Business Laws · The Indian Contract Act, 1872

Remedies for Breach of Contract: CA Foundation Business Laws

Updated 4 October 2026

Remedies for breach of contract are the reliefs open to the innocent party when the other side breaks the contract: rescission, damages (Sections 73 and 74), quantum meruit, specific performance and injunction. To solve a question, identify the breach, pick the remedy that fits the facts, state the rule, apply it, and conclude.

Understand Remedies for Breach of Contract

A breach happens when one party fails to perform a promise without legal excuse. The law then gives the other party a remedy. The aim is mostly to put the innocent party in the position they would have been in if the contract had been performed.

There are five remedies you must know. Rescission lets the innocent party treat the contract as ended and refuse their own performance. Damages is money compensation. Quantum meruit means 'as much as is earned': a claim for a reasonable payment for work already done. It is not set out in Sections 73 or 74, and the provisions supplied for this page do not cover it, so state it as a general principle without a section number. Specific performance is a court order to perform the contract as promised. Injunction is a court order stopping a party from doing something they promised not to do.

Damages are the main remedy. Under Section 73, the injured party gets compensation for loss which naturally arose in the usual course of things from the breach, or which both parties knew, when they made the contract, was likely to result from it. Remote and indirect loss is not paid. This is the idea in the English case Hadley v Baxendale, which is commonly cited for the rule. The loss must also be reduced by any means that existed to remedy the inconvenience, so you must try to limit your loss.

Section 74 deals with a sum named in the contract as payable on breach, or any other stipulation by way of penalty. Whether or not actual loss is proved, the injured party gets only reasonable compensation not exceeding the named amount. So Indian law does not draw a hard line between liquidated damages and penalty. The court always awards reasonable compensation, capped at the named sum. The Explanation says a stipulation for increased interest from the date of default may be a penalty.

Specific performance and injunction are discretionary court orders, usually sought when money is not an adequate remedy, for example a contract to sell a unique property. Note that rescission of a voidable contract is communicated or revoked in the same manner as a proposal (Section 66).

Key rules to remember

Compensation for breach (Section 73): Damages = loss that naturally arose in the usual course of things, or that the parties knew was likely to result; Remote and indirect loss is not allowed. Take into account the means available to remedy the inconvenience.
Ordinary vs special damages: Ordinary: natural loss from breach. Special: allowed only if the parties knew of the special circumstances when contracting; Illustration (p) of Section 73: no liability for mill closure if the seller knew nothing of the buyer's business.
Stipulated sum or penalty (Section 74): Compensation = reasonable amount ≤ sum named or penalty stipulated; Payable whether or not actual damage or loss is proved. The court decides what is reasonable.
Market-difference measure for sale: Damages (buyer's claim) = market price at time of breach − contract price (if positive); For a seller's claim, it is contract price − market price. Based on Section 73 illustrations (a), (c) and (d).
Rescission of voidable contract (Section 66): Communicated or revoked like a proposal; Apply the same rules as for communicating or revoking a proposal.
Quantum meruit: Claim = reasonable value of work done or goods supplied; A general principle outside the supplied provisions, so write it without a section number. Used where the contract is cut short by the other party's breach and the work already done has value.

How to solve Remedies for Breach of Contract questions

Use this order for any problem question on remedies. It matches the provision-facts-conclusion structure that earns step marks.

1Identify the breach: who failed to perform which promise, and whether it was without legal excuse.
2Decide what the innocent party wants: money, completion of the contract, a stop order, payment for work done, or release from the contract.
3Name the remedy and state its rule in one or two plain sentences, with the section number where you are sure (Section 73 for damages, Section 74 for stipulated sums).
4For damages, test the loss: is it natural and usual, or known to both parties at the time of contracting? If not, it is remote.
5Check whether the contract names a sum or penalty. If yes, apply Section 74: reasonable compensation, not more than the named sum.
6Apply the rule to the facts with figures, showing the subtraction clearly.
7Write a one-line conclusion that answers exactly what the question asked.

Quickest way: Remedy match and loss filter

When to use it: Use it when time is short and the question has facts plus a 'what can X claim?' ending.

Underline the key fact words: unique property, work done, named sum, special order, stop doing.
Match: money loss = damages; named sum = Section 74; work done and contract ended = quantum meruit; unique subject matter = specific performance; negative promise = injunction.
Filter the loss: keep natural loss and loss both parties knew of. Drop anything the other party was never told about.
Write the rule, the application and the conclusion in three short paragraphs.
Show the arithmetic on its own line so the examiner sees it.

