Contract Law – Unit IV – Revision Study Notes for LL.B First Year

Study Notes on Contract Law: UNIT IV

Remedies for Breach of Contracts

When a contract is breached, the non-breaching party has several remedies available to seek compensation or enforcement. These remedies include damages, injunctions, restitution, and specific performance.

1. Damages

Damages are monetary compensation awarded to the non-breaching party for the loss suffered due to the breach.

Types of Damages

• Compensatory Damages:
  • Designed to compensate the non-breaching party for the actual loss suffered.
  • Example: A buyer who had to purchase substitute goods at a higher price due to the seller’s breach is compensated for the additional cost.
• Consequential Damages:
  • Cover indirect damages that result from the breach, which were foreseeable at the time of contract formation.
  • Example: If a supplier’s delay causes a factory to shut down temporarily, leading to lost profits, the factory owner can claim consequential damages.
• Punitive Damages:
  • Awarded to punish the breaching party and deter others from similar conduct; generally not awarded in contract cases but in cases of fraud or malicious conduct.
  • Example: A company that deliberately breaches a contract to harm its competitor might be subject to punitive damages.
• Nominal Damages:
  • Small amounts awarded when a breach occurred, but no substantial harm was suffered.
  • Example: A contract for a nominal fee where the breach had no significant impact might result in nominal damages to acknowledge the breach.

Remoteness of Damages

Remoteness refers to the limitation of damages to losses that are reasonably foreseeable.

• Rules:
  • Damages must be directly related to the breach and not too remote.
  • Example: If a supplier fails to deliver materials on time, only the losses that were reasonably foreseeable and directly caused by the delay can be claimed.
• Test for Remoteness:
  • Hadley v. Baxendale Test:
    • Damages are recoverable if they arise naturally from the breach or if they were within the contemplation of the parties at the time of contract formation.
    • Example: If a factory’s machinery is delayed and it’s known to be crucial, the loss of profits due to this delay can be claimed.

Ascertainment of Damages

Ascertainment of damages involves calculating the amount of compensation due.

• Measure of Damages:
  • Based on the difference between the contract price and the market price or the cost to cure the breach.
  • Example: If a contractor breaches a contract by delivering substandard work, the cost to correct the work or the difference in value can be calculated as damages.
• Mitigation of Damages:
  • The non-breaching party must take reasonable steps to mitigate their losses.
  • Example: If a tenant’s lease is wrongfully terminated, they should seek alternative accommodation to minimize their damages.

2. Injunction

An injunction is a court order directing a party to do or refrain from doing a specific act.

Types of Injunctions

• Permanent Injunction:
  • Issued after a trial, it requires a party to permanently cease certain actions or fulfill obligations.
  • Example: An injunction preventing a competitor from using a patented design.
• Temporary Injunction (Interim Injunction):
  • Issued before the final judgment to prevent harm that could occur during the legal proceedings.
  • Example: Temporarily stopping the use of a trade secret until the court decides on the final case.

When Granted and When Refused

• When Granted:
  • When there is a clear legal right that needs protection, and damages are inadequate.
  • Example: Protecting a unique business location from a competitor opening a similar business nearby.
• When Refused:
  • If the plaintiff has an adequate remedy at law (e.g., damages) or if granting the injunction would cause undue hardship.
  • Example: An injunction may be refused if monetary damages are sufficient to address the harm suffered.

3. Restitution

Restitution aims to restore the non-breaching party to the position they were in before the contract was made.

• Purpose:
  • To prevent unjust enrichment of the breaching party.
  • Example: If a contractor is paid for work that was never completed, restitution would involve returning the payment to the client.
• Calculation:
  • Based on the value of the benefit conferred on the breaching party.
  • Example: A party who provided goods or services that were not paid for can seek restitution for the fair value of those goods or services.

4. Specific Performance

Specific performance is an equitable remedy where the court orders the breaching party to fulfill their contractual obligations.

• When Granted:
  • Typically granted in cases involving unique goods or real estate where monetary damages are insufficient.
  • Example: Ordering the sale of a rare artwork or a unique property when the seller refuses to transfer it.
• When Refused:
  • When performance is impossible, or when it would cause undue hardship.
  • Example: Specific performance may be refused if it requires continuous supervision or if the subject matter of the contract is no longer available.

5. Quasi Contracts

Quasi contracts (or implied-in-law contracts) are legal constructs used to prevent unjust enrichment in situations where no formal contract exists.

• Nature:
  • Not actual contracts but legal obligations imposed by courts to ensure fairness.
• Conditions for Quasi Contracts:
  • A benefit was conferred to another party.
  • The benefit was received under circumstances where it would be unjust for the recipient to retain it without compensating the provider.
  • Example: If a person provides emergency medical treatment to an unconscious person, the recipient may be required to pay for the services provided.
• Examples:
  • Payment for goods or services rendered under a mistaken belief that a contract existed.
  • Reimbursement for necessary expenses incurred on behalf of another in a situation where no contract was agreed upon.