Law of Contracts in India research paper


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Law of Contracts in India research paper

  1. 1. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 BREACH OF CONTRACT A contract is an agreement having a lawful object entered into voluntarily by two or more parties, each of whom intends to create one or more legal obligations between them. The elements of a contract are "offer" and "acceptance" by "competent persons" having legal capacity who exchanges "consideration" to create "mutuality of obligation. Section 2(h) of the Indian Contract Act defines the term contract as "any agreement which is enforceable by law". There are two essentials of this act, agreement and enforceability at law. Section 2(e) defines agreement as "every promise and every set of promises, forming the consideration for each other." Again Section 2(b) defines promise in these words: "when the person to whom the proposal is made signifies his assent there to, the proposal is said to be accepted. Proposal when accepted becomes a promise." Before the enactment of the Indian Contract Act, 1872, there was no codified law for contract in India. In the Presidency Towns of Madras, Bombay and Calcutta law relating to contract was dealt with the Charter granted in 1726 by King George I to the East India Company. Thereafter in 1781, in the Presidency Towns, Act of Settlement passed by the British Government came into force. Act of Settlement required the Supreme Court of India that questions of inheritance and succession and all matters of contract and dealing between party and party should be determined in case of Hindu as per Hindu law and in case of Muslim as per Muslim law and when parties to a suit belonged to different persuasions, then the law of the defendant was to apply. In outside Presidency Towns matters with regard to contract was mainly dealt with English Contract Laws; the principle of justice, equity and good conscience was followed. The Indian Contract Act came into force on 1 September 1872. It was enacted mainly with a view to ensure reasonable fulfillment of expectation created by the promises of the parties and also enforcement of obligations prescribed by an agreement between the parties. The Third Law Commission of British India formed in 1861 under the stewardship of chairman Sir John Romilly, with initial members as Sir Edward Ryan, R. Lowe, J.M. Macleod, Sir W. Erle (succeeded by Sir. W.M. James) and Justice Wills (succeeded by J. Henderson), had presented the report on contract law for India as Draft Contract Law (1866). The Draft Law was enacted as The Act 9 of 1872 on 25 April 1872 and the Indian Contract Act, 1872 came into force with effect from 1 September 1872. Section 37 of the Act provides that the parties to a contract must either perform or offer to perform their respective promises, unless such performance is dispensed / withor excused under the provision of the Indian Contract Act, or any other law. In case of 1
  2. 2. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 death of the promisor before performance, the representatives of the promisor are bound to perform the promise unless a contrary intention appears from the contract. X promises to deliver a horse to Y on a certain day on payment of Rs 1,000. X dies before that day. X's representatives are bound to deliver the horse to Y and Y is bound is pay Rs. 1,000 to X's representatives. A contract may be discharged by performance, by agreement or consent, by impossibility, by lapse of time, by operation of law or by breach of contract. When both parties fulfill their respective obligation arising under the contract, within the time and manner prescribed in such case, the parties are discharged. A contract may also be discharged by further agreement or consent. A contract may also discharge by lapse of time. Breach of contract is a legal cause of action in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party's performance. If the party does not fulfill his contractual promise, or has given information to the other party that he will not perform his duty as mentioned in the contract or if by his action and conduct he seems to be unable to perform the contract, he is said to breach the contract. A breach of contract is where a party to a contract fails to perform, precisely and exactly, his obligations under the contract. This can take various forms for example, the failure to supply goods or perform a service as agreed. A contract being a correlative set of rights and obligations for the parties would be of no value, if there were no remedies to enforce the rights arising there under. The Latin maxim Ubi jus, ibi remedium denotes where there is a right, there is a remedy. Where the promisor neither performs his contract nor does he tender performance, or where the performance is defective, there is a breach of contract. The breach of contract may be (i) actual or, (ii) anticipatory. The actual breach may take place either at the time the performance is due, or when actually performing the contract. The anticipatory breach, i.e., a breach before the