India: Consequential Damages Under The Indian Contract Act, 1872

Article by Hitesh Sablok1

The Indian Contract Act, 1872 ("Act") governs the law of contracts in India and is predominantly based on
English common law. The Act defines the term "contract" as an agreement enforceable by law2. In other words,
it is a legally enforceable and binding agreement, which is voluntarily entered into between two or more
competent parties, for consideration and with mutual obligations. In today's dynamic business environment,
majority of the commercial transactions are successfully and effectively undertaken through contracts. The list
of such transactions include manufacturing arrangements, supply arrangement, sub-contracting, infra projects,
EPCs, advisory, etc. Moreover, due to the aggressive growth in the field of technology, the parties entering into
such commercial transactions, are more cautious than ever, thus making the parties deliberate even on the
minutest of details / specifications so as they can best secure their interest. Therefore, contents of a contract
have become highly detailed and elaborate. Particularly, as a measure of safeguarding, securing and protecting
their respective interests in an event of breach of the terms of the contract, parties generally negotiate and agree
upon the various remedies that the injured party can invoke to mitigate and compensate for the losses it may
suffer on account of such breach. In other words, any breach of the terms and conditions of the contract by
either party ("Defaulting Party"), entitles the other party ("Non-Defaulting Party") to claim for damages and / or
other remedies from the Defaulting Party. The term "damages" is not defined under the Act. However, it can be
said to mean an award of money to be paid by the Defaulting Party to the Non-Defaulting Party as
compensation for loss or injury caused on account of the Defaulting Party's breach of the terms and conditions
of the contract. Damages can be broadly divided into two categories, (i) direct damages; and (ii) indirect /
consequential damages. This article aims to highlight and discuss the legitimacy of claiming indirect /
consequential damages arising out of the breach of the terms of the contract.

Section 73 of the Act provides that "When a contract has been broken, the party who suffers by such breach is
entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew,
when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given
for any remote and indirect loss of damage sustained by reason of the breach"It further states that "When an
obligation resembling those created by contract has been incurred and has not been discharged, any person
injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if
such person had contracted to discharge it and had broken his contract." The explanation to Section 73 states
that "In estimating the loss or damage arising from a breach of contract, the means which existed of remedying
the inconvenience caused by non-performance of the contract must be taken into account."

It appears from Section 73 of the Act that the general principle for assessment of damages is compensatory, i.e.
the innocent party is to be placed, so far as money can do, in the same position as if the contract had been
performed. However, the question which arises for deliberation is that whether the Defaulting Party can be held
liable for the indirect damages / consequential damages suffered by the Non-Defaulting Party?

Consequential damage or loss usually refers to pecuniary loss consequent on physical damage, such as loss of
profit sustained due to fire damage in a factory3. It arises due to the existence of certain special circumstances.
The basic rule for determining scope and extent of consequential damages, which Defaulting Party would be
liable to pay to Non-Defaulting Party, was first elaborated in the judgment of Alderson B., in the English Court
of Exchequer, in the case of Hadley v. Baxendale4. In the said case, the plaintiff, were millers and used to run
the City Steam-Mills in Gloucester. A crankshaft of a steam engine at the mill had broken and the plaintiff
arranged to have a new one made by W. Joyce & Co. in Greenwich, and for the said purpose W. Joyce & Co.
required that the broken crankshaft be sent to them in order to ensure that the new crankshaft would fit together
properly with the other parts of the steam engine. The plaintiffs contracted with the defendants, who were
common carriers, to deliver the crankshaft to engineers for repair by a certain date at a cost of £2 sterling and 4
shillings. The defendants failed to deliver on the date in question, causing the plaintiff to lose business. The
plaintiff sued for the profits lost due to the defendant's late delivery, and the jury awarded the plaintiff damages
of £25. The defendants appealed, contending that they did not know that the plaintiff would suffer any
particular damage by reason of the late delivery. The issue raised by the defendants in the appeal was whether
the defendant in breach of contract could also be held liable for the damages that the defendant was not aware
and which were suffered by the plaintiff from a breach of the contract.

The Court observed that "Where two parties have made a contract which one of them has broken, the damages
which the other party ought to receive in respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach
of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at
the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances
under which the contract was actually made where communicated by the plaintiffs to the defendants, and thus
known to both parties, the damages resulting from the breach of such a contract, which they would reasonably
contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under
these special circumstances so known and communicated. But, on the other hand, if these special circumstances
were wholly unknown to the party breaking the contract, he, at the most, could only be supposed to have had in
his contemplation the amount of injury which would arise generally, and in the great multitude of cases not
affected by any special circumstances, from such a breach of contract."

