Damages under the Indian Contract Act,1872

Introduction

• Damages are the solution or the remedy for the damage caused to the party.
• Damage can be caused in two ways: consequential or incidental.
• The estimated money should equal the harm or detriment suffered by either party, as directed by law.

Legal Provisions

• Section 73 of the Indian Contract Act, 1872 lays down the provision relating to damages.
  • It provides that the party who breaches a contract is liable to compensate the injured party for any loss or damage caused due to the breach of contract.
  • Illustration: - ‘A’ contract to repair B’s house in a certain way and receive the money in advance. ‘A’ repairs house, but not according to the contract. ‘B’ is entitled to recover the cost of making the repairs in accordance with the contract from ‘A’.
• Section 74 of the Indian Contract Act, 1872, deals with liquidated damages.
• Section 75 of the Indian Contract Act, 1872 deals with the cases where the plaintiff is entitled to receive compensation when the contract is rescinded rightfully.

Types of Damages

• General Damages and Special Damages:
  • General damages are considered as those damages that occur naturally due to the normal course of events.
  • Special damages do not occur due to breach of terms and conditions on the part of the defendant but because of some special circumstances; the defendant could not fulfill the terms and conditions of the contract; if the circumstances were reasonable, the contract may have been fulfilled.
• Nominal Damages:
  • Nominal damages are provided when no such actual damage has been caused to the plaintiff, but his legal rights have been hampered.
• Substantial Damages:
  • In such types of damage, there is a complete default or failure in performing the terms and conditions of the contract at the end of one party.
• Aggravated and Exemplary Damages:
  • The aggravated damages are compensatory in nature.
    • Aggravated damages are such types of damages which are ordered to be paid by the defaulter party for the mental stress or agony that occurred to the plaintiff due to the breach of contract.
  • Exemplary damages are also referred to as punitive damages.
    • Exemplary damages are given with the aim of compensating the plaintiff for the loss that occurred to him but in some exceptional cases, the punishment can also be given to the defendant.
• Liquidated and Unliquidated Damages:
  • In the case of liquidated damages, the parties to the contract fix a certain amount for compensation in the case of certain specific types of damages as liquidated damages.
  • In other cases where the courts instead of parties to the contract determine the damages to be paid by the defaulting party; such damages are known as unliquidated damages.
• Consequential Damage & Incidental Damages:
  • Consequential damages are the other type of damage which are consequent or the result of any physical damage that occurred to the party claiming for the loss.
  • The term ‘incidental damages’ refers to the harm or injury that occurred to the plaintiff after knowing the breach of contract; for instance- the cost of buying or replacing or returning the goods became defective.
• Pecuniary Damages & Non-Pecuniary Damages:
  • Pecuniary damages are those which can be quantified by the court by assessing the loss or injury suffered by the plaintiff.
  • Non-pecuniary damages are those losses or injury which cannot be directly or clearly quantified or determined because the loss in such cases is more subjective.
• Damages for Loss of Profit/Opportunity:
  • The idea behind providing compensation for this loss is that the plaintiff should be given compensation for the deprivation of profits that occurred due to some act of the defendant.

Remoteness of Damages

• The term ‘remoteness of damages’ refers to the legal test used for deciding which type of loss caused by the breach of contract may be compensated by an award of damages.

Case laws

• Shri Hanuman Cotton Mills v. Tata Aircraft limited (1969):
  • The Supreme Court observed that the awarded compensation may be taken to measure the damages subject to deduction of the money value of services, time and energy expended in pursuing claims of compensation and expenditure incurred by him in litigation culminating in awarding compensation.
• The Union of India v. K.H. Rao (1976):
  • The Supreme Court scaled down the damages to the extent of the security deposit and directed the whole of the security deposit to be refunded to the respondent as the appeal was partly allowed in this particular case.