Contract is an instrument of free bargaining between parties on the basis of equality. The basic object of Contract is to avoid litigation, to establish set of rules for compliance and to penalize defaulters. Indian Contract Act of 1872 is the law which governs Contract disputes in India. The Indian Law of Contract is the same as the English law, but where the statute itself clearly lays down principles that may not be identical with the latter. Any breach of Contract leads to, rectification and cancellation of Instrument, or damages (either nominal or penalty) or injunction (temporary or permanent). The present report is restricted only to “Damages “covered under Section 73 and 74 of Indian Contract Act.
The theory of damages is that they are a compensation and satisfaction for the injury sustained, that is, that the sum of money to be given for reparation of the damages suffered should as nearly as possible, be the sum which will put the injured party in the same position as he would have been if he had not sustained the wrong for which he is getting damages.
Section 73 of the Contract Act is the general one governing all cases of breach of Contract, resulting in loss or damage to one of the Contracting parties. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured by the same rule as damages in an action for a breach. The term ‘compensation’ signifies that which is given in recompense, an equivalent rendered. Damages, on the other hand, constitute the sum of money claimed or adjudged to be paid in compensation for loss or injury sustained, the value estimated in money, of something lost or withheld. The term ‘compensation’ etymologically suggests the image of balancing one thing against another, as where there is loss of pension rights, allowance for income tax prospectively payable in respect of pension has to be deducted.
When a party fails or refuses to perform his part of duty, it amounts to breach of contract. Thus where a party gives the other party an immediate cause of action, it results into a right to damages as compensation for loss arising out of the breach.
The word ‘Compensation’ is usually used interalia with ‘damages’, however the word ‘Compensation’ denotes a sum of money payable to a person on account of the loss or damage caused to him by the breach of contract . The damages on the other hand, mean the estimate of some loss and injury actually sustained. The expression ‘compensation’ is not ordinarily used as an equivalent to damages, although compensation may often have to be measured, by the same rule as damages in action for a breach. Damages are a pecuniary compensation for the injury which party suffers because of the non- performance of a contract by the other contracting party. The law attempts as far as possible to place the party injured/ suffered in the same position as if no default had occurred.
When there is a breach of contract, the party who commits the breach does not eo instant i.e at the instant incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the Contract has is the right to sue for damages. Thus no pecuniary liability arises till the court has determined that the party complaining of the breach is entitled to damages. The court in the first place must decide that the defendant is liable and then it should proceed to assess what the liability is. But, till that determination by Court, there is no liability at all upon the defendants.
The damages are to be assessed on the basis of the natural and probable consequences of the breach within the general principles laid down in Hadley vs. Baxandale
Section 73 makes it obligatory for the plaintiff to prove that he has suffered damages and the extent to which he has suffered before a court can award him damages for breach of contract, and if he does not give the best evidence, every presumption should be made against him, but this does not relieve the Court altogether of the duty of assessing the damages, as best it can, on evidence and materials actually before it. . In the case of breach of contract, it is obligatory on the part of the aggrieved party to prove that it had sustained legal injury. If proof of actual loss is not given, damages cannot be awarded. The opposite party is not entitled to forfeit security amount and retention amount. .
The compensation is allotted or given only when actual loss or injury is suffered by the Claimant. No compensation is given for remote or indirect loss or damage sustained. The fundamental principle of law of damages is that the person injured by breach of contract shall have fair and just compensation commensurate with loss sustained in consequence of the defendant’s breach of contract which gives rise to the action. This amount is to be established with reasonable certainty. The measure of compensation depends upon the circumstances of the case. The complained loss or claimed damage must be fairly attributed to the breach as a natural result or consequence of the same. The loss must be real loss or actual damage and not merely a probable or a possible one. When it is not possible to calculate accurately or in a reasonable manner, the actual amount of loss incurred or when the plaintiff has not been able to prove the actual loss suffered, he will be, all the same, entitled to recover nominal damages for breach of contract. Where nominal damages only are to be awarded, the extent of the same should be estimated with reference to the facts and circumstances involved. The general principle to be borne in mind is that the injured party may be put in same position as that he would have been if he had not sustained the wrong. In the case of State of Bihar vs. P.K.Jain, AIR 1981 Pat 280, a suit was filed by a contractor against the Government on account of breach of the contract, but he failed to adduce evidence in support of the losses suffered by him. It was held that he was not entitled to award of damages.
Quantum meruit is but reasonable compensation awarded on implication of a contract to remunerate, and an express stipulation governing the relations between the parties under a contract, cannot be displaced by assuming that the stipulation is not reasonable.
