business law-Module No.5

8/10/2019 business law-Module No.5

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When you put a limit on what you wil l do,

you have put a limit on what you can do.

Charles Schwab


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Legal Remedies for Breach of Contract

copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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Breach of contract

A breach of contract occurs when a party to the

contract renounces his liability under the

contract, or by his own act, makes it impossiblethat he should perform his obligations under it,

or totally or partially fails to perform such

contractual obligations.

Copyright 2010 reserved with: Sebastian Tharakan, The Businesslawlecturer


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Hochester v. De La Tour (1853) UK

Frost v. Knight (1872) UK

Ms. Sakshi Tripathi v. Mr. Ronnie Banerjee

(2011) Karnataka



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Anticipatory Breach of contract :

An anticipatory breach of contract occurs, when,

prior to (before) the promised date of performance

has arrived, the promisor absolutely repudiates the

contract. It is an announcement by a contracting

party of his intention not to fulfill the contract.

Effect of anticipatory breach :

Sec. 39 Contract Act :

When a party to a contract has refused to perform, or

disabled himself from performing, his promise in i ts

enti rety, the promisee may put an end to the contract,

unless he has signi f ied, by words or conduct, his

acquiescence in its continuance.


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Breach of contract : The legal remedies

The legal solutions if you suffer breach of contract

(1)Suit for damages;

(2)Suit for specific performance;

(3)Suit for injunction; &

(4)Suit for quantum meruit.



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Suit for damages

What is the meaning and the difference between

the terms: damage and damages ?



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Damages means : compensation in money terms

(monetary compensation) for the loss suffered bythe injured party / plaintiff in the contract, as a

result of breach committed by the defendant.

Every suit for damages involves these two

following main issues =

(a)Remoteness of damage ; &

(b)Measure of damages.



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(a)Remoteness of damage :

Ram Kumar v. Lakshmi Narayan (1951) Calcutta


(2011) Karnataka



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Sec. 73 of the Contract Act :When a contract has been broken, the party who suffers by

such breach is enti tled to receive, from the party who has

broken the contract, compensation for any loss or damage

caused to him thereby, (1)which naturally arose in the usual

course of things from such breach, or (2) which the parties

knew, when they made the contract, to be likely to resul t from

the breach of it.



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(1)General damages:

General damages are those which arise naturally,

in the usual course of things from the breach itself,

i.e., the defendant will be liable for all the loss

which naturally happened in the usual course of

things as a result of the breach.



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(2)Special damages :

Special damages are those which arise on account

of unusual circumstances aff ecting the plainti f f.

A court will award special damages only if these

special circumstances were brought to the

knowledge of the defendant at the time of entering /

making the contract, so that the possibility of the

special loss, was in the contemplation of both the

parties at the time of entering contract.



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What are these special circumstances ? :

Heron II, The Koufos v. C. Czarnikow Ltd. (1969) UK


(2011) Karnataka



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special cir cumstance :

The bonus clause ; The incentive clause

a tool for efficiency in commerce ;

the new face of business

Let us always be aware about the legal rules /

terms of our contracts



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(3)Nominal / Notional damages :

Where the plaintiff has suffered no actual loss as a

result of the breach, but if such breach results in

the violation / infringement of some legal right of

the plaintiff, then the court would award nominal or

notional damages. As the term suggests, the

amount awarded by the court would be small.

Ashby v. White (1703) UK



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(4)Exemplary damages :

Exemplary damages differ from ordinary damages.They are punitive in nature, and while awarding

such damages, the aim is also to punish the person

for the wrongful act, and are intended to make an

example of the defendant. Purpose being so, the

quantum awarded is usually on the higher side.However, it is a principle of law that exemplary

damages should not be awarded / should only be

rarely awarded in contract matters, except in cases

of breach of contract to marry.



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According to the AmericanRestatement, exemplary

damages may be allowed where the breach was

wanton or reckless and / or caused bodily harm.

Prema v. Mustak Ahmed (1987) Gujarat HC

Jit Ram Shiv Kumar v. National Insurance Co. Ltd.(2001) SC

Diesen v. Samson (1971) US

Joseph v. Dr. George Moonjel (1994) Kerala



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(5)Liquidated damages / Penalty :

The parties to contract, may beforehand decide

among themselves, the amount of compensation

that shall become payable in the event of breach.

