JAMIA MILLIA ISLAMIA

Faculty of Law
CONTRACT ASSIGNMENT
Topic : REMOTENESS OF DAMAGES AND MEASURES OF
DAMAGES
Submitted To : RAMSHA TANWIR MAM
Submitted By : KINJUL
INTRODUCTION
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 1damages. 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. And 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 2quantum 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.

REMOTENESS OF DAMAGES:
Under the Indian Contract Act 1871
“No one can be blamed for all the consequences of his wrongdoing, for they are endless. Only
the direct, natural and just consequences are those which have to be compensated for” This
concept was first adopted by English courts as a major authority. Used and discovered in Hadley
v Baxendale¹. This concept was named the principle of ‘Remoteness of Damages’ . It was a
very noble effort and a respectable contribution of the English courts in the year 1854 and the
concept which evolved was appreciated and used by the judicial officers and courts across the
world. 3Section 73 of ‘The Indian Contract Act 1872’ deals with Remoteness of damages. In
this section, subject to the discharge of the contract by way of breach, the principle of remoteness
of damages, which has to be paid for the breach, shall determine the damages to be paid by the
person in breach of his obligation under the contract. Works as a mechanism for as per the
statute under section “No such compensation is to be paid for any remote and indirect loss or
damage caused by the contravention”.

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Damages, in law, money compensation for loss or injury caused by the wrongful act of another.
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The amount of damages that a person is seeking or that the court has awarded .
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Compensation for loss or damage caused by breach of contract.
In the process of explaining the concept, the Court of Exchequer led by Justice Alderson B.
argued behind the concept, and Alderson B.J. said: - “We now think that the appropriate rule at
present in such a case is this: Where the two parties are one contract which one of them has
broken, the damage caused to the other party in respect of such breach of contract should be such
as can be reasonably and reasonably assumed to be either naturally occurring, that is to say,
According to the ordinary course of things, from such breach of contract, or as such may
reasonably be considered in the consideration of both parties, at the time they entered into the
contract, as a possible consequence of its breach. And it became a guiding factor for courts in
different parts of the world not only in England but in India, USA, Germany, France and almost
everywhere for now. The United States used the concept in the year 1932 in the major case
Palsgraf v. Long Island Railroad and India being an English-ruled country at that time, this rule
came first in India and was cited in cases like AM Ross et al. Others Vs. Secretary of State² and
Vijaya Raghav Vs. Secretary of State for India³. The concept has significance not only in
contract law but also in the law of torts. The rule develops two clauses in which the loss can be
recognized as ‘4general damages’ and ‘5special damages’.
This distinction of damages in general and special is being widely used by courts in the
measurement of damages in breach of contract, for example in the case of Madras Railway
Company v. Govind Rao in 1898 where the court held that The damages sought by the plaintiff
were too far from a tailor and the Railways could not foresee the consequences faced by him due
to negligence on his part and hence is not liable to pay damages for the same. It was therefore
ruled that there would be no recovery of special damages when the particular circumstances
causing the injury to the plaintiff are not known to the defendant, due to the passage of time and
the remoteness of the various cases that have come up in courts around the world. The two trials
developed damages caused to plaintiffs, which is more liberally followed under the law of torts
then under contract law where these tests of foresight are used in a more strict and concise
manner. The famous saying at this point under the Law of Torts is 6“In jure non remota causa,
sed proxima spectator”⁴. Henceforth the same concept is used in contract law where it is
followed that damages shall be measured or assessed based on the natural and probable
consequences of the breach. There are two tests i.e. 7the test of directness and 8the test of
reasonable foreseeability. The two-test theory was first given an idea in the famous case of
Smith vs London South West Railway ⁵ through which the test of foresight was used, otherwise
there was only a test of directness in cases such as Scott vs Shephard⁶ Year 1850. The test of
directness which is the test of directness, ascertains damages based on the assumption of breach
of duty of care by the defendant and the prediction of consequences to the defendant is not
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General Damages is the actual loss caused to the aggrieved party in the ordinary course of
business
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Special Damages is the loss caused by some extraordinary or unforeseen circumstances
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in law, the immediate not remote cause of any event is to be considered
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A person is liable for all the direct consequences of all the direct consequences of his act,
whether he could have foreseen them or not; because consequences which directly follow a
wrongful act are not too remote
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If the consequences of a wrongful act could have been foreseen by a reasonable man, they are
not too remote
related to courts using this test. This trial authority was developed in 9Re Polemis & Furniss,
Withy Co. Ltd.⁷ where the court held that if the damage caused to the plaintiff is a direct result
of the negligent act, which results in a breach of the defendant’s duty of care , he should be held
liable whether the injury was predictable or not due to that result. But modern legal pioneers do
not appreciate a test such as the test of directness and however developed a whole new test which
was based on the prediction or prediction of the outcome of the act causing harm to the plaintiff.
The test of foresight was widely acclaimed and has hitherto been cited or used as a valid test to
ascertain whether the harm it causes is too far-fetched to act. The test of foresight was first used
in the 10Wagon Mound case and reinterpreted in the principal authority 11Hughes v. Lord
Advocate⁸ . The judiciary in India has accepted the test of foresight and has been used by
various High Courts an praised the principle in various cases that came before them. The
‘Remoteness of damages’ a principle that was developed over time, has always given the
judiciary a guiding line in the measurement of damages in cases of breach of contract law. Since
section 73 contains the principle developed in Headley v Baxendale, this section has been used
continuously and has come to be known as one of the most important clauses under the Indian
Contract Act 1872.
Remoteness of damages’ indicates the valid test used to select what type of damages may be
remunerated by compensation for damages resulting from breach of agreement. It is identified
by the term ratio of loss or valuation that pays the technique of conducting surveys in cash to a
specific result or loss that has not been considered too far.