time for the performance has arrived. This may also take place in two ways, by the promisor doing an act which makes the performance of his promise impossible or by the promisor in some other way showing his intention not to perform it. Breach of contract may occur, before the time for performance is due. This may happen where one of the parties definitely renounces the contract and shows his intention not to perform it or does some act which makes performance impossible. The other party, on such a breach being committed, has a right of action for damages. He may either sue for breach of contract immediately after repudiation or wait till the actual date when performance is due and then sue for breach. If the promisee adopts the latter course, i.e., waits till the date when performance is due he keeps the contract alive for the benefit of the promisor as well as 2
  3. 3. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 for his own. He remains liable under it an enables the promisor not only to complete the contract in spite of previous repudiation, but also to avail himself of any excuse for nonperformance which may have come into existence before the time fixed for performance. In Hochester v.s De La Tour (1853) E.R. 922, A hired B in April to act as a courier commencing employment from 1st June, but wrote to B in May repudiating the agreement, B sued A for breach of contract immediately after repudiation. A contended that there could not be breach of contract before June 1. It was held, B was immediately entitled to sue and need not wait till the 1st June, for his right of action to accrue. In Avery v. Bowden (1856) 116 E.R. 1122, A hired B's ship to carry a cargo from Russia. Later on B repudiated the contract. A delayed taking action hoping B would change his mind before the performance date. War broke out between Russia and Britain before the performance date, frustrating the contract. It was held that A lost his right to sue B for damages by his delay. In Frost v. Knight (1872) L.R. 7 Ex. 111, the law on the subject of "anticipatory breach" was summed up as follows: "The promisee if he pleases may treat the notice of intention as inoperative and await the time when the contract is to be executed and then hold the other party responsible for all the consequences of nonperformance: but in that case he keeps the contract alive for the benefit of the other party as well as his own; he remains subject to all his own obligations and liabilities under it, and enables the other party not only to complete the contract, if so advised, notwithstanding his previous repudiation of it, but also to take advantage of any supervening circumstances which would justify him in declining to complete it." When a party to a contract has broken the contract, the other party may treat the contract as rescinded and he is absolved from all his obligations under the contract. Under Section 65 of the Indian Contract Act (ICA), when a party treats the contract as rescinded, he makes himself liable to restore any benefits he has received under the contract to the party from whom such benefits were received. Under Section 75 of the ICA, if a person rightfully rescinds a contract he is entitled to a compensation for any damage which he has sustained through the non-fulfillment of the contract by the other party. Section 64 deals with consequences of rescission of voidable contracts, i.e. where there is flaw in the consent of one party to the contract. Under this Section when a person at whose option a contract is voidable rescinds, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder, from 3
  4. 4. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 another party to such contract, restore such benefit so far as may be, to the person from whom it was received. The law on this issue is dealt with in two statues viz., The Specific Relief Act, 1963 and The Indian Contract Act, 1872. The remedies for breach of contract are suits for:      Damages or compensation Specific performance Injunction Rescission Quantum meruit or punitive damages The word ‘damages’ means monetary compensation for the loss suffered. When a breach of contract takes place, the remedy of damages is the logical consequence of breach. The aggrieved party may seek compensation from the party who breaches the contract. When the aggrieved party claims damages as a consequence of breach, the court takes into account the provisions of law in this regard and the circumstances attached to the contract. The amount of damages would depend upon the type of loss caused to the aggrieved party by the breach. The court would first identify the losses caused and then assess their monetary value. Under Section 73 of the Indian Contract Act, when a contract has been broken, a 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 or damage sustained by reason of the breach. The foundation of the claim for damages rests in the celebrated case of Hadley v. Baxendale. The facts of the case were: There was a breakdown of a shaft in A's mill. He delivered the shaft to B, a common carrier to be taken to a manufacturer to copy and make a new one. A did not make known to B that delay would result in loss of profits. By some neglect on the part of B, the delivery of the shaft was delayed in transit beyond a reasonable time. As a result the mill was idle for a longer period than it would otherwise have been, had there been no such delay. It was held, B was not liable for the loss of profits during the period of delay as the circumstances communicated to A did not show that the delay in the delivery of the shaft would entail loss of profits to the mill. In the course of the judgment it was observed: "Where two parties have made a contract which one of them has 4
