Damages for Breach

The party who is injured by the breach brings the action for damages.
Damages mean compensation in terms of money for the loss suffered by the injured party.
For measurement of damages two factors are considered.
1. Remoteness of Damage: was the loss a consequence of the breach. How remote was
the damage? Theoretically, the consequences of a breach are endless- loss of profit,
social prestige, time, energy, money etc. Law has laid down parameters through S73
when the court has to decide whether the damage was a consequence of the breach or
not.

Hadley vs Baxendale
Court laid down 2 rules wrt to remoteness of damages.
a. General damages: those which arise naturally in the usual course of things from
the breach itself. Objective as it makes a liability to depend upon a reasonable
man’s foresight of the lose which will naturally arise from the breach. Ex: placed
an order for certain goods which I want to sell with a wholesaler. Wholesaler
knows I’m a retailer and that if the goods are not delivered in time, I will suffer
losses.
b. Special damages: arise on account of unusual circumstances affecting the plaintiff.
Nor recoverable unless these special circumstances are brought to the knowledge
of the defendant so that the possibility of the loss in the contemplation of the
parties. Rule is subjective in nature as it extends the liability depending upon the
actual knowledge fo the parties at the time of the contract.
Facts: P’s mill was stooped due the breakage of a shaft and the D’s was a carrier firm who
was engaged to carry this shaft to the manufacturer for a new one. P’s servant told D that the
mill was stopped and that the shaft must be sent immediately but the D delayed delivery for
some neglect die to which mill was shut for a longer period.
Held: D was not held liable for the loss of the profit because the closing of the mill was a
special circumstance which usually does not follow in instances where a shaft stops working.
Since it was a SC it should have been brough to the notice of the D.
Victoria Laundry Ltd vs Newman Industries
Relationship between these two rules was re-examined. They replaced the expression
contemplation of the parties with reasonable man’s foresight. Judgement emphasizes on both
the rules are ultimately based upon principle of foreseeability and forcibility depends upon
knowledge so what was foreseeable depending upon the knowledge of the parties that should
decide whether the damages were contemplated by the parties. Looked at the connection
between the two.
Held: two rules formulated In Hadley are two different instances of the application of the rule
contemplation of the parties.
Section 73: deals with compensation for loss or damage caused by breach of contract. Speaks
about- contract has been broken, party who suffers by the breach is entitled to receive from
the other party compensation for any loss or damage caused to him which naturally arose
during the usual course of things or which the parties knew when they made the contract to
be likely to result after the breach of it.

Application of the principle:

Dominion of India vs All India Reporter Ltd.
Three volumes of a set of 8 volumes of AIR were lost by the railways. Court in this case
allowed for the recovery only for the lost 3 volumes even though loss of 3 volumes had made
the whole set useless but the knowledge that the entire volume should be delivered was not
brought to the D. This is why they were not to claim the value of the entire sum.
Madras Railway Co. vs Govindas Rau
Plaintiff, a tailor delivered a sewing machine and cloth to the railway company to be sent to a
place where the expected to carry on his business with special profit due to a forth coming
festival. Goods were delayed due to the negligence of the railway which meant that the
delivery happened after the conclusion of the festival. P wasted to claim damages for the
expenses of travel, stay and loss of profit which he would have earned.
Held: damages claimed are way too remote because the info of participation in the festival
and delivery should reach on time was not brought to the knowledge of railway and was as
special circumstance hence could not claim for the losses.
(illus j and k- loss of profit as a special loss)
Karsandas H Thacker cs Saran Engineering
Contract was there for supply of scrap iron and the buyer undertook the supply of the same
quantity to the export corporation in Kolkata. Sellers failed to supply and buyer could not
perform his contract to the cooperation. Corporation recovered from him the difference
between the contract price and the market price. In this case, seller contended that he should
not be liable for anything because the control price for iron is still the same and he had no
knowledge of the contract of resale to the corporation.
Held: accepted seller’s contention. Interpreted S73 wherein they say that when a contract has
been broken the party who suffers from such grief is entitled to receive from the other party
who has broken the contract a compensation. Compensation must not be given for any remote
losses sustained as a result out of this breach.
(illus a,h- market rate criteria)
Market rate theory-
Shearson lehman Hutton Inc. vs Machine Watson
Buyer refused to accept the goods and the court observed that in assessing damages for
failure to perform the contract for purchase of goods, the measure of damages paid by the
defaulting buyer is the diff between the contract price and market/current price on the date of
the breach. Based on a hypothetical sale of the particular amount of goods available in the
market. Not taking into consideration whether any characteristic of the seller might have led
to a lower price being obtained.
Rajasthan Rajya Sarkari Krata Sangh vs Jaipur
Case of seller’s breach. Observed that it is not necessary to prove actual loss. Anticipatory
loss of loss of profits can be determined by the court while determining compensation. What
is necessary is that the plaintiff should estd what the contractual breach of purchase was and
rate of the article on the date it was to be supplied.

