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Consequences of Breach of Contract

This document discusses remedies for breach of contract, including damages. It outlines parameters for determining the quantity of damages, such as the market price rule, cost of cure rule, and profits made by the defendant. It also discusses limitations on awarding damages, including causation, remoteness, mitigation, and avoiding speculative damages. Courts aim to fairly compensate the harmed party for losses directly resulting from the breach of contract.

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20 views

Consequences of Breach of Contract

This document discusses remedies for breach of contract, including damages. It outlines parameters for determining the quantity of damages, such as the market price rule, cost of cure rule, and profits made by the defendant. It also discusses limitations on awarding damages, including causation, remoteness, mitigation, and avoiding speculative damages. Courts aim to fairly compensate the harmed party for losses directly resulting from the breach of contract.

Uploaded by

201360190
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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1.

2 Consequences Of Breach Of Contract


The suit for damages is filed in case the valid contract is breached by one of the contracting
parties, If the valid contract does‟t exist between the parties, the breach does‟t incur damages,
This principle has been enunciated in case law which the Plaintiff were the owner of a
bungalow, showing their willingness to rent out same to respondents and the offer was
acceptable to latter subject to clearance by authorities regarding amount of rent and suitability
of the building for office accommodation.
1.3 Existence Of Validity Of Contract
There are certain essential elements for the existence of validity of the contract as mentioned
below.
1.3.1 Consensus Ad-Idem
The term “Consensus Ad Idem” in the law of contract means meeting and synchronization of
the minds of contracting parties which is fundamentally essential for the foundation of the
contract.
1.3.2 Pacta Sunt Servanda
In contract law, "Pacta Sunt Servanda" states that agreements must be kept for proof and to
stipulate defined rights and obligations. Courts use the principle of interpretation to determine
contract terms but tend towards a presumption of validity rather than Pacta Sunt Servanda.
. 1.3.3 Terms of a Contract
Four types of contractual terms include express, incorporated, consensual, and imputed.
Express terms refer to explicitly stated promises, incorporated terms refer to other
instruments, consensual tacit terms are consensus terms, and imputed tacit terms are
intentions based on assumption.
1.4 Remedies Available In Case Of Breach Of Contract
Contracts are formed to be performed, with the promised performance being the primary
contractual interest. In case of breach, remedies include specific performance, injunctive relief,
compensatory damages, punitive damages, monetary awards, termination, and agreed sum
awards. These remedies protect the performance interest and ensure the aggrieved party
receives the promised performance.
1.4.1 Pecuniary and Non-Pecuniary Loss
Pecuniary loss compensates aggrieved parties, while non-pecuniary loss does not involve actual
loss. Courts determine entitlement, with pecuniary losses typically awarded for enjoyment.
1.4.2 Liquidated Damages (LDs) and Un-Liquidated Damages (ULDs)
Damages refer to compensation and loss or injury, while damages refer to liquidated and un-
liquidated damages. Determining damages is crucial in the expectation interest approach,
where the plaintiff's value is made good. Quantum and measure of damages focus on the
amount of damages, while legal considerations involve the measure of damages.
1.5 Critical Analysis Of Sections 73, 74, And 75 Of The Contract Act, 1872
Section 73 of the Contract Act of 1872 outlines the process for calculating damages for contract
violations. The harmed party must establish the breach and provide evidence. This applies to
liquidated damages and compromise decrees, where the court must determine reasonable
compensation. Damages are calculated starting from the revoked date.

1.6 Parameters To Determine The Quantity Of Damages

establishing guidelines for calculating damages for violation of contract.


1.6.1 Market Price Rule
The market price rule requires aggrieved parties to mitigate losses by buying or selling goods
and subtracting the contract price in cases of breach. It doesn't apply in areas with no market or
where buyers cannot mitigate losses.
1.6.2 Cost of Cure Rule
According to the cost of cure principle, fair compensation for contract breaches should be given
in order to prevent unfair enrichment. In one instance, the court gave the plaintiff £750 for
inconvenience and £2500 for loss of enjoyment despite the fact that the plaintiff had sued the
defendant for damages equal to loss. Later, the court of appeals upheld the £2,500.5 judgment.
1.6.3 Profit Made by the Defendant
Convenience loss refers to special damages contemplated during contract making, while direct
loss involves decreased profits and overhead costs. Future loss damages can be claimed
separately, and profit loss is a direct consequence of a contract breach.
1.6.4 Restitution
Restitution is a remedy for unjust enrichment, where a claimant seeks to recover money rather
than damages. This law is applicable even if the contract is unavailable, as restitution is
available in such cases.
1.6.5 Award of Reasonable Compensation
Section 74 of the 1872 Contract Act does not differentiate between liquidated damages and
penalties but specifies contractual breach amounts and reasonable compensation for aggrieved
parties.
1.7 Limitations On The Award Of Damages
Damage estimation is a technical area of civil litigation, involving the award of damages for civil
wrongs or breach of contract. Limitations include certainty, causation, fault, avoidability, and
foreseeability. The plaintiff must establish a causal connection between the claimant's loss and
the defendant's breach, show a foreseeable loss, and show reasonable certainty in damages.
The doctrine of avoiding ability limits recoverable damages without burden, humiliation, or risk.
Parties can agree on remedies, but disproportionate amounts may be refused in certain
jurisdictions.
1.7.1 Causation
A breach of contract results in compensation for the other party, but the main reason for loss
must be the breach. In a case, the plaintiff claimed costs for arranging another vessel, while the
defendant claimed war delays.

1.7.2 Remoteness

The Hadley case highlights the rule of remoteness in contract breaches, where a plaintiff sued a
defendant for damages for wages and lost profit. The court ruled that the aggrieved party could
recover natural loss or compensatory damages in negotiation, while special damages are only
awarded in special circumstances.
1.7.3 Mitigation
Mitigation of loss is crucial in assessing damages, as both claimants and appellants are obligated
to take reasonable steps to mitigate their loss. In a case law, the appellant's attorney was liable
for not taking reasonable steps to point out a defective title, but not for the loss caused by his
dislocation, as it was not in the parties' contract contemplation during contract formation.
1.7.4 Reliance Loss
Restitution law addresses unjust enrichment, where a claimant seeks money back instead of
damages, addressing inadequate contract performance and restitution.
1.7.5 Discomfort and Disappointment
The principle of discomfort and disappointment states that damages can only be claimed in
cases where the contract is about comfort and enjoyment. In a case, a plaintiff booked a
holiday in Ceylon, but the hotel was uncomfortably clean and unserviced. The court ruled that
the appellant was entitled to damages, but not his family, who were not parties to the contract.
1.7.6 Inconvenience
The inconsistency principle requires courts to award damages for physical hardships caused by
a defendant's failure to fulfill contractual obligations. This distinction distinguishes between
inconvenience, discomfort, disappointment, and annoyance.
1.7.7 Diminution of Future Prospects
The principle of damages awards damages to claimants for losses resulting from defendants
affecting their future prospects, such as qualifications or training. In a case law, a defendant
engaged a claimant for an apprenticeship but terminated the contract. The claimant claimed
salary and loss of future prospects, and the court held that they were entitled to all salaries and
losses.
1.7.8 Speculative Damages
Vaughan J. states that damages cannot be assessed with certainty, but the wrongdoer must pay
the claimant. This principle is illustrated in a case where a claimant entered a beauty contest
and was unsuccessful in getting an interview. She claimed speculative damages for lost
employment, but the defendant appealed, arguing they were based on speculation and could
not be assessed.

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