Module 10

# Liquidated Damages and Unliquidated Damages

**Liquidated and Unliquidated Damages under the Indian Contract Act,

1872**

The Indian Contract Act, 1872, provides a framework for determining

damages in case of breach of contract. Section 73 and Section 74 of the
Act specifically deal with the concept of damages, including liquidated and
unliquidated damages. These types of damages are determined based on
the nature of the agreement and the terms set by the parties involved.

### Liquidated Damages (Section 74)

Liquidated damages refer to a pre-agreed amount stipulated by the parties
in a contract that will be payable in case of a breach. This amount is
decided at the time of contract formation and is intended to estimate the
damages that may occur if the contract is breached. Liquidated damages
are enforceable if they represent a reasonable estimate of actual damages
that would arise from a breach.

- **Section 74 of the Indian Contract Act** provides that if a contract

specifies a sum to be paid in the event of a breach, this sum is enforceable
as liquidated damages, provided the amount is not excessive or penal in
nature.

- **Reasonableness of Liquidated Damages**: If the sum is found to be

disproportionate or excessive compared to the actual loss caused by the
breach, it will be treated as a penalty and not enforceable as liquidated
damages.

**Example**: If A agrees to deliver goods to B by a certain date and

specifies a penalty of ₹10,000 for every day of delay, this ₹10,000 is
considered liquidated damages if it reflects a reasonable estimate of the
actual loss B would incur due to delay.

### Unliquidated Damages

Unliquidated damages, on the other hand, are damages that are not
predetermined or specified in the contract. In cases of breach of contract
where the amount of damage is not agreed upon beforehand, the injured
party is entitled to claim damages that are determined by the court based
on the actual loss suffered due to the breach. Unliquidated damages are
awarded by the court after assessing the facts and circumstances of the
case.

- **Determination by Court**: In the case of unliquidated damages, the

court will evaluate the actual loss or injury suffered by the aggrieved party
due to the breach. The court considers the nature of the breach, the
consequences, and the extent of the damage caused.

**Example**: If A breaches a contract by failing to deliver goods and there

is no pre-agreed amount for the breach, B can claim unliquidated damages
for the actual loss suffered, which will be determined by the court.

### Key Differences Between Liquidated and Unliquidated Damages

1. **Pre-agreed Amount**: Liquidated damages are a fixed amount agreed
upon at the time of forming the contract, whereas unliquidated damages
are not predetermined and are assessed by the court based on actual loss.
2. **Enforceability**: Liquidated damages are enforceable if the sum is
reasonable, while unliquidated damages are determined by the court after
the breach occurs.
3. **Purpose**: Liquidated damages serve to estimate the expected loss,
while unliquidated damages aim to compensate for the actual loss suffered
due to the breach.
4. **Penalty**: If the specified amount in a liquidated damages clause is
found to be a penalty, it will not be enforceable, whereas unliquidated
damages are based on actual losses and cannot be seen as a penalty.
### Conclusion
Both liquidated and unliquidated damages play a vital role in the
enforcement of contracts under the Indian Contract Act. Liquidated
damages are pre-determined and offer a clear resolution in the event of a
breach, while unliquidated damages are awarded by the court after the
breach, based on the actual loss incurred. Understanding these concepts
helps in drafting contracts and determining the appropriate remedy in case
of a breach.

#Temporary Injections:-
Temporary Injunctions under the Specific Relief Act, 1963

A temporary injunction is a legal remedy granted by the court to prevent a

party from performing certain acts that would cause harm or injury to
another party, during the course of litigation, before a final decision is
made. Temporary injunctions are often sought to preserve the status quo
and prevent irreparable damage while the case is ongoing. Although
injunctions are not directly addressed by the Indian Contract Act, 1872,
they are relevant in contract law when a party seeks an order to prevent a
breach of contract or to protect their rights under a contract.

