Implications of Indian Contracts System Under the Governance Structure and Regime

...

The primary purpose of the law is to provide security against such contractual exceptions. The expectations from a contract is that the parties will perform their respective promises as stated in the contract. But if any of them fails to perform and breaches the contract, then the law provides remedies for it. When one party breaches the contract, the other party can approach the court of law to provide a remedy for the breach. A legal remedy is a court order that seeks to uphold a person’s rights and the court may then order the breaching party to pay for the damages suffered by the other party because of the breach.

Types of Remedies:-

- Suit for Rescission :-

The term ‘Rescission’ refers to the cancellation of the contract. In such cases, if one party has broken his contractual relations, the other party can refuse to perform his part of the contract. Thus, in case of rescission of the contract, the affected party is discharged from all his obligations towards the contract. If a party is rightfully rescinded, then he is entitled to compensation for any damage which he has sustained because of the breach.

- Suit for Damages :-

Damages are monetary compensation allowed to the affected party for the loss suffered by him as a result of the breach of the contract. The fundamental principle underlying such a suit is not punishment but to compensate the affected party for the loss suffered by him in the original position as he would have been. In such case, the damage must naturally arise in the usual course of things from such a breach, i.e., it must be a direct consequence of the breach of contract and the affected party must have suffered damages by breach of contract.

As already stated, damages are awarded to compensate the loss caused by a party but not to punish the party at default for the breach of contract. The amount of the damages can be decided at the time of agreement by the mutual consent of both the parties.

- Suit for Quantum Meruit :-

The phrase ‘Quantum Meruit’ literally means 'as much as earned’ or ‘in proportion to the work done’. When a party has begun the work as per the contract and the other party terminates the contract before he could complete it, or does something which makes it impossible for the other party to complete the contract, he can claim for the amount of the work done under the contract so far to the other party.

- Suit for Specific Performance :-

Specific Performance means the actual carrying out of the contract as agreed. Under certain circumstances an aggrieved party may file a suit for specific performance, i.e., for a decree by the court directing the defendant to actually perform the promise that he has made. Such a suit may be filed either instead of or in addition to a suit for damages.

Cases which fall under Specific Performance are when the act agreed to be done is such that compensation in money for its non-performance is not an adequate relief or when there exists no standard for ascertaining the actual damage caused by the non-performance of the act agreed to be done as per the contract or when it is probable that the compensation in money cannot be substituted for the non-performance of the act agreed to be done in the contract.

Specific Performance is not applicable where the damages are an adequate remedy or the contract is not certain, or is inequitable to either party or the contract is in its nature revocable or the contract is made by trustees in breach of their trust or the contract is of a personal nature like a contract to marry.

- Suit for an Injunction :-

Injunction is an order of a court restraining a person from doing a particular act. It is a mode of securing the specific performance of the negative terms of the contract. In such cases, one party can move to court if the other one is doing something which is not promised as per the contract. To put it differently, where a party is in breach of the negative terms of the contract, i.e., where he is doing something which in the contract he has promised not to do, then the court may, by issuing an injunction, restrain him from doing such, what he promised not to do.

Care to be taken while drafting a contract:-

- The person drafting the contract should be skilled and possess an expertise and experience of drafting as it is very important for the contract.

- The person reviewing the contract drafted by the other party should be aware of the standard terms and practices involved in the contract.

- The purpose of the contract defines the scope and the requirements which are to be included in the contract. Thus, it is imperative that purpose of such contract is properly examined beforehand.

- The Language, Location, Payment and Currency and the Governing Law should be decided while making the contract. Any ambiguity in any of these will lead to further complications.

- Termination and indemnity clauses are also an essential part as most foreign companies look forward to their exit options while entering into a contract. Thus, this should be decided before entering the contract to prevent future violations.

- The arbitration clause is also an important criteria to be taken care of while drafting the contract. The clause should be constructed in such a way that it reflects a clear intention to settle disputes by means of arbitration.

Once a draft of the contract is ready, care should be taken to ensure that it is clear, unambiguous, clean, and easy to read and understand. This makes the understanding between the parties simple.

...