DAMAGES IN CONTRACT AND IN CONTRACT

Submitted by

SANA KHAN

B.B.A.LL.B Division: A PRN: 18010224042

Batch- 2018-2023

Symbiosis Law School, NOIDA

Symbiosis International (Deemed

University), Pune
In

January, 2018
Under the guidance of

Dr. Kanan Divetia

(Assistant Professor)
 CERTIFICATE
The project having title ‘Damages in tort and in Contract’ authored by SANA
KHAN has been submitted to the Symbiosis Law School, NOIDA for Law of
Contract as part of Internal assessment is based on my original work carried
out under the guidance of Dr. Kanan Divetia.

The research work has not been submitted elsewhere for award of any degree.
The material borrowed from other sources and incorporated in the research
work has been duly acknowledged.

I understand that I myself could be held responsible and accountable for

plagiarism, if any, detected later on.

Signature of the candidate

Date:
BIBLIOGRAPHY

http://www.legalservicesindia.com/article/289/Hear--Say-In-Contracts.html

https://www.casemine.com/search/in?q=acceptance+of+communication

https://indiankanoon.org/doc/1332830/

https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-
i/communication-of-offer-and-acceptance-and-revocation-of-offer/
INTRODUCTION:

Damages, in simple terms, refer to a form of compensation due to a breach,

loss or injury. As explained by Fuller and Perdue, 1 damages may seek
protection of “expectation interest”, “reliance interest” or “restitution interest”.
Damages” are often confused with “damage”. However, it should be known
that these two terms are significantly distinct, and different from each other. In
the legal world, Damage is defined as a loss or harm resulting from injury to a
person, property or reputation whereas Damages refers to compensation -
such as provided to a person who has suffered a loss or harm due to the
unlawful act or omission of another. The person at fault - the one who caused
the loss or harm, must compensate or pay the injured party for his or her
losses, i.e. he must pay his damages for the damage he caused. 2 Damages in
tort are generally awarded to place the claimant in the position that would
have been taken had the tort not taken place.
In personal injury claims, damages for compensation are quantified by
reference to the severity of the injuries sustained. In non-personal injury
claims, for instance, a claim for professional negligence against solicitors, the
measure of damages will be assessed by the loss suffered by the client due to
the negligent act or omission by the solicitor giving rise to the loss. The loss
must be reasonably foreseeable and not too remote. Financial losses are
usually simple to quantify but in other complex cases which involve loss of
pension entitlements and future loss projections, the instructing solicitor will
usually employ a specialist expert actuary or accountant to assist with the
quantification of the loss.
Oxford Dictionary defines ‘damages’ as constitute a sum of money claimed or
adjudged to be paid compensation for loss or injury sustained; the value
estimated in money, of something lost withheld. Damages is an important
concept under the law, because unless a party suffers damage (i.e. a loss), he
will not be paid damages (monetary compensation). For example, a situation in
which a contract is breached: Jai has a contract to buy a boat from Stan for Rs.
10000. If Santosh decides not to sell Jai the boat specified in the contract (aka
breaches the contract) but instead gives Jai an even better boat for free, then
Joe technically has suffered a breach of contract. However, because he did not
suffer any financial loss or harm (aka he did not suffer any damage), he cannot
sue and collect damages for breach of contract.
Proving damages is also important in a personal injury case. This can especially
be an issue in medical malpractice cases based on missed symptoms of an
illness. The plaintiff will need to prove that the doctor's negligence - i.e.
missing the symptoms - caused him to suffer damage. If the doctor can
successfully argue that the plaintiff's illness would have caused the exact same
type and extent of damage even if it had been diagnosed properly, then the
plaintiff will not be viewed as suffering any actual damage as a result of the
doctor's negligence. Thus he won't be able to collect damages, even if the
doctor was negligent.
There are different types of damages in Contract:

1
L.L. Fuller and Willian R. Perdue Jr., ‘The Reliance Interest in Contract Damages’ (1936) 46 Yale Law Journal 52
2
1. Special compensatory damages : It is a type of damage for financial
losses that can be calculated, like medical bills or loss of earnings. In other
words, those damages that are payable for the loss arising on account of some
special or unusual circumstances. That is, they are not due to the natural and
probable consequences of the breach of the contract. Indirect loss experienced
by the affected party out of breach of contract is treated as special damage. It
can be recovered only when the other party, while signing the contract, is
informed of the special circumstances which are responsible for the special
losses. Subsequent knowledge of special circumstances will not create any
special liability.

2. Nominal damages: it is type of damage which is given for losses that are
more difficult to calculate, like mental anguish or pain and suffering. Nominal
damages are awarded to the aggrieved party when there is only technical
violation of the legal rights. Here no substantial loss is caused. These damages
are very small in amount.3 They are awarded simply to recognize the right of
the party to claim damages for the breach of the contract . Thus, in cases
where a party fails to prove actual loss resulting from a breach of contract,
nominal damages may be granted. Additionally, nominal damages may be
awarded where a technical breach of contract has been committed or when the
breach has taken place due to an external reason which is not attributable to
the defendant.4

3. Punitive damages: – it is a type of damages which is intended to punish

someone who has injured someone intentionally or through reckless actions.
Sometimes punitive damages are awarded to serve as a public example. For
example, punitive damages might be set for a doctor who operated under the
influence of alcohol. For example; damages are awarded to the following
exemptions:-.

1. Breach of a contract to marry

2. Dishonour of a cheque by a banker when there are sufficient funds to the
credit of the customer.

4. Substantial damages:- It is contrary to nominal damages,

substantial damages are awarded when the extent of breach of contract is
proved but there are uncertainties regarding calculation.

5. Aggravated and exemplary damages :- These damages are of such

nature that they exceed the damages ascertained, mostly resulting from the
mala fide conduct of the defendant. Aggravated damages gain significance
where the damage caused to the plaintiff are aggravated due to the motives,
conduct or manner of inflicting injury, whereby the plaintiff’s feelings and
dignity are adversely affected resulting in mental distress. Aggravated
damages are mostly compensatory in nature since they aim at compensating

3
Hadley vs. Baxendale (1854) 9 EX 341

4
Weld & Co. v. Har Charn Das AIR 1921 Lah 316; Grant Smith and Co. and McDonnel Ltd v. Settle Construction and
Dry Dock Co. AIR 1919 PC 85 as cited in R.G Padia (ed.), Pollock and Mulla Indian Contract and Specific Relief Acts,
vol 2 (13th edn, LexisNexis Butterworths Wadhwa 2006) 1519
the plaintiff for the aggravated loss suffered. On the other hand, exemplary
damages are punitive in nature since they intend to punish the defendant and
not merely compensating or depriving the defendants of the profits made.5
Since damages under contractual breaches do not consider the motive and
conduct of defendants, it is to be understood that aggravated and exemplary
damages are more prominent in torts and not under contractual breaches. 6
This is primarily because of the fact that the objective behind contractual
remedies is to compensate the promisee for the breach rather than compelling
performance on the promisor.7

5
Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and Specific Relief Acts, vol 2 (updated 14th edn,
LexisNexis Butterworths Wadhwa) 1173
6
The Common law approach has been that aggravated damages cannot be awarded in an action for breach of contract
(Addis v. Gramaphone Co. Ltd. (1909) AC 488; Bliss v. SE Thames Regional Health Authority (1987) ICR 700);
however, where fraud, oppression, malice etc. are established, exemplary damages may be granted (Sheikh Jaru Bepari
v. AG Peters AIR 1942 Cal 493; Alexander Brault v. Indrakrishna Kaul AIR 1933 Cal 706)
7
William S. Dodge, ‘The Case for Punitive Damages in Contracts’ (1999) 48(4) Duke Law Journal 629, 630
DAMAGES UNDER LAW OF CONTRACT 1872:
Sections 73 deals with actual damages following breach of contract and
the injury resulting from such breach which are in the nature of
Unliquidated damages since these damages are awarded by the courts
on an assessment of the loss or injury caused to the party against whom
breach has taken place, while Section 74 deals with liquidated
damages, referring to damages that are stipulated for. Thus, for a claim
of damages, there has to be a breach of the contract. In cases, where
there is a valid termination of the contract, without any violation of the
terms of the contract, the question of claim for damages should not arise
since there is no breach per se.