The Court further pointed out that "But how do these circumstances show reasonably that the profits of the mill
must be stopped by an unreasonable delay in the delivery of the broken shaft by the carrier to the third person?
Suppose the plaintiffs had another shaft in their possession put up or putting up at the time, and that they only
wished to send back the broken shaft to the engineer who made it; it is clear that this would be quite consistent
with the above circumstances, and yet the unreasonable delay in the delivery would have no effect upon the
intermediate profits of the mill. Or, again, suppose that, at the time of the delivery to the carrier, the machinery
of the mill had been in other respects defective, then, also, the same results would follow. Here it is true that the
shaft was actually sent back to serve as a model for the new one, and that the want of a new one was the only
cause of the stoppage of the mill, and that the loss of profits really arose from not sending down the new shaft in
proper time, and that this arose from the delay in delivering the broken one to serve as a model. But it is
obvious that, in the great multitude of cases of millers sending off broken shafts to third persons by a carrier
under ordinary circumstances, such consequences would not, in all probability, have occurred; and these special
circumstances were here never communicated by the plaintiffs to the defendants" Therefore, applying the
aforesaid rule and considering the fact that the special circumstance was not communicated by the plaintiff to
the defendants, it was held that the plaintiffs could not recover the loss of profits from the defendants.

A similar question arose in the case of Victoria Laundry (Windsor Ltd.) v. Newman Industries Ltd.5 In the said
case, the defendants were to deliver a boiler for the plaintiff and the delivery was delayed by five months. As a
result of not having enough laundry capacity, the plaintiff lost a high value cleaning contract from the Ministry
of Supply. The plaintiff sued the defendants for the loss of profits on account of (i) the large number of
customers which could have been served if the said boiler was delivered on time; and (ii) the amount the
plaintiff could have earned if it had received the contract from the Ministry of Supply. In the instant case the
defendants were aware that the plaintiff required the boiler for immediate use and therefore, it was held that the
defendant as a reasonable man could have foreseen some loss of profit though not the loss of profit resulting
from the special circumstance with respect to the Ministry of Supply's contract.

Therefore, the defendant was held liable to compensate for the ordinary loss of profits and not for the
extraordinary loss of profits which were on account of the special circumstances.

Analyzing the principles laid down in the aforesaid cases, it is evident that there are two categories of damages
which the can be claimed by the Non-Defaulting Party i.e. (1) which can be fairly and reasonably considered
arising naturally, i.e., in the usual course of things, from such breach of contract itself; and (ii) which may
reasonably be supposed to have been in the contemplation of both the parties, at the time they made the
contract, as the probable result of the breach of it. The first category refers to the direct damages and the second
category refers towards consequential damages. Consequential damages can only be claimed by the
Non-Defaulting Party in case the special circumstances resulting into the consequential damage were already
brought into the Defaulting Party's knowledge at the time of executing the contract.

It is also relevant to highlight herein that Section 73 of the Act very clearly provides that compensation is not to
be given for any remote and indirect loss of damage sustained by reason of the breach on the contract. However,
it also states that the Non-Defaulting Party is entitled to receive from the Defaulting Party the compensation for
any loss or damage caused thereby, which the parties knew, when they made the contract, to be likely to result
from the breach of it.

It is also evident from the above discussion that the principles laid down in aforesaid case of Hadley v.
Baxendale have been adopted by the draftsmen within the language of Section 73 of the Act and the same has
also been applied in various Indian cases.

