Hi everyone,
I think a breach of a service agreement requires a long concluding discussion, so everyone is invited to share their views on this:
Human Resources Managers often insist on surety from new recruits by having them execute a bond stating that in case they commit a breach of the agreement, they will have to pay the employer damages as agreed upon. Generally, the agreements stipulate that the appointee shall not leave the organization for a prescribed period, especially when the employer trains the employee at their cost. The purpose behind such agreements is that employers who spend money and provide training to their employees should benefit from the employees.
Experience, however, shows that several employees execute the bond but break it within a short period and leave employment. Disputes arise about the legality of the conditions of employment. The agreements are questioned on the grounds of public policy. Disputes also arise about the quantum of damages that an employer can recover from the employee in breach. Here are some notable cases of breach of service agreements wherein the Courts have laid down broad principles for the recovery of damages.
In the case of Amar Singh v. Gopal Singh [AIR 1931 Lahore 133], Amar Singh, employed as a chauffeur by Gopal Singh, left the service without notice and was not paid his wages for 23 days. He had worked for only a fortnight and left when his services were badly needed. Amar Singh filed a suit against Gopal Singh for recovery of unpaid wages. Gopal Singh claimed damages for leaving service without notice. The dispute reached the High Court of Lahore. In that case, it was held that when a servant whose wages are due periodically leaves service without legal justification or proper notice, he is entitled to be paid for the portion of the time during which he served since the last periodical payment, and the master would be entitled to reasonable compensation for breach of contract. Often, the question of the quantity of damages that an employer may recover from an employee who breaches an agreement also arises.
A student entered into a bond with the State of Mysore, agreeing to pay for his education expenses in the U.S.A. The condition was that after finishing his studies, he would serve the State Government for a period of not less than five years on such salary as the Government may fix. However, if he was not given employment within six months of his return, they should be deemed to have waived their right to claim his services. He would then be free to seek services elsewhere. In the event of a breach of the bond terms, the student would be obliged to refund all expenses incurred by the Government, along with interest. The student finished his studies at the Polytechnic Institute of Brooklyn, New York in September 1949 and obtained a diploma on June 14, 1950. With the permission of the State, he stayed in the U.S.A. for practical training at his own expense. Before finishing his training, he returned to India for domestic reasons, stayed for 6 months, and then returned to the U.S.A. to finish his training with the State's permission. He finished his training and got employed in the U.S.A., claiming a waiver by the State Government. The Supreme Court held that staying for six months in India after his return on account of domestic reasons and being permitted to return for finishing his training did not indicate that he was waiting for the State to offer him an appointment. [M. Sham Singh v. State of Mysore, AIR 1972 SC 2440].
The obligation to pay compensation or damages is a contractual obligation. The measure of damages in a contract is compensation for the consequences that follow as a natural and probable consequence of the breach, or, in other words, which could reasonably be foreseen. [Cook v. S., (1967) 1 AII E.R. 299, 302.]
The rule is well settled that damages due either for a breach of contract or for tort are damages that, as far as money can compensate, will give the injured party reparation for the wrongful act and for all the natural and direct consequences of the wrongful act. In the absence of special circumstances, the measure of damages cannot be the amount of loss ultimately sustained by the injured party. [Trojan & Co. v. Nagappa Chettiaar, (1953) S.C.R. 789. 799]. If the quantification of loss or damages is not possible, even the party who suffered can request the Court to assess the reasonable damages provided there is damage. [State of Kerala v. United Shippers and Dredgers, AIR 1982 Ker 281].
There is authority to the proposition that substantial damages can be claimed where a breach is proved, even though the calculation of damages is not only difficult but incapable of being carried out with certainty or precision. In such cases, however, the via media would be to stipulate the quantum of compensation in the agreement itself. When a contract has been broken and if a sum has been named in the contract as the amount to be paid in case of such a breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proven to have been caused, to receive from the party who has broken the contract reasonable compensation not exceeding the amount named or, as the case may be, the penalty stipulated by virtue of s. 74 of the Indian Contract Act. The Indian legislature, by enacting s. 74, sought to cut across the web of rules and presumptions under English common law by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of a breach and stipulations by way of penalty. [Fateh Chand v. Balkishan Das, AIR 1963 SC 1405].
The Supreme Court in Fateh Chand's case said: Section 74 declares the law as to liability upon a breach of contract where compensation is predetermined by agreement of parties or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party. It merely declares the law that notwithstanding any term in the contract for determining the damages or providing for the forfeiture of any property by way of penalty, the Court will award the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The same proposition has also received the support of the Supreme Court in Nareshchand Sanyal v. Calcutta Stock Exchange Assn. Ltd., AIR 1977 SC 422, 428.