  5. 5. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, Le., according to the usual course of things from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants and thus known to both the parties the damages resulting from the breach of such a contract which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. But, on other hand, if these special circumstances were wholly unknown to the party breaking the contract, he at the most could only be supposed to have had in his contemplation, the amount of injury which would arise generally and in the great multitude of cases not affected by any special circumstances from such breach of contract. For, had the special circumstances been known, the parties might have specially provided for the breach 6f contract by special terms as to damages in that case and of this advantage it would be very unjust to deprive them." Section 73 of the Indian Contract Act, 1872 lays down the basic guidelines for identifying the losses: “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, form the party who has broken the contract, compensation for any loss of 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 or damage sustained by reason of the breach.” In Hadley Vs Baxendale (1854) it was held that an injured party may recover those damages reasonably considered to arise naturally from a breach of contract, or those damages within the reasonable contemplation of the parties at the time of contracting. The court held that the usual rule was that the claimant is entitled to the amount he or she would have received if the breaching party had performed; i.e. the plaintiff is placed in the same position she would have been in had the breaching party performed. Under this rule, Hadley would have been entitled to recover lost profits from the five extra 5
  6. 6. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 days the mill was inoperable, if such loss of profit was in the contemplation of the parties at the time of contracting. Keeping in view the provisions of section 73 of ICA and the court judgments, the aggrieved party would be entitled to one of the following types of damages, depending upon the circumstances of the case:  General or ordinary damages: Damages arising naturally and directly out of the breach in the usual course of the things.  Special damages: Compensation for the special losses caused to the aggrieved party by the special circumstances attached to the contract.  Exemplary damages: Damages for the mental or emotional suffering also caused by the breach. In Ghaziabad Development Authority V Union of India (AIR 2000 SC 2003), the Hon’ble court held that in case of breach of contract mental anguish not a head of damages in ordinary commercial contract. In order to claim damages, party has to plead specifically the manner in which he suffered the loss. [State V Pratibha Prakash Bhawan AIR 2005 Ori 58]. The Plaintiff to the suit must prove damage and the amount of the damage. [AIR 1962 SC 366]. In Sitaram Bindraban vs. Chiranjanlal Brijlal it was held that the parties to a contract can create, for themselves, special rights and obligations such as providing for themselves the measure of damages for breach. The Parties can also provide in a contract that in the event of breach, no compensation will be payable except for refund of amounts paid and such a term was held to be enforceable in Syed Israr Masood vs. State of Madhya Pradesh. With regard to measure of damages for breach of warranty, in Mangilal Karwa vs. Shantibai it was held that the amount, which put the plaintiff in the position in which he would have been if the contract had been fulfilled. Liquidated Damages and Penalty: Where the contracting parties agree in advance the amount payable in the event of breach, the sum payable is called liquidated damages. Where the amount of compensation claimed for a breach of contract is left to be assessed by the Court, damages claimed are called unliquidated damages that are of the following kinds: General or ordinary damages are restricted to pecuniary compensation to put the injured party in the position he would have been had the contract been performed. It is the estimated amount of loss actually incurred. Thus, it applies only to the proximate consequences of the breach of the contract and the remote consequences are not generally regarded. For example, in a contract for the sale of goods, the damages payable would be the difference between the contract price and the price at which the goods are available on the date of the breach. Special damages are those resulting from a breach of contract under some peculiar 6