2. Measure of Damage: look at extend of recoverable loss. Evaluated in terms of

money anf because it is a problem, it is covered by certain principles. Object of
damages is to put the suffering party in the same position as if the contract had been
perform.
Ghaziabad Development Authority vs UOI
SC obserevded that broadly the principle underline assessment of damages to put the
aggrieved party in the same position he woukd have been if the contract was performed. It
was held that mental anguish can not be considered for breach of ordinary commercial
contracts, Interest on equitable grounds can be awarded in appropriate cases. GDA wass held
liable to pay interest as it was at fault aalthough the terms did nt provide for an interest being
paid.
Facts: GDA had announced advertisement schemes for allotment of developed plots and there
was an unreasonable delay by the auth in completing the schemes for delevopment of plots.
Complainent filed petition on gorund of excessive delay and failiure to handower possession
of plots.
Issue: can compensation be granted for mental agony?

Therefore, two components to considered

i. damages as being compensatory putting the injured party in a position as if the
contract has been performed.
Robinson vs Harman
D having agreed to grant a leasie of property to P refused to do so. P was allowed by way of
damages, the expenses incurred by him on the preliminary legal work and also the profits if
the profit he would have earned if the lease was granted.
Hobbs vs London and South Western Railways
Due to negligence of defendant railway company, plaintiff and fam was set out at a wrong
station. No hotel or conveyance was available to them and they had to walk several miles
away. P was held entitled for the substantial damages for the inconvenience caused to family
however the wife had fallen sick in this the case, that the court held was too remote for
claiming compensation.
Principle in this case is that the party should not be benefitting against the loss suffered or the
breach of contract.
Angila Television vs Reed
Court took into consideration pre contract expenditures which can be recovered as damages.
Facts: a TV artist who having been engaged as the leading actor of a film, repudiated the
contract and the producer was unable to find a replacement had to abandon the project. The
loss of profit was incapable of being estimated so the court allowed him as damages the
money spent by him in arranging a director, director, location etc.
Addis vs Gramophone Co Ltd
House of Lords listed 3 situations in which mental pain and suffering can be taken into
account:
i. where an action against a banker for refusing to pay a customer check where he
has in his hand’s funds for the customer
ii. action for breach of promise of marriage
iii. action when a vendor for real estate fails to make title

3. Nominal Damages: which are not equal to loss suffered but a small sum of money in
the recognition of the right of the injured party. S 73 doe not give any cause of action
unless a damage is suffered whereas when you say nominal damages P would have
suffered no loss but the court would have offered him nominal damages.
UOI vs Tribhuwan Das Lalji Patel
A person agreed to supply sleepers to the railway on the condition irrespective of whether
railway suffered any loss or not, on account of the contractor’s failure to supply the sleepers
the railway will be entitled to damages.

4. Exemplary or Vindictive Damages: not recognized in LoC but in exceptional cases

like breach of contract to marriage, dishonor of a cheque, court may look at
exemplary damages. But as a general rule, these damages are awarded with a view to
punish the guilty party for the breach and not by of compensation.

5. Duty to Mitigate (v imp): S73 explanation provides for duty to mitigate. In

estimating the loss or damage arising out of a breach of contract, the means which
existed in remodifying inconvenience by non-performance caused must be taken into
the consideration. Loss is to be ascertained as on the date of the breach of the contract.
If at the date if the plaintiff could do something to mitigate the damages, D is entitles
to the benefit of the breach. Rule in regard to mitigate must be applied with discretion
 and a man who has put himself in the wrong by breaking his contract has no right to
impose new and extraordinary rights on the aggrieved party.

Jamal vs Moola Dawood Sons and Co.

Difference between the contract price and the market price on the date of breach of contract
irrespective of the fact that the seller again does not sell the goods on that day but sells the
same on the subsequent day and the actual loss to him is different from the difference of
prices on the date of the breach of the contract.

LIDQUIDATED DAMAGES
The damages which is agreed or pre-estimated by the parties in the contracts. Issues looking
at are whether the pre-estimated amount is in the form of compensation or penalty. In the
form of compensation- enforceable by court. If it has got a tinge of penalty which is not the
intention of damages, court may not enforce.
Dunlop Pneumatic Tire Co. Ltd vs New Garage and Motors Co.
Court laid down propositions for dealing with liquidated damages:
i. Expression used by parties is not conclusive and court must find out whether the
payment stipulated is in true penalty or liquidated damages.
ii. Question whether a sum stipulated is a penalty or liquidated damages is a
construction to be decided upon the terms and inherent circumstance of each
particular contract.
iii. To assist this, various tests were suggested.
a. It will be a penalty if the stipulated sum is extravagant and unconscionable in
amount in comparison with the greatest lost that could follow from the breach.
b. It will be a penalty if the breach consists only in not paying a sum of money
and the sum stipulated is greater than the sum which ought to have been
aimed.
c. Penalty may be presumed when a single lump sum is made payable by way of
compensation by way of occurrence of one or more or all of the several
events, sum of which may occasion a very serious damage while the others
may have very minor damages.
Facts: manufacturer of tires supplied the tires on the condition that the tires will not be sold
below the list price and the liquidated damages would be payable for every tire sold in the
breach of the agreement.
Held: the stipulated sum was intended to be a genuine compensation for the loss suffered and
thus liquidated damages.
Ford Motor Co. vs Armstrong (damages amounting to penalty)
D, a retailor, received from P supply of cars and pars and agreed to not sell for a price below
the listed price. A sum of 250 pounds was payable for every breach as agreed damages.
Held: sum fixed was penalty and not liquidated damages because part sold in breach was of
lesser value than the damages that was to be paid.

