LLM Group 2 Business Law Fundamental Principles of Law of Contract and Allied Laws 2018 Question Paper with Solutions

For full marks, cover: the five remedies with the statute for each, taking specific performance in its post-2018 form; then the rules for ascertaining damages, which is the second limb and carries about half the marks, with sections 73, 74 and 75 and the leading Indian cases.

What amounts to a breach

Section 37 of the Indian Contract Act, 1872 requires the parties to a contract either to perform, or to offer to perform, their respective promises, unless performance is dispensed with or excused under the Act or any other law. A breach is the failure to do so when performance is due. Section 39 deals with breach before the time for performance: where a party has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract unless he has signified acquiescence in its continuance.

Section 14 lists what cannot be specifically enforced: a contract where a party has obtained substituted performance under section 20; a contract whose performance involves a continuous duty which the court cannot supervise; a contract so dependent on the personal qualifications of the parties that the court cannot enforce its material terms; and a contract which is in its nature determinable. Section 16(c) requires the plaintiff to prove that he has performed or has always been ready and willing to perform the essential terms to be performed by him. Section 20A bars an injunction that would impede an infrastructure project in the Schedule, and section 14A permits the court to engage experts.

Remedy three: injunction, sections 36 to 42 of the same Act. A temporary injunction is regulated by Order XXXIX of the Code of Civil Procedure, 1908; a perpetual injunction is granted by the decree at the hearing under section 37; a mandatory injunction under section 39. Section 42 is the provision that matters for restrictive covenants: where a contract comprises an affirmative agreement coupled with a negative one, the court's inability to compel the affirmative does not preclude an injunction to enforce the negative. That is how the injunction was granted in Niranjan Shankar Golikari v. Century Spinning and Manufacturing Co. Ltd., AIR 1967 SC 1098.

The rules for ascertaining damages

Rule one: the two limbs of remoteness. Section 73 entitles the party who suffers by the breach to 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, and provides that such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

That is Hadley v. Baxendale, (1854) 9 Exchequer 341, in statutory form and it should be worked. A mill shaft broke and the millers handed it to a carrier to take to the makers as a pattern for a new one. The carrier delayed and the mill stood idle. The Court of Exchequer laid down that damages should be such as may fairly and reasonably be considered as arising naturally, according to the usual course of things, from the breach, 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. Because the carrier did not know that the mill would be idle, the claim for lost profits failed. The second limb therefore requires that the special circumstances be communicated at the time of contracting, not later.

Rule six: where a sum is stipulated, it is a ceiling. Section 74 provides that where a sum is named in the contract as the amount to be paid in case of breach, or the contract contains any other stipulation by way of penalty, the party complaining is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive reasonable compensation not exceeding the amount so named or the penalty stipulated for.

The Indian provision deliberately abolishes the English distinction between liquidated damages and a penalty drawn in Dunlop Pneumatic Tyre Co. Ltd. v. New Garage and Motor Co. Ltd., [1915] Appeal Cases 79. Fateh Chand v. Balkishan Das, AIR 1963 SC 1405, holds that section 74 applies to a forfeiture clause and that the court's jurisdiction is to award reasonable compensation, the claimant having to establish that he suffered loss though not its precise amount. Maula Bux v. Union of India, (1969) 2 SCC 554, adds that where the loss is of a kind which cannot be proved, the sum named may be taken as a reasonable measure, but a security deposit which is in truth a penalty may not be forfeited. Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136, is the modern restatement, holding among other propositions that damage or loss caused is a sine qua non for the application of the section.

Conclusion. An aggrieved party has five remedies. Damages under sections 73 to 75 are always available; specific performance under the Specific Relief Act, 1963 is, since the Amendment Act of 2018 substituted section 10, enforceable as of right rather than in the court's discretion, with substituted performance now provided by the new section 20 and injunctions barred against infrastructure projects by section 20A; injunction under sections 36 to 42 supplies the negative remedy and section 42 makes a restrictive covenant enforceable; rescission under sections 27 to 30 with restoration under sections 64 and 65 undoes the transaction; and quantum meruit under sections 65 and 70 values what has been done where no enforceable contract governs it, as B.K. Mondal shows.