It may be concluded that the general principle with respect to claiming the consequential damages by
Non-Defaulting Party is that the Non-Defaulting Party is only entitled to recover / claim such part of the
damages or losses resulting from the breach by the Defaulting Party, as was at the time of execution of the
contract reasonably foreseeable as liable to result from the breach. Further, the damage or loss "reasonably
foreseeable" would inter-alia depend on the knowledge possessed / shared between the parties. It is expected out
of a reasonable person to understand and foresee the damage which may be suffered by the Non-Defaulting
Party and resulting from the breach by the Defaulting Party in the "ordinary course". However, in case of
existence of "special circumstances", which are outside the purview of the "ordinary course" what is of utmost
importance, so as to be able to claim the consequential damages, is that the Defaulting Party should be aware of
the said "special circumstances" which would result into consequential losses for the Non-Defaulting Party, at
the time of executing the contract.
INDIAN KANOON SAYS:
Central Government Act
Section 73 in The Indian Contract Act, 1872
73. Compensation for loss or damage caused by breach of contract.—When a contract has been broken, the
party who suffers by such breach is entitled to receive, from the party who has broken the contract,
compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things
from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach
of it. —When a contract has been broken, the party who suffers by such breach is entitled to receive, from the
party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally
arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to
be likely to result from the breach of it." Such compensation is not to be given for any remote and indirect loss
or damage sustained by reason of the breach. Compensation for failure to discharge obligation resembling those
created by contract.—When an obligation resembling those created by contract has been incurred and has not
been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation
from the party in default, as if such person had contracted to discharge it and had broken his contract. —When
an obligation resembling those created by contract has been incurred and has not been discharged, any person
injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if
such person had contracted to discharge it and had broken his contract." Explanation.—In estimating the loss or
damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by
the non-performance of the contract must be taken into account. Illustrations
(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks
his promise. 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 maunds of saltpetre of like quality at the time
when the saltpetre ought to have been delivered. (a) A contracts to sell and deliver 50 maunds of saltpetre to B,
at a certain price to be paid on delivery. A breaks his promise. 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 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered."
(b) A hires B’s 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. B’s ship does not go to Bombay, but A
has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which
he had chartered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so.
A is entitled to receive compensation from B in respect of such trouble and expense. (b) A hires B’s 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. B’s ship does not go to Bombay, but A has opportunities of
procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the
ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to
receive compensation from B in respect of such trouble and expense."
(c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for delivery. A afterwards
informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of
compensation, the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the
time when A informs B that he will not accept it. (c) A contracts to buy of B, at a stated price, 50 maunds of
rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him.
B is entitled to receive from A, by way of compensation, the amount, if any, by which the contract price
exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it."
(d) A contracts to buy B’s ship for 60,000 rupees, but breaks his promise. A must pay to B, by way of
compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time
of the breach of promise. (d) A contracts to buy B’s ship for 60,000 rupees, but breaks his promise. A must pay
to B, by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the
ship at the time of the breach of promise."
(e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place, starting on
a specified day. The boat, owing to some avoidable cause, does not start at the time appointed, whereby the
arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed
according to the contract. After that date, and before the arrival of the cargo, the price of jute falls. The measure
of the compensation payable to B by A is the difference between the price which B could have obtained for the
cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the
time when it actually arrived. (e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for
sale at that place, starting on a specified day. The boat, owing to some avoidable cause, does not start at the time
appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived
if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of
jute falls. The measure of the compensation payable to B by A is the difference between the price which B
could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due
course, and its market price at the time when it actually arrived."
(f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house,
but not according to contract. B is entitled to recover from A the cost of making the repairs conform to the
contract. (f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the
house, but not according to contract. B is entitled to recover from A the cost of making the repairs conform to
the contract."
(g) 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 B could hire a similar ship for a year on and from the first of January. (g) 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 B could hire a
similar ship for a year on and from the first of January."
(h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for
which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way
of compensation, the difference between the contract price of the iron and the sum for which A could have
obtained and delivered it. (h) A contracts to supply B with a certain quantity of iron at a fixed price, being a
higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron.
B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for
which A could have obtained and delivered it."
(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A’s 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. (i)
A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A’s 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."
(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a
stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so
for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure
other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which
A would have made by the performance of his contract with B. (j) A, having contracted with B to supply B with
1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000
tons of iron at 80 rupees a ton, telling C that he does so for the purpose of performing his contract with B. C
fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the
contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his
contract with B."
(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of
machinery. A does not 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 is prevented from
performing a contract which B had made with a third person at the time of his contract with A (but which had
not been communicated to A), and is compelled to make compensation for breach of that contract. A must pay
to B, by way of compensation, the difference between the contract price of the price of machinery and the sum
paid by B for another, but not the sum paid by B to the third person by way of compensation. (k) A contracts
with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not
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 is prevented from performing a contract which B
had made with a third person at the time of his contract with A (but which had not been communicated to A),
and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation,
the difference between the contract price of the price of machinery and the sum paid by B for another, but not
the sum paid by B to the third person by way of compensation."
(l) 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 compensations to C
for the breach of his contract. A must make compensation to B for the cost of rebuilding of the house, for the
rent lost, and for the compensation made to C. (l) 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 compensations to C for the breach of his contract. A must make compensation to B for
the cost of rebuilding of the house, for the rent lost, and for the compensation made to C."
(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this
warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B
becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.
(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this
warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B
becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by
A."
(n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day. B, in
consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not
liable to make good to B anything except the principal sum he contracted to pay, together with interest upto the
day of payment. (n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on
that day. B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally
ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with
interest upto the day of payment."
(o) A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price, B, afterwards,
before the first of January, contracts to sell the saltpetre to C at a price higher than the market price of the first
of January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the
first of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account.