DAMAGES IN TORT

Generally speaking, damages are compensatory in nature, under law of

contracts as well as tort. However, under law of contracts, damages seek
to compensate for the loss suffered by a party due to breach of contract,
while in case of a tort, damages provide for remedies to restore the
original position of the party against whom tort was committed to what it
was prior to the occurrence of such tort. Thus, unlike in case of
contractual breaches, damages are mostly punitive in case of torts .
Damages in tort are generally awarded to place the claimant in the
position that would have been taken had the tort not taken place. In
personal injury claims, damages for compensation are quantified by
reference to the severity of the injuries sustained in non-personal injury
claims, for instance, a claim for professional negligence against solicitors,
the measure of damages will be assessed by the loss suffered by the
client due to the negligent act or omission by the solicitor giving rise to
the loss. The loss must be reasonably foreseeable and not too remote.
Financial losses are usually simple to quantify but in complex cases which
involve loss of pension entitlements and future loss projections, the
instructing solicitor will usually employ a specialist expert actuary or
accountant to assist with the quantification of the loss.

There are four types of damages in torts:

1 Contemptuous Damages: They are awarded when it is considered that

an action should never been brought. When the plaintiff has technically a
legal claim but there is no moral justification for it or he is morally
deserved what the defendant did to him, the court may award a half
penny or a paisa showing its disapproval of the conduct of the plaintiff. 8
8
R & D 27th edition 2016
2. Nominal Damages:- these awarded where the purpose of the action is
merely to establish a right, no substantial harm or loss having been
suffered, for example cases of infringement of absolute rights of personal
security (e.g. assault) and property (e.g. bare trespass, invasion of a
right of easement, etc).

3. Ordinary Damages: - These are damages awarded where it is necessary

to compensate the plaintiff fairly for the injury he has in fact sustained.
These are also called compensatory damages. Whatever sum is awarded,
whether large or small, must afford a fair measure of compensation to the
plaintiff with reference to the actual harmed sustained by him. 9

4. Exemplary Damages: - It is awarded not to compensate the plaintiff

but to punish the defendant and to deter him from similar conduct in
future.

Damages in Contract as per the statue:

Section 73 of the Indian Contract Act defines damages as:

‘Damages are pecuniary compensation for the injury which a party suffers
because of non – performance of a contract by the other contracting
party by the other contracting party. The law attempts, as far as possible,
o place the injured party in the same position as if no default had
occurred.’10

The breach of contract has to be proved before the enquiry can be

conducted into the quantum of damages so it is impossible to say who is
entitled for damages and no question of compensation can arise. These
damages are awarded against the party who has committed a breach of
the contract with the object of punishing the erring as defaulting party
and to compensate the aggrieved party. Generally, these damages are
awarded in case of action on lost or breach of promise. E.g., breach of
contract to marry, dishonour of cheque by the bank without any proper
reason. Such damages are awarded due to its difficulty in measuring the
amount of the mental suffering or the extent of the injury to the feelings
of the aggrieved party. The main aim of awarding such damages is to
deter a person from committing a breach of such contract.

Damages in Tort:

10
Indian Contract Act( 1872 )Bare Act.
Tort being ‘Uncodified’ does not explain the provisions of damages as
such. Though there are Unliquidated damages, the magnitude of which is
decided by the courts of the respective country.