  7. 7. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 circumstances. If at the time of entering into the contract the party has notice of special circumstances which makes special loss the likely result of the breach in the ordinary course of things, then upon his-breaking the contract and the special loss following this breach, he will be required to make good the special loss. For example, A delivered goods to the Railway Administration to be carried to a place where an exhibition was being held and told the goods clerk that if the goods did not reach the destination on the stipulated date he would suffer a special loss. The goods reached late. He was entitled to claim special damages Exemplary or punitive damages are awarded to punish the defendant and are not, as a rule, granted in case of breach of contract. In two cases, however, the court may award such damages, viz.  Breach of promise to marry and  Wrongful dishonor of a customer's cheque by the banker In a breach of promise to marry, the amount of the damages will depend upon the extent of injury to the party's feelings. In the banker's case, the smaller the amount of the cheque dishonored, larger will be damages as the credit of the customer would be injured in a far greater measure, if a cheque for a small amount is wrongfully dishonored. In the case of Time Inc. v Lokesh Srivastava the Delhi High Court granted punitive damages of Rs. 500,000 (US$ 11,000) in a trade mark dispute (2005). Similarly, the National Commission for Consumer Protection pronounced punitive/ exemplary damages against Reliance India Mobile (now Reliance Communication) of Rs. 1.50 lakh for making false statement under affidavit before the court. Nominal damages consist of a small token award, e.g., a rupee of even 25 paise, where there has been an infringement of contractual rights, but no actual loss has been suffered. These damages are awarded to establish the right to decree for breach of contract. For instance, A contracted to purchase ‘LML Scooter’ from B, a dealer, for Rs. 25, 000. But A failed to purchase the Scooter. However, the demand for the Scooter far exceeded the supply and B could sell the Scooter to Z for Rs. 25, 000, i.e., without any loss of profit. Here if B makes a claim upon A for breach of contract, he will be entitled to nominal damages only. In the event that loss is suffered, the court has the discretion to award the aggrieved party nominal damages in recognition of his right. Yet nominal damages are no substitute because the claimant suffered no pecuniary loss. In Beswick v Beswick, Mr Beswick made a contract with his nephew whereby the nephew promised to make payments to Mr Beswick’s widow during his lifetime in return for Mr Beswick’s promise to transfer his business to the nephew. When Mr Beswick 7
  8. 8. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 died, the nephew refused to pay and Mrs Beswick brought an action for breach of contract in her capacity as Mr Beswick’s personal representative. The nephew argued that, since Mr Beswick had died, his estate had suffered no loss as a result of the breach of contract, and thus nominal damages were adequate. The House of Lords rejected this argument, claiming that it ‘wholly misunderstood’ the adequacy test. ‘Equity will grant specific performance when damages are inadequate to meet the justice of the case’, Lord Upjohn asserted. Far from being a reason to deny specific performance, the fact that only nominal damages could be recovered was the main reason why specific performance should be ordered according to the House of Lords. Where the contracting parties fix at the time of contract the amount of damages that would be payable in case of breach, in English law, the question may arise whether the term amounts to "liquidated damages" or a "penalty"? The Courts in England usually give effect to liquidated damages, but they always relieve against penalty. The test of the two is that where the amount fixed is a genuine pre-estimate of the loss in case of breach, it is liquidated damages and will be allowed. If the amount fixed is without any regard to probable loss, but is intended to frighten the party and to prevent him from committing breach, it is a penalty and will not be allowed. In Indian law, there is no such difference between liquidated damages and penalty- Section 74 provides for "reasonable compensation" upto the stipulated amount whether it is by way of liquidated damages or penalty. For example, A borrows Rs. 500 from B and promises to pay Rs. 1,000 if he fails to repay Rs. 500 on the stipulated date, On A's failure to repay on the given date, B is entitled to recover from A such compensation, not exceeding Rs. 1,000 as the Court may consider reasonable. (Union of India v. Raman Iron Foundry, AIR 1974 SC 1265). Again, for instance, A agreed to sell B his house for Rs. 1, 05, 000, provided that on breach of contract, the defaulting party will pay Rs. 10, 000 as damages to the other. B