Key Provisions Under the Specific Relief Act, 1963

1. Section 36 - Temporary Injunctions

This section allows the court to issue a temporary injunction to restrain a
party from committing an act that may cause harm to another party. A
temporary injunction is granted when it is necessary to maintain the status
quo and prevent injury during the pendency of the suit. It can be issued in
cases where it is shown that the defendant’s actions are likely to cause
harm or damage to the claimant.

2. Section 37 - Duration of Temporary Injunctions

A temporary injunction remains in force for the period specified by the
court. It is granted for a limited time and can be extended as per the
discretion of the court.

3. Section 38 - Grant of Temporary Injunction

The court may grant a temporary injunction in cases where:
- There is a prima facie case in favor of the applicant.
- The applicant is likely to suffer irreparable harm if the injunction is not
granted.
- The balance of convenience favors granting the injunction.
- There is no adequate remedy available to the applicant other than an
injunction.

4. Section 39 - Injunction to Prevent Breach of Contract

Under Section 39 of the Specific Relief Act, a party may seek an injunction
to prevent the other party from committing a breach of contract. In cases
where a party is likely to breach a contract, an injunction can be issued to
stop them from doing so, especially when a breach would result in
irreparable damage that cannot be compensated by monetary damages.

5. Section 40 - Discretionary Nature of Injunctions

The grant of an injunction is discretionary. The court will evaluate whether
the conditions of a prima facie case, irreparable harm, and balance of
convenience are met before issuing a temporary injunction.

Applications in Contract Law

Temporary injunctions in the context of contracts are often sought in cases

where one party is about to breach the contract or has already breached it
in a way that causes harm to the other party. For instance:

- Non-competition Clauses: If an employee is bound by a non-compete

clause and threatens to join a competing firm in violation of the agreement,
the employer can seek a temporary injunction to prevent the breach.
- Intellectual Property Rights: In case of infringement of intellectual property
rights, such as patents or trademarks, a temporary injunction can be
granted to prevent further infringement until the case is decided.
- Specific Performance: A party may also seek a temporary injunction to
compel performance of specific actions under a contract, especially when
the remedy of damages would not be adequate.

Conclusion

While temporary injunctions are not explicitly discussed in the Indian

Contract Act, 1872, they play an essential role in contract law, particularly
under the Specific Relief Act, 1963. They are used to prevent imminent
harm, preserve rights, and ensure that a party’s interests are protected
during the course of litigation. Temporary injunctions are crucial in
preventing breaches of contract or actions that may cause irreparable
damage to the parties involved.

# Permanent injections :-
A permanent injunction is a legal remedy granted by the court that prohibits
a party from performing certain acts permanently. Unlike a temporary
injunction, which is granted for a limited time during the pendency of a
case, a permanent injunction is issued as a final order after the court has
thoroughly examined the case. It is typically issued when the court finds
that the aggrieved party is entitled to such relief and that monetary
compensation (damages) would not be an adequate remedy.

Key Provisions of Permanent Injunctions

Permanent injunctions are governed under the Specific Relief Act, 1963,
specifically under Sections 37 to 40.

- Section 37: This section allows the court to grant permanent injunctions
when the party requesting the injunction can prove that there is a justifiable
cause for such an order. It is usually granted when the defendant is found
to have committed or is likely to commit a wrong, and the plaintiff’s legal
rights need to be protected from further harm.

- Section 38: It discusses the conditions under which a permanent

injunction can be granted, which include the need for the plaintiff to show
that there is no adequate remedy at law, and that a breach of the contract
or an infringement of rights is likely to cause irreparable harm.

- Section 39: This section refers to injunctions granted to prevent the

breach of a contract, providing that when it is difficult to assess the damage
that might occur from the breach, an injunction is a more suitable remedy.

- Section 40: This section reinforces that the discretion to grant a

permanent injunction lies with the court and will depend on the facts of the
case.

Application in Contract Law

Permanent injunctions are commonly sought in cases where there has

been a breach of contract or violation of rights, especially in situations
where monetary compensation cannot fully remedy the harm caused. For
instance:

- Breach of Non-compete Clause: In cases where an employee breaches a

non-compete clause of their contract, an employer may seek a permanent
injunction to prevent the employee from joining a competing company.

