As per the Oxford dictionary, ‘damage’ is defined as’financial compensation for loss or injury’, which is caused on account of thedefaulting Party’s breach of the contract. The term ‘damages’ is not definedunder the Indian Contract Act, 1872. In Common Cause V Union of India 1999 (6) SCC 667, theSupreme Court first used the definition of ‘damages’, as propounded by McGregor at para 127,”Damages are thepecuniary compensation, obtainable by success in an action, for a wrong whichis either a tort or a breach of contract, the compensation being in the form ofa lump sum which is awarded unconditionally.” Section 73 of the Indian Contract Act,1872 lays downprovisions related to damages. It provides that any party, who breaches acontract, is liable to provide compensation to the injured party, due to breachof contract, for any loss or damage caused. Damages under Section 73 of the Actare compensatory and not penal in nature.”Breach of contract” constitutes the pre-condition for aclaim of damages, be it liquidated, unliquidated or otherwise.
Thus, irrespectiveof the extent to which the defendant profits from the contractual arrangement, therecan be no claim for damages unless there is a breach of the contract. Further,the party committing the breach is liable to compensate by way of damages. To establisha breach, it has to be adjudicated upon and be proved, and not merely decidedby the parties. A contract is said to be breached in case of contravention withthe terms of the contract or when the promise made is broken. It may so happenthat the terms are not complied in a manner which had been contemplated in thecontract. For example, if a party contracts with another for repairing theother’s house in a certain manner, and the repair was not done in the mannerwhich was decided, then the aggrieved party in entitled to damages to theextent of costs of making repairs in conformity with the contract.
Damages mayalso be claimed in case of anticipatory breach of contract. An anticipatorybreach is said to have been committed when a party refuses to perform, or hasdisabled himself from the performance of the promise in its entirety. In such ascenario, the other party may acquiesce to the continuation of the contract orrescind it. In case of an anticipatory breach of contract, the plaintiff wouldbe entitled to claim damages on establishing the intention to perform thecontract prior to rescission of the contract.Damages of BreachA contract is not a property. It is just a promise whichis supported by some meaningful consideration upon which the remedy of thatdamage or specific performance is available.
The party who is injured by the breach of contract canbring an action for the damages. The burden to prove the loss lies completelyon the injured party.Every action for damages raises two major issues, the remotenessof damage and the measure of the damage.
The elements of damage recognised by law are divisible intwo prime groups: pecuniary and non-pecuniary. While the pecuniary casualty canbe calculated I terms of loss, the non-pecuniary loss is not so calculable.Non-pecuniary casualty is compensated in terms of money, not as replacement forother money, but as an alternative, what McGregor says, is usually moreimportant than money: it’s the best that a Court can do.Remoteness of damageEvery Breach of contract upsets numerous establishedexpectations of the injured party. Theoretically the implications of a breachcould be endless, but there ought to be an end to liability. The appellant can’tbe held liable for all that follows from his breach. There should be a limit toliability beyond which the damage is asserted to be too far off and, thus,irrecoverable.
Damages under Indian LawAccording to the Indian Contracts Act, 1872 (ICA) thefollowing types of damages are available on the breach of contact.Let’s take the following clauses: 1. “X shallperform its obligations hereunder in conformance with the terms of theAgreement and all other applicable Indian laws and statutes including allIndian employment and workmen’s laws.” 2. “X shallperform its obligations hereunder in conformance with the terms of theAgreement and all other applicable Indian laws and statutes including allIndian employment and workmen’s laws.
X agrees that if at any time during theterm of this Agreement, except on account of Force Majeure, the Plant is unableto supply electricity at the Discharge Capacity resulting in Y being unable tooperate its cement unit, then in that event and in every such case X will pay Ya sum to be calculated as per the formula specified below as and by way ofliquidated damages for failure of X to supply electricity at the DischargeCapacity resulting in delay in the operations of the cement unit.” The difference among these two clauses is that secondclause provides the payment for the liquidated damages whereas, under clause 1,Y has to seek only the actual damages held due to the non-supply ofelectricity.The damages can be divided into two major categories-General Damages- The damages which naturally arise in thecourse of things due to the breach itself or else we can say that the defendantis liable for all that which naturally follows in the course of things afterthe breach. Section 73 of the Indian Contracts Act, 1872 deals with suchdamages. Special Damages- The damages which arise due to theunusual or special circumstances affecting the plaintiff and thus resulting toconsequential damage. They are not recoverable unless the special circumstanceswere brought to the knowledge of the defendant; so that the possibility ofspecial loss was in contemplation of the parties. Special damages do not meanserious damage, in the sense of irreparable loss but damage peculiar to theplaintiff.Difference between general and special damagesIn the context of liability for loss, general damages arethose which arise naturally and in the normal course of events, whereas specialdamages are those which do not arise naturally out of the defendant’s breach.