broke the contract and A resold the house for Rs. 1, 04, 000. A sued B and claimed Rs. 10, 000. It was held that A cannot recover Rs. 10, 000 as liquidated damages or penalty, he could only get the actual loss suffered by him, i.e., Rs. 1000.1 Section 73 of ICA also is variously interpreted by courts. In Union of India vs. Raman Iron Foundry it was held that damages are the compensation which an injured party may be entitled to get on adjudication by court of law but he does not get them by reason of any existing obligation on the part of the party, in breach of contract, who has no pecuniary liability till the court has determined the question of breach and the amount of compensation therefore. The court will not determine pre-existing liability. Further, since the breach of contract does not result in any existing obligation by the party committing breach, the right to recover damages is not an actionable claim and cannot 1 Panna Singh v. Arjan Singh [1929] 23 CWN 949 8
  9. 9. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 be assigned. In Esso Petroleum Co. Ltd. vs. Mardon it was held that where during the pre-negotiation stage of a contract, the party who has special knowledge and expertise concerning the subject matter of negotiation, makes a forecast based on knowledge and expertise with an intention to induce the other party to enter into a contract, it is open to the court to treat the forecast being not only an expression of opinion but a continuing warranty. In such a case, if the estimate turns out to be made negligently and wholly unsound, the party making the forecast can be made liable for breach of warranty. In Murlidhar Chiranjilal vs. Harishchandra Dwarkadas the Supreme Court held that there are two principles on which damages are calculated in case of breach of contract of sale of goods. Firstly, he who proved a breach of a bargain to supply what he has contracted to get is to be placed so far as money can do it in as good situation as if the contract has been performed. Secondly, a duty is imposed on the plaintiff to take all reasonable steps to mitigate the loss consequent to breach, and he is debarred him from claiming any part of the damage which is due to neglect to take such steps. Where the contract itself addresses the issue of consequences of a breach and stipulated a penalty, section 74 of the Indian Contract Act will come into play. When such a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, the party complaining of breach is entitled, to receive from the party who has broken the contract a reasonable compensation not exceeding the amount so named. The Hon’ble Supreme court in Fateh Chand V Balkishan Das [AIR 1963 SC 1405], had held that the jurisdiction of the court to award compensation under section 73 in case of breach of contract is unqualified except as to the maximum stipulated, and compensation has to be reasonable. This section has to be read in conjunction with section 74, section 74 emphasizes that in case of breach of contract, the party complaining of the breach is entitled to receive reasonable compensation whether or not the actual loss is proved. There is no impediment or any obstacle for the parties to a contract to make provisions of liquidated damages for specific breaches only, leaving other types of breaches to be dealt with as unliquidated damages. There is no principle which requires that once the provision of liquidated damages has been made in the contract, in the event of breach of one of the parties, such clause has to be read covering all types of breaches although parties may not have intended and provided for compensation in express terms of all types of breaches. [Steel Authority of India V Gupta Brothers Steel Tubes Ltd. (2009) 10 SCC 63.] In Oil and Natural Gas Corporation Ltd V Saw Pipes Ltd [AIR 2003 SC 2629], the Supreme court laid down the following guidelines:  Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming is entitled to the same; 9
  10. 10. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013  If the terms are clear and unambiguous stipulating 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, the 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.  Section 74 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 the contract.  In some contracts, 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, the court can award the same if it is a genuine pre-estimate by the parties as the measure of reasonable compensation. Suit for Specific Performance: In certain cases of breach of a contract, damages may not be adequate remedy. Then the court may direct the party in breach to carry out his promise according to the terms of the contract. This is an order of the court requiring performance of a positive contractual obligation. But in general, courts do not wish to compel a party to do that which he has already refused to do. It means the actual carrying out by the parties of their contract, and in proper cases the Court will insist upon the parties carrying out this agreement. Where a party fails to perform the contract, the Court may, at its discretion, order