7/28/2019 Damages for Breach of Contract - Sept 2012
1/86
LawQuest 2012. All Rights are Reserved. 1
Damages for Breach ofContracts
by Poorvi Chothani, Esq.LawQuest
www.lawquestinternational.com
September 12, 2012IIM - Ahmedabad
http://www.lawquestinternational.com/http://www.lawquestinternational.com/7/28/2019 Damages for Breach of Contract - Sept 2012
2/86
LawQuest 2012. All Rights are Reserved. 2
Introduction
An agreement enforceable by law is a
contract.
A contract, which imposes a legal
relationship between the contracting parties,
can be brought to an end only by the
Discharge of the Contract.
7/28/2019 Damages for Breach of Contract - Sept 2012
3/86
LawQuest 2012. All Rights are Reserved. 3
Discharge of Contract may take place in
various ways as follows by:1. Performance
2. Attempted Performance or Tender
3. Impossibility of Performance
4. Agreement
5. Lapse of Time
6. Operation of Law7. Breach of Contract
7/28/2019 Damages for Breach of Contract - Sept 2012
4/86
LawQuest 2012. All Rights are Reserved. 4
Definition of Breach of Contract
Breach of Contract under the Indian Contract Act,
1872 :
A breach of contract gives rise to a legal cause ofaction in which a binding agreement or bargained-
for exchange is not honoured by one or more of the
parties to the contract by non-performance or
interference with the other party's performance
without any lawful excuse
7/28/2019 Damages for Breach of Contract - Sept 2012
5/86
LawQuest 2012. All Rights are Reserved. 5
Nature of Breach
Actual Breach: Actual breach occurs where one party
refuses to perform his side of the bargain on the due
date or performs incompletely.
Anticipatory Breach: Where one party announces, in
advance of the due date for performance, that he
intends not to perform his side of the bargain.
Innocent party may sue for damages as soon as breach
is announced.
7/28/2019 Damages for Breach of Contract - Sept 2012
6/86
LawQuest 2012. All Rights are Reserved. 6
Forms of Breach of Contract
A party renouncing his obligations under the
contract
A party by his own act making it impossible that
he should fulfill his obligations under the contract
A party may fail to perform what he haspromised
7/28/2019 Damages for Breach of Contract - Sept 2012
7/86
LawQuest 2012. All Rights are Reserved. 7
7/28/2019 Damages for Breach of Contract - Sept 2012
8/86
LawQuest 2012. All Rights are Reserved. 8
Innocent Partys Options in Face of a Breach
a) Renunciation (where a party refuses to perform his
obligations under the Contract)
b) Breach of condition (where the party in default hascommitted a breach of condition)
c) Fundamental Breach (where the party in breach has
committed a serious (or fundamental) breach of aninnominate term or totally fails to perform the contract)
7/28/2019 Damages for Breach of Contract - Sept 2012
9/86
LawQuest 2012. All Rights are Reserved. 9
General Principles
When there is such a breach of contract by one
party then the other party is entitled to discharge
himself and does so, he is released from further
performance.
He is not obliged to accept any further
performance from the party in breach.
7/28/2019 Damages for Breach of Contract - Sept 2012
10/86
LawQuest 2012. All Rights are Reserved. 10
Remedy
Equitable or Common Law Remedy
a. Specific Performance
b. Injunction
Legal Remedy
a. Damages
7/28/2019 Damages for Breach of Contract - Sept 2012
11/86
LawQuest 2012. All Rights are Reserved. 11
Remedy
Damages should be -
Capable of being fairly and reasonably be
considered arising naturally in the usual course ofthings; or
As per the knowledge of both the parties at the time
of entering into the contract as the naturalconsequence of such breach.
7/28/2019 Damages for Breach of Contract - Sept 2012
12/86
LawQuest 2012. All Rights are Reserved. 12
Specific Performance
Is an exceptional but specific remedy, which isgranted:
In rare cases where the court considers it just andequitable
If movable property is an extra ordinary article that isnot easily available in the market or is of specialvalue of interest to the plaintiff
Where a movable property is held as agent or trustee
of plaintiff. Where transaction involves land or other immovableproperty
7/28/2019 Damages for Breach of Contract - Sept 2012
13/86
LawQuest 2012. All Rights are Reserved. 13
Specific Performance Not Granted Where
Compensation is an adequate relief Contract involves minute and numerous details
Contract is dependant on personal qualifications ofthe parties
Contract involves performance of a continuousnature that constant supervision by the court wouldbe required
Specific performance would be possible against
one party but not the other Damages are not as speedy or efficacious as
specific performance
7/28/2019 Damages for Breach of Contract - Sept 2012
14/86
LawQuest 2012. All Rights are Reserved. 14
Prithvi Raj Singh Vs. Dalip Kulkarni
(Rajasthan High Court, 1999)
An agreement for taking over of a company provided thatthe defendant shall discharge the liabilities of the plaintifftowards various financial institutions. In pursuance of the
agreement, the plaintiff handed over the assets of thecompany and their possession to the defendants. Thedefendant failed to pay the institutions.
Order of specific performance was awarded on theground that damages are not as speedy and efficaciousa remedy as specific performance.
