DAMAGES- FREE CONTRACT LAW NOTES
Damages are monetary compensation allowed to the injured party by the court for the loss or injury suffered by him by the breach of contract. The object of awarding them for breach of contract is to put the injured party at the same position as if it has not injured. In other words, Damages can be defined as, a sum of money paid to the innocent party in compensation for a breach of contract.
- Ordinary Damages – When a contract has been breach the injured party can recover from the other party as damages as naturally and directly arising from the breach. This means the damages must be proximate consequences of breach of contract. It is known as ordinary damages.
Example: ‘A’ agrees to sell and deliver 10 bags of rice to ‘B’ for Rs.5000 after 2 months. On the date of delivery, the price of rice increases and ‘A’ refuses to perform his promise. ‘B’ purchased 10 bags of rice for Rs. 5500. He can receive rupees 500 from ‘A’ as ordinary damages arising directly from the breach.
- Special Damages – Damages other than those arising from the breach of contract may be recovered, if they have been in contemplations of both the parties as the result of breach of contract, they are known as Special Damages. This can be claim in special circumstance under special loss.
Example: ‘A’ got contract for constructing ‘B’ house, so that ‘B’ would rent it to ‘C’. ‘A’ completed the construction within the time, later roof of the building collapsed. So ‘B’ sue ‘A’ & claim special damages i.e. the loss incurred by the ‘B’, the loss of rent from ‘C’, & the damages which ‘B’ paid to ‘C’.
- Nominal Damages – Where the injured party has not suffered any loss by reason of breach of contract, but files a suit for breach of contract, then compensation for nominal damages is awarded. These damages merely acknowledge that plaintiff has proofed his case & won. Also the damages can be as low as Rs.1. Example: ‘A’ contracted to purchase a Scooter from ‘B’, a dealer. But he failed to purchase the scooter. However, the demand for the scooters far exceeded the supply, and B could sell the scooter agreed to be purchased without loss of profit. B is entitled only to nominal damages.
- Vindictive Damages – Damages for the breach of contract by way of compensation for the loss suffered & not by way of punishment. Hence these have no place in law of contract as they are punitive involving punishment by nature.
- Deterioration caused by delay – In case, where goods are being transported by a carrier and he delays the delivery of goods causing them to deteriorate, the affected party can file a suit for Deterioration by the delay. Deterioration means physical damage to the goods.
- Liquidated Damages and Penalty – Parties to a contract stimulate at the time of its formation that on the breach of contract by either of them. A certain specified sum will be payable, such a sum may amount to either liquidated damages or penalty. It is a sum fixed or ascertained by the parties which is a genuine pre-estimate of probable loss. Penalty is a sum which is disproportionate to the damage likely to the result in a loss. It is fixed with a view to performance of contract. Under Sec 74 of the Indian Contract Act 1872, it is specified that if an amount is mentioned in a contract as the sum to be paid in case of a breach, then the suffering party is entitled to reasonable compensation not exceeding the amount specified.
Sec 73(2) of Indian Contract Act 1872, deals with Remoteness. The rule of Remoteness of Damages was found in Hadley Vs Baxendale (1854), where it has been observed that, the court will take into account only such loss as may be fairly, as reasonably be considered either arising naturally i.e. according to the usual of things, from breach of contract itself, or such as may reasonable supposed to have been in the contemplation of both the parties at the time they meet the contract as the probable result of the breach of it.
Remoteness of damages for remote consequences is usually not allowed.
The loss from the breach must naturally arise in the usual course of things or it must be such as the parties knew when they made the contract to be likely to result from the breach of it.
In other words, they would be considered as too remote if they are not the direct consequence of the breach or they are not in the contemplation of the parties when the contract was made.
However, if the special circumstances were common to both parties, they would be then amount of injury which would follow from such special circumstance.
Example: ‘A’ contracts to buy B’s ship for Rs.60,000 but breaks his promise. ‘A’ must pay to ‘B’, by way of compensation the excess if any of the contract price over the price which ‘B’ can obtain for the ship at the time of the breach of promise.
A breach of contract claim is a common type of civil lawsuit. This type of lawsuit will arise when one contracting party fails to uphold the obligations due under the contract. The legal remedy for a breach of contract claim will include an award of damages.
Ascertainments of damages are customary in breach of contract cases. Once the court determined that a breach has occurred, the court will usually determines that a breach has occurred, expectation damages should be awarded.
The court will use the rule of the expectancy to determine the appropriate damages. This legal doctrine states that the innocent party in the position that party would have been in had the contract not been breached.
The court will use the rule of the expectancy to calculate the innocent party’s expecting damages. It has three steps:
- The court will determine what the innocent party would have gained had the contract not been breached.
- The court will determine where the innocent party now stands. In other words, the court will determine what the innocent party lost and has not yet regained.
- The court will calculate what it would now take to bring the innocent party from where the party now stands, to where that party would be had the contract not been breached.