Author: Harshika Lunia,
III Sem, LL. B,
The Indian Contract Act, 1872, provides a basic structure of the law of contract in India, its enforcement, various provisions regarding non-performance and the breach of contract. This article is aimed to highlight provisions regarding “liquidated damages” in case of the breach of the contract. Thus, before knowing what exactly liquidated damages are, it is important to understand the consequences of breach of contract and the damages awarded in case of breach. A “breach of contract” in legal terms amounts to a broken promise to do or not do an act. A lawsuit for breach of contract is a civil action and the remedies awarded are designed to place the injured party in the position they would be in if not for
the breach. Remedies for contractual breaches are not designed to punish the breaching party. A party who is injured by the breach of a contract may bring an action for damages apart from rescinding the contract, action for quantum merit, action for specific performance and action for injunctions. “Damages” means any monetary claim by, or ordered to be paid to a person as a compensation for any loss or injury incurred by them. In Indian Contract Act, damages are referred in terms of breach of contract, when a party fails to perform the terms of the contract to which he is obligated, then that party has to provide compensation to the other party who has incurred the loss. The main purpose of compensation is to restore the position of the injured or aggrieved party to the economic position it would have been if the contract was not breached. “Liquidated Damages” means that it shall be taken as the sum which the parties have by the contract assessed as damages to be paid whatever may be the actual damage. The parties to the contract may agree at the time of contracting that, in the event of a breach, the party in default shall pay a stipulated sum of money to the other, or may agree that in the event of breach by one party any amount paid by him to the other shall be forfeited. It is a genuine “pre-estimate of damages” likely to flow from the breach.
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