7/28/2019 Damages for Breach of Contract - Sept 2012
15/86
LawQuest 2012. All Rights are Reserved. 15
Surjit Kaur Vs. Naurata Singh
(Supreme Court,2000) Specific performance cannot be granted to a party who
has not been ready and willing at all stages to performthe contract
In cases where a contract is not capable of beingperformed in whole then the readiness and willingness,at all stages, is the readiness and willingness to acceptpart performance
If a contract is not capable of being performed in wholeand a party clearly indicates that he is not willing toaccept part performance, then there is no readiness andwillingness, at all stages, to accept part performance.
7/28/2019 Damages for Breach of Contract - Sept 2012
16/86
LawQuest 2012. All Rights are Reserved. 16
Shanker Singh Vs. Narinder Singh
(Supreme Court, 2011)
The party seeking part performance must unambiguouslyrelinquish all claims to performance of remaining part of thecontract.
Damages and specific performance are both remediesavailable upon breach of obligations by a party to the contract.
Unless the contrary is proved, the Court shall presume thatbreach of contract to transfer immovable property cannot beadequately relieved by compensation in money.
There must be certainty with respect to the property to besold.
7/28/2019 Damages for Breach of Contract - Sept 2012
17/86
LawQuest 2012. All Rights are Reserved. 17
Jabalpur Cable Network Pvt. Ltd Vs. ESPN
Software India Pvt. Ltd.(Madhya Pradesh High Court, 1999)
Contract to send messages and satellite signals by a
cable operator has been held as specifically enforceableas they are not goods, ordinary article of commerce, nor
easily available/obtainable in the market nor there are any
standards of ascertaining loss caused to the aggrieved
party to the contract.
7/28/2019 Damages for Breach of Contract - Sept 2012
18/86
LawQuest 2012. All Rights are Reserved. 18
Injunction
An injunction is an order of the courtrequiring a person to perform a negative
obligation.
For granting injunctions a court applies the sameprinciples as are applicable in granting specific
performance of a contract.
Two broad categories of injunction:a)Prohibitory injunction
b)Mandatory injunction
7/28/2019 Damages for Breach of Contract - Sept 2012
19/86
LawQuest 2012. All Rights are Reserved. 19
Damage or Loss
1. Pecuniary (loss of profits, damage to goods, loss of
future earnings)
2. Non-pecuniary (pain, suffering, loss of reputation)
7/28/2019 Damages for Breach of Contract - Sept 2012
20/86
LawQuest 2012. All Rights are Reserved. 20
Damages and Compensation
Damages are the pecuniary recompense given byprocess of law to a person for the actionable wrong doneto him by another person.
Compensation for damage or loss due to an actionablewrong like compensation for loss arising out of breachof contract or termination of employment and so on.
In the Indian Contract Act, 1872, the word damages forbreach of contract is used in the sense of compensation.
7/28/2019 Damages for Breach of Contract - Sept 2012
21/86
LawQuest 2012. All Rights are Reserved. 21
Damages
Types of Damages:
Nominal Damages
Substantial Damages
Aggravated and Exemplary Damages
Liquidated and Un-liquidated Damages
Consequential Damages
Damages for pain and suffering
Punitive Damages
7/28/2019 Damages for Breach of Contract - Sept 2012
22/86
LawQuest 2012. All Rights are Reserved. 22
Dhulipudi Namayya Vs. Union of India
(Andhra Pradesh High Court, 1958)
Function of damages for breach of contract is compensatory notpunitive.
Ruxley Electronics Vs. Forsyth (House of Lords, 1995)
The amount of damages cannot exceed the loss actually suffered by theclaimant or which he is likely to suffer.
Ghansiram Vs. Municipal Board (Bhopal High
Court,1956)
The amount of damages cannot exceed the loss actually suffered by theclaimant, or which he is likely to suffer.
7/28/2019 Damages for Breach of Contract - Sept 2012
23/86
LawQuest 2012. All Rights are Reserved. 23
Quantification of Damages
The only measure of damages in a contract is theloss truly suffered by the promisee
The amount of damages cannot exceed the lossactually suffered by the claimant of which he has or
is likely to suffer Damages are compensation for natural andprobable consequence of the breach i.e. whichcould reasonably be foreseen
The function of damages is compensatory notretributive. They are based on loss of plaintiff noton gain of defendant
7/28/2019 Damages for Breach of Contract - Sept 2012
24/86
LawQuest 2012. All Rights are Reserved. 24
Jwala Prasad Vs. Jwala Bank Ltd.
(Allahabad High Court, 1957)
Managing Director is deemed to be dismissed on winding
up of a company. Claim for damages evaluated at the dateof the winding up after deducting what he is able to earn by
doing any other business he likes. He was awarded half of
the evaluated amount.
7/28/2019 Damages for Breach of Contract - Sept 2012
25/86
LawQuest 2012. All Rights are Reserved. 25
State of Uttar Pradesh Vs. Debi Prasad
(Allahabad High Court, 1966)
A was dismissed by one department of the
Government and was then employed by another
department. The dismissal was declared illegal by acourt of law. A claimed salary in respect of his
employment in the first department. A was awarded
salary after deducting the salary for the period for which
he served in that other department.
7/28/2019 Damages for Breach of Contract - Sept 2012
26/86
LawQuest 2012. All Rights are Reserved. 26
One-Time, Single Assessment of Damages
When claim arises from one and the same cause ofaction.
A second proceeding cannot be brought in respect ofthe same cause of action even though the plaintiff
suffers an unexpected or very great loss in the future.
However, separate suits may be maintained forseparate breaches of different promises in the samecontract
A claim for un-liquidated damages does not give rise toa debt until the liability is adjudicated upon and thedamages assessed.
