Chapter 9: Consequences of Breach of Contract-Theory

Question 1

In case of breach of contract (i.e. Promisor refuses to perform), what remedies are available to aggrieved party (i.e. promisee)? (3 points)

Answer 1

1. Suit for specific performance or injunction (allowed only in some cases).
2. Restitution (i.e. restoration of benefits e.g. if any advance is given by promisee)/Quantum Meruit (i.e. remuneration for partial work, if done by promisor) and
3. Damages (i.e. monetary compensation for loss)

Question 2

What are ordinary damages?

Answer 2

Ordinary damages are damages to compensate losses, which arise naturally in usual course of things from breach of contract (e.g. higher price paid to buy agreed good/service from market).

Question 3

What are rules for allowing ordinary damages? (2)

Answer 3

1. Ordinary damages are allowed even if not stated in the contract.
2. Actual loss is allowed as damages (e.g. in case of sale of goods, damages = market price on date of breach - contract price).

Question 4

What are special damages? (2)

Answer 4

Special damages are damages to compensate losses which are likely to result from breach of contract,
and parties knew about them at time of making contract
(e.g. loss on another contract due to breach of this contract).

Question 5

What are rules for allowing special damages? (2)

Answer 5

1. Special damages are allowed only if communicated at time of contract.
2. Such damages are allowed on the basis of actual loss.

Question 6

What is legal implication of remote and indirect loss?

Answer 6

Losses which are “remote and indirect” are not allowed e.g. loss of future projects.

Question 7

What will be compensation where penalty is stipulated? (3)

Answer 7

If at time to contract, parties fix an amount which will be paid on breach of contract, it is called penalty.
In such case court allows reasonable damages or fixed amount, whichever is lower.
A stipulation for increase in interest from date of default is a penalty.

Question 8

Exam tip: How to calculate damages on breach of contract:

Answer 8

Goods/Services Not Delivered:
Available other options to minimize loss ( if any)
* Ordinary Damages:
- For Goods -> Difference of Contract Price and Market Price (if not given in question, Market Price = Contract Price)
- For Services -> Reasonable Loss due to breach of contract.
* Special Damages:
- Cancellation of other contracts -> Loss of profit + compensation Paid.
- Stop of production -> Loss of normal profit.
If amount of damages is stated in contract, amount allowed will be “reasonable or stated whichever is lower”.

Money Not Delivered:
Reasonable Interest.