- Intellectual Property Infringement: A permanent injunction can be granted

to prevent the continued infringement of intellectual property rights, such as
patents, trademarks, or copyrights.

Conclusion

A permanent injunction is a crucial remedy under the Specific Relief Act,

1963, and is granted when the court finds that a party's legal rights are
being violated, and that continuing the act would cause irreparable harm. It
serves as a final and lasting resolution to the legal dispute, ensuring that
the wrongful act does not occur again.

#Prohibitory Injections:-
A prohibitory injunction is a legal remedy that restrains a party from doing
something that would cause harm or injury to another party. It is typically
issued by a court to prevent a person from engaging in a specific action
that would violate the rights of the aggrieved party or breach a contract.
Prohibitory injunctions are commonly used to stop the commission of
wrongful acts, such as trespassing, infringement of intellectual property
rights, or the violation of contractual obligations.

Prohibitory injunction under the Specific Relief Act, 1963

Prohibitory injunctions are provided under the Specific Relief Act, 1963.
Specifically, they fall under the provisions related to injunctions in Chapter II
of the Act.

- Section 37 of the Specific Relief Act, 1963, allows courts to issue a

prohibitory injunction to prevent a party from doing a particular act. This
injunction is issued when the court is satisfied that the applicant has made
a prima facie case and that the harm to the applicant outweighs any harm
to the other party.

The main purpose of a prohibitory injunction is to maintain the status quo

and avoid irreparable harm until the case is fully adjudicated. For example,
if someone is unlawfully using a company's trademark, the court may issue
a prohibitory injunction to prevent further use of the trademark until the
case is resolved.

Key Features of a Prohibitory Injunction

1. It prevents a party from doing a specific act, rather than requiring them to
do something.
2. It is issued based on a reasonable apprehension that the act will cause
harm to the applicant.
3. It is a form of preventive remedy, designed to stop ongoing or future
unlawful acts.

In summary, prohibitory injunctions are a crucial tool under the Specific

Relief Act, 1963, to prevent actions that could cause harm, preserve rights,
and ensure that parties do not engage in wrongful conduct during the
pendency of legal proceedings.

# Mandatory Injections:-
Mandatory Injunction under the Specific Relief Act, 1963

A mandatory injunction is a type of court order that requires a party to do a

specific act or to undo something they have done, in order to restore the
status quo or to compel compliance with the legal rights of the other party.
Unlike a temporary injunction, which restrains a party from doing
something, a mandatory injunction compels action.

Provisions under the Specific Relief Act, 1963

Mandatory injunctions are governed by Section 39 of the Specific Relief
Act, 1963. According to this section, a court may issue a mandatory
injunction to compel the defendant to perform a specific act or to undo
something that was wrongfully done.

Key Features of Mandatory Injunction

- Restoration of Status Quo: A mandatory injunction aims to restore the
situation as it was before the wrongful act was committed. It can be issued
when a party has wrongfully taken possession of property, and the court
orders the return of possession to the rightful owner.

- Discretionary Nature: Just like other types of injunctions, mandatory

injunctions are granted at the discretion of the court, and it will consider
factors like the nature of the act and the consequences of not granting the
order.

- Examples: A mandatory injunction may be issued in situations where:

- A person is required to remove a structure that was illegally built on
someone else's property.
- A contract involves specific performance, and the court orders the party
to fulfill their obligations.

Conclusion
Mandatory injunctions are an important legal remedy under the Specific
Relief Act, 1963. They help enforce a positive act by a party to ensure that
the other party's rights are protected. These injunctions play a key role in
ensuring that wrongful actions are rectified, and rightful ownership or
obligations are restored in accordance with the law.

# Perpetual Injunction :-

A perpetual injunction is a type of injunction that is granted by the court to

permanently prevent a party from committing a particular act or breach of
contract. Unlike a temporary injunction, which is granted for a limited
period, a perpetual injunction is granted after the court has heard the entire
case and issued a final judgment. This type of injunction restrains a party
from doing something indefinitely, providing a permanent solution to the
dispute.