7/28/2019 Damages for Breach of Contract - Sept 2012
27/86
LawQuest 2012. All Rights are Reserved. 27
Legal Remedies
Section 73 of the Contract Act, 1872: When acontract has been broken, the party who suffers by suchbreach is entitled to receive, from the party who hasbroken the contract a compensation for any loss or
damage caused to him thereby, which naturally arose inthe usual course of things from such breach, or whichthe parties knew, when they made the contract to belikely to result from the breach of it.
Such compensation is not to be given for any remoteand indirect loss or damage sustained by reason of thebreach.
7/28/2019 Damages for Breach of Contract - Sept 2012
28/86
LawQuest 2012. All Rights are Reserved. 28
Liquidated Damages
Section 74 of the Indian Contract Act:
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 notexceeding the amount so named or, as the case may be,
the penalty stipulated for.
7/28/2019 Damages for Breach of Contract - Sept 2012
29/86
LawQuest 2012. All Rights are Reserved. 29
Liquidated Damages and Penalty
Interchangeable use of the terms liquidated damages and penaltycreates ambiguities
Penalty deterrent value, often considered as a means of terrifying a
party to fulfill his or her obligation.
Exorbitant
Unconscionable
Breach consists in paying of money and the sum stipulated is
greater than the sum which ought to have been paid.
Liquidated damages genuine, covenanted pre-estimate of damages.
Nature of damages depends on facts of the case.
7/28/2019 Damages for Breach of Contract - Sept 2012
30/86
LawQuest 2012. All Rights are Reserved. 30
Liquidated Damages
Nature of damages depends on:
Character of transaction and its special nature, if any
The relative situation of the parties
The statutory rights and obligations accruing from the transaction
Intention of the parties as evidenced in the contract
The particular stipulation which is contended to be penal in
nature
7/28/2019 Damages for Breach of Contract - Sept 2012
31/86
LawQuest 2012. All Rights are Reserved. 31
If the contract does not provide on theconsequences of breach, the loss of profit isawarded as damages. The theme can be divided into further parts. In a sale contract, there is areference to the sale price. This makes quantificationof the loss relatively easy. The courts haveformulated specific principles in relation to this.
In other business contracts the assessment wouldbe on the general principles.
Business Contracts
7/28/2019 Damages for Breach of Contract - Sept 2012
32/86
LawQuest 2012. All Rights are Reserved. 32
Damages for Mental Pain and Suffering
Ordinarily, in commercial contracts damages are not
allowed for mental suffering.
Damages, in principle cannot be recovered in a contractfor injury to reputation.
Damages for mental distress in contract are limited to a
certain class of cases where the contract itself is to
provide peace of mind and not in commercial contracts.
7/28/2019 Damages for Breach of Contract - Sept 2012
33/86
LawQuest 2012. All Rights are Reserved. 33
Mitigation
The rule that the party in breach of contract be placed as
far as money can do it, in as good a situation as if the
contract had been performed, is qualified by one more
principle:
- It 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 which is due to his
neglect to take such steps.
7/28/2019 Damages for Breach of Contract - Sept 2012
34/86
LawQuest 2012. All Rights are Reserved. 34
Rules of Mitigation
The plaintiff cannot recover the losses consequent uponthe default of the defendant if the plaintiff could have
avoided the loss by taking reasonable steps.
If the plaintiff avoids or mitigates the loss, he cannot
recover for such avoided loss even if he takes steps which
are more than what was reasonable required of him.
Where the plaintiff suffers loss or incurs expense despite
taking reasonable steps to avoid or mitigate the lossresulting from the defendants default, he may recover the
further loss due to expense.
Contd
7/28/2019 Damages for Breach of Contract - Sept 2012
35/86
LawQuest 2012. All Rights are Reserved. 35
Rules of Mitigation
The explanation of Section 73 does not create an
independent actionable duty to mitigate but a factor to be
taken into account in assessing the damages naturally
flowing from the breach.
Mitigation also finds applications in the contract of
employment.
7/28/2019 Damages for Breach of Contract - Sept 2012
36/86
LawQuest 2012. All Rights are Reserved. 36
Remoteness of Damage
Compensation must be in respect of the direct
consequences flowing from the breach and not in
respect of loss or damage indirectly or remotely caused.
The party who has suffered the loss should be placed in
the same position, as far as compensation in money can
do, as if the party in breach has performed his contract
or fulfilled the duty.
7/28/2019 Damages for Breach of Contract - Sept 2012
37/86
LawQuest 2012. All Rights are Reserved. 37
Hadley Vs. Baxendale
(Court of Exchequer Chamber,1854)
The Crankshaft Case delay in transportation by canal instead of rail
Criteria for awardparties intent, purposes and awareness.
Absent explicit communication inference based on parties actions.
Importance of communicating special circumstances.
Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in respectof such breach of contract should as such as may fairly and reasonablybe considered either arising naturally i.e. according to the usual courseof things, from such breach of contract, itself.
7/28/2019 Damages for Breach of Contract - Sept 2012
38/86
LawQuest 2012. All Rights are Reserved. 38
Position in India
The principles ofHadley Vs. Baxandale
First: If the parties have in express terms impliedly
provided for the consequences, these should befollowed.
Second: Take the contract and its breach to be as it
usually happens in general practice.
