Indian Contract Act – 1872DAMAGES FOR BREECH OF

CONTRACT…..

A REVIEW

By Deepali Kasrekar - Deshpande,

LLM, University of Pune,2012

Introduction“Contract” under section 2(h) of Indian Contract Act,

1872……

Contact = Agreement + Enforceable by Law

It is not a property. It is only a promise which is

supported by some consideration upon which either are

available….

◦ 1) Remedy of specific performance ,or

◦ 2) Damages

Damages…..“Damages” means compensation in terms of money for

the loss suffered by the injured party.

Burden lies on the injured party to prove his loss.

Basically two problems arise out of Damages;

a. Remoteness of Damages

b. Measures of Damages

Remoteness of Damages…Every breach of contract upsets many settled

expectation of the injured party, and can feel the

consequences for a long time and in a variety of ways.

Theoretically the consequences of a breach may be

endless, but there must be an end to liability.

There must be a limit to liability and beyond that limit

the damages is said to be too remote and, therefore,

irrecoverable.

Rule in Hardley v/s Baxendale

In 1854, Alderson's. w.r.t. to the case of Hardley v/s Baxendale,

helped to lay down 2 major rules as a result of its decision….

a. General Damages - Those which arise naturally in the usual course of

things from the breach itself.

b. Special Damages - Those which are arising on account of the unusual

circumstances affecting the plaintiff.

The plaintiffs mill had stopped due to broken crankshaft and the

defendant was engaged to carry that to the manufacturer to replace

it. The defendant failed to complete his task in time, thus resulting

losses to the plaintiff.

Rule in Hardley v/s BaxendaleInterpretation

Thus we can classify the results as follows;

General Damages – Loss for non delivery of crankshaft on time.

Special Damages - Loss of profits due to non production….

Here, the plaintiff had not disclosed to the defendant that the delay in

delivery of the crankshaft may result into loss of profit as the line is

completely at a halt.

Thus we can conclude that Special Damages are those which are those

arising out of special circumstances, unless & if such artifacts are

disclosed by the plaintiff while entering into contract. Thus the plaintiff

cannot claim for losses for special damages.

Sec 73: Compensation for loss or damages caused by Breach of Contract.

The compensation for loss or damages caused by Breach of Contract is based on the judgments in above case.The rules as given in ‘Sec 73’ are as follows:-“when a contract has been broken, the injured party is entitled to” – General Damages:

Those damages which arises naturally in the usual course of things Special Damages :

Those damages which arises on account of unusual circumstances affecting the plaintiff

Cases : Horne v/s Midland Railway Co, 1873 & British Colombia Saw Mill Co v/s Nettleship, 1868

Court Held that – Not to allow loss of profit to be recovered in this case. It waspointed out by the court that special damages are recoverable only when the special purpose of the contract is brought to the notice of the other party.

Nominal Damages :It is a discretionary power of the Court that, it can award nominal damages to the aggrieved party even if he has not suffered any loss, but just in recognition of his right.Case : Brace v/s Calder, 1895, Queen Bench

Exemplary or Vindictive ( Punitive) Damages :This damages are given by way of Compensation for loss & not by way of Punishment for wrong. These damages have no place in the law of contract. But Court can award this damages, in case of -

1. Breach of promise to marry &2. Dishonor of cheque by banker lawfully

Pre – Contract Expenditure :These type of damages occurs when it is within the knowledge of the parties.Case : Aglia Television Ltd v/s Reed, 1971

Mental pain & Suffering :Such damages are generally not allowed but, allowed in special cases. Damages can be recovered for physical inconvenience & discomfit.Cases : Jackson V/s Horizon Holidays, 1975Hobbs v/s London & S.W. Rail Company, 1875, Queen BenchHeywood v/s Wellers, 1976Newell v/s Canadian Pacific Airlines, 1976

Liquidated damages & penalty :In this type of damages, the amount of compensation payable in event of breach of contract is specified.Cases : Dunlop Pneumatic Tyre Co. Ltd v/s Garage & Motor Co. Ltd, 1915Ford Motor Co v/s Armstrong, 1915

Cost of Suit: The aggrieved party is entitled, in addition to damages, to get the cost of getting the decree for damages.

Payment of Interest :The aggrieved party on breach of contract in addition to damages & cost is also entitled to the payment of interest.“Damages + Cost + Payment of Interest.”

Sec 74 : Rules of Penalty Sec 74 lays down …… “Compensation for breach of contract where penalty stipulated for” – The rule states that where a sum is named in a contract as the amount to

be paid in case of breach, regardless whether it is penalty or not. The party suffering from breach is entitled to receive reasonable

compensation not exceeding the amount so named. The named sum constitutes the maximum limit of liability.

Exception : When any person enters onto bail bond, recognizance or other instrument of the same nature, or under the provisions of any law or under the orders of the any law or under the orders of the Central Government or of any public duty or act in which the public are interested, he becomes liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.