By Aditya Singh Raghav
---
Sections 73 and 74 of Indian Contract Law 1872 provide compensation for loss or damage caused by a breach of contract – i.e. when a party does not fulfill their contractual obligations. The party that suffers from a breach is entitled to receive compensation for any loss or damage resulting from such breach. Such compensation is not given for remote and indirect loss or damage. Two things should be taken into consideration:
- The loss or damage should have arisen as a natural consequence of the breach
- It should have been something that parties could have reasonably expected to arise from a breach of contract
In
the landmark case of Hadley v. Baxendale,
it was held that the party can recover only those damages that either should
reasonably be considered as arising naturally or might reasonably be supposed
to have been in the contemplation of both the parties, at the time they made
the contract, as the probable result of the breach of it.
Section
73 also provides that the same principles will apply for the breach of
quasi-judicial obligations, i.e. in the event that an obligation similar to
that created by contract has not been performed, the injured party is entitled
to receive compensation as if a contractual obligation has not been performed.
What is loss or damage?
The word loss or damage means:
- Physical injury, mental distress, loss of reputation, loss of enjoyment and comfort, disabilities etc.
- Loss or damage to property
- Effect on economic position, loss of profits, expenses incurred, cost etc.
How are damages measured?
Damages
can be recovered on the principle of “remoteness
of damage”. The term remoteness of damage is a legal test of causation
which is used to determine the type of loss caused by breach of contract which
is compensated by a damages award. It is tested whether damages are too remote or
whether the damage is a possible result of breach. If the damages are a result
of the act of the party, then damages are not considered to be remote. Damages
must be natural and probable consequences of the breach of contract. The
defendant is only liable for the losses which are reasonably foreseeable, which a reasonable prudent
person must have reasons to believe that loss can be caused by the breach of
contract.
Types of Damages under Contract Law
– General and Special Damages
|
General
Damages |
Special
Damages |
|
Damages arising naturally during the
normal course of events |
Damages arising not due to natural
consequences but due to some special or unusual circumstances |
|
Can be recovered if the damages arise
from the natural and probable consequences of breach |
Can be recovered only when the other
party is informed in advance of the special circumstances. Subsequent
knowledge of special circumstance will not create any special liability. |
|
Damages can’t be easily assigned a
monetary value such as pain and suffering, loss of consortium etc. |
Losses can be calculated financially
and the exact amount of pecuniary loss is demanded |
Nominal Damages
Such damages are awarded to the aggrieved party who has suffered a legal wrong but no financial loss. No substantial loss is caused and there is only violation of legal right. They are called “nominal” because the amount of damages is very small and are awarded to recognize the right of the party to claim damages for breach of contract. Nominal damages are awarded even if no actual damage is proven but there is infringement of right. It can be awarded in following circumstances:
- A technical breach has been committed by the defendant and the plaintiff fails to prove the loss as a result of breach
- Plaintiff has suffered actual damage, not because of defendants conduct but because of some outside event or plaintiffs own conduct
- When the plaintiff doesn’t care for actual damage and want to establish his right to claim damages caused due to infringement of his right
Substantial Damages
Contrary
to nominal damages, substantial damages are awarded when the breach of contract
is proved but calculation of damages is almost impossible. Nominal damages are
awarded for infringement of right but substantial damages are awarded for
actual economic loss and compensation in substantial amount is awarded.
Substantial damages can be general or specific.
When
court assesses substantial damages, actual loss which can occur to the
plaintiff is calculated. For example, if a person A permanently injures another
person B, when driving recklessly on a busy road, A would be liable to
compensate B for the loss of salary and also for what the plaintiff expected to
earn during the time that he can’t earn now due to permanent injury.
Aggravated and Exemplary Damages
The
motive or behavior of the breaching party may lead to awarding of more than
just nominal measures of damages. Such damages are:
Aggravated
Damages – These damages are awarded to compensate a victim for mental distress
or any other such injury where it was caused by the defendant’s behavior after
committing the wrong. These damages are compensatory in nature. Aggravated
damages were defined in the Sambaga Valli
a/p K R Ponnusamy v. Datur Bandak Kuala Lumpur case as “species of
compensatory damages, which are awarded as additional compensation where there
has been intangible injury to the interest of personality of the plaintiff, and
where this injury has been caused or exacerbated by the exceptional conduct of
the defendant.”
Exemplary
Damages – These damages are also known as punitive damages. These damages are
offered by the court to show disapproval, condemnation or denunciation of the
defendant’s conduct, for example, wrongful dishonor of cheque by s banker. Exemplary
damages intend to give the punishment to the defendant and not intended to
compensate the defendant for any loss or damage but rather to punish. Such
damages are offered due to difficulty in measuring the amount of mental
distress or any injury to feeling caused by defendant’s conduct. The principles
of exemplary damages were laid down in the case of Rookies v. Barnard which were adopted by the Indian court in
Sambaga Valli case.
Liquidated and Unliquidated Damages
Liquidated
Damages are pre-fixed by the parties when a contract is formed. It is a sum
which parties agree to pay as compensation on breach of contract. Section 74 of
Indian Contract Act provides provisions for liquidated damages. It says that if
an amount is mentioned in a contract as the sum to be paid in case of breach,
then the suffering party is entitled to reasonable compensation, not exceeding
the amount specified.
When
the damages are not pre-fixed by the parties and the court has to assess or
quantify the damage or loss, such damages are termed as unliquidated. Section
73 deals with unliquidated damages. Damages are awarded by the courts on the
basis of an evaluation of loss or injury caused to the party who is affected.
The loss or damages should have arisen out of the foreseeable circumstances by
the parties, for example, failure to complete construction work within the
completion date.
---
Aditya is a 2nd year law student at National Law University Delhi. An adventurous person, he actively participates in sports activities and loves to go trekking. He is a football fan and you can easily find him discussing football matches with his friends. His interests include Commercial Law, Constitutional Law, Criminal Law and Competition Law.
No comments:
Post a Comment