In Alopi Parshad and Sons Ltd. v. Union of India 1960 2SCR793 observed at p. 809: it was held that Compensation quantum meruit is awarded for work done or services rendered when the price thereof is not fixed by a contract. For work done or services rendered pursuant to the terms of a contract compensation quantum meruit cannot be awarded where the contract provides for consideration payable in that behalf.
The remedy under quantum Meeruit is available when the original contract has been discharged by the defendant in such a way as to disentitle the plaintiff to regard him as discharged from any other performance and he must have elected to do so. Compensation quantum meruit is awarded for work done or services rendered, when the price thereof is not fixed by a contract. The work done or services rendered pursuant to the terms of a contract, compensation quantum meruit cannot be awarded where the contract provides for the consideration payable in that behalf.
The principle of quantum meruit has no application to cases where there are specific contracts in operation, and has only application to cases where there is no conflict in operation.
Claim for damages when not permissible
The concept of compensation is linked up with the loss of damages that result from breach of contract and where no loss of damage is ensured, there would be no question of awarding compensation.
Loss of damages must be actual and not by way of punishment. If no actual purchase had been made by plaintiff on the failure of the company to supply the balance quantity of the ordered material, there is no question of any loss being suffered by the opposite party.
In a works contract, a contractor applied for extension of time to enable him to complete the contracted work. This was allowed by the employer. Two more extensions of time followed. A supplementary agreement was entered into between the parties within the time frame mentioned therein. Thereafter, he claimed damages for prolongation of contract. Held, the contractor having voluntarily agreed to complete work under the supplementary agreement cannot seek damages.
The remedy for suit of damages for a breach of contract need not be one of the terms of contract but becomes available under the law in a acse of breach of contract without any express stipulation. The whole basis of a suit for damages is that at the date of the suit there is no pecuniary liability on the defendant and the plaintiff has come to court in order to establish a pecuniary liability. The only right which the aggrieved by the breach of the contract has is the right to sue for damages. No pecuniary liability thus arises till the court has determined that the party complaining of the breach is entitled to damages.
In the case of Gujarat Housing Board vs. harilal Jethalal, AIR 2001 Guj 259, a contractor delayed the completion of the work and the department had all along been warning the contractor to accelerate the progress of work, to which the contractor paid no heed. The department paid escalation as per formula given in the agreement. After receiving the final bill, the contractor claimed escalation during the extended period of contract. The Court held that the suit by the contractor for escalation of prices on basis of quantum meruit is not maintainable.
Damages are compensatory and not penal and one who has suffered loss from breach of contract must take every reasonable step that is available to him to mitigate the extent of damages caused by the breach. He cannot claim to be compensated by the party in default for loss which is really due not to the breach but to his own failure to behave reasonably after the breach.
Damages for breach of contract are given by way of compensation for loss suffered and not by way of punishment for wrong inflicted. One who has suffered loss for breach of contract must take any reasonable steps that are available to him to mitigate the extent of the damage caused or likely to be caused by the breach. He cannot claim to be compensated by the party in default for loss which is really due not to the breach but his own failure to behave reasonably after the breach.
The plaintiff is only required to act reasonably, and whether he has done is a question of fact in the circumstances of each particular case, and not a question of law. He must act only in his own interest but also in the interest but also in the interests of defendant and keep down the damages; so far it is reasonable and proper, by acting reasonably in the matter.
A person who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his neglect.
It is undoubtedly the duty of a plaintiff to mitigate the damage caused by the defendant’s breach. The plaintiff cannot claim to be compensated for the loss which was due to his own failure to behave reasonably after the breach. The test to determine whether his behavior was reasonable is to see whether he did ‘what a prudent man might have reasonably done if the whole expense was to fall on him.’ The plaintiff must not have acted in a way legitimately open to blame. The rule must be applied with discretion because the party who is already in the wrong by breaking the contract is not entitled to impose new and extraordinary duties on the aggrieved party.’
The first principle on which damages in cases of breach of contract are calculated is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damages which is due to neglect to take such steps. Law imposes a duty on the plaintiff of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps.
There are three rules often referred to under the comprehensive heading of mitigation and these are:
(i) The plaintiff cannot recover the loss upon the defendant’s breach of contract where the plaintiff could have avoided the loss by taking reasonable steps.
(ii) If the plaintiff in fact avoids or mitigates his loss consequent upon the defendant’s breach, he cannot recover for such avoided loss, even though the steps he took were more than could be reasonably required of him under the first rule.