7/28/2019 Damages for Breach of Contract - Sept 2012
39/86
LawQuest 2012. All Rights are Reserved. 39
A contracts to pay a sum of money to B on a day specified. Adoes not pay the money on that day. B, in consequence of notreceiving the money on that day, is unable to pay his debts,and is totally ruined. A is not liable to make good to B anythingexcept the principal sum he contracted to pay, together with
interest up to the day of payment.
A contracts to sell and deliver 500 bales of cotton to B on afixed day. A knows nothing of Bs mode of conducting hisbusiness. A breaks his promise, and B, having no cotton, is
obliged to close his mill. A is not responsible to B for the losscaused to B by closing of the mill.
Remoteness of Damage Illustrations to S. 73
7/28/2019 Damages for Breach of Contract - Sept 2012
40/86
LawQuest 2012. All Rights are Reserved. 40
A contracts to sell and deliver to B, on the first ofJanuary, certain cloth which B intends to manufactureinto caps of a particular kind, for which there is nodemand, except at that season. The cloth is notdelivered till after the appointed time, and too late to beused that year in making caps. B is entitled to receivefrom A, by way of compensation, the differencebetween the contract price of the cloth and its marketprice at the time of delivery, but not the profit which heexpected to obtain by making caps, nor the expenses
which he has been put to in making of preparation forthe manufacture.
Remoteness of Damage Illustrations to S. 73
7/28/2019 Damages for Breach of Contract - Sept 2012
41/86
LawQuest 2012. All Rights are Reserved. 41
Remoteness of Damage Illustrations to S. 73
A, a ship owner, contracts with B to convey him form Calcuttato Sydney in As ship, sailing on the first of January, and Bpays to A, by way of deposit, one-half of his passage-money.The ship does not sail on the first of January, and B, after
being, in consequence, detailed in Calcutta for some time, andthereby put to some expense, proceeds to Sydney in anothervessel, and, in consequence, arriving too late in Sydney, losesa sum of money. A is liable to repay to B his deposit, withinterest, and the expense to which he is put by his detention inCalcutta, and the excess, if any, of the passage-money whichB lost by arriving in Sydney too late
7/28/2019 Damages for Breach of Contract - Sept 2012
42/86
LawQuest 2012. All Rights are Reserved.42
A, the owner of a boat, contracts with B to take a cargo of juteto Mirzapur, for sale at that place, starting on a specified day.The boat, owing to some avoidable cause, does not start atthe time appointed, whereby the arrival of the cargo atMirzapur is delayed beyond the time when it would havearrived if the boat had sailed according to the contract. Afterthat date, and before the arrival of the cargo, the price of jutefalls. The measure of the compensation payable to B by A isthe difference between the price which B could have obtainedfor the cargo at Mirzapur at the time when it would havearrived if forwarded in due course, and its market price at thetime when it actually arrived
Remoteness of Damage: Parties are bound bythe consequences they have contemplated
7/28/2019 Damages for Breach of Contract - Sept 2012
43/86
LawQuest 2012. All Rights are Reserved.43
A delivers to B, a common carrier, a machine, to be
conveyed, without delay, toAs mill, informing B that his mill is
stopped for want of machine. B unreasonably delays the
delivery of the machine, and A, in consequence, loses a
profitable contract with the Government. A is entitled to
receive from B, by way of compensation, the average amount
of profit which would have been made by the working of the
mill during the time that delivery of it was delayed, but not the
loss sustained through the loss of the Government contract.
Remoteness of Damage: Parties are bound bythe consequences they have contemplated
7/28/2019 Damages for Breach of Contract - Sept 2012
44/86
LawQuest 2012. All Rights are Reserved.44
A contracts with B to make and deliver to B, by a fixed day,for a specified price, a certain piece of machinery. A doesnot deliver the piece of machinery, at the time specified, and,in consequence of this, B is obliged to procure another at a
higher price than that which he was to have paid to A, and isprevented from performing a contract which B had madewith a third person at the time of his contract with A (butwhich had not been communicated to A), and is compelledto make compensation, the difference between the contract
price of the machinery and the sum paid by B for another,but not the sum paid by B to the third person by way ofcompensation
Remoteness of Damage: Parties are bound bythe consequences they have contemplated
7/28/2019 Damages for Breach of Contract - Sept 2012
45/86
LawQuest 2012. All Rights are Reserved.45
A, a builder, contracts to erect and finish a house by the firstof January, in order that B may give possession of it at thattime to C, with whom B has contracted to let it. A is informedof the contract between B and C. A builds by B, who, in
consequence, loses the rent which he was to have receivedfrom C, and is obliged to make compensations to C for thebreach of his contract. A must make compensation to B forthe constructing or re-building the house, for the rent loss, andfor the compensation made to C
Explanation: The parties have shared the consequences ofbreach in the loss of tenancy.
Remoteness of Damage: Parties are bound bythe consequences they have contemplated
7/28/2019 Damages for Breach of Contract - Sept 2012
46/86
LawQuest 2012. All Rights are Reserved.46
In Pannalal J ankidas Vs. Mohanlal (Supreme Court,1950) the Supreme Court has recognized that Section
73 codifies the judgment in Hadely Vs. Baxendale.
The cases on remoteness of damage have abated asall commercial contracts have a clause stating:Neither party shall be liable to the other party for
indirect or consequential losses.
Remoteness of Damage: Parties are bound bythe consequences they have contemplated
7/28/2019 Damages for Breach of Contract - Sept 2012
47/86
LawQuest 2012. All Rights are Reserved.47
Measure of Damages - The Principle
A basis for damages has already been adopted in
the principle restitutio in integrum, namely that
when an injured person has suffered damage, hemust, so far as money can do it, be restored to the
position before he suffered it.
