Types of Damages in Contract Law (Section 73 of Indian Contract Act)

Introduction

The term “damage” has been derived from the Latin term “damnum” which means hurt, loss or injury or damage. Damage is generally understood as any harm or loss caused either to a person or to his property because of any wrongful act or omission of a person. In terms of law, damages are the compensation in monetary terms for the loss or injury that occurred either in person or property.

As per the definition given in Black’s law dictionary, ”damages are any claim that is made by a person or any claim that is ordered to be paid to a person in the form of compensation for the loss either in person or property occurred by any act of a person is known as damage.”

Damages are nothing but compensation in financial or monetary terms ordered to be paid by a person whose act has caused wrong or harm or loss or injury to a person.

It is very important to understand that there are two words which may sound similar but differ in their meanings. On one hand, the word is “damage” and another word is “damages”. In a literal sense, these two words look similar but the meaning of the term “damage” is any loss that is suffered by a person due to either an act or omission of another person whereas the term “damages” is a certain amount of money being claimed by a person as a compensation for the loss or injury he has suffered from the individual whose act or omission caused such harm or loss. Damages are something considered in the sense of remedy to a person suffering loss.

Under tort law, in order to understand the claim of damages, there are two maxims that are required to understand. Those two maxims are “injuria sine damnum” and “damnum sine injuria”. In “injuria sine damnum”, the plaintiff has suffered any legal injury but no such actual damage for which he can move to court while in “damnum sine injuria”, the plaintiff has suffered some actual damage but no there is no such legal injury for which he cannot move to court.

The term “damages” has not been explained under the Indian Contract Act, 1872 but it is generally considered in regard to “breach of contract”. In the context of the Indian Contract Act, 1872, the term “damages” is considered as an award in terms of money to be paid to the person/plaintiff by the defaulting party/ defendant as compensation for the loss or injury that has been occurred to the plaintiff because of the non-compliance with the terms & conditions of the contract on the part of the defendant.

In simple words, damages are the certain amount of money which the defendant has to pay for breaching the contract or non-compliance with the terms and conditions of the contract to the plaintiff who has suffered loss because of the breach. It is a claim which a plaintiff makes for the breach of contract from the defaulting party.

The Apex court extracted the definition of the term “damages” from paragraph 127 as given by Mc Gregor in the case of Common Cause v. Union of India[1] which reads as “damages are the pecuniary compensation, obtainable by success in an action, for a wrong which is either a tort or a breach of contract, the compensation being in the form of a lump sum which is awarded unconditionally.”[2]

Essential Elements

There are some essential conditions that are to be proved by the party claiming the compensation for the breach of contract which is as follows:

1. A valid contract has to be there for making a successful claim.

2. Another party to the contract must have breached the contract in order to get a claim.

3. Due to such breach of contract, the party making claim must have suffered some loss.

4. The loss that occurred due to the defaulting party must be either the direct loss or the immediate loss to the party claiming compensation.

In the case of Jalpaiguri Zilla Parishad v. Shankar Prasad Halder[3] the Apex Court has observed that damages can only be given for any loss actually suffered and not for any remote or indirect loss.

We have observed the expression “breach of contract” been used. The expression “breach of contract” is used to refer to when a person fails to fulfill his responsibility that has been decided in a contract or when a person fails to fulfill the terms and conditions of contract because of which the other party has suffered any loss or damage is known as breach of contract. In other words, when either the party fails to comply with the terms and conditions of a binding contract which has caused loss or damage to the other party is known as a breach of contract.

Types of Damages in Contract Law

The types of damages in Contract Law are as follows:

1. General damages & Special damages:

It is one type of damages. General damages are considered as those damages that occur naturally due to the normal course of events. In such case of damages, the party suffered damage may get the compensation in monetary terms due to the occurred injuries like inability or disability to perform certain actions.

Special damages are those damages that occur only due to some special circumstances. Special damages do not occur due to breach of terms and conditions on the part of the defendant but because of some special circumstances; the defendant could not fulfill the terms & conditions of the contract; if the circumstances were reasonable, the contract may have been fulfilled.

2. Nominal Damages:

In such a case, there is no such actual loss but the compensation is awarded because of the infringement of legal rights due to the breach of terms & conditions of the contract. Nominal damages are provided when no such actual damage has caused to the plaintiff but his legal rights have been hampered.

3. Substantial damages:

These damages are either general damages or special damages. In such cases of damages, the extent of the breach can be determined or analyzed or has been established. In such types of damages, there is a complete default or failure in performing the term and conditions of the contract at the end of one party.

4. Aggravated and exemplary damages:

The aggravated damages are compensatory in nature. Aggravated damages are such types of damages which are ordered to be paid by the defaulter party for the mental stress or agony that occurred to the plaintiff due to the breach of contract.

Exemplary damages are also referred to as punitive damages. Exemplary damages are given with the aim to compensating the plaintiff for the loss that occurred to him but in some exceptional cases, the punishment can also be given to the defendant. Basically, exemplary damages are applied to punish the defaulting party in the contract for the breach and also with an object to prevent any such breach in the future.

5. Liquidated and unliquidated damages:

In the case of liquidated damages, the parties to the contract fix a certain amount for the compensation in case of certain specific types of damages as liquidated damages. In other cases where the courts instead of parties to the contract determine the damages to be paid by the defaulting party; such damages are known as unliquidated damages.