But in an English case, the House of Lords held: a clause in an artist's agreement suspending salary upon her failure to appear and perform does not prevent the employers from recovering damages for a breach of contract as well as suspending her salary. The suspension of salary is not a penalty. [Gaumont British Picture Corporation v. Alexander, (1936) 2 All E.R. 1686, 1693]. A sum payable in pursuance of a contractual obligation is different from a sum payable on a breach of a contractual obligation. The former is not a penalty. [Tool Metal Co. v. Tungsten Electric Co. (1955) 2 All E.R. 657, 688.] Liquidated damages are the term used to indicate the sum that the parties have, by the contract, assessed as the damages to be paid, whatever may be the actual damage. [Wallis v. Smith (1882) 21 Ch.D. 243, 267].
To claim a penalty or liquidated damages, the onus of proof is on the plaintiff. The plaintiff has to prove that the amount of damages stipulated, whether by way of liquidated damages or penalty, is a reasonable pre-estimate of damages, and he cannot be awarded a sum greater than the one stipulated. [George Pictures Ltd. v. Neelakandaru Gopalakrishna, AIR 1971 Ker 271; Narasimha Rao v. Supdt. of Excise, AIR 1974 AP. 157, 167].
Where the engagement is for one full year, say from 1st April 1908 to 31st March 1909, and the salary is fixed at so much (say Rs. 18) per month, and the servant wrongfully leaves his employer's service on 20th March 1909, he is nevertheless entitled to his salary for the eleven months during which he actually served his employer, less the damages incurred by the employer by the breach, though the salary is payable under the terms of the agreement in a lump sum of Rs. 216 at the end of the year.
Though actual damage has not been proved, the sum stipulated in the contract towards liquidated damages can be recovered by the employer for the breach committed by the employee. [P. Nagarajan v. Southern Structurals Ltd., 1996 (2) LLN 810].
In Fertiliser and Chemical Travancore Ltd. v. Ajay Kumar and others, 1990 LLR 711, the employer selected three trainees who then signed a bond that they would obtain two years of training in the Company and after the training, they would put in at least five years of service in the company. In case of a breach of these conditions by the trainees, Rs.10,000/- was to be paid as reasonable compensation for the damages likely to be incurred by the employer. But the trainees resigned after five months.
The employer filed a suit for the recovery of damages based on the bond executed by the employees. The trial court dismissed the suit, holding that the work done by the trainees during the period of training would sufficiently compensate the management. However, their Lordships at the High Court of Kerala observed that though the selection of trainees was for absorption into training, the employer was not
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2I think a breach of a service agreement requires a long concluding discussion, so everyone is invited to share their views on this:
Human Resources Managers often insist on surety from new recruits by having them execute a bond stating that in case they commit a breach of the agreement, they will have to pay the employer damages as agreed upon. Generally, the agreements stipulate that the appointee shall not leave the organization for a prescribed period, especially when the employer trains the employee at their cost. The purpose behind such agreements is that employers who spend money and provide training to their employees should benefit from the employees.
Experience, however, shows that several employees execute the bond but break it within a short period and leave employment. Disputes arise about the legality of the conditions of employment. The agreements are questioned on the grounds of public policy. Disputes also arise about the quantum of damages that an employer can recover from the employee in breach. Here are some notable cases of breach of service agreements wherein the Courts have laid down broad principles for the recovery of damages.
In the case of Amar Singh v. Gopal Singh [AIR 1931 Lahore 133], Amar Singh, employed as a chauffeur by Gopal Singh, left the service without notice and was not paid his wages for 23 days. He had worked for only a fortnight and left when his services were badly needed. Amar Singh filed a suit against Gopal Singh for recovery of unpaid wages. Gopal Singh claimed damages for leaving service without notice. The dispute reached the High Court of Lahore. In that case, it was held that when a servant whose wages are due periodically leaves service without legal justification or proper notice, he is entitled to be paid for the portion of the time during which he served since the last periodical payment, and the master would be entitled to reasonable compensation for breach of contract. Often, the question of the quantity of damages that an employer may recover from an employee who breaches an agreement also arises.
A student entered into a bond with the State of Mysore, agreeing to pay for his education expenses in the U.S.A. The condition was that after finishing his studies, he would serve the State Government for a period of not less than five years on such salary as the Government may fix. However, if he was not given employment within six months of his return, they should be deemed to have waived their right to claim his services. He would then be free to seek services elsewhere. In the event of a breach of the bond terms, the student would be obliged to refund all expenses incurred by the Government, along with interest. The student finished his studies at the Polytechnic Institute of Brooklyn, New York in September 1949 and obtained a diploma on June 14, 1950. With the permission of the State, he stayed in the U.S.A. for practical training at his own expense. Before finishing his training, he returned to India for domestic reasons, stayed for 6 months, and then returned to the U.S.A. to finish his training with the State's permission. He finished his training and got employed in the U.S.A., claiming a waiver by the State Government. The Supreme Court held that staying for six months in India after his return on account of domestic reasons and being permitted to return for finishing his training did not indicate that he was waiting for the State to offer him an appointment. [M. Sham Singh v. State of Mysore, AIR 1972 SC 2440].
