Breach of Contract and Remedies for Breach of Contract: formula sheet

Key formulas

Meaning of breach

Breach = failure or refusal to perform a contractual promise without lawful excuse

Applies only to a valid, enforceable contract.

Actual breach

Actual breach = non-performance on or after the due date, or defective performance during the contract

The time for performance has arrived or performance is under way.

Anticipatory breach

Anticipatory breach = refusal or disabling act before the due date

It can be by express words or by conduct (implied).

Innocent party's options on anticipatory breach

Option 1: treat contract as ended and sue at once | Option 2: wait for the due date and keep the contract alive

Remedy is damages for the loss suffered.

List of remedies

Rescission | Damages | Specific performance | Injunction | Quantum meruit

Remember the five by name. Exam options often mix in wrong items such as novation or accord and satisfaction, which are modes of discharge, not remedies.

Rescission

Aggrieved party treats the contract as cancelled and is freed from its own obligations

Used when the other party breaks a promise. The aggrieved party can also claim compensation for loss.

Damages

Money compensation for loss that naturally arises from the breach, or that both parties knew was likely

Compensation only. It is not meant to punish. Remote and indirect losses are not recoverable.

Specific performance

Court orders the defaulting party to perform the contract as promised

Used when damages are not an adequate remedy, such as contracts for unique property.

Injunction

Court order that restrains a party from doing a particular act

Fits a negative promise, such as a promise not to work for a rival during the contract.

Quantum meruit

Reasonable payment for work already done

Used when a contract is partly performed and then cannot be completed, usually because the other party stopped it.

Section 73 rule

Damages = loss naturally arising from breach + loss the parties knew was likely at the time of contract

Remote and indirect loss is excluded. Foreseeability is judged when the contract is made, not when it is broken.

Ordinary damages

Ordinary damages = loss arising naturally in the usual course of things

No special notice needed. Example: difference between contract price and market price.

Special damages

Special damages = loss from special circumstances, payable only if communicated before or at contract

Without knowledge of the special circumstances, the claim fails as too remote.

Nominal damages

Nominal damages = token sum when breach is proved but no actual loss

Shows the right was violated.

Vindictive damages

Vindictive damages = punishment, not compensation

Generally not awarded for breach of contract. Exceptions are commonly noted for breach of promise to marry and wrongful dishonour of a cheque by a bank.

Duty to mitigate

Recoverable loss = total loss − loss that could reasonably have been avoided

The innocent party must take reasonable steps to reduce loss.

Core rule of Section 74

Compensation awarded ≤ amount named in the contract

The court gives reasonable compensation, and the named sum is only the upper limit.

Liquidated damages

Liquidated damages = genuine pre-estimate of likely loss

Agreed in advance because actual loss is hard to measure.

Penalty

Penalty = sum fixed to threaten, out of proportion to likely loss

In India it is not simply void. Only reasonable compensation is allowed.

Indian position

Liquidated damages and penalty → both treated under Section 74 → reasonable compensation

The label used by the parties does not decide the result.

Condition for claim

Breach of contract + named sum in contract → right to reasonable compensation

Without breach there is no claim.

Specific performance

Court orders actual performance of the contract

Granted when damages are not an adequate remedy, e.g. sale of a particular immovable property or unique goods.

Cases where specific performance is usually refused

Damages adequate / personal skill / continuous duty / court cannot supervise

Contracts for personal service or personal skill are not specifically enforced.

Injunction

Court order restraining a party from doing an act (negative covenant)

Can be temporary or permanent. It enforces a promise not to do something.

Quantum meruit

Claim = reasonable value of work done or goods supplied

Means 'as much as is earned'. Not the full contract price.

Quick revision

• Breach of contract is failure or refusal to perform a contractual promise.
• Actual breach happens on or at the due date of performance, or during performance.
• Anticipatory breach is a refusal declared before the due date.
• On anticipatory breach, the injured party may sue at once or wait until the due date.
• Remedies: rescission, damages, specific performance, injunction, quantum meruit.
• Damages compensate for loss; they are not meant to punish.
• Nominal damages are a token sum when a right is broken but no real loss occurs.
• Remote or indirect loss is not recoverable as damages.
• Section 74 applies whether the agreed sum is called liquidated damages or a penalty; the court allows reasonable compensation not exceeding that sum.
• Specific performance means the court orders the party to perform the contract, usually when money is not enough.
• Injunction restrains a party from doing something it promised not to do.
• Quantum meruit means payment in proportion to work done, when the contract cannot be completed.

Common mistakes

• Calling every refusal an actual breach. Fix: Compare the refusal date with the due date. Earlier means anticipatory.
• Thinking the innocent party must wait until the due date. Fix: Remember the party may treat the contract as ended at once and sue, or may choose to wait.
• Treating specific performance as the usual remedy. Fix: Remember that damages are the normal remedy. Specific performance is used only when money is not adequate, such as unique property.
• Confusing rescission with discharge by agreement. Fix: Rescission as a remedy is chosen by the aggrieved party after a breach. Discharge by mutual agreement needs both parties to agree.
• Thinking damages are meant to punish the defaulter. Fix: Remember that contract damages compensate. Punitive or vindictive damages are generally not awarded for breach of contract.
• Awarding special damages without checking whether the defaulter knew of the special circumstances. Fix: Special loss is recoverable only if it was within the knowledge of both parties when they made the contract.
• Saying a penalty clause is always void in India. Fix: Remember Section 74 gives reasonable compensation up to the named sum for both types of clause.
• Awarding more than the named sum when loss is higher. Fix: The named sum is the ceiling. Never go above it under Section 74.
• Thinking courts order specific performance in every breach. Fix: Remember it is an exception, granted only where damages are not adequate.
• Saying a court can force a singer or artist to perform. Fix: Personal service contracts are not specifically enforced. The court can only restrain the artist from working elsewhere through an injunction.

Exam tips

• Always read the dates in the question. The type of breach usually depends on them.
• Expect MCQs that ask what the innocent party can do on anticipatory breach. Remember both options.
• Watch for options that say the contract continues only for one party. The contract stays alive for both if the innocent party waits.
• Link this topic with discharge by breach and with damages, as questions often mix them.
• Questions often give a short fact pattern and ask for the remedy. Look for clue words: unique, cancel, compensation, stop, partly done.
• Learn the five remedies by name so you can reject options like novation, waiver or accord and satisfaction.
• Remember that damages are the general remedy and specific performance is the exception.
• Do not spend time on long theory. Match the facts and mark the answer. There is no negative marking, so always attempt every question.