MEASURES OF DAMAGES
After it is established that a definite consequence of the breach of contract is imminent and not
remote and that the plaintiff is entitled to compensation for the same, the next question which
arises is: what is the remedy of damages, for the same, or in other words Of course, the problem
is the determination of compensation for breach of contract.
Damages compensatory in nature. The purpose of awarding damages to the aggrieved party is to
put him in the same position he would have been if the contract had been made. Hence the loss
is assessed on that basis. If a party takes a security deposit from the other for the proper
performance of the contract, it is not entitled to forfeit the deposit on the ground of default, when
such default has not caused any loss to it.⁹
Contact of sales and goods

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The landmark case of the test of directness but later considered to be incorrect
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The case of Overseas Tankship (UK) Ltd. V. Morts Dock And Engg. Co. Ltd.
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Post office workers left manhole in the road side and covered it with tarpaulin and put several
lamps around it. The 8-year old plaintiff was playing around the manhole and one of the lamp
was fall down causing explosion in the manhole and resulting the damage to the plaintiff. Thus,
the court held that even though the explosion was not foreseeable by the workers, the type of
damage was. Therefore, the defendants was held liable.
The measure of loss is the difference between the contract price and the market price on the date
of breach of contract. For example,12 C agrees to supply a watch to B on 1st January for Rs
1,000. If C fails to supply the watch and the market price of the watch on that date is Rs 1,200,
then B will be entitled to recover Rs 200 from C as loss. The reason that the buyer has incurred a
loss of Rs 200 is because he has to pay so much more if he buys the watch from the market due
to the increase in the market price of the watch. Similarly, if buyer (b) refuses to take the watch
on the due date, the seller will also be entitled to recover the difference between the contract
price and the market price as on January 1. For example, the market value of the watch on that
date is Rs 800, C’s loss in respect of the transaction is Rs 200, as C can get only Rs 800 from
another customer, while B paid Rs 1,000 for the same. Promised to pay. C can recover Rs 200
from B.
The mere fact that it is somewhat difficult to assess the loss with certainty or accuracy does not
relieve the defaulting supplier from paying the buyer sufficient damages to be properly
compensated.¹⁰
“It has been noted above that on the breach of contract of sale , the damages are ascertained as on
the date of breach of contract . Thus ,
( i ) If the buyer makes a breach of contract , the seller can claim damages as arising on the date
of breach of contract , and it is not necessary that the seller should resell the goods on that date;
(ii) Similarly, if the seller makes a breach of contract, the buyer can claim damages as arising on
the date of breach of contract, and it is not necessary that the buyer should re-purchase the goods
on that date.”