The obligation to pay compensation or damages is a contractual obligation. The measure of damages in a contract is compensation for the consequences that follow as a natural and probable consequence of the breach, or, in other words, which could reasonably be foreseen. [Cook v. S., (1967) 1 AII E.R. 299, 302.]
The rule is well settled that damages due either for a breach of contract or for tort are damages that, as far as money can compensate, will give the injured party reparation for the wrongful act and for all the natural and direct consequences of the wrongful act. In the absence of special circumstances, the measure of damages cannot be the amount of loss ultimately sustained by the injured party. [Trojan & Co. v. Nagappa Chettiaar, (1953) S.C.R. 789. 799]. If the quantification of loss or damages is not possible, even the party who suffered can request the Court to assess the reasonable damages provided there is damage. [State of Kerala v. United Shippers and Dredgers, AIR 1982 Ker 281].
There is authority to the proposition that substantial damages can be claimed where a breach is proved, even though the calculation of damages is not only difficult but incapable of being carried out with certainty or precision. In such cases, however, the via media would be to stipulate the quantum of compensation in the agreement itself. When a contract has been broken and if a sum has been named in the contract as the amount to be paid in case of such a breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proven to have been caused, to receive from the party who has broken the contract reasonable compensation not exceeding the amount named or, as the case may be, the penalty stipulated by virtue of s. 74 of the Indian Contract Act. The Indian legislature, by enacting s. 74, sought to cut across the web of rules and presumptions under English common law by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of a breach and stipulations by way of penalty. [Fateh Chand v. Balkishan Das, AIR 1963 SC 1405].
The Supreme Court in Fateh Chand's case said: Section 74 declares the law as to liability upon a breach of contract where compensation is predetermined by agreement of parties or where there is a stipulation by way of penalty. But the application of the enactment is not restricted to cases where the aggrieved party claims relief as a plaintiff. The section does not confer a special benefit upon any party. It merely declares the law that notwithstanding any term in the contract for determining the damages or providing for the forfeiture of any property by way of penalty, the Court will award the party aggrieved only reasonable compensation not exceeding the amount named or penalty stipulated. The same proposition has also received the support of the Supreme Court in Nareshchand Sanyal v. Calcutta Stock Exchange Assn. Ltd., AIR 1977 SC 422, 428.
But in an English case, the House of Lords held: a clause in an artist's agreement suspending salary upon her failure to appear and perform does not prevent the employers from recovering damages for a breach of contract as well as suspending her salary. The suspension of salary is not a penalty. [Gaumont British Picture Corporation v. Alexander, (1936) 2 All E.R. 1686, 1693]. A sum payable in pursuance of a contractual obligation is different from a sum payable on a breach of a contractual obligation. The former is not a penalty. [Tool Metal Co. v. Tungsten Electric Co. (1955) 2 All E.R. 657, 688.] Liquidated damages are the term used to indicate the sum that the parties have, by the contract, assessed as the damages to be paid, whatever may be the actual damage. [Wallis v. Smith (1882) 21 Ch.D. 243, 267].
To claim a penalty or liquidated damages, the onus of proof is on the plaintiff. The plaintiff has to prove that the amount of damages stipulated, whether by way of liquidated damages or penalty, is a reasonable pre-estimate of damages, and he cannot be awarded a sum greater than the one stipulated. [George Pictures Ltd. v. Neelakandaru Gopalakrishna, AIR 1971 Ker 271; Narasimha Rao v. Supdt. of Excise, AIR 1974 AP. 157, 167].
Where the engagement is for one full year, say from 1st April 1908 to 31st March 1909, and the salary is fixed at so much (say Rs. 18) per month, and the servant wrongfully leaves his employer's service on 20th March 1909, he is nevertheless entitled to his salary for the eleven months during which he actually served his employer, less the damages incurred by the employer by the breach, though the salary is payable under the terms of the agreement in a lump sum of Rs. 216 at the end of the year.
Though actual damage has not been proved, the sum stipulated in the contract towards liquidated damages can be recovered by the employer for the breach committed by the employee. [P. Nagarajan v. Southern Structurals Ltd., 1996 (2) LLN 810].
In Fertiliser and Chemical Travancore Ltd. v. Ajay Kumar and others, 1990 LLR 711, the employer selected three trainees who then signed a bond that they would obtain two years of training in the Company and after the training, they would put in at least five years of service in the company. In case of a breach of these conditions by the trainees, Rs.10,000/- was to be paid as reasonable compensation for the damages likely to be incurred by the employer. But the trainees resigned after five months.
The employer filed a suit for the recovery of damages based on the bond executed by the employees. The trial court dismissed the suit, holding that the work done by the trainees during the period of training would sufficiently compensate the management. However, their Lordships at the High Court of Kerala observed that though the selection of trainees was for absorption into training, the employer was not
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