Provisions under the Specific Relief Act, 1963

Perpetual injunctions are governed under Section 38 of the Specific Relief
Act, 1963. This section empowers the court to issue a perpetual injunction
when:

1. The defendant is found to have breached the contract, or the plaintiff’s

legal right has been infringed.
2. The breach or infringement is such that an injunction is necessary to
prevent further injury to the plaintiff.
3. The plaintiff's rights are clear and well-established, leaving no room for
future dispute.

Key Features
- Permanent Nature: A perpetual injunction continues indefinitely, and the
defendant is prohibited from engaging in the specific act or conduct that led
to the injunction.
- Final Relief: It is granted after the court has evaluated the full facts of the
case, typically following a trial. It is a final order, unlike a temporary
injunction.
- Application in Cases of Breach of Contract: In cases where a party
breaches a contract or infringes on rights (e.g., intellectual property or land
rights), the injured party may seek a perpetual injunction to prevent future
breaches.

Example:
If A enters into a contract with B to sell a piece of land and B unlawfully
constructs on A's property, A can seek a perpetual injunction to prevent B
from continuing with the construction and further trespassing on the
property.

Conclusion
Perpetual injunctions serve as a final, long-term remedy to prevent ongoing
or future harm resulting from a breach of legal rights or contract. They are
governed by Section 38 of the Specific Relief Act, 1963, and are issued
only after a full examination of the case.

# Quantum Meruit :-
Quantum meruit is a Latin term meaning "as much as he has deserved." In
the context of contract law, it refers to a claim for the payment of a
reasonable amount for services rendered or work completed, even in the
absence of a formal contract or when a contract is not fully performed. It
allows a party to claim compensation based on the value of the services or
goods provided, when there is no specific agreement or when a contract is
found to be void or unenforceable.

Legal Basis under the Indian Contract Act, 1872

Quantum meruit is recognized under Section 70 of the Indian Contract Act,

1872. According to this section, if a person provides services or delivers
goods without a contract or in the absence of an agreement, they are
entitled to claim the value of the goods or services provided. The section
states that if a person does something for another person with the intention
of receiving payment or under circumstances where payment is expected,
the person performing the act can claim compensation for the value of the
act or services performed.

Application of Quantum Meruit

Quantum meruit claims arise in situations such as:

1. Partial Performance: If one party performs part of their contractual

obligations but the contract is either terminated or does not specify
payment for partial work, they can claim payment based on quantum
meruit.

2. Unenforceable Contracts: If a contract becomes void or is deemed

unenforceable (for example, due to lack of consent or legality), the party
who has already performed may claim compensation for the value of the
work done.

3. Mistake or Impossibility of Performance: When a contract is voidable or

unenforceable due to a mistake or impossibility of performance, the party
who has rendered services may claim payment for the services rendered
based on quantum meruit.
Conclusion :-
Quantum meruit provides a remedy for situations where a party has
provided a service or goods but no specific contract exists, or a contract is
unenforceable. Section 70 of the Indian Contract Act, 1872 enables
individuals to claim compensation based on the fair value of the work
performed or goods delivered, ensuring fairness in such scenarios.

# Cancellation of Instrument under the Specific Relief Act, 1963

The Specific Relief Act, 1963, provides remedies to parties involved in

disputes relating to the performance of contractual obligations, and the
cancellation of documents is an important remedy under this Act. The
Cancellation of Instruments is specifically dealt with under Section 31 of the
Act. This section offers a legal avenue to a party whose rights have been
affected by a document, and who seeks to cancel that document, on the
grounds of it being void, voidable, or defective in nature.

1. Grounds for Cancellation

The cancellation of an instrument under the Specific Relief Act can occur
on various grounds, most commonly if the document is:
- Void: A document that is legally unenforceable, either because it was
executed without proper authority or its terms violate public policy or laws.
- Voidable: A document that is valid until it is annulled by one of the parties
involved, often due to issues like misrepresentation, fraud, undue influence,
or mistake.
- Defective: A document that contains flaws, errors, or inconsistencies that
invalidate its legality or its intended effect.

