Page 82 - DMGT102_MERCANTILE_LAWS_I

Mercantile Laws-I

Notes As soon as either party commits a breach of the contract, the other party becomes entitled to
certain reliefs. These remedies are available under the Indian Contract Act, 1872, as also under

the Specific Relief Act, 1963. There are three remedies under the Specific Relief Act, 1963: (i) a

decree for specific performance (s.10); (ii) an injunction (s.38-41); (iii) a suit on quantum meruit
(s.30).
Remedies under the Indian Contract Act, 1872 are: (i) rescission of the contract (s.39) and,
(ii) damages for the loss sustained or suffered.
Rescission of the contract. When a breach of contract is committed by one party, the other
party may treat the contract as rescinded. In such a case the aggrieved party is freed from all his
obligations under the contract. Thus, where A promises B to supply one bag of rice on a certain
date and B promises to pay the price on receipt of the bag. A does not deliver the bag of rice on
the appointed day, B need not pay the price. A person who rightfully rescinds the contract is
entitled to compensation for any damage which he has sustained through the non-fulfi llment of
the contract.
Damages (s.75). Another relief or remedy available to the promisee in the event of a breach of
promise by the promisor is to claim damages or loss arising to him therefrom. Damages under
s.75 are awarded according to certain rules as laid down in Ss. 73-74. Section 73 contains three
important rules: (i) Compensation as general damages will be awarded only for those losses
that directly and naturally result from the breach of the contract. (ii) Compensation for losses
indirectly caused by breach may be paid as special damages if the party in breach had knowledge
that such losses would also follow from such act of breach. (iii) The aggrieved party is required
to take reasonable steps to keep his losses to the minimum. It is the duty of the injured party
to minimise loss. (British Westinghouse & Co. v Underground Electric etc. Co. (1915) A.C.673). He
cannot claim to be compensated by the party in default for loss which is really not due to the
breach but due to his own neglect to minimise loss after the breach.
Thus, the loss or damages caused to the aggrieved party must be such that either (i) it arose
naturally or (ii) the parties knew, when they made the contract, was likely to arise. In other
words, such compensation cannot be claimed for any remote or indirect loss or damage sustained
by reason of the breach of the contract.
Section 74 provides that if the parties agree in their contract that whoever commits a breach shall
pay an agreed amount as compensation, the court has the power to award a reasonable amount
only, subject to such agreed amount.
Different types of damages. There are four types of damages
Ordinary. These damages are those which naturally arise in the usual course of things from such
breach. The measure of ordinary damages is the difference between the contract price and the
market price at the date of the breach. If the seller retain the goods after the breach, he cannot
recover from the buyer any further loss if the market falls, nor is he liable to have the damages
reduced if the market rises.

Example:
(i) A contracts to deliver 10 bags of rice at ` 500 a bag on a future date. On the due date he
refuses to deliver. The price on that day is ` 520 per bag. The measure of damages is the
difference between the market price on the date of the breach and the contract price, i.e.,
` 200.
(ii) A contracts to buy B’s ship for ` 2,00,000 but breaks his promise. A must pay to B by way
of compensation the excess, if any, of the contract price over the price which B can obtain
for the ship at the time of the breach of promise.
The ordinary damages cannot be claimed for any remote or indirect loss or damages by reason
of the breach. The ordinary damages shall be available for any loss which arises naturally in

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