7/28/2019 Damages for Breach of Contract - Sept 2012
48/86
LawQuest 2012. All Rights are Reserved.48
Measure of Damages
In business contracts, parties come together to earn aprofit so loss of profit is the most common claim.
In a sale contract - difference between the contract
price and the price of the goods on the date ofperformance adequately measures the loss.
Difficult to measure loss of profit in other contractssuch as work contracts.
The courts take a percentage of the contract value as ameasure of loss.
7/28/2019 Damages for Breach of Contract - Sept 2012
49/86
LawQuest 2012. All Rights are Reserved.49
Measure of damages has to be calculated as wouldplace the party suffering breach as far as money cando it in as good a condition in which he would had beenhad the contract been performed
The injured party has the corresponding duty to take allreasonable steps to mitigate the loss consequent onthe breach
The injured party is debarred from claiming any part ofdamages which is due to his neglect in taking suchsteps
Murlidhar Chiranjilal Vs. Harishchandra
Dwarkadas (Supreme Court, 1962)
7/28/2019 Damages for Breach of Contract - Sept 2012
50/86
LawQuest 2012. All Rights are Reserved.50
Illustrations:
A contracts to sell and deliver 50 mounds of saltpeter to
B, at a certain price to be paid on delivery. A breaks hispromise. B is entitled to receive from A, by way of
compensation, the sum, if any, by which the contract
price falls short of the price for which B might have
obtained 50 mounds of saltpeter of like quality at the time
when the saltpeter ought to have been delivered
Measure of Damage
7/28/2019 Damages for Breach of Contract - Sept 2012
51/86
LawQuest 2012. All Rights are Reserved.51
A hires Bs ship to go to Bombay, and there takes on board, on the first
of January, a cargo, which A is to provide, and to bring it to Calcutta,
the freight to be paid when earned. Bs ship does not go to Bombay, but
A has opportunities as those on which he had chartered the ship. A
avails himself of those opportunities, but is put to trouble and expensein doing so. A is entitled to receive compensation from B in respect of
such trouble and expense.
Explanation: A can only receive the expenses incurred for arranging
the alternate carriage.
Performance Interest: Damages that should beawarded to the innocent party
7/28/2019 Damages for Breach of Contract - Sept 2012
52/86
LawQuest 2012. All Rights are Reserved.52
A contracts to let his ship to B for a year, from the first of January, for
a certain price. Freights rise, and, on the first of January, the hire
obtainable for the ship is higher than the contract price. A breaks his
promise. He must pay to B, by way of compensation, a sum equal to
the difference between the contract price and the price for which Bcould hire a similar ship for a year on and from the first of January.
Explanation: A must pay to B, by way of compensation, a sumequal to the difference between the contract price and the price for
which B could hire a similar ship, for a year on and from the first ofJanuary. The illustration does not mention the expenses for finding
the alternate carriage.
Performance Interest: Damages that should beawarded to the innocent party
7/28/2019 Damages for Breach of Contract - Sept 2012
53/86
LawQuest 2012. All Rights are Reserved.53
A, a builder, contracts to erect and finish a house by the first of January in order
that B may give possession of it at that time to C, to whom B has contracted to let
it. A is informed of the contract between B and C. A builds the house so badly
that, before the first of January, it falls down and has to be re-built by B, who, in
consequence, loses the rent which he was to have received from C, and is obliged
to make compensation to C for the breach of his contract.
Explanation: If the contract, had been performed, B would not have incurred thecost of rebuilding the house. Thus, A should reimburse him the cost of rebuilding
the house. It was expressly understood by the parties that A had contracted to rent
the house to C. The consequences of breach reached to the contract between Band C. Thus A should pay to B the rent B lost and the compensation he had to pay
to C.
Performance Interest: Damages that should beawarded to the innocent party
7/28/2019 Damages for Breach of Contract - Sept 2012
54/86
LawQuest 2012. All Rights are Reserved.54
A, a ship-owner, contracts with B to convey him from Calcutta toSydney inAs ship, sailing on the first of January, and B pays to A, byway of deposit, one-half of his passage-money. The ship does not sailon the first of January, and B, after being in consequence detained inCalcutta for some time and thereby put to some expenses, proceeds to
Sydney in another vessel, and, in consequence, arriving too late inSydney, loses a sum of money
Explanation: In the case of a breach of carriage, the passenger wouldhave to buy another ticket and suffer miscellaneous expenses in thewhile. However, as a result of the delay in reaching Sydney, he wouldincur losses is remote to the contract which is for carriage.
Performance Interest: Damages that should beawarded to the innocent party
7/28/2019 Damages for Breach of Contract - Sept 2012
55/86
LawQuest 2012. All Rights are Reserved.55
A delivers to B, a common carrier, a machine, to beconveyed, without delay, toAs mill informing B that his millis stopped for want of the machine. B unreasonably delays
the delivery of the machine
Explanation: The parties know that the mill will be idle ifthe contract is breached. As a result of this, the loss to theparty will be of profit.
Business Contract Knowledge of Special
Circumstances
7/28/2019 Damages for Breach of Contract - Sept 2012
56/86
LawQuest 2012. All Rights are Reserved.56
A contracts to sell and deliver 500 bales of cotton to B ona fixed day. A knows nothing ofBs mode of conductinghis business. A breaks his promise, and B, having nocotton, is obliged to close his mill. A is not responsible to
B for the loss caused to B by the closing of the mill.