Damages are said to be liquidated, when they are

fixed and agreed upon by the parties. If the sum

represents a genuine pre-estimate of the probable

loss, then they can be recovered and the court will

award the whole liquidated sum, and not more.



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Dunlop Pneumatic Tyre Co. v. New Garage & Motor

Co. Ltd. (1915) UK

Sec. 74 of the Indian Contract Act :

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 contr act contains any other stipulation by way of

penalty, the party complaining of the breach is entitled, ..

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.



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The utility of provision for liquidated damages

(i)it facilitates the calculation of risk;(ii)it removes difficulty of proving actual damage;

(iii)it voids difficulty in assessment, even where

damages are ascertainable;

(iv)It gives the promisee, an assurance;(v)It enables parties to make special provision for

different sums for specified breaches.

United Breweries Ltd. v. State of AP (1997) SC



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(6)Statutory damages :

Certain Acts such as the Railways Act, 1989, the

Motor Vehicles Act, 1939, the Carriage of Goods by

Sea Act, 1925, etc., provide for compensation in

cases of lossof life, injury to limb / body, and

damage or loss of goods in transit. The quantum of

such compensation is usually provided in specific

provisions of the Act, or by specific provisions

supplemented in Schedules appended to the Act.



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(b )Measure of damages :

Once the extent of recoverable loss is determined,it is to be

evaluated in terms of money. This is theaspect of measureof damages, and whilecomputing the same, the court will be

guided by thefollowing principles :

(i)Plaintiffs Plaint Claim & Court Fees payable / paid thereon

(ii)Damages are compensatory, and not penal ;

(iii)In matters of contract, damages for mental painand suffering, will generally be excluded.



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(ii)Damages are compensatory, and not penal ;

The primary aim or principle of the law of damages for abreach of contract, is to place the plainti f f in the same

position he would be in i f the contract had been ful f i l led,

or to place the plainti f f in the position he would have

occupied had the breach of contract not occur red. When

this is accompli shed, the primary aim or principle of the

law of damages has been fulfilled.

Shepherd & Well ington,

Contract & Contract Remedies, 1957, p.912

Copyright 2010, reserved with: Sebastian Tharakan, The Businesslawlecturer


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Duty of M itigation of damage

Explanationto Sec. 73 Contract Act :I n estimating the loss or damage arising f rom a breach of

contract, the means which existed of remedying the

inconvenience caused by non-performance of the contract

must be taken into account.

Injured party has to make reasonable efforts to

avoid losses resulting from breach, so as to keep

his loss to the minimum.

Bismi Abdullah & Sons v. FCI (1987) Kerala



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Suit for specific performance :

A suit for specific performance can be filed when(a)compensation in money (damages) would not be

adequate relief (remedy) for non-performance; or

(b )There is no standard for ascertaining the actual

damage caused by non-performance. However,relief of specific performance is discretionary, and

subject to the provisions of the Specific Relief Act,

1963. In simple terms: the remedy of specific

performance, calls upon the defendant = to performhis part of the contr act.



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Prithvi Raj Singh v. Dalip Kulkarni

(1999) Rajasthan HC

Order of specific performance to dischargeliabilities of a company

Jabalpur Cable Network Pvt. Ltd v. ESPN SoftwareIndia Pvt. Ltd (1999) MP HC

Order of specific performance to continue sendingmessages & signals



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Why is a suit for injunction = a very important and

a much-sought-after legal remedy ?



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Suit for quantum meruit :

A suit for quantum meruit is based on Sec. 65

Contract Act, which states

When an agreement is discovered to be void, any personwho has received any advantage under such agreement or

contract, is bound to restore it, or to make compensation

for it, to the person f rom whom he received it.



