Breach of Contract and Remedies

Breach of Contract and Remedies
Breach of Contract
 Breach of Contract could be either anticipatory or actual and could
lead to termination of contract
 Anticipatory breach could occur when a contracting party refuses

to accept and /or acts in a way which could potentially affect the
performance of the contract before the arrival of the time where
performance of the contract / clause / ancillary contract starts.
 E.g., A trainee employee refuses to undertake the test or delays undertaking

the test which could qualify him as a confirmed employee of the organization
and thereby entrusts various obligations like service bond, notice period
etc.,
 E.g., A senior executive of the firm joins a competitor firm which makes the
firm apprehensive that s/he may disclose the trade secrets to benefit the
competitor at the expense of his/her previous employer.
Handling Anticipatory Breach
 In case of an anticipatory breach, the affected contracting party
may cancel the contract and at once initiate legal proceedings
against the party which repudiated the contract in order to get
compensation for damages
Or
 The affected party could wait till the time for execution of the
contract and sue the other party for not honoring the agreement.
 It means that the affected party recognizes the validity of the contract until
the arrival of the time for execution and it provides an opportunity for the
other party to perform the contract.
Actual Breach
 Actual Breach by contracting parties may happen either at the time
of performance of contract is due or during the performance of the
contract.
 E.g., Ram Kumar accepted the offer letter from Firm “A” which had one
month notice period clause. However, the Firm had revised the notice period
clause to “3 months” when Ram kumar was about to sign the employment
contract at the time of the joining the firm.
Or
 E.g., Jan Peter signed an employment contract with Jet Airways Rs. 1500
Flight Duty Allowance per day. However, Jet Airways reduced that amount
to Rs. 500 during the employment term and thereby breaching the contract.
Handling Breach of Contract
 Cancellation or Rescission of Contract
 Seeking Compensation for Damages
 Seeking a Decree for “Specific Performance” from Court of Law
 Seeking An Injunction from Court of Law
 Seeking Quantum Meruit
Rescission of the Contract
 Affected Party may approach the court of law in order to rescind
the contract so that s/he could be free from obligations.
 Rescinding the contract enables the affected party to seek

compensation from the party who breaches contract for damages.
 It depends on the nature of breach on a case to case basis as what

kind of damage could be obtained from the party who breaches the
contract.
Understanding Damages
 Ordinary Damages:
 The affected party would be entitled to ordinary damages for any loss s/he
might have naturally suffered as a direct consequence of a breach by the other
contracting party. (E.g., Flight ticket cancellation and the direct
inconvenience but not the opportunity cost in terms of loss of business etc.,)
 Special Damages
 Special Damages are sought for any loss the affected party might have
incurred as an indirect consequence of a breach by the other party. (e.g.,
Loss of revenue or market share because a pilot resigns from his service
without fulfilling his notice period and / or training bond obligations)
 The affected party may seek special damages for loss of profit etc., in
addition to actual damages when there is an extraordinary circumstance
present and it is communicated to the other contracting party. In such cases, the
party who breach the contract is liable to pay special damage due to non-
performance of the contract.
Understanding Damages
 Vindictive Damages (or Punitive or Exemplary Damages)
 The party which breaches the contract may be taken to court by the affected
party not solely with the intention to seek monetary compensation but for penalizing
the party for affecting the sentiments of the affected party. In such cases, the
penalty would depend upon the severity of shock received by the affected
party due to non-performance of contract.
 Nominal Damages
 The affected party is entitled to nominal damages when it is difficult or
almost impossible to calculate the actual loss suffered due to the breach of
contract.
Understanding Liquidated Damages and Penalty
 Liquidated Damages
 It essentially means that contracting parties conscientiously attempt to
estimate the loss in case of breach of contract by either party and mention
the same in the contract as liquidated damages.
 Penalty
 Unlike liquidated damages, the contracting parties do not make any attempt
to estimate the loss in case of breach by either party but specify a sum with
the objective to coerce the offending party to honour the contract by
fulfilling the obligations.
Understanding Liquidated Damages and Penalty
 When a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, or if the
contract contains any other stipulation by way of penalty, the party
complaining of the breach is entitled, whether or not actual
damage or loss is proved to have been caused thereby, to
receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the
case may be, the penalty stipulated for. (Section 74 of ICA)
 The above section is applicable for “Service Bonds” which are