Explanation: Itis not shared between the parties that Bhas a mill and it would be closed if the delivery weredelayed.
Business Contract Usual Course of Business
7/28/2019 Damages for Breach of Contract - Sept 2012
57/86
LawQuest 2012. All Rights are Reserved.
57
A contracts to sell and deliver 50 mounds of saltpeter to B,at a certain price to be paid on delivery. A breaks hispromise.
Explanation: B is entitled to receive from A, by way ofcompensation, the sum, if any, by which the contract pricefalls short of the price for which B might have obtained 50mounds of saltpeter of like quality at the time when thesaltpeter ought to have been delivered.
Sale Contract
7/28/2019 Damages for Breach of Contract - Sept 2012
58/86
LawQuest 2012. All Rights are Reserved.
58
A contracts to sell and deliver 50 mounds of saltpeter to Bon the first of January, at a certain price. B afterwardsbefore the first of January, contracts to sell the saltpeter toC at a price higher than the market price of the first of
January.
Explanation: In estimating the compensation payable byA to B, the market price of the first of January, and not theprofit which would have arisen to B from the sale of C, is
to be taken into account.
Sale Contract
7/28/2019 Damages for Breach of Contract - Sept 2012
59/86
LawQuest 2012. All Rights are Reserved.
59
A contracts to buy Bs ship for 60,000 rupees, but breakshis promise.
Explanation: A must pay to B, by way of compensation,the excess, if any, of the contract price over the pricewhich B can obtain for the ship at the time of the breach
of promise.
Sale Contract
7/28/2019 Damages for Breach of Contract - Sept 2012
60/86
LawQuest 2012. All Rights are Reserved.
60
A contracts to supply B with a certain quantity of ironat a fixed price, being a higher price than that forwhich A could procure and deliver the iron. Bwrongfully refuses to receive the iron.
Explanation: B must pay to A, by way ofcompensation, the difference between the contractprice of the iron and the sum for which A could haveobtained and delivered it.
Sale Contract
7/28/2019 Damages for Breach of Contract - Sept 2012
61/86
LawQuest 2012. All Rights are Reserved.
61
Sale of Goods Award of Lost Commission
Where the buyer wrongfully neglects or refuses to accept and pay for thegoods - action against damages for non-acceptance.
The measure of damages - estimated loss directly and naturally resulting inthe ordinary course of events, from the buyers breach of contract.
Where there is an available market for the goods the measure of damages isthe difference between the contract price and the market or current price atthe time or times when the goods ought to have been accepted, or, if no,time was fixed for acceptance, then at the time of the refusal to accept.
If on investigation of facts, one finds that it is unjust to apply that rule, in thelight of the general principles mentioned above it is not to be applied.
W L Thompson Limited Vs. R Robinson(Gunmakers) Limited (1955)
7/28/2019 Damages for Breach of Contract - Sept 2012
62/86
LawQuest 2012. All Rights are Reserved.
62
The Car Dealer Case:
Consequences of excess demand over supply on loss of profitwhen no loss of profit -
Nominal damages
Union of India Vs. M/s Commercial Metal Corporation(Delhi High Court, 1981)
The decisive element is the date of breach and the market price
prevailing on that date.
The law does not penalise the buyers inaction
Charter Vs. Sullivan (1957)
7/28/2019 Damages for Breach of Contract - Sept 2012
63/86
LawQuest 2012. All Rights are Reserved.
63
Generally, there is no award for inconvenience, pain andsuffering.
The exception is limited to contracts whose purpose is toprovide peace of mind or freedom from distress.
J arvis Vs. Swans Tours Limited (1972) - The Swiss holidaycase
Watts Vs. Morrow (1991) The house appraisal case
The damages will be awarded if the fruit of the contract is notprovided or if the contrary result is procured instead.
Non-Pecuniary Losses
7/28/2019 Damages for Breach of Contract - Sept 2012
64/86
LawQuest 2012. All Rights are Reserved.
64
Liquidated Damages
A fixed amount decided by the contracting parties to bepaid in the case of a breach.
Maximum award subject to the stipulated amount.
Award subject to actual damages excess amount
considered to be penal in nature.
Except if the stipulated amount is a genuine pre-estimate
of the losses.
7/28/2019 Damages for Breach of Contract - Sept 2012
65/86
LawQuest 2012. All Rights are Reserved.
65
LiquidatedDamages Compensation and Penalty: Actual damages are more than the
total amount stipulated, the party pays only the total stipulatedamount.
Fateh Chand Vs. Balkrishna Dass (Supreme Court, 1963): TheSale of Property Case - In assessing damages the court has,
subject to the limit of the penalty stipulated, jurisdiction to awardsuch compensation as it deems reasonable having regard to all thecircumstances of the case.
Duty not to enforce the penalty clause but only to awardreasonable compensation is statutorily imposed upon Courts by
Section 74.
As the party had not suffered any loss, no damages were awarded
7/28/2019 Damages for Breach of Contract - Sept 2012
66/86
LawQuest 2012. All Rights are Reserved.
66
Liquidated Damages
Maula Bux Vs. Union of India (Supreme Court, 1969)
Reasonable amount of earnest deposit. Forfeiture ofearnest money under a contract for sale of property movable or immovable if the amount is reasonable,
does not fall within Section 74.
If forfeiture is of the nature of penalty, Section 74 applies.