6. Consequential damage & incidental damages:

Consequential damages are the other type of damages which are consequent or the result of any physical damage that occurred to the party claiming for the loss. The term “incidental damages” is referred to the harm or injury that occurred to the plaintiff after knowing the breach of contract; for instance- the cost of buying or replacing or returning the goods came defective.

7. Pecuniary damages & non-pecuniary damages:

Pecuniary damages are those which can be quantifiable by the court by assessing the loss or injury suffered by the plaintiff. In the case of pecuniary damages, the question of the amount of compensation in monetary terms is directly related with the loss. Non-pecuniary damages are those losses or injury which cannot be directly or clearly quantified or determined because the loss in such cases is more subjective.

8. Damages for loss of profit/ loss of opportunity:

The idea behind providing for the compensation to this loss is that the plaintiff should be given compensation for the deprivation of profits that occurred due to some act of the defendant.

Under Indian Contract Act, 1872, there are three sections that are section 73, 74 & 75 which deals with the damages.

Section 73 is applicable in the case where have not specified any amount in their contract that is required to be paid in case of default or breach of terms and conditions of the contract. Such types of damages are known as unliquidated damages which we have dealt with under the head of different types of damages. In a simple sense, section 73 of the Indian Contract Act, 1872 deals with unliquidated damages. In the case where the parties have not decided or mentioned any such clause in their contract that how much amount is required to be paid by the party who is at default, then the role of the court having jurisdiction of the matter comes into the picture and decides the amount to be paid to the plaintiff or the claimant party.

The marginal note of section 73 reads as – “compensation for the loss or damage caused by a breach of contract” and the provision of section 73 states that – when there is a breach of contract or the contract has broken, then the party who suffers loss or harm or injury due to that breach is entitled to receive compensation for any such loss or harm from the party who is at default or the party who has broken the contract; such loss or harm has been arisen due to the general or usual course of things from the occurred breach or such loss has been known to the parties at the time of making or entering the contract.

It is to be kept in mind that any such compensation is not to be awarded in the case where the damages are remote to the incident of the breach or the damages are indirect to the breach that occurred. An illustration of section 73 reads as – X enters to a contract with Y which says that X is to repair the house of Y for which he has received some money in advance. X does so but not as per the terms and conditions of the contract. Thus, X is bound to pay the cost of making repairs conform to the contract to Y.

Section 74 of the Indian Contract Act, 1872, deals with liquidated damages.

Section 75 of the Indian Contract Act, 1872 deals with the cases where the plaintiff is entitled to receive compensation when the contract is rescinded rightfully.

Now there are some questions that arise with the discussion which has to be answered. Some points are to be kept in mind which are as follows:

1. The measure of damage that occurred has to be determined as per the laws or legal principles which have been given in order to recover the loss or damages.

2. Section 73 of the Indian Contract Act, 1872 provides for a duty on the claimant party in order to mitigate the loss or harm from the party who is at default.

3. In order to determine whether the damage or loss is too remote or indirect, the test is to analyze that whether the damage or harm or injury that occurred is the consequence of the breach of contract or is the reasonable or possible result of a breach of terms and conditions of contract. The remoteness of damage depends upon the probable consequences of the breach of contract. The party at default to the contract is only bound to pay for the reasonable or considerable foreseeable losses.

In the case of Shri Hanuman Cotton Mills v. Tata Aircraft limited[4], it has been observed that the awarded compensation may be taken to measure the damages subject to deduction of the money value of services, time and energy expended in pursuing claims of compensation and expenditure incurred by him in litigation culminating in awarding compensation.

In order to attract section 73, it is required by the claimant party to prove the losses suffered by them as observed in the case of the state of Kerala v. the general manager, southern railway, Madras[5]

In the case of the Union of India v. K.H. Rao[6], the Supreme Court scaled sown the damages to the extent of the security deposit and the directed whole of the security deposit to be refunded to the respondent as the appeal was partly allowed in this particular case.

Conclusion

Conclusively, it can be inferred that the general principle of section 73 of the Indian Contract Act, 1872 says that the party to the default has to pay the compensation for the loss that occurred to the plaintiff. It is also inferred by the discussion that the legality of the award can be challenged on the basis of the question of law but not the basis of facts. It is suggested to the parties to the contract to take reasonable steps in order to mitigate the damage or loss.

[1] 1999 (6) SCC 667

[2]https://indiancaselaws.wordpress.com/2017/01/12/damages-under-indian-contract-act-1872/

[3] AIR 2006 Cal. 1

[4] AIR 1970 SC 1986

[5] AIR 1976 SC 2538

[6] AIR 1976 SC626

This article has been written by Deepshikha Gautam 3rd Year B.A.LL.B student at Banasthali Vidyapeeth

Note - The information contained in this post is for general information purposes only. We try our level best to avoid any misinformation or abusive content. If you found any of such content on this website, please report us at [email protected]

Interested to publish an article at Law Corner? Click Here to submit your article.

Law Corner

4th Lex Research Hub National Research Paper Writing Competition, 2021

Publish your research paper and win exciting rewards including cash & part time work from home job offer!

Submit your research paper on any theme relating to law!

I Am Not interested
lawsikho contract drafting