(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B’s mode of
conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not
responsible to B for the loss caused to B by closing of the mill. (p) A contracts to sell and deliver 500 bales of
cotton to B on a fixed day. A knows nothing of B’s mode of conducting his business. A breaks his promise, and
B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by closing of
the mill."
(q) A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into
caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after
the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of
compensation, the difference between the contract price of the cloth and its market price at the time of delivery,
but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in
making preparation for the manufacture. (q) A contracts to sell and deliver to B, on the first of January, certain
cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that
season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps.
B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth
and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor
the expenses which he has been put to in making preparation for the manufacture."
(r) A, a ship owner, contracts with B to convey him from Calcutta to Sydney in A’s ship, sailing on the first of
January, and B pays 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, detained in Calcutta for some time, and thereby put to some
expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of
money. A is liable to repay to B his deposit, with interest, and the expense to which he is put by his detention in
Calcutta, and the excess, if any, of the passage-money paid for the second ship over that agreed upon for the
first, but not the sum of money which B lost by arriving in Sydney too late. (r) A, a ship owner, contracts with B
to convey him from Calcutta to Sydney in A’s ship, sailing on the first of January, and B pays 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, detained in Calcutta for some time, and thereby put to some expense, proceeds to Sydney in
another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B
his deposit, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any,
of the passage-money paid for the second ship over that agreed upon for the first, but not the sum of money
which B lost by arriving in Sydney too late."
TYPES OF DAMAGES

What are the different types of damages?

General and Special Damages
Difference between general and special damages are:

General Damages Special Damages

Special damages are those that do not, of

General damages refer to those course, arise from the breach of the defendant
damages which arose naturally during and can only be recovered if they were in the
the normal course of the events. reasonable consideration of the parties at the
time they made the contract.

In relation to the pleadings, the

complained of is presumed to be a It refers to those losses that must be
natural and probable consequence specifically pleaded and proven.
with the result that the

In relation to proof, it refers to those

It refers to those losses that can be calculated
losses, usually but not exclusively
financially. It represents the exact amount of
non-pecuniary, which in monetary
terms are not capable of precise pecuniary loss that the claimant proves to
quantification. have suffered from the set of pleaded facts.

Nominal Damages
If the defendant is found liable for breach of contract, the plaintiff is entitled to
nominal damages even if no actual damage is proven. Nominal damages are
awarded if there is an infringement of a legal right and if it does not give the rise to
any real damages, it gives the right to a verdict because of the infringement.

In the following circumstances, nominal damages are awarded to the plaintiff:

● The defendant committed a technical breach and the plaintiff himself did
not intend to execute the contract;

● The complainant fails to prove the loss he may have suffered as a result of
the contract breach;

● He has suffered actual damage, not because of the defendant’s wrongful

act, but because of the complainants’ own conduct or from an outside
event;

● The complainant may seek to establish the infringement of his legal rights
without being concerned about the actual loss. Where there is no basis for
determining the amount. The view that nominal damage does not connote a
trifling amount is erroneous; nominal damage means a small sum of
money. Nominal damages have been defined as a sum of money that can
be spoken of, but which does not exist in terms of quantity.

Where the loss is small and quantifiable, the damages awarded, although small, are
not nominal damages.

If the market rate on the date of the breach is not proven, the plaintiff shall be
entitled to nominal damages. However, the fact that the buyer does not sustain any
actual loss as a result of the seller’s failure to deliver the goods is no reason to
award the buyer nominal damage.

Substantial Damages
In cases where an offense is proven, many authorities may claim substantial
damages even if it is not only difficult but also impossible to calculate the damages
with certainty or accuracy. In all these cases, however, the extent of the breach has
been established. There was a complete failure to perform the contract on one side.
However, where the breach is partial and the extent of the failure is determined,
only nominal damage is awarded. The plaintiff who can not show that after the
breach he would have had the contract performed, he is in a worse financial
position, usually, recover only nominal damages for breach of contract.

Where a defendant refuses to accept goods sold or manufactured for him, the
plaintiff sells them to a third party on the same terms as the defendant agreed and
makes a similar profit, the plaintiff shall be entitled to nominal damages if the
demand exceeds the supply of similar goods; but if the supply exceeds the demand,
the plaintiff shall be entitled to recover his loss of profit on the defendant’s contract.