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A suit for quantum meruit has its basis in Sec. 65

Contract Act, and contains the principle of

restitution where, after a benefit has been received,the agreement is later discovered to be void. The

Section aims at preventing unjust enrichment and

to prevent a party from avoiding an agreement and

at the same time, retaining the benefits received

under it. It is effected by an order of restitution (torestore / return) the benefit.

quantum merui t = as much as he deserved

quantum valebat = as much as it was worth



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Uttamchand v. Mohan Das (1964) Rajasthan HC

Man Singh v. Khazan Singh (1961) Rajasthan HC

SVTM Carriers v. State of Kerala (2002) Kerala HC



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Dear studentsof ESIBM 2010-2012 MBA,

Your syllabus portions for Business Law 2010 Module

No.5 end with the previous Slide No.34. The foll owing

Slides from Slide No.36 onwards discuss and instruct on the

ContractLaw, but out-of-syll abus, yet commercially

important Topic: Special Contracts. If you wish to whet

your appeti te for more knowledge in this vibrant subject,

feel free to enjoy these Slides.

Seize and enjoy every moment of good learning !

Sebastian Tharakan

The Businesslawlecturer


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Special Contracts



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Contract of Indemnity


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Contract of indemnity :

Sec. 124 Indian Contract Act :

A contract by which one party promises to save the other

from loss caused to him by the conduct of the promisor

himself or by the conduct of any other person, is cal led a

contract of indemni ty.

indemnifier = person who gives the indemnity

indemnified = person for whose benefit, it is given

/ indemnity holder

( Test Question : give an example of indemnitycontract )


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Well done!

All insurance contracts except life insurance,

are contracts of indemnity.



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Mr. Shalin Kotia takes a car insurance

policy with The Oriental Insurance Co.Ltd.

Examine the legal implications and legal

obl igations in this car insurance contract

between M r. Shalin and The Oriental

I nsurance Co. L td., which is essentially a

special contract of indemnity.



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Contract of Guarantee


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Contract of guarantee :


A contr act of guarantee, is a contract to perform the

promise, or discharge the liabi l i ty of a thi rd person in case

of his defaul t. The person who gives the guarantee is calledthe surety, the person in respect of whose default the

guarantee is given is called the pri ncipal debtor, and the

person to whom the guarantee is given is called the

creditor. A guarantee may be either written or oral.

Sebastian Tharakan, The Businesslawlecturer


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SIBM wishes to purchase 50 computers.

The B-School is approached by Mr. Amardeep Singh,

a dealer in computers and computer peripherals with a

quotation. However, the B-school, does not trust the

credibility of Mr. Amardeep, and therefore asks him toprovide a surety / guarantor. Mr. Amardeeps friend:

Mr. Honble Rajib Ganguly, agrees to come forward as

surety / guarantor for this contract of sale of computers

to SIBM.

Examine the legal nature and legal

obl igations in this contract of guarantee

involving the three persons:

Mr. Amardeep Singh, Mr. Honble RajibGanguly and SIBM.



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Differencesbetween contract of indemnity, and a

contract of guarantee :

(i)indemnity = 2 parties; guarantee = 3 parties

(ii)Indemnity = reimbursement of loss;

guarantee = security for the creditor

(iii)Indemnity = liability of indemnifier is primary andarises when the contingent event occurs;guarantee = liability of surety is secondary, andarises only on the default of the principal debtor

(iv) Indemnity = Indemnifier, after performing his

obligation, has no rights against a third partyguarantee = on discharge of his liability, suretysteps into the shoes of the creditor, and may thensue the principal debtor (Doctr ine of Subrogation)


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Continuing guarantee :

A continuing guarantee is standing guarantee to a

series of transactions that shall take place between

the principal debtor and creditor, in future.

A continuing guarantee may be for a specific period,

and may be renewed from time to time.

Union of India v. T. J. Stephen (1990) Kerala

The essence of a contract of continuing guarantee is that it

appl ies not to a specif ic number of transactions, but to any

number of them, and makes the surety liable for the unpaid

balance to the extent of his undertaking.



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Bank guarantee :

A bank guarantee is a sort of absolute undertakingon the part of the bank, under an arrangement with

its customer, to pay to the creditor, whenever the

guarantee is invoked by the latter (creditor).

Bank guarantee, when invoked = transformation into

a loan to customer.



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Letter of credit :

A letter of credit is analogous to a contract of

guarantee. A letter of credit maybe defined as an

agreement shared by a bank, guaranteeing on

behalf of its customer (buyer), to make payments to

the seller of goods, upon the presentation of

documents specif ied in the credit.



