “decree of specific performance.” This decree is not granted lightly. There are five requirements to a decree for specific performance:
- The contract must be definite and certain.
- Money damages must be inadequate.
- The agreement must be legal and without fraud or immorality.
- The decree must not work a hardship or injustice on the defendant (e.g., consideration grossly inadequate at the time the contract was entered into or contract unconscionable).
- The court must be able to supervise the performance of the ordered act. Courts will generally order specific performance of real estate contracts (because each parcel of real estate is unique) and contracts for unique personal property.
Contracts for ordinary personal property are not specifically enforceable, because the plaintiff can purchase identical goods on the open market. If he has a loss, money damages will be adequate. Personal services contracts are ordinarily not specifically enforceable because of difficulty of supervision by the court. The court will not order specific performance of a building contract, because enforcement of the decree would require too much supervision of the details of construction.
Illustration:
a) A agrees to sell his plot of land to C, who agrees to purchase it for erecting his mill there. Due to certain inconveniences, A commits breach. At the suit of C, A is asked by the court to carry out the contract.
(b) A contracts to borrow or lend money is not specifically, enforceable because, damages are an adequate remedy.
(c) A agrees to sell B his painting, but commits breach, B cannot sue for damages. A shall be ordered to make specific performance to B.
Rescission:
Rescission is the unmaking of the contract. A contract may not be unilaterally rescinded unless legal grounds for rescission exist. The common grounds for rescission are illegality, commercial frustration, fraud undue influence and duress, mistake, insanity, intoxication, entire or substantial failure of consideration, substantial non-performance or breach by the other party (failure of a building contractor to duly and properly perform his or her contract), and cases whereby if one party places it out of his or her power to perform, the other party may treat the contract as terminated. A right to rescind must be exercised promptly or within a reasonable time after discovery of the facts that entitle the person to rescission. Failure to act promptly can be considered a waiver of the right of rescission. When a rescission takes place, the successful party is entitled to restitution (i.e. to recover any consideration he or she gave plus any other compensation necessary to make him or her whole).
You may also read Termination/Discharge of contract
illustration:
A contracts to supply 100 kg of tea leaves for Rs. 5,000 to B on 15 April. If A does not supply the tea leaves on the appointed day, B need not pay the price. B may treat the contract as rescinded and may sit quietly at home. B may also file a ‘suit for rescission’ and claim damages.
Rectification/reformation:
A party may want reformation of a contract rather than rescission (i.e. have the contract corrected to show the true intent of the parties). Typical cases in which the court will reform a contract are where there has been mutual mistake or fraud in the making of the contract.
Injunction:
Injunction is an order of a court restraining a person from doing a particular act. It is a mode of securing specific performance in the negative form. It is a preventive relief. It is a discretionary remedy of the court. It is granted by the court in the cases where the damages are not an adequate relief. It is issued to. provide a negative remedy. The court by issuing Injunction restrains the guilty party from doing, what he promised not to do. It is appropriate in cases of anticipatory breach of contract. A contract for personal services ordinarily is not specifically enforceable for several reasons: difficulty of enforcement, the fact that the services would be unsatisfactory under compulsion, and where physical labor is contracted for. A negative covenant in a contract may, under some circumstances, be enforced by injunction.
ILLUSTRATION:
(a) A lady singer enters into a contract with B, a film producing company to sing exclusively for B. After some years she refused to sing. At the suit of B for specific performance the court could not force her to sing for B as it is a case of personal service. The court can only grant an injunction restraining the Lady singer from singing for any other company, and also award damages to B to compensate him for the loss caused by her refusal.
b) G agreed to take the whole of his supply of electricity from a certain company. The agreement was held to import negative promise that he would take non from elsewhere. He was, therefore, restrained by an injunction from buying electricity from any other company. (Metropolitan Electric Supply Co. vs Ginder).
Quantum Meriut:
The phrase quantum meruit literally means "as much as is earned" or "proportion to the work done". Where there is a breach of contract, the injured party instead of suing for damages, may claim payment for what he has done under the contract. His right to payment does not arise out of the original contract but is based on an implied promise by the other party to pay for what has been done. The injured party can claim reasonable compensation for part performance and also damages for the remaining unperformed part. The aggrieved party may file a suit upon quantum meruit and claim payment in proportion to work done in the following cases:
- Where some work has been done to complete the contract, which has been discharged by the default of the defendant.
- Where work has been done to complete the contract which becomes void subsequently.
- Where a person enjoys benefits of non-gratuitous act.
- Where the contract is divisible.
Illustrations:
(a) A, engages B, a contractors, to build a three story house. When only a part of the house was constructed A prevents B from working any more. B, the contractors, is entitled to get reasonable compensation for work done under the doctrine of quantum meruit in addition to the damages for breach of contract.
(b) C was employed as managing director by a company under a written contract. The contract was not binding, because the directors who made it were not qualified. C rendered the service and sued for remuneration. Held, C could recover for the work done under the contract on the doctrine of quantum meruit. (Craven Ellis vs Canon Ltd.)
c) A, trader, leaves, certain goods at B’s house by mistake. B treats the goods as his own. He is bound to pay for them.
Conclusion:
Law of contract provides many remedies to the injured party when the contract is breached. Section 73
of the Contract Act 1872 provides that "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. Such compensation is not to be given for any remote and indirect
loss of damage sustained by reason of the breach It further states that
"When an obligation resembling those created by contract has been incurred
and has not been discharged, any person injured by the failure to discharge it
is entitled to receive the same compensation from the party in default, as if
such person had contracted to discharge it and had broken his contract."
The explanation to Section 73 states that "In estimating the loss or
damage arising from a breach of contract, the means which existed of remedying
the inconvenience caused by non-performance of the contract must be taken into
account.