Not required to prove actual loss or damages before he
can claim a decree and the court is competent to awardreasonable compensation in case of breach even if noactual damage is proved.
7/28/2019 Damages for Breach of Contract - Sept 2012
67/86
LawQuest 2012. All Rights are Reserved.
67
Liquidated DamagesMaula Bux
To summarize the court interpreted Section 74 as follows:
The court should assess the actual damages even in thecase of contracts where damages are stipulated. Actualdamages not exceeding the stipulated amount should be
awarded.
In some cases, it may not be possible to assessdamages. In such cases, if the stipulated sum isgenuine pre-estimate, it should be awarded or taken intoconsideration for working out a reasonablecompensation.
7/28/2019 Damages for Breach of Contract - Sept 2012
68/86
LawQuest 2012. All Rights are Reserved.
68
ONGC Vs. SAW Pipes Limited(Supreme Court, 2003)
In case of failure to deliver goods within the period fixed for suchdelivery the aggrieved party is entitled to recover from thecontractor liquidated damages as agreed when there is specificstipulation in the agreement that the time and date of delivery of
the goods was the essence of the contract
It is understood that the agreed liquidated damages weregenuine pre-estimate of damages when agreement is executedby experts
Condition to extend the time limit for supply of goods oncondition of paying stipulated liquidated damages as agreed atthe time of entering into contract is held to be valid
7/28/2019 Damages for Breach of Contract - Sept 2012
69/86
LawQuest 2012. All Rights are Reserved.
69
Oil and Natural Gas Corporation Limited Vs.SAW Pipes Limited (Supreme Court, 2003)
Liquidated damages for delay in supply of goods wereheld to be recoverable by paying authorities from thebills for payment of cost of material supplied by thecontractor
Stipulation for recovering liquidated damages is heldnot to be a penalty or that the said sum was in any wayunreasonable.
In certain contracts, it is impossible to assess or provedamages. Sections 73 and 74 cover such matters inthe absence of any specific contractual terms.
7/28/2019 Damages for Breach of Contract - Sept 2012
70/86
LawQuest 2012. All Rights are Reserved.
70
Award of Damages Case-By-Case
Determination
Terms of the contract.
If the terms are clear and unambiguous liquidateddamages to be granted unless claim is unreasonable orpenal in nature.
Section 74 is to be read along with Section 73 - therefore,in every case of breach of contract, the person aggrievedby the breach is not required to prove actual loss ordamage suffered by him before he can claim a decree.
Award reasonable compensation granted even if no actualdamage is proved.
7/28/2019 Damages for Breach of Contract - Sept 2012
71/86
LawQuest 2012. All Rights are Reserved.
71
Earnest Money and Deposit
Earnestmeant something given for the purpose of
binding a contract, something to be used to put
pressure on the defaulter if he failed to carry out his
part.
Deposit.is a guarantee that the contract shall be
performed.
7/28/2019 Damages for Breach of Contract - Sept 2012
72/86
LawQuest 2012. All Rights are Reserved.
72
Earnest Money and Damages
Earnest money did not preclude the party from claiming damages for
breach.
1. It must be given at the time of execution of the contract
2. It represents a guarantee that the contract will be fulfilled or, inother words, earnest is given to bind the contract
3. It is part of the purchase price when the transaction is carried out
4. It is forfeited when the transaction falls through by reason of thedefault or failure of the purchaser.
5. Unless there is anything to the contrary in the terms of thecontract, on default committed by the buyer, the seller is entitledto forfeit the earnest.
7/28/2019 Damages for Breach of Contract - Sept 2012
73/86
LawQuest 2012. All Rights are Reserved.
73
Recent Judgments
Gatta Rattaiah Vs. Food Corporation of India (Andhra PradeshHigh Court, 2011)
Under the common law a genuine pre-estimate of damages bymutual agreement in regarded as a liquidated damages andbinding between the parties.
A stipulation in a contract seeks to terrorize it is a penalty andthe Court refuses to enforce it awarding to the aggrieved partyonly reasonable compensation.
When evidence shows that the extent of the damages or losssuffered by the party is less no one can be allowed to enrich bytaking undue advantage of the forfeiture clause.
7/28/2019 Damages for Breach of Contract - Sept 2012
74/86
LawQuest 2012. All Rights are Reserved.
74
Recent Judgments
MSK Projects Vs. State of Rajasthan (Supreme Court, 2011)
A reasonable expectation of profit is implicit in a workscontract and its loss has to be compensated by way ofdamages if the other party to the contract is guilty of breach ofcontract cannot be gainsaid.
BSNL Vs. Reliance Communication Ltd. (Supreme Court, 2010)
Liquidated damages serve the useful purpose of avoiding
litigation and promoting commercial certainty and, therefore,the court should not be astute to categorize as penalties theclauses described as liquidate damages.
7/28/2019 Damages for Breach of Contract - Sept 2012
75/86
LawQuest 2012. All Rights are Reserved.
75
Recent Judgments
ONGC Vs. Oil Country Tubular Limited (Bombay HighCourt, 2011)
Quantum of damages must be determined with reference to the
provisions as it stood, at the time of commission of the breach
where the parties agreed to pay damages in case of breach ofcontract.
Confirming Saw Pipes has recognized the importance ofleading evidence to prove damages or reasonable
compensation. Quantum of damages cannot be awarded only
on the basis of presumption and assumption.
7/28/2019 Damages for Breach of Contract - Sept 2012
76/86
LawQuest 2012. All Rights are Reserved.