Common mistakes in Remedies for Breach of Contract

Awarding the full named sum under Section 74 automatically.
Students read the contract figure as fixed.
Fix: Write that the party gets reasonable compensation not exceeding the named sum, even without proof of actual loss.
Claiming special losses the other party never knew about.
Students focus on the loss and forget the knowledge test.
Fix: Always ask whether the circumstances were communicated or known at the time of contracting. If not, the loss is remote.
Saying Indian law treats liquidated damages and penalty differently.
English law notes mix into Indian answers.
Fix: Section 74 covers both. The result is the same: reasonable compensation capped at the stipulated amount.
Confusing quantum meruit with damages.
Both involve money.
Fix: Quantum meruit pays for the value of work already done. Damages pay for loss caused by the breach.
Ignoring the duty to reduce loss.
Students only compute the headline figure.
Fix: Section 73's Explanation requires you to take into account the means of remedying the inconvenience. Mention it when facts show other options.
Giving damages for mental distress or ruin from late payment.
Sympathy for the injured party overrides the rule.
Fix: Remember illustration (n): for a late money payment, only the principal and interest up to payment are recoverable.

Worked examples

Example 1

A agrees to deliver 50 maunds of rice to B at ₹2,000 per maund. A refuses to deliver. On the date of breach, the market price is ₹2,300 per maund. B buys the rice elsewhere at the market price. B had also promised to sell the rice to C at ₹2,600 per maund, but A did not know this. What can B claim from A?

Show the solution

Breach: A refused to deliver goods promised under the contract.
Remedy: damages under Section 73. The loss must arise naturally in the usual course of things or be known to both parties as likely.
Ordinary loss: market price − contract price = ₹2,300 − ₹2,000 = ₹300 per maund.
Total: 50 × ₹300 = ₹15,000.
Special loss: B's resale profit to C was not known to A at the time of contracting, so it is remote and not recoverable. This follows the approach in illustration (o) of Section 73, where market price and not the resale profit is used.

Answer: B can claim ₹15,000 as damages. The profit from the resale to C cannot be claimed.

Example 2

X borrows ₹50,000 from Y and signs a bond that on default of repayment on the due date, X will pay ₹80,000. X defaults. Y proves actual loss of ₹6,000 from the delay. Can Y recover ₹80,000?

Show the solution

Breach: X failed to repay on the due date.
The contract names a sum payable on breach (₹80,000). Section 74 applies.
Under Section 74, the injured party gets reasonable compensation not exceeding the named sum, whether or not actual loss is proved.
The court decides what is reasonable, with a ceiling of ₹80,000. The sum is not automatically payable in full.
On these facts, with loss shown as ₹6,000, the court would likely award a reasonable amount near the loss, and in no case more than ₹80,000.

Answer: Y cannot claim ₹80,000 as of right. Y can recover only reasonable compensation fixed by the court, not exceeding ₹80,000. On the facts given, an award around the proved loss is likely.

Exam tips

Business Laws is subjective, so write the rule, the application and the conclusion for every part. Do this even in short questions to earn step marks.
Quote Section 73 and Section 74 by number and keep the wording close to the law: 'naturally arose in the usual course of things' and 'reasonable compensation not exceeding'.
In problem questions, list which losses are allowed and which are remote, then add up only the allowed ones.
Use short illustrations from the Act, such as the saltpetre sale, the delayed machine or the late money payment, to support your answer.
Keep definitions of quantum meruit, specific performance and injunction to one clear line each, then link them to the facts. Do not attach a section number to quantum meruit unless your study material gives one.

Practice questions from The Indian Contract Act, 1872

Remedies for Breach of Contract: frequently asked questions

What is the difference between liquidated damages and penalty under Section 74?

Under Section 74, both a named sum and a penalty stipulation are treated the same way. The injured party gets reasonable compensation not exceeding the named amount, whether or not actual loss is proved. The court decides what is reasonable.

What is quantum meruit in simple words?

It means 'as much as is earned'. If a contract is stopped by the other party's breach after you have done part of the work, you can claim a reasonable payment for the work done. For example, a painter who has finished half a job before the owner cancels. It is a general principle, not part of Sections 73 or 74.

What is the Hadley v Baxendale rule?

It is the English case rule that damages cover loss arising naturally from the breach or loss both parties knew was likely when contracting. Section 73 states the same idea. Loss from special circumstances the other party did not know about is not recoverable.

When can a court order specific performance?

A court may order it when money damages are not an adequate remedy, such as a contract for a unique piece of property. It is a discretionary remedy, so the court is not bound to grant it in every case.

How should I answer a breach of contract question in the exam?

State the breach, name the remedy, give the rule with the section number, apply it to the facts and write a one-line conclusion. Show any arithmetic clearly. This structure earns marks even if your final conclusion is partly off.