(iii) Where the plaintiff incurs loss or expense by taking reasonable steps to mitigate the loss resulting from the defendant’s breach, the plaintiff may recover this further loss or expense from the defendant.
For a better understanding of damages in purview of section 73 and 74, it is necessary to extract Section 73 and 74 of Indian Contract Act alongwith cases where Section 73 & 74 are dealt in an elaborative manner :
Sec. 73 Compensation of loss or damage caused by breach of contract
When a contract has been broken, the party who suffers by such breach is entitled to receive, form the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss of damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation : In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by non-performance of the contract must be taken into account.
74. Compensation of breach of contract where penalty stipulated for
When a contract has been broken, if a sum is named in the contract as the amount be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss or proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.
Explanation : A stipulation for increased interest from the date of default may be a stipulation by way of penalty.
Explanation : When any person enters into any bail bond, recognizance or other instrument of the same nature or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.
Ø Forbes Gokak Ltd. Vs. Central Warehousing Corporation
Ø Pure Pharma Limited vs. UOI
Ø MC Dermott International Inc. vs. Burn Standard Co. Ltd. & Ors.
Ø Bharat Cooking Coal ltd. Vs Annapurna Construction
Ø O.N.G.C vs. Saw Pipes Ltd.
Ø Fateh Chand vs. Balkishandas
Ø Maula Bux vs. Union of India
Ø Devendra Singh vs. State of U.P
With respect to compensatory damages, a defendant is liable to a plaintiff for all the natural and direct consequences of the defendant’s wrongful act. Remote consequences of a defendant’s act or omission cannot form the basis for an award of compensatory damages.
Consequential damages, a type of compensatory damages, may be awarded when the loss suffered by a plaintiff is not caused directly or immediately by the wrongful conduct of a defendant, but results from the defendant’s action instead. For example, if a defendant carried a ladder and negligently walked into a plaintiff who was a professional model, injuring the plaintiff’s face, the plaintiff could recover consequential damages for the loss of income resulting from the injury. These consequential damages are based on the resulting harm to the plaintiff’s career. They are not based on the injury itself, which was the direct result of the defendant’s conduct.
The measure of compensatory damages must be real and tangible, although it can be difficult to fix the amount with certainty, especially in cases involving claims such as pain and suffering or emotional distress. In assessing the amount of compensatory damages to be awarded, a trier of fact (the jury or, if no jury exists, the judge) must exercise good judgment and common sense, based on general experience and knowledge of economics and social affairs. Within these broad guidelines, the jury or judge has wide discretion to award damages in whatever amount is deemed appropriate, so long as the amount is supported by the evidence in the case.
A plaintiff can recover damages for a number of different injuries suffered as a result of another person’s wrongful conduct. The plaintiff can recover for a physical impairment if it results directly from a harm caused by the defendant. The jury, in determining damages, considers the present as well as long-range effects of the disease or injury on the physical well-being of the plaintiff, who must demonstrate the disability with reasonable certainty. Compensatory damages can be awarded for mental impairment, such as a loss of memory or a reduction in intellectual capacity suffered as a result of a defendant’s wrongful conduct.
A plaintiff may recover compensatory damages for both present and future physical pain and suffering. Compensation for future pain is permitted when there is a reasonable likelihood that the plaintiff will experience it; the plaintiff is not permitted to recover for future pain and suffering that is speculative. The jury has broad discretion to award damages for pain and suffering, and its judgment will be overturned only if it appears that the jury abused its discretion in reaching the decision.
Mental pain and suffering can be considered in assessing compensatory damages. Mental pain and suffering includes fright, nervousness, grief, emotional trauma, anxiety, humiliation, and indignity. Historically, a plaintiff could not recover damages for mental pain and suffering without an accompanying physical injury. Today, most jurisdictions have modified this rule, allowing recovery for mental anguish alone where the act precipitating the anguish was willful or intentional, or done with extreme care-lessness or recklessness. Ordinarily, mental distress brought on by sympathy for the injury of another will not warrant an award of damages, although some jurisdictions may allow recovery if the injury was caused by the willful or malicious conduct of the defendant. For instance, if an individual wrongfully and intentionally injures a child in the presence of the child’s mother, and the mother suffers psychological trauma as a result, the defendant can be liable for the mother’s mental suffering. In some jurisdictions, a bystander can recover damages for mental distress caused by observing an event in which another person negligently, but not intentionally, causes harm to a family member.
