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Business Law Chapter 3. Remedies for Breach of Contract. Remedies for Breach of Contract.

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Business Law Chapter 3


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    1. Business LawChapter 3 Remedies for Breach of Contract

    2. Remedies for Breach of Contract When a party breaks the contract by refusing to perform his promise the breach of contract takes place. The following remedies are available to the aggrieved (sad) party against the guilty (responsible for a unlawful action) party.

    3. 1. Suit for Rescission Rescission means cancellation of a contract. When one of the parties breaks the contract, the other party is released (free) from his obligation under the contract. If the aggrieved party wants to sue the guilty party for the damages for breach of the contract, he must sue for rescission of the contract. When the court grants (allow) rescission, the aggrieved party is free from his obligation and becomes entitled to compensation. (Sec. 75)

    4. Examples Example: A contracts to supply cement to B on 15th April. B agrees to pay the price on receipt of goods. A does not supply on due date. B is discharge from liability to pay. B can rescind (cancel) and claim damages.

    5. 2. Suit for Damages The aggrieved party may sue for damages. Damages are a monetary compensation allowed to the injured party for the loss suffered by him as a result of the breach of contract. In case of breach of contract, the aggrieved party can claim the following damages. (Sec. 73)

    6. Kinds of Damages The damages may be of the following four kinds: a. Ordinary Damages These are also called general damages. When a contracts is broken, the aggrieved party can recover ordinary damages from the guilty party. Ordinary damages are usually assessed (measure )on the basis of actual loss. In a contract of sale of goods, the damages payable are the difference between the contract price and the market price at the date of breach. (Sec. 73)

    7. Examples Example: H delivered the shaft (pipe) to B, a carrier, to take it to the manufacture as a pattern for a new one. H did not tell B that delay would be result in loss of profits. The delivery of shaft was delayed and the mill remained closes for a long period. H sued B for loss of profits. Held, that B was not liable for loss of profits, the ordinary damages were awarded. (Hadley vs. Baxendale 1854)

    8. Conti… b. Special Damages These damages arise under some special circumstances. These damages include indirect loss which may arise due to breach of contract. The parties must be aware of the loss which may arise from the breach of contract. The notice to this effect must have been given to the other party; otherwise he is not responsible for special damages. Subsequent knowledge of special circumstances will not create special liability on guilty party. (Sec. 73)

    9. Examples • A contracts C to buy 1 ton of iron for 50,000 AFN. A also contracts to sell B, 1 ton iron for 80,000 AFN. A informs C about the purpose of contract. C fails to supply. As a result, A cannot supply to B. C is liable for loss of profit which A would have earned from B. b. S delivered his samples to NWR Co. for exhibition at New Castle. He wrote on consignment “must be at New Castle on Monday certain” Due to the negligence the goods reached after the show. The Co. was aware of the object of carrying the goods. Held, S could claim special Damages. (Simpson vs. London & N.W Railway. (1876)

    10. Conti… c. Exemplary Damages These damages are awarded to punish the guilty party for the breach of contract. The breach of contract result in monetary loss to the aggrieved party and causes disappointment. Exemplary damages have no place in the law of contract and are not recoverable. There are awarded in the following cases: i. In case of breach of a contract to marry, the amount of damages depends upon the extent of injury to the feelings of the party. ii. In case of dishonor of cheque by a bank when there are sufficient funds to the credit of the customer. According to the rule, the smaller the cheque dishonored, the greater the damage.

    11. Example OS Bank promise to give loan to W for trip to California by crediting his account. Bank failed to do so and W’s cheque was dishonored. The court allowed damages for the emotional distress (grief, pain). (Westesen vs. Olathe Bank)

    12. Conti… d. Liquidated Damages Whenparties to a contract fix the amount of damages for the breach of contract at the time of formation of contract, such damages are called liquidated damages. Where a sum is agreed in the contract to be paid by the defaulting party, in case of breach of contract, the court will allow the reasonable damages, not exceeding the amount already agreed. If the actual loss is more than the agreed amount, damages will be payable to the agreed amount. (Sec. 74)

    13. Example A contracts to pay 20,000 AFN as damages to B, if he fails to pay him 500,000 AFN on a given day. A fails to pay on that day. B can recover damages not exceeding 20,000 AFN.

    14. 3. Suit upon Quantum Merit The term quantum merit means payment in proportion to the work done or reasonable value of work done. When a person has done some work under a contract and the other party cancels the contract or an event happens which make the performance of the contract impossible; such party can claim remuneration for the work already done. The right to claim for quantum merit arises when the original contract is discharged. If the original contract exists, the party may sue for quantum merit. The aggrieved party may sue in the following cases:

    15. Conti… • When an agreement becomes subsequently void. • When there is a promise to render service but no agreement about remuneration. • Where something is done without any intention to do so gratuitously (unnecessarily). • When the completion of the contract is prevented by the other party.

    16. Examples • B contracts to build a 3 floor house for A. when one floor is complete, A stops B from work. B can get compensation for the work done. • C was employed MD in a company. After 3 months it was found that the directors were not authorized to appoint him. C sued for remuneration. Held, C could recover for the work done. (Cravan Ellis vs. Canon Ltd. 1936)

    17. 4. Suit for Specific Performance Specific performance means the actual carrying out of the contract by a party. In some cases where the damages are not an adequate remedy, the court may direct the guilty party to fulfill the contract. Example: A agrees to sell his plot to C, who agrees to buy to erect (create) a mill. A commits breach. On the suit of C, A is directed by court to perform the contract.

    18. 5. Suit for Injunction (Ban) Injunction is an order of a court restraining (preventing) a person from doing something which he promised not to do. It is a mode of securing specific performance in the negative form. It is a preventive (protective) relief. It is a discretionary (optional) remedy of the court. It is appropriate in cases of anticipatory breach of contract.

    19. Examples • W agreed to sing at Lu’s theatre and for no one else. Afterwards W contracted Z to sing at another theatre and refused to sing for Lu. Held, W could be restrained by injunction from signing for Z. (Lumly vs. Wagner 1852) • G agreed to take the supply of electricity only from M Co. later G breaches the contract. G was, restrained by an injunction from buying electricity from any other company. (Metropolitan Electric Supply Co. vs. Ginder 1901) End of the Chapter