Compensatory Damages
Compensatory damages are monetary damages awarded with the intention of indemnifying the
non-breaching party for any loss incurred as a result of the breach of contract. They are not
designed to punish the infringing party, but only to make the party that was dissolved against
“whole again”, as it is commonly called.
As an example, if a contract was signed in which Party A agreed to pay Party B $5,000 for
counseling services, but Party A did not use the services and did not pay. If the contract is
breached, Party B will be entitled to $5,000 in compensation. On the other hand, if Party B
broke the contract and Party A was forced to hire a different consultant for $6,000, Party A
would be entitled to $1,000, which is the difference in the contract fee.
Within the scope of compensatory damages, there are two sub-types of damages, and they are:

Exception Damages:- These are meant to cover everything the injured party will receive
from the contract. Calculating it is usually straightforward, as it is usually based on the terms of
the contract or market prices.

12
Andard mount ( London) Ltd. V. Curewell (India) Ltd.
 Consequential damages:- These are meant to reimburse an injured party for any indirect
damages covered in the contract. This may include, for example, loss of business profits
resulting from undelivered equipment. For consequential damages to be awarded, the injuries
must either be considered a direct result of the breach of contract or must be reasonably foreseen
by both parties at the time of entering into the contract.

Liquidation Damages
Liquidation damages are damages that are specifically stated in the contract. They can be
placed in a contract when damages are difficult to estimate, and an estimate for damages is
necessary if there is a breach. Thus, such damages are agreed upon by both parties during the
negotiation of the contract.
For example, if Party A contracts Party B to build a new building that they need to use by a
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certain date, they can include a provision in the contract that Part B must be used for every day.
Have to pay $1,000 per day, which is what it takes to make ends meet. Construction beyond the
date stipulated in the contract.
However, courts may hesitate to award liquidation damages that they consider excessive. To
avoid this, you will want any liquidation damage amounts to be reasonable. To help judge this,
some state laws restrict the amount of liquidation damages that can be awarded.

Punitive damages
Punitive damages are damages designed to punish the infringing party and prevent the parties
from infringing. Such damages are rarely awarded for breaches of contract, although they may
be awarded in some tort or fraud cases that overlap cases of contract.

Nominal damage
Nominal damages occur when there is no pecuniary loss to the injured party, but a judge wants
to show that the injured party is right. Generally, the nominal damage is much smaller in amount
and more symbolic in nature.

Ordinary and General damages

These are damages that result from the normal, natural and probable course of events in breach
of contract. For example, if Party A agrees to sell the grain to Party B at $20 per bag with
payment at the time of delivery, but by the time of delivery the market price has dropped to $25
per bag and as a result Party B refuses $25 per bag. Sell for anything less than a bag, then party
A can claim damages of $5 per bag.

Equitable remedies

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Kemble V. Farren
 In some cases, monetary damages may be considered insufficient to compensate the aggrieved
party. In this case, equitable treatment can be provided. Equitable remedies involve a court
ordering a party or parties to act or not to act in a certain way.
Examples may include:
Specific performance:- This may include, but is not limited to, forcing the infringing party to
terminate the contract.
Contract cancellation:- In this the old contract is canceled and a new contract is prepared.
Contract improvement:- In this, the old contract is rewritten to reflect the true intention of the
parties.

Conclusion
As we have seen above Section 73 of Indian Contract Act deals with Remoteness of damages.
And as Remoteness of damages states that No one can be charged for all the consequences of his
wrongful act, as they are endless. Only the direct, natural and reasonable consequences are the
ones for which one has to compensate for” as we see in Hardly vs Baxendale case. And measure
of damages are those Damages which are compensatory compensation, liquidation Damages,
punitive damages, nominal damages, ordinary and General damages.

Reference
1. (1854) 9 Ex 341
2. (1913) 24 MLJ 429
3. (1884) ILR 7
4. Bacon, Francis, A Collection of Some Principall Rules and Maximes of the Common
Lawes of England With Their Latitude and Extent (1632)
5. (1773) 2 WM B1 892
6. (1921) 3 K.B. 560
7. (1963) AC 837
8. 1 All ER 705
9. R.K. Bangia, LAW OF CONTRACT-1 ( Allahabad Law Agency, Faridabad, 8th edn.,
2021
10. Andard Mount (London ) Ltd. Curewell (India) Ltd., AIR 1985 Delhi 45, at 56.
BIBLIOGRAPHY
1. Wikipedia
2. Contract- 1 book
3. Blog.ipleanders.in
4. Advovatespedia.com
5. Indiankanoon.org
6. www.citeman.com
7. www.legalbites.com