the defendant to carry out his undertaking according to the terms of the contract. A decree for specific performance may be granted in addition to or instead of damages. Specific performance is usually granted in contracts connected with land, e.g., purchase of a particular plot or house, or to take debentures in a company. In case of a sale of goods, it will only be granted if the goods are unique and cannot be purchased in the market, e.g., a particular race horse, or one of special value to the party suing by reason of personal or family association, e.g., an heirloom. Part II of the Specific Relief Act, 1963 lays down detailed rules on the specific performance of contracts. Specific performance is not available in the following circumstances:  Damages provide an adequate remedy.  Where the order could cause undue hardship  Where the contract is of such a nature that constant supervision by the court would be required  Where the party seeking the order has acted unfairly Cases where specific performance may be ordered are where: 10
  11. 11. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013  There exists no standard for ascertaining the actual damage caused to the aggrieved party by the non-performance.  Where monetary compensation will not be adequate relief.  Where the act to be done is in the performance of trust. In general the court will only grant specific performance where it would be just and equitable to do so. Suit for Injunction: An injunction is an order of the court requiring a person to perform a negative obligation. But for performance of the positive terms of the contract, the aggrieved party may seek other remedies. An injunction is an order of a Court restraining a person from doing a particular act. It is a mode of securing the specific performance of a negative term of the contract, (i.e. where he is doing something which he promises not to do), the Court may in its discretion issue an order to the defendant restraining him from doing what he promised not to do. Injunction may be prohibitory or mandatory. In prohibitory it is the order of the Court restraining the commission of a wrongful act whereas in mandatory, it restrains continuance of wrongful commission. In Lumley v. Wagner (1852) 90 R.R. 125. W agreed to sing at L's theatre and nowhere else W, in breach of contract with L entered into a contract to sing for Z. Held, although W could not be compelled to sing at L's theatre, yet she could be restrained by injunction from singing for Z. The right to relief by way of injunction is contained in part III of the Specific Relief Act, 1963. Section 36 provides that preventive relief may be granted at the discretion of the court by injunction, temporary or perpetual. Section 38 indicates when perpetual injunctions are granted and section 39 indicates when mandatory injunctions are granted. Section 40 provides that damages may be awarded either in addition to or in substitution of injunctions. Section 41 provides for contingencies when an injunction cannot be granted. Clause (e) of section 41 specifically provides that no injunction can be granted to prevent the breach of contract the performance of which would not be specifically enforced. Section 42 provides for injunction to perform negative agreement. Section 42 states; if the court is unable to compel the specific performance of the affirmative agreement shall not preclude it from granting an injunction to perform the negative agreement, provided Plaintiff has not failed to perform the contract. Suit for Rescission: The breach of contract no doubt discharges the contract, but the aggrieved party may sometimes need to approach the court to grant him a formal rescission, i.e., cancellation, of the contract. This will enable the Plaintiff to be free from his own obligations under the contract, e.g. Hungerford Investment Trust ... vs Haridas 11
  12. 12. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 Mundhra & Others on 9 March, 1972 (1972 AIR 1826, 1972 SCR (3) 6902). Section 27 of the Specific Relief Act provides that rescission may be adjudged or refused where the contract is:  Voidable or terminable by the plaintiff;  Unlawful for causes not apparent on its face and the defendant is more to blame than the plaintiff. Section 29 provides that a plaintiff instituting a suit for the specific performance of a contract in writing may pray in the alternative that, if the contract cannot be specifically enforced, it may be rescinded and delivered up to be cancelled; and the court, if it refuses to enforce the contract specifically, may direct it to be rescinded and delivered up accordingly. Section 30 empowers courts, on adjudging the rescission of a contract, to require the party to whom such relief is granted to restore, so far as may be, any benefit which he may have received from the other party and to make any compensation to him which justice may require3.. Improper recession of a contract may also result in compensation for loss of profit being awarded under Section 73 as was held by the Supreme Court in the case of Dwarka Das v State of Madhya Pradesh. Punitive Damages: Punitive damages are damages intended to reform or deter the defendant. Although the purpose of punitive damages is not to compensate the plaintiff, the plaintiff will in fact receive all or some portion of the punitive damage award. Punitive damage is often awarded where compensatory damages are deemed an inadequate remedy. The court may impose them to prevent under-compensation of plaintiffs, to allow redress of undetectable torts and taking some strain away from the criminal justice system. Being influenced by Rookes v Barnard4, the Supreme Court ruled that punitive damages can be awarded in only three categories5:  Cases where the plaintiff is injured by the oppressive, arbitrary or unconstitutional action by a servant of the Government  Cases in which the defendant’s conduct has been calculated by him to make a profit for himself which may well exceed the compensation payable to the plaintiff, and  Where provided by statute. 2 Extracted on Sep 22, 2013 from Extracted on Sep 22, 2013 from,%201963/CHAPTER%20IV%20RES CISSION%20OF%20CONTRACTS 4 Rookes v Barnard [1964] UKHL 1, [1964] AC 1129 (21 January 1964) 5 Rustom K. Karanjia and Anr. v Krishnaraj M.D. Thackersey and Ors (1970) 72 BOMLR 94. 3 12
  13. 13. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 However, this stand has since shifted with an expanding tort jurisdiction. The Supreme Court accepted a Committee's suggestion to evolve a "principle of liability – punitive in nature – on account of vandalism and rioting"6. The reasoning given was that it "would deter people from similar behaviour in the future". In an environmental tort case, the defendant was made to pay exemplary damages "so that it may act as deterrent for others not to cause pollution in any manner"7. Consequential damages, a type of compensatory damages, may be awarded when the loss suffered by a plaintiff is not caused directly or immediately by the wrongful conduct of a defendant, but results from the defendant’s action instead. For example, if a defendant carried a ladder and negligently walked into a plaintiff who was a professional model, injuring the plaintiff’s face, the plaintiff could recover consequential damages for the loss of income resulting from the injury. These consequential damages are based on the resulting harm to the plaintiff’s career. They are not based on the injury itself, which was the direct result of the defendant’s conduct. The measure of compensatory damages must be real and tangible, although it can be difficult to fix the amount with certainty, especially in cases involving claims such as pain and suffering or emotional distress. In assessing the amount of compensatory damages to be awarded, a trier of fact (the jury or, if no jury exists, the judge) must exercise good judgment and common sense, based on general experience and knowledge of economics and social affairs. Within these broad guidelines, the jury or judge has wide discretion to award damages in whatever amount is deemed appropriate, so long as the amount is supported by the evidence in the case. A plaintiff can recover damages for a number of different injuries suffered as a result of another person’s wrongful conduct. The plaintiff can recover for a physical impairment if it results directly from a harm caused by the defendant. The jury, in determining damages, considers the present as well as long-range effects of the disease or injury on the physical well-being of the plaintiff, who must demonstrate the disability with reasonable certainty. Compensatory damages can be awarded for mental impairment, such as a loss of memory or a reduction in intellectual capacity suffered as a result of a defendant’s wrongful conduct. A plaintiff may recover compensatory damages for both present and future physical pain and suffering. Compensation for future pain is permitted when there is a reasonable likelihood that the plaintiff will experience it; the plaintiff is not permitted to recover for future pain and suffering that is speculative. The jury has broad discretion to award damages for pain and suffering, 6 7 J. Kuppanna Chetty, Ambati Ramayya Chetty and Co. v Collector of Anantapur and Ors 1965 (2) ALT 261 Klaus Mittelbachert v East India Hotels Ltd at [64] 13
  14. 14. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 and its judgment will be overturned only if it appears that the jury abused its discretion in reaching the decision. Mental pain and suffering can be considered in assessing compensatory damages. Mental pain and suffering includes fright, nervousness, grief, emotional trauma, anxiety, humiliation, and indignity. Historically, a plaintiff could not recover damages for mental pain and suffering without an accompanying physical injury. Today, most jurisdictions have modified this rule, allowing recovery for mental anguish alone where the act precipitating the anguish was willful or intentional, or done with extreme care-lessness or recklessness. Ordinarily, mental distress brought on by sympathy for the injury of another will not warrant an award of damages, although some jurisdictions may allow recovery if the injury was