Law of Damages and its Applicability

INTRODUCTION

In law, the term “damages” refers to the compensation in monetary terms for a loss or an injury caused by the wrongful act of another. In other words, “damages” means the sum of money that the law imposes for a breach of some duty or violation of some right. The main purpose behind the imposition of damages is to restore the injured party to the same position in which that party was before being injured. This is the reason why damages are considered as remedial and not preventive or punitive. In the case-law of Sohm v. Dixie Eye, Justice Greenwood stated, “damages generally refers to money claimed by, or ordered to be paid to, a person as compensation for loss or injury. The term injury is sometimes used in the sense of damage, as including the harm or loss for which compensation is sought, and has been defined as damage resulting from an unlawful act; but in strict legal significance, there is, properly speaking, a material distinction between the two terms, in that injury means something done against the right of the party, producing damage, whereas damage is the harm, detriment, or loss sustained by reason of the injury.” Under the Indian Contract Act, 1872, the term “damages” is not expressly defined, however, it can be understood as the monetary compensation for the loss caused to a party by breach of contract. “Breach of contract” is when a party to the contract violates any of the terms and conditions previously agreed upon. 

DAMAGES UNDER INDIAN CONTRACT ACT, 1872

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  • SECTION 73 of the Indian Contract Act, 1872 declares that compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach. It clearly lays down that compensation is recoverable for any loss or damage:
  1. Arising naturally in the usual course of things from the breach; or
  2. Which the parties knew at the time of the contract as likely to result from the breach.

 

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Duty to Mitigate- The Explanation attached to Section 73 provides for the Duty to Mitigate damages. It says 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. Thus, the injured party is responsible to take reasonable steps to see that his loss is kept to the minimum.

 

Under the Indian Contract Act, 1872, the party who is injured by a breach of a contract may bring an action for damages. When a suit for damages is filed, two points must be kept in mind, namely, the remoteness of damage and the measure of damages. 

 

Remoteness of Damage

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The defendant must not be made liable for everything that follows after he breaches a contract. A limit must be fixed beyond which the consequences should be considered too remote. In the case-law of Hadley v. Baxendale Alderson B laid down the following rule: Where two parties have made a contract which one of them has broken, the damages which 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. 

 

Measures of Damages

Once the extent of recoverable loss is determined, it has to be evaluated in terms of money. While measuring damages, the following principles must be taken into accounts:

The plaintiff must be put in the same position as he would have been had he not been injured by breach of contract.

The inconvenience caused by breach of contract must be considered.

If the plaintiff is misrepresented with regard to the price of a thing and he purchases that thing, the yardstick of compensation should be the difference between the price paid by the plaintiff and its real value.

In cases where the plaintiff suffers no monetary loss, the court may still award him nominal damages, which represent the recognition of his rights.

 

  • SECTION 74 of the Indian Contract Act, 1872 deals with the provision of liquidated damages and penalties. It provides that when a contract has been breached and 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 complainant is entitled to receive damages not exceeding the amount so named. It does not matter whether or not actual damage or loss is proved to have been caused.

 

The Explanation further says that a stipulation for increased interest from the date of default may be a stipulation by way of penalty.

 

TYPES OF DAMAGES

 

  • General and Special Damages

General damages are those damages that arise natural is the usual course of things springing from the breach of contract itself. To put it simply, the defendant is liable to pay damages for all those consequences which follow naturally is the usual course after the contract is breached. Special damages are those damages, which arise out of unusual circumstances that affect the plaintiff. These damages cannot be recovered unless the special circumstances were brought in the knowledge of the defendant so that the possibility of the special loss was in contemplation of the parties.

 

  • Liquidated and Unliquidated Damages

Liquidated damages refer