The law is primarily concerned with the protection of the rights of

individuals from documents that undermine or harm their legal standing due
to defects in their formation or execution.
2. Who Can Apply for Cancellation?

Under Section 31 of the Specific Relief Act, the person who is entitled to
have the instrument canceled can file a petition for cancellation in a
competent court. These individuals are typically:
- The party adversely affected by the document.
- A person who has a legal interest in the cancellation, for example,
someone who is entitled to the property or rights affected by the instrument.

For example, if a party has executed a contract under duress or without full
knowledge of its terms, and the contract turns out to be detrimental, they
can seek to have the contract or instrument canceled to restore their
original rights.

3. Scope of Section 31 – Types of Instruments

Section 31 of the Specific Relief Act allows the cancellation of any

document or instrument that the party challenging it feels is defective or
has been wrongfully executed. The types of instruments that may be
challenged under this section include:
- Deeds of sale, leases, or mortgages executed under coercion,
misrepresentation, or mistake.
- Contracts entered into under undue influence or fraud.
- Wills and agreements where the formalities have not been complied with
or the document reflects fraudulent intentions.
- Notices, orders, or public records that have been altered or forged.

The law acknowledges the potential for individuals to be coerced or tricked

into executing documents that they later find unfavorable or invalid.
Through this provision, the law seeks to ensure that individuals are not
bound by unfair or legally defective documents.

4. Legal Requirements and Procedure

To apply for the cancellation of an instrument, the person seeking relief
must prove that the document in question is void, voidable, or defective.
The court will review the evidence provided and determine whether the
document meets any of these conditions. The procedure involves:
- Filing a suit for cancellation: A person seeking the cancellation must
initiate a civil suit, demonstrating their entitlement and the grounds for
cancellation.
- Burden of Proof: The burden of proof lies with the person seeking the
cancellation of the instrument. They must show that the document was
either executed improperly or that its execution violated their rights in some
way.
- Relief granted by the Court: If the court determines that the instrument is
void, voidable, or defective, it will grant an order for cancellation. However,
cancellation is prospective and does not nullify the document’s prior acts
unless otherwise specifically directed by the court.

5. Effect of Cancellation

The effect of the court's order of cancellation is to render the instrument

legally ineffective from the date of cancellation. However, it is important to
note that the cancellation does not automatically undo any transactions or
effects that the document may have already had. In other words, if the
document had already resulted in the transfer of property, or other legal
effects, those transactions may still be recognized, though the document
itself is no longer valid moving forward.

The aim is not only to nullify the document but to protect the interests of the
parties and restore any rights that may have been infringed due to the
instrument.

6. Discretion of the Court

Section 31 gives the court discretion to grant or deny the application for
cancellation. It is not an automatic right but depends on the circumstances
surrounding the instrument's execution. The court may also decide to
cancel the instrument with or without conditions depending on the case
specifics.

For example, in cases where the instrument was executed under a mutual
mistake of fact or fraud, the court may cancel the document and allow a
party to recover damages or claim other forms of redress.

7. Limitation Period

It is important to note that there is a limitation period for seeking

cancellation. Under the Limitation Act, 1963, the suit for cancellation of a
document must typically be filed within three years from the date the
plaintiff knew of the grounds for seeking cancellation. This ensures that
legal disputes over documents are resolved in a timely manner, and
prevents the indefinite challenge of documents.

Conclusion

The cancellation of instruments under the Specific Relief Act, 1963, serves
as an important tool to ensure fairness in legal transactions. By allowing
individuals to challenge documents that are defective, void, or voidable, the
Act provides a remedy for those who may have been misled, coerced, or
wrongfully bound by instruments that infringe on their legal rights. It
ensures that the legal system remains just and responsive to the needs of
individuals in protecting their rights from unlawful or faulty documentation.