caused by the willful or malicious conduct of the defendant. For instance, if an individual wrongfully and intentionally injures a child in the presence of the child’s mother, and the mother suffers psychological trauma as a result, the defendant can be liable for the mother’s mental suffering. In some jurisdictions, a bystander can recover damages for mental distress caused by observing an event in which another person negligently, but not intentionally, causes harm to a family member. Compensatory damages of an economic nature may also be recovered by an injured party. A plaintiff may recover for loss of earnings resulting from an injury. The measure of lost earnings is the amount of money that the plaintiff might reasonably have earned by working in her or his profession during the time the plaintiff was incapacitated because of the injury. In the case of a permanent disability, this amount can be determined by calculating the earnings that the injured party actually lost and multiplying that figure out to the age of retirement—with adjustments. If the amount of earnings actually lost cannot be determined with certainty, as in the case of a salesperson paid by commission, the plaintiff’s average earnings or general qualities and qualifications for the occupation in which she or he has been employed are considered. Evidence of past earnings can also be used to determine loss of future earnings. As a general rule, lost earnings that are speculative are not recoverable, although each case must be examined individually to determine whether damages can be established with reasonable certainty. For example, a plaintiff who bought a restaurant immediately before suffering an injury could not recover damages for the profits he might have made running it, because such profits would be speculative. A plaintiff who is unable to accept a promotion to another job because of an injury would stand a better chance of recovering damages for loss of earnings, because the amount lost could be established with more certainty. 14
  15. 15. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 Individuals injured by the wrongful conduct of another may also recover damages for impairment of earning capacity, so long as that impairment is a direct and foreseeable consequence of a disabling injury of a permanent or lingering nature. The amount of damages is determined by calculating the difference between the amount of money the injured person had the capacity to earn prior to the injury and the amount he or she is capable of earning after the injury, in view of his or her life expectancy. Loss of profit is another element of compensatory damages, allowing an individual to recover if such a loss can be established with sufficient certainty and is a direct and probable result of the defendant’s wrongful actions. Expected profits that are uncertain or contingent upon fluctuating conditions would not be recoverable, nor would they be awarded if no evidence existed from which they could be reasonably determined. A plaintiff can recover all reasonable and necessary expenses brought about by an injury caused by the wrongful acts of a defendant. In a contract action, for example, the party who has been injured by another’s breach can recover compensatory damages that include the reasonable expenses that result from reliance on the contract, such as the cost of transporting perishable goods wrongfully refused by the other contracting party. In other actions, expenses awarded as part of compensatory damages may include medical, nursing, and prescription drug costs; the costs of future medical treatment, if necessary; or the costs of restoring a damaged vehicle and of renting another vehicle while repairs are performed. Interest can be awarded to compensate an injured party for money wrongfully withheld from her or him, as when an individual defaults on an obligation to pay money owed under a contract. Interest is ordinarily awarded from the date of default, which is set by the time stated in the contract for payment, the date a demand for payment is made, or the date the lawsuit alleging the breach of the contract is initiated. The fact that case law has amplified the ambit of ICA testifies to contract being a fundamental precept of civilized society. Not only does ICS provide for penalties for breach of contract but it does so primarily so that such instances are not repeated. Faith and trust enshrined in a legal document binding on both parties with consideration and capacity to contract is held sacred by courts that, in turn, have covered numerous unique instances by their ever widening interpretation of the ICA and Specific Relief Acts in India. 15
  16. 16. KUNAL BASU LLB SEM. I BLL 102 FACULTY: MR. A. VASHISHTHA DATE: SEP 25, 2013 BIBLIOGRAPHY Beatson, J (2010): Anson's Law of Contract, Oxford University Press, India Singh, Avtar: Law of Contract and Specific Relief Bangia, RK (2013) - Law of Contract and Specific Relief, 6th ed M. P. Furmston, Geoffrey Chevalier Cheshire, Cecil Herbert Stuart Fifoot (2007): Cheshire, Fifoot and Furmston's Law of Contract. Oxford University Press. 16