Damages Under Law of Contract

Section 73, 74, and 74

Types of Damages
• 73.Compensation for 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, from 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
or 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 the non-
performance of the contract must be taken into account.
 Scope of section 73
• Actual Damages : Section 73 of the ICA provides as follows: When a contract has been broken, the
party who suffers by such breach is entitled to receive, from the party who has committed breach,
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 such breach. Compensation is not paid for any remote or indirect loss or damage sustained
by reason of the breach. Besides, an explanation to this section adds that: In estimating the loss or
damage arising Published in Articles section of www.manupatra.com 4 | P a g e from a breach of
contract, the means which existed of remedying the inconvenience caused by the non-performance of
the contract must be taken into account. The avowed principles underlying the award of compensation
are that the injured party should as far as possible be placed in the same position in terms of money as
if the contract had been performed by the party in default. Where the contract is one of sale, this
principle calls for assessment of damages as at the date of breach. Under a contract for the sale of
goods, the measure of damages upon a breach by the buyer is the difference between the contract price
and the market price at the date of breach. On a breach of contract to supply goods by the seller, the
buyer is entitled to recover all the expenses of procuring same or similar goods. This was held by the
Calcutta High Court in the case of Tata Iron & Steel Co Ltd v. Ramanlal Kandoi (1971) 2 Cal. Rep.
493, 528. In case of nondelivery of goods, the damages are fixed on the basis of the price prevailing on
the date on which delivery is to be made, as was held by the Supreme Court in the case of Union of
India v. Jolly Steel Industries (Pvt) Ltd. (AIR 1980 SC 1346). This tenet is also extended to instances
of late delivery of goods.
Remoteness of damages under section 73

• Section 73 and various decided cases clearly

provide that knowledge of circumstances
leading to loss of profits to the plaintiff
imposes liability on the defendant.
 Hadley v. Baxendale,
• The case facts
• The crankshaft of a steam engine at a mill owned by Hadley was broken, so
he contracted with Baxendale to transport it for repairs. Baxendale only
returned the crankshaft a week after agreed in the contract. During this
week the claimant’s mill continued to be out of operation. The claimant
sued, attempting to recover potential profits that he would have received
during the unexpected week of closure.
• The defendant argued that he had not known that delay would result in
closure of the mill, and thus resulting loss of profit – therefore, arguing that
the loss was too remote from the breach for a claim. He argued that he
had not reasonably foreseen the consequences of delay (i.e. the loss),
especially because the claimant had not informed him of the consequences
of any possible delay. Because something was being repaired, it does not
mean that profits would be lost if it was not returned in time.
• limb of the test which Baron Alderson
established:
• The loss of profits did not flow naturally from
the delay to delivery.
• The defendant was not aware of the
possibility of losses incurred by late delivery.
• Not laible for the compensation.
 Section 74
• When a contract has been broken, if a sum is
named in the contract as the amount to 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 is 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.
• Representing the liquidated damages.
• Representing the damages and penalty
• Power and limitation of the court: To decide
the reasonable amount within the limit of the
amount which been mentioned by the party.
 Dunlop Pneumatic Tyre Co Ltd v Selfridge
Ltd [1915] AC 847
• Principle
• Court see the truth whether it is penalty or
damages
• Purpose of penalty is terror on the party and
purpose of the damages is restoration.
• This question need to be decided on the basis
of term, circumstances and formation of each
contract.
 Courts Power to reduce the specified
amount
• Ford Motor Co. v. Armstrong : Apply principle
of ordinary damages
 Section 75
• if a party rightfully rescinds a contract, then
he can claim compensation for any losses or
damages sustained due to non-performance
of the contract.