Literature review
G. Mahoney ‘‘CONTRACT REMEDIES: GENERAL’’( 2013):

 The breach of contract has to be proved before the enquiry can be

conducted into the quantum of damages so it is impossible to say who is
entitled for damages and no question of compensation can arise. These
damages are awarded against the party who has committed a breach of
the contract with the object of punishing the erring as defaulting party
and to compensate the aggrieved party. Generally, these damages are
awarded in case of action on lost or breach of promise. E.g., breach of
contract to marry, dishonour of cheque by the bank without any proper
reason. Such damages are awarded due to its difficulty in measuring the
amount of the mental suffering or the extent of the injury to the feelings
of the aggrieved party. The main aim of awarding such damages is to
deter a person from committing a breach of such contract. The principal
remedy for breach of contract in Anglo-American law is an award of
money damages. The preferred measure of damages is the expectation
measure, under which the promisee receives a sum sufficient, in theory,
to make him indifferent between the award and the performance. Other
damage measures, and other remedies such as specific performance and
rescission, are available in special circumstances.

Desai, “law of damages in India”, (2017)

The paper discuss about the Damages, in simple terms, refer to a form of
compensation due to a loss or breach or injury. Damages are mostly
granted in cases of tort or in cases of breach of contract. In this paper,
the author has tried to cover damages in cases of contractual breaches in
India, with a brief overview of claim and grant of damages in cases of
torts, indemnity contracts, arbitral proceedings, sale of goods, consumer
law and intellectual property rights (copyrights, trademarks and patents).
DIFFERENCE BETWEEN “DAMAGES” AND “DAMAGE”
“Damages” are often confused with that of “damage”. However, it should
be known that these two terms are different from one another.
“Damages” refer to the compensation which has been awarded or asked
for, “damage” refers to the injury or loss in which such compensation is
asked for or has been awarded. ‘Damage’ could be monetary or
nonmonetary in nature (which could be in cases where in physical or
mental pain is suffered) while ‘damages’ refer to pecuniary compensation.
BREACH OF CONTRACT
In simple words, a contract is said to be breached when the promise
made has been broken. It may happen that the terms are not complied in
a manner which had been written in the contract. “Breach of contract”
constitutes the pre-condition for a claim of damages, it can be liquidated,
Unliquidated or otherwise as well. Thus, regardless of the extent to which
the defendant profits from the contractual arrangement, no claim can be
made for damages unless there is a breach of the contract. Further, the
party which has committed the breach is liable to compensate by way of
damages.
DAMAGES UNDER TORT AND CONTRACT LAW
The author says that damages are compensatory in nature, under law of
contracts as well as that of law of tort. However under contracts,
damages seek to compensate for the loss (resulting from being deprived
of the expected profits from the contractual arrangement) suffered by a
party due to breach of contract, while in case of a tort, damages provide
for remedies to restore the original position of the party against whom
tort was committed to what it was prior to the occurrence of such tort.
This is in furtherance of the discussion of exemplary and aggravated
damages, wherein it can be concluded that in case of a tort, there may be
damages for distress, mental agony and such other abstract losses;
however, damages are rarely awarded for such losses in case of breach of
contract.

CONCLUSION

In view of the above, any claim for damages should be carefully

measured keeping in mind the various parameters including (i) nature of
injury, (ii) quantum of loss suffered and (iii) whether the claim falls under
law of tort or the law of contract. There are majorly two types of damages
(i) Compensatory damages (ii) Punitive damages. The damages which are
awarded should not exceed the loss suffered or likely to be suffered. In
some cases, a tort claim and the contract claim will be included within the
same lawsuit. However, due to the differences between torts and
contracts, these cases are not as common as those where both claims are
filed separately.  In law of contract, a breach of duty involves the failure
to adhere to what is mentioned in a contract. Under law of tort, a breach
of duty involves the failure of one party’s duty to not harm another. Both
branches of law provide damages to the victim.