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Circumstances leading to = Discharge of surety :

(i)Revocation by creditor of future transactions, bynotice to the creditor and the principal debtor;

(ii) By death of surety;

(iii)By variance in the terms of the contract;

(iv) By release of principal debtor;(v) By an act or omission of the creditor;

(vi)By arrangement between creditor and debtorwithout consent of surety;

(vii)By impairing suretys remedy;(viii)By concealment or misrepresentation.



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Contract of Bailment


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Well done!

delivering cloth to a tailor to stitch a shirt / salwar ;

delivering a car for repair;

delivering goods for consignment;

receiving books from the Book bank / library;

etc., .



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Ms. Shubhi Joshi purchases a piece of clothand delivers the same to Nehas Fashions, afashion designing / tailoring and boutiqueunit owned by Ms. Bhusari Neha Anand, tostitch a salwar.

Examine = (1)the duty of the bailor ;(2)the duties of the bailee ; &

(3)the r ights of the bailee



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Duty of bailor :

To disclose defects (Sec. 150)

Duties of bailee :(i)to take reasonable care (Ss. 151, 152) ;

(ii)not to make unauthorised use (Ss. 153, 154) ;

(iii)not to mix goods (Ss. 156, 157) ;

(iv)to return goods (Ss. 160, 161) ;

(v) To return increase (Sec. 163) ;

(vi)not to set up adverse title (Sec. 167).

Rights of bailee :

Right to compensation & right of lien for expenses

incurred for purpose of bailment (Ss. 158, 170).


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Mr. Abhinav Mangla approaches Axis Bank for ahire purchase / hypothecation loan to purchasea Maruti car. Axis Bank provides him the

requested hire purchase loan consisting of arepayment schedule of 60 equal monthlyinstallments.

Examine the legal nature of this hi re purchaseagreement between M r. Abhinav Mangla andthe Axis Bank, while also pointing out the legalr ights and obligations that are inherent in every

such hire purchase agreement.



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Finder of lost goods .


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A finder of lost goods

a wonder of legal fiction

Ms. Devina Singh finds a locked leather suitcase.She does not know, nor is she able to find the owner.But, presuming that the contents are precious, and thatshe would soon find the owner, she takes the troubleof renting a bank locker to keep in safe custody, theleather suitcase. Later Ms. Devina comes to know that

Ms. Amruta Narkar is the owner of the suitcase, and thatMs. Amruta now demands possession of the leathersuitcase.

Examine the r ights and liabi l i ties of

a finder of lost goods



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He / she becomes a party to a contract:

Sec. 71 : a finder of lost goods is in the

same position as that of a bailee

Duties of a finder of lost goods :

By law, since he / she becomes a bailee, thesame obligations and duties of a bailee, as

given in the provisions relating to bailment will

also apply to the finder of lost goods.



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Rightsof a f inder of lost goods Ss. 168 & 169 :

(i)to retain the goods:

The right of lien, till payment for expenses

incurred

(ii)to sue the owner, where the owner has offered a

specific reward:

(iii)To sell the goods:

when the owner cannot be found, or on refusal

to pay lawful expenses, right of sale(a) when the goods are perishing ;

(b)when value of expenses = 2/3 rd the value ofgoods.


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Contract of pledge


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Contract of pledge :


The bailment of goods as secur ity for payment of a debt or

performance of a promise is called pledge. The bailor is in

this case called the pawnor. The bailee is called pawnee.



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Mr. Amey Sanjay Mulay approaches Mr. TenzinTop-Ten, a money lender, operating under thename of Top-Ten Financ iers, for a loan of

Rs. 20000. Mr. Tenzin demands an equivalentvalue amount of gold as security for the loan.

Mr. Amey Mulay then pledges his wifes goldnecklace with Mr. Top-Ten, to obtain the pledgeloan.

Examine the legal implications, the legal

r ights and duties of these parties to this

special contract of pledge.



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Rights of pawnee Ss. 173 to 176:

(i) right of retainer ;

(ii) right for extraordinary expenses incurred

for preservation of goods ;(iii)right to bring suit ;

(iv) right to sell pledged good .


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business law-Module No.5