Section 74: Unless the parties have made a stipulation for the payment of interest or usage to
that affect, interest can not be recovered legally as damages. If amount comtemplated is
proved to be in the form of penalties, the court may reduce the amount the injured party can
claim.

FORFEITURE OF EARNEST MONEY OT DEPOSIT

In S 74 a distinction between earnest money and forfeiture has been made. Earnest money is
part of the purchase price while the security deposit is not. Parties can forfeit earnest money
but not security deposit.
Habil Ali vs Rafik
Court was looking at the difference between earnest money. Court was looking at whether
this earnest money was at par or with liquidated damages.
When they were discussing that, they said that as far as S 74 is concerned, it is not applicable
for cases where there is frustration of contract but application where there is a breach. Court
obsereved that a discharge of contract necessarily presumes termination of contract by
operation of law and not by breach. Thus, earnest money can not be forfeited if the contract
has dischared by frustration and in such cases when there is entitlement to return the earnest
money, no compensation is payable.
Fateh Chand vs Balkishan Das
Agreement of sale provided the buyer was to pay a certain sum as earnest money and the
remaining as delivery of possession. It also stated that if the buyer failed to pay the remaining
amount, the sum of the earnest money and the remaining sum i.e. the entire sum would be
forfeited.
Court obsereved that S74 is applicable to every kind of deposit and when we say forfeiture in
nature to money or property already delivered, S74 is applicable to that as well. In this case,
court permitted the forfeiture of the earnest money only.
Maula Bux vs UOI (landmarks case)
Court observed in relation to forfeiture vs earnest money.
1. Giving an earnest money is a mode signifying assent to a contract of sale or the like
by giving to the vendor a nominal sum as a token that the parties are in earnest, made
up their minds to perform their part of their contract.
2. S 74 forfeiture of money under a contract of sale is the amount is reasonable ode not
fall with 74 as it does not amount to imposing a penalty. But if it is of the nature of
imposing a penalty, then only S 74 is applicable.
3. Actual loss is necessary or not, S74 the name sum is recoverable whether or not actual
damage or loss has been proved to have been caused. Section does not justify the
 award of compensation in consequences of breach when no legal injury has resulted
although the section is using the term whether actual damage is proved or not. Court
held, compensation ofr actual loss is concerned, if the loss is contemplated by the
parties – S73 but if no loss is proved to have been suffered S 73, 74 not attracted,
Basically, no legal injury – no S 73,74.
Oil and natural Gas Corp Ltd vs Saw Pipes Ltd
SC discussed the competency of the court to award compensation in case of breach even if no
actual damage has been proved to be suffered in consequence of breach of the contract. Court
observed, intention of the parties is to be gathered from the words used in the agreement and
if it is clear or impossible to assess the damages or prove the same S 73, 74 is to be used for
deciding the award of damages. If the terms of the contract are clear and unambiguous then
its meaning is to be gathered from the contract.
Shri Hanuman Cotton Mills vs Tata Aircraft Ltd
SC laid down 5 principles regarding earnest money:
i. It must be given at the moment the contarct is concluded.
ii. It represents a guarantee that the contract will be fulfilled or the contract is being
entered into earnest
iii. It is part of the purchase price when the transaction is carried out.
iv. It is forfeited when the transaction falls through by reason of the default or failure
of the purchaser.
v. Unless there is anything to the contrary in the terms of the contract on default of
the purchaser, the seller is entitled to forfeit the earnest.

Quantum Meruit
Restitution of the parties. Where would the parties be if they would not have entered into the
contract.
Puran Lal vs State of UP
Court looked at the difference between damages and quantum meruit. As far damages are
concerned-puttign the parties as if the contract had been performed. QM- contract has not
been performed.
Remedy available to the injured party.
Craven Ellis vs Canons Ltd.
This remedy is available for void agreements as well because it can not be enforced however
the parties have availed benefits or incurred losses via the agreement. Thereore, it is to
provide remedy to those parties.
State of rajasthan vs Assocated Srone Industries
Court looked at S 65, void agreements. Applied remedy of quantum meruit as a remedy.