76
Recent Judgments
Herbicides (India) Ltd. Vs. Shashank Pesticides P. Ltd.(Delhi High court, 2011)
Innocent party is entitled to receive compensation
from the guilty party. Innocent party entitled to direct damages but not
remote damages.
No need to prove the actual loss/damage suffered
when contract has a liquidated damages clause. Reasonable damages cannot exceed the amount of
liquidate damages stipulated in the contract
7/28/2019 Damages for Breach of Contract - Sept 2012
77/86
LawQuest 2012. All Rights are Reserved.
77
Recent Judgments
Herbicides (India) Ltd. Vs. Shashank Pesticides P. Ltd.(Delhi High court, 2011)
If the amount stipulated on account of breach of contract is shownto be by way of penalty, the innocent party suffering on account ofthe breach is entitled only to a reasonable compensation and notthe amount stipulated in the contract.
If it is not possible to assess damages the amount stipulated inthe contract as liquidated damages should normally be acceptedas a fair and reasonable pre-estimate of damages.
The law imposes a duty upon the Plaintiffs to take all reasonablesteps to mitigate loss
7/28/2019 Damages for Breach of Contract - Sept 2012
78/86
LawQuest 2012. All Rights are Reserved.
78
Recent Judgments
Phulchand Exports Ltd. Vs. OOO Patriot(Supreme Court, 2011)
A contract for sale stipulated for delivery of the goods
sold within 180 days; the shipment should be done by avessel that is on way to Novorossiysk as the first port ofdischarge
SC held the reimbursement as neither to be punitive norvindictive notwithstanding the availability of the right tothe buyer against the insurer or carrier.
7/28/2019 Damages for Breach of Contract - Sept 2012
79/86
LawQuest 2012. All Rights are Reserved.
79
Recent Judgments
GAIL Vs. Surya Roshni (Delhi High Court, 2012)
Pipe line installed by Surya Roshni Ltd. failed
GAIL chose to de-rate the said pipe line to make itworkable
Surya Roshni paid for de-rating. Hence GAIL notentitled to additional compensation
Parties may provide for reimbursement on accountof replacement of defective goods and provide forconsequential damages
7/28/2019 Damages for Breach of Contract - Sept 2012
80/86
LawQuest 2012. All Rights are Reserved.
80
Recent Judgments
M/s J . K. Cement Works Vs. Delhi J al Board(Delhi High Court, 2012)
Genuine pre-estimate of damages on account of lossand did not require any further proof of such loss.
Vishal Engineers & Builders Vs. Indian Oil CorporationLtd.
Airports Authority of India Vs. R. K. Singhal 2011 (126)DRJ 250
Sudhir Gensets Ltd. Vs. Indian Oil Corporation Ltd.
7/28/2019 Damages for Breach of Contract - Sept 2012
81/86
LawQuest 2012. All Rights are Reserved.
81
Recent Judgments
J yoti Sarup Mittal Vs. Abhiyan Cooperative(Delhi High Court, 2012)
Delay in a construction project Amount mentioned in claim
Penal in nature and penal provisions are not
enforced in law
Liquidated damages require proof of such loss
7/28/2019 Damages for Breach of Contract - Sept 2012
82/86
LawQuest 2012. All Rights are Reserved.
82
Recent Judgments
Airports Authority of India (AAI) Vs. Shri ShaktiResorts & Hotels Limited (SSRHL) (Delhi High Court,2012)
SSRHL applied for NOC from AAI for mortgaging hisleasehold right
Arbitrator held AAI to be liable to issue NOC and askedAAI to pay damages.
Held AAI is not liable for damages
R t J d t
7/28/2019 Damages for Breach of Contract - Sept 2012
83/86
LawQuest 2012. All Rights are Reserved.
83
Recent Judgments
National Highways Authority of India Vs. Tantia-TBL
(Delhi High Court, 2012)
There was delay in completion of work by Tantia.
Tantia was found to have issued early warning' notices
and also necessary notification to NHAI while seekingextension of time and was held not to have committedany breach of contract.
Delay is attributed to NHAI.
Compensation allowed to Tantia for loss suffered due todelay in completion of contract and for idling and underutilization of machinery and equipment.
7/28/2019 Damages for Breach of Contract - Sept 2012
84/86
LawQuest 2012. All Rights are Reserved.
84
Recent Judgments
Cybernetics Network Pvt. Ltd. Vs. BisquareTechnologies Pvt. Ltd. (Delhi High Court, 2012)
Bisquare entered into a fraudulent contract with CNPL
for technology transfer. CNPL sued Bisquare.
CNPL was held to be entitled under section 73 to get
back the technical assistance fee paid to Bisquare,
restoring it to the position it was in, prior to MOU andTSSA
7/28/2019 Damages for Breach of Contract - Sept 2012
85/86
LawQuest 2012. All Rights are Reserved.
85
The Situation Abroad
In the US stipulations for liquidated damages are intendedto estimate damages. Differs from state to state butsubject to two principles: Uncertainty whether harm caused is difficult to calculate
Reasonableness in proportion to actual or anticipated harm
Most common law countries do not allow penal damages
India does not differentiate between liquidated damagesand penalties contractual damages may be granted
even if intent was to penalize subject to certain criteria. Civil law countries - Penalties allowed but recently have
been reduced by courts based on circumstances.
7/28/2019 Damages for Breach of Contract - Sept 2012
86/86
Thank You