entered between the employer and the employee wherein the
employee agrees to work for the employer for a stipulated period.
The 1946 Love Story of Arvind Mills
 Mr. Deshpande was working for Arvind Mills as a Weaving Master and in the
year 1941, he entered into a “service agreement” with his employer for a period
of 3 years. It said;
 “.. shall not during the said term whether he be in the employment or not, get
in the employ of or be engaged or be connected as weaving master or as an
employee under any title discharging substantially the same duties he may be
discharging here with any firm or company or individual in any part of India
including. the Indian States for the space of the said years or any portion of the
remaining period of the said term.”
 Later, Mr. Deshpande joined Rohit Mills Ltd and subsequently Arvind Mills
sued him for breach of “service agreement.”
 After hearing the legal councils, The Bombay High Court said, “We,…grant an
injunction against Deshpande restraining him from getting in the employ of or
being engaged or connected as a weaving master or as an employee under any
title discharging substantially the same duties as a weaving malster, in the Rohit
Mills or any other company or with any firm or individual in any part of India
including the Native States for the term ending on December 31, 1946.”
Seeking Injunction
 The court may give an injunction, either temporary or permanent,
depending on the circumstances of the case, preventing the
offending party from doing something which s/he agreed as per
the contract that s/he would refrain from doing so.
Seeking Relief for Specific Performance
 The affected party may approach the court of law to seek relief for
“Specific Performance” when monetary compensation would not
be sufficient as a remedy.
 This means that the court of law would coerce the offending
party to fulfill the obligations as per the contract rather than
paying an amount to mitigate the loss occurred due to the
breach.
 However, relief for specific performance would be given to the

affected party only if the affected party would not be able to
get a substitute in the market using the monetary
compensation.
Seeking Quantum Meruit
 A Quantum Meruit litigation arises in an event when an express
contract is not completed or it is rendered unperformable by the
contracting parties.
 In such event, the court may award compensation by calculating “the

reasonable value of services,” irrespective of the contract terms,
to measure the damages arising out of this breach and thereby ensuring
equity.
The Onus of Damage Control…
 Mitigation of Damages
 The affected party should do everything possible to mitigate the gravity of
damages due to the breach of contract. It essentially means that the affected
party could not seek compensation for breach of contract when s/he fails to take
reasonable efforts to prevent the losses after the breach.
Further Reading
 “Employment Bond: Legal Status and Current Issues” by Prof. P.K.
Padhi and Prof. E.M. Rao. (The article is available in your
reading material)
 Focus on Types of Employment Bond and Analysis of the Scenarios

 Scenario I – Fixed Period – Type A
 Scenario II – Fixed Period – Type B
 Scenario III – Special Fixed Period
 Scenario IV- Fixed Period – Type C (Return the complete salary)
 Scenario V- Fixed Period – Type D (Compensation for loss incurred)
 Scenario VI- Fixed Amount
 Scenario VII- Prior Deposit
 Scenario VII- Training Expenditure
 Scenario VIII- Foreign Bond
 Scenario IX- Non – release of Personal Document

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Breach of Contract and Remedies

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Breach of Contract and Remedies

 Anticipatory breach could occur when a contracting party refuses

 E.g., A trainee employee refuses to undertake the test or delays undertaking

 Rescinding the contract enables the affected party to seek

 It depends on the nature of breach on a case to case basis as what

 The above section is applicable for “Service Bonds” which are

 However, relief for specific performance would be given to the

 In such event, the court may award compensation by calculating “the

 Focus on Types of Employment Bond and Analysis of the Scenarios

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