SUIT FOR

DAMAGESBY : Divya GuptaROLL NO.:373GROUP:K-64

What are damages?Damages are a monetary compensation allowed to the injured party for the loss or injury suffered by him as a result of the breach of contract ( by the guilty party).It is to put the aggrieved party in the same position in which he would have been had the contract been performed .The fundamental principle underlying damages is not punishment but compensation .

ASSESSMENT OF DAMAGES

SECTION 73 of the Indian Contract Act ,1872 lays down the rules regarding the damages for breach of the contract .

Keeping in view the provisions of Sec.73 of the Act and the court judgements , the aggrieved party would be entitled to one of the following types of damages , depending upon the circumstances of the case :

Ordinary DamagesSpecial DamagesExemplary or Vindictive DamagesNominal Damages

HADLEY Vs BAXENDALE (1854)

Foundation of modern law of damages in England and India. (Sec 73 of ICA almost based on rules laid down in this case

Foundation of modern law of damages in England and India. (SEC 73 of ICA is almost based on rules laid down in this case.)

CONTENTS:H’s mill’s crankshaft broke.Delivered it to B, a common carrier to take it to the manufacturer.Carrier delayed delivery.Mill remained idle for period longer than necessary.H sued B claiming damages for loss of profits he suffered during period of delay.

VERDICT :B was not held liable for demanded damages because it was a remote consequence and only nominal damages were awarded.In opinion of court , plaintiff might have had another shaft as mill owners do not normally close down just because shaft has broken .

TYPES OF DAMAGESu/s 73

ORDINARY DAMAGES

SPECIAL DAMAGES

EXEMPLARY OR VINDICTIVE DAMAGES

NOMINAL DAMAGES

ORDINARY DAMAGES

Damages in which a reasonable amount is paid to the aggrieved party in the usual course of things arising from the breach of contract itself.

These are restricted to the ‘direct or proximate consequences’ of the breach of contract & remote or indirect losses ,which are not the natural & probable consequence of the breach of contract , are generally not regarded.

For contract of general ‘Sale and Purchase’ , rule is: Damages = Diff. b/w contract price & market price on date

of purchase

ORDINARY DAMAGES…continued

A B

•Sell rice -5 bags @ Rs.500/bag after 2 months.•A commits breach.•On date of breach ,mkt price=Rs550/bag•ORDINARY DAMAGES= 5x(550-500) =Rs.250

No. of bags Diff. b/w mkt price and contract price

EXAMPLE 1:

ORDINARY DAMAGES…continued

Example 2:

A B

•B to supply cloth to A, contract price = Rs.42000

•B committed breach.

•On date of breach ,mkt price = Rs.50000

•But A purchased after 5 days delay for Rs. 62000

•Ordinary damages = Rs. 8000 & not Rs. 20000 as it is not

on the date of breach.

Makes woollen caps Supplier of clothes

SPECIAL DAMAGES

Damages which arise on account of the special or unusual circumstances affecting the plaintiff.

Such circumstances resulting in a special loss are contemplated by the parties at the time of entering into the contract.

Subsequent knowledge of special circumstances will not create any special liability on the guilty party.

SPECIAL DAMAGES …continued

A

EXAMPLE 1:

B

CBUILDER CUSTOMERFinish house

by 1 Jan.

A knows B has contracted to give its possession to C on 1 Jan.Breach by A - building collapsed before 1 Jan.Led to breach by B for his contract with C.DAMAGES TO B:1.Cost of rebuilding2. Rent lost3. Compensation paid by B to C.

Damages 1=Ordinary Damages ; Damages 2 & 3 =Special Damages

EXEMPLARY OR VINDIVTIVE DAMAGES

Damages which are awarded with a view to punishing the guilty party for the breach and not by way of compensation for the loss suffered by the aggrieved party. Courts award damages for mental or emotional suffering

Exemplary damages have no place in the law of contracts & are not recoverable for a breach of contract.

Exceptions to this rule are:a) Breach of a contract to MARRY.b) Dishonor of a cheque by a banker when there are

sufficient funds to the credit of the customer.

NOMINAL DAMAGESA nominal amount awarded to establish the right to decree for breach of contract when the injured party has not actually suffered any real damage & consist of a very small amount.

Means neither awarded by way of compensation to the aggrieved party nor by way of punishment to the guilty party.

Example : A compensation of Rs. 10.

DUTY TO MITIGATE THE LOSS

The aggrieved party is under a legal duty to avoid or reduce damages caused by breach of contract.

Explanation to Sec. 73 : For estimation of loss arising from a breach , the means which existed of remedying the inconvenience caused by non – performance of the contract must be taken into account.

MITIGATION OF LOSS….continued.

CASE: NEKI Vs PIRBHU

A BShop on rentA paid 1 month’s rent=Rs 5000 p.m. in

adv.B refused to give possession of shop.A didn’t do business for 8 months though other shops available nearby.A sued B : claiming damages for 8 months’ rent.VERDICT:Only advance rent was refunded as A didn’t try to mitigate the loss.

DAMAGES U/S 741. LIQUIDATED DAMAGES: A sum fixed up in advance which is a fair

and genuine pre-estimate of the probable loss that is likely to result from the breach.

2. PENALTY: A sum fixed up in advance , which is

extravagant and unconscionable in amount in comparison with the greatest loss that could likely result from breach of contract.

Here the court shall decide a reasonable

amt of damages to be imposed but the maximum damages that can be imposed are not higher than the sum fixed up in the contract.

LIQUIDATED DAMAGES & PENALTY…continued

BASell sugar; 1000units.

Date of contract,1 Nov.Contract price=Rs 10/unit =Rs.10000.Decided: if breach on 15 Nov, contract price=Rs12/unit.A commits breach on 15 Nov.But on 15 Nov. mkt price =Rs 15/ unitSo, Damages = 1000x (12-10)=Rs. 2000

(Probable loss)and not 5x1000= Rs 5000.

EXAMPLE:

DISTINCTION b/w ENGLISH LAW & INDIAN LAW regarding LIQUIDATED DAMAGES & PENALTY.

ENGLISH LAWa) Draws distinction b/w liquidated

damages & penalty – courts consider first nature of stipulated amt.

b) When stipulation is by way of liquidated damages , entire amt is awarded as damages regardless of actual loss sustained.

c) Treats penalty as ‘invalid’ .Awards damages acc. to ordinary principles irrespective of stipulated amt of penalty.

INDIAN LAW-U/S 74a) Does not draw distinction b/w

liquidated damages & penalty.

b) In every case ,court assesses actual loss but doesn’t totally ignore stipulated amt of damages.

c) Both are valid .Courts allow reasonable compensation so as to cover actual loss but not exceeding the amt named in the contract.

EXCEPTIONS TO SEC.74

Where the courts shall not determine the reasonable amount of damages but shall impose the damages mentioned in the contract :

a) Where a person signs a bail bond with the govt.

b) Where a person enters into a contract with govt to perform some public duty by executing a bond .For example : provision of drinking water in an area or construction of a road etc.

GOVT.A

SUMMARY OF RULES REGARDING MEASURE OF DAMAGES.

1. Damages are awarded by way of compensation for loss and not to punish guilty party.

2. Aim is to place injured party in same position if contract would have been performed , so far as money can do.

3. Damages are awarded for the losses which can be attributed to the breach.

4. It is the duty of injured party to minimize the damage suffered.5. The injured party is entitled to get the cost of getting the decree

for damages from the guilty party (but at court’s discretion).6. If amount of damages is fixed up in advance on breach of the

contract , the court will allow only reasonable compensation so as to cover the actual loss sustained , not exceeding the amt named in the contract.