The Law on Compensation for Breach of Contract IV

One neat question arises before this Court, which is, whether, when parties are governed by contract, a claim in quantum meruit under Section 70 of The Indian Contract Act, 1872 would be permissible. Section 70 occurs in Chapter V of The Contract Act. An early Judgment reported as Moselle Solomon v. Martin & Co., ILR (1935) 62 Cal 612 resulted in a split verdict between the Two Judges on the point of whether Section 70 of The Contract Act can apply when there is, in fact, a contract between the parties.

Section 73 makes it clear that damages arising out of a breach of contract is treated separately from damages resulting from obligations resembling those created by contract. When a contract has been broken, damages are recoverable under paragraph 1 of Section 73. When, however, a claim for damages arises from obligations resembling those created by contract, this would be covered by paragraph 3 of Section 73.

The present case is really covered by Section 74 of The Contract Act. Since a clause governs the relations between the parties, obviously, a higher figure, contractually speaking, cannot be awarded as liquidated damages, which are to be considered as final and not challengeable.”

Hon’ble Justice R.F. Nariman, Mahanagar Telephone Nigam Ltd. v. Tata Communications, [Civil Appeal No. 1766 of 2019].