General damages are losses, usually but not exclusively,non-pecuniary, which are not capable of precise quantification in monetaryterms. For example, damages for harm to reputation in actions for defamationand damages for pain and suffering in actions relating to personal injury. Specialdamages, on the other hand are those losses which can be calculated infinancial terms. These are generally pecuniary losses calculable at the time oftrial, for example, claims for loss of earnings, whether past or future, or thecost of care in personal injury actions.Special damage refers to those losses which must be specificallypleaded and proved by evidence, and particulars of the special damage claimedmust be specified in the complaint, whereas general damage is that which willbe presumed to be the natural or probable consequences of the wrong complainedof, with the result that the plaintiff is required only to assert that suchdamage has been suffered and quantification is left to the courtLiquidated Damages- When theterms of a contract are broken, if a sum is appointed in the contract as thequantity to be compensated in case of breach, the party complaining of thebreach is entitled, even if actual damage or loss is proved to happen to becaused thereby, to receive compensation not exceeding the quantity so assigned.If obligation to pay a specific amount by means of penalty has been provided inthe contract, then rational compensation not exceeding that quantity must bepaid1.Apart from the Force Majeure, in clause 2, Y is entitled to call for liquidateddamages.
This would be more beneficial to Y as he will be entitled topredetermined amount for the loss. Under clause 1, Y will have to prove all ofthe damages suffered during the breach and if once liquidated damages are awarded,no claims can be made for the loss of profits or other incidental damages. Thus,the events activating liquidated damages must be clearly declared, in orderthat the parties are independent to claim damages after the breach of contract.After reading section 74 of the Indian Contract Act, 1872, it can be noted thatIndian law does not distinguish between liquidated damages and penalties, as isthe case in the UK or the USA.
In the above-mentioned countries, the question oflaw is whether the sum set forth in a contract is in the nature of liquidateddamages or a penalty. As the Indian law doesn’t stateany difference between damages and penalty, the liquidated damages clause doesnot specifically state if liquidated damages are not a part of the nature of apenalty. Actual DamagesAccording to Section 73 of theIndian Contracts Act, 1872,”When a contract has beenbroken, the party who suffers by such breach is entitled to receive, from theparty who has committed breach, compensation for any loss or damage caused tohim thereby, which naturally arose in the usual course of things from suchbreach, or which the parties knew, when they made the contract, to be likely toresult from such breach. Compensation is not to be paidfor any indirect loss or damage, or any other remote damage, sustained by thebreach of contract. Compensation for failure to discharge obligation resemblingthose created by contract: When an obligation resembling those created bycontract has been incurred and has not been discharged, any person injured bythe failure to discharge it is entitled to receive the same compensation fromthe party in default, as if such person had contracted to discharge it and hadbroken his contract”. Besides, the explanationprovided for this section adds, “In estimating the loss or damage arising from a breach ofcontract, the means which existed of remedying the inconvenience caused by thenon-performance of the contract must be taken into account.
” The acknowledged principles underlying the award ofindemnity are that the injured party should be placed in the equivalentposition when it comes to money as if the contract was performed by the party asa default. When the contract is of sale, this principle calls for valuation ofdamages as on the date of breach. In a contract of the sale of goods, the limitof damages consequent to breach by the client is the distinction between thecontract price and the market price on the appointment of breach. On a breachof contract to deliver goods by the representative, the client be entitled torecover all the damages of procuring similar or similar goods. This was held by the Calcutta High Court in the case of TataIron & Steel Co Ltd v. Ramanlal Kandoi (1971) 2 Cal.
Rep. 493, 528. In caseof non-delivery of goods, the damages are fixed on the basis of the priceprevailing on the date on which delivery is to be made, as was held by theSupreme Court in the case of Union of India v. Jolly Steel Industries (Pvt)Ltd. (AIR 1980 SC 1346).