Aggravated and Exemplary Damages

In certain circumstances, by taking into account the motives or behavior of the
defendant, the court may award more than the normal measure of damages. Such
damage may be:

Aggravated Damages Exemplary Damages

Aggravated damages, that compensate a victim Exemplary damages are intended to

for mental distress or injured sensations in
circumstances where the injury was caused or
increased by the manner in which the
defendant committed the wrong or the
defendant’s behavior following the wrong.
give the punishment to the
defendant an example they are
punitive and not intended to
compensate the defendant for loss,
but rather to punish the defendant.

It is compensatory in nature. It is punitive in nature.

Where the motives, conduct or manner of inflicting the injury on the defendant may
have aggravated the damage to the plaintiff by injuring his proper feelings of dignity
and pride, the damages awarded to compensate the plaintiff would be aggravated.
These are awarded in tort, but not in a contract because the motives and conduct of
the defendant are not to be taken into account when assessing damages and it is
not to be awarded in respect of feelings of disappointment or injury; they are too
remote. Thus, if an employee is wrongly dismissed from his job, the damages
payable to him will not include compensation for the manner in which he is
dismissed, for his injured feelings, or for the loss that he may suffer from the fact
that the dismissal of himself makes it more difficult for him to obtain fresh
employment.

Liquidated and Unliquidated Damages

Damages are said to be liquidated once agreed and fixed by the parties. It is the
sum agreed by the parties by contract as payable on the default of one of them,
Section 74 applies to such damages. In all other cases, the court quantifies or
assesses the damage or loss; such damages are unliquidated. The parties may only
fix an amount as liquidated damages for specific types of a breach, then the party
suffering from another type breach may sue for unliquidated damages resulting from
such breach.

Where, under the terms of the contract, the purchaser was entitled to claim
damages at the agreed rate if the goods were not delivered before the fixed date
and if they were not delivered within seven days of the fixed date, the purchaser
was entitled to cancel the contract and pay guarantee amount to the bank, but the
goods were delivered within the extended period. It was held that the buyer was
only entitled to claim damages at the agreed rate and that the banking guarantee
confiscation clause could not be invoked as the contract was not cancelled.

What does loss or damage mean?

The word loss or damage means:

● Harm to persons through physical injury, disabilities, loss of enjoyment, loss

of comfort, inconvenience or disappointment, injured feelings, vexation,
mental distress, loss of reputation.
● Harm to property, viz. damage or destruction of property; and
● Injury to an economic position which is the amount by which the plaintiff is
worse off than he would have been performed, and would include loss of
profits, expenses incurred, costs, damages paid to third parties, etc.  

Consequential Damage and Incidental Loss

Consequential damage or loss usually refers to pecuniary loss resulting from physical
damage, such as loss of profit sustained due to fire damage in a factory. When used
in the exemption clause in a contract, consequential damages refer to damages that
can only be recovered under the second head in Hadley v Baxendale, i.e. the
second branch of the section, and may also include recovery of profit and losses
under the first branch.

Another term incidental loss refers to the loss incurred by the complainant after he
became aware of the breach and made to avoid the loss, i.e. the cost of buying or
hitting a replacement or returning defective goods.

How to measure the damage caused?

The measure of damage or measure of damages is concerned with the legal
principles governing recoverability; the principle of the remoteness of damage
confines the recoverability of damages. Questions of quantum of damages are only
concerned with the amount of damages to be awarded and are, therefore, different
from the measure of damages; the latter involves consideration of the law.

What does the remoteness of damages

mean?
The term remoteness of damages refers to the legal test used to determine which
type of loss caused by contract breach can be compensated by awarding damages.
It has been distinguished from the term measure of damages or quantification which
refers to the method of assessing the money the compensation for a particular
consequence or loss which has been held to be not too remote.

How to test the remoteness?

In deciding whether the claimed damages are too remote, the test is whether the
damage is such that it must have been considered by the parties as a possible result
of the breach. If it is, then it can not be considered too remote. The damage shall be
assessed on the basis of the natural and probable consequences of the breach.
Actual knowledge must be demonstrated that mere impudence and carelessness is
not knowledge.

The defendant is only liable for reasonably foreseeable losses- those who would have
reason to foresee the likelihood of future infringement if a normally prudent person
in his place had this information when contracting.
The remoteness of damage is a matter of fact, and the only guidance that the law
can give is to lay down general principles.