Compensatory damages of an economic nature may also be recovered by an injured party. A plaintiff may recover for loss of earnings resulting from an injury. The measure of lost earnings is the amount of money that the plaintiff might reasonably have earned by working in her or his profession during the time the plaintiff was incapacitated because of the injury. In the case of a permanent disability, this amount can be determined by calculating the earnings that the injured party actually lost and multiplying that figure out to the age of retirement—with adjustments. If the amount of earnings actually lost cannot be determined with certainty, as in the case of a salesperson paid by commission, the plaintiff’s average earnings or general qualities and qualifications for the occupation in which she or he has been employed are considered. Evidence of past earnings can also be used to determine loss of future earnings. As a general rule, lost earnings that are speculative are not recoverable, although each case must be examined individually to determine whether damages can be established with reasonable certainty. For example, a plaintiff who bought a restaurant immediately before suffering an injury could not recover damages for the profits he might have made running it, because such profits would be speculative. A plaintiff who is unable to accept a promotion to another job because of an injury would stand a better chance of recovering damages for loss of earnings, because the amount lost could be established with more certainty.
Individuals injured by the wrongful conduct of another may also recover damages for impairment of earning capacity, so long as that impairment is a direct and foreseeable consequence of a disabling injury of a permanent or lingering nature. The amount of damages is determined by calculating the difference between the amount of money the injured person had the capacity to earn prior to the injury and the amount he or she is capable of earning after the injury, in view of his or her life expectancy.
Loss of profit is another element of compensatory damages, allowing an individual to recover if such a loss can be established with sufficient certainty and is a direct and probable result of the defendant’s wrongful actions. Expected profits that are uncertain or contingent upon fluctuating conditions would not be recoverable, nor would they be awarded if no evidence existed from which they could be reasonably determined.
A plaintiff can recover all reasonable and necessary expenses brought about by an injury caused by the wrongful acts of a defendant. In a contract action, for example, the party who has been injured by another’s breach can recover compensatory damages that include the reasonable expenses that result from reliance on the contract, such as the cost of transporting perishable goods wrongfully refused by the other contracting party. In other actions, expenses awarded as part of compensatory damages may include medical, nursing, and prescription drug costs; the costs of future medical treatment, if necessary; or the costs of restoring a damaged vehicle and of renting another vehicle while repairs are performed.
Interest can be awarded to compensate an injured party for money wrongfully withheld from her or him, as when an individual defaults on an obligation to pay money owed under a contract. Interest is ordinarily awarded from the date of default, which is set by the time stated in the contract for payment, the date a demand for payment is made, or the date the lawsuit alleging the breach of the contract is initiated.
B.R. Herman & Mohatta vs. Asiatic Steam Navigation Co. Ltd.
(1956) 3 All ER 300
Dhapai vs. Dalla, AIR 1970 All 206: 1969 All LJ 718 (FB)
Mangilal Karwa vs. Shantibai, AIR 1956 Nag 221 (DB)
Mirza Javed murtaza vs. U.P Financial Corp. , AIR 1983 All 234 (DB)
Abdulali Moosabhoy vs. Gokaldas Lalji, AIR 1927 Sind 49: 97 IC 269
P.K. Abdulla vs. State of Kerala, AIR 2002 Ker 108: 2001 (3) Ker LT 903 (DB)
Harishchandra Dwarkadas, AIR 1962 SC 366; (1962) 1 SCJ 654].
9Page 1070 of vol. II case 90]
Alopi Prasad and Sons vs. Dyer Meaken & Co. Ltd
Puran Lal Shah vs. State of U.P, AIR 1971 SC 712 ; (1971) 1 Civ APJ 88]
State of Madras vs. Gannon Dunkerley & Co. (Madras) Ltd. AIR 1958 SC 560: 1958 SCJ 696
Usha Beltron Ltd. vs. Nand Kishore Parasramka, AIR 2001 Cal 137 (DB)
State of Kerala vs. K.Manikantan Nair, AIR 2002 NOC 497 (Ker-DB)
Murlidhar Chiranjilal vs. Harishchandra Dwarkadas, AIR 1962 SC 366
CHITTY ON CONTRACT, 25th Edn., para 1714, page 951]
MANU/DE/0380/2010
MANU/DE/0949/2008
(2006) 11 SCC 181
(2003)8 SCC 154
(2003) 5 SCC 705
(1964) ISCR 515
1969 (2) SCC 554
AIR 1987 All. 306
source:http://jurisonline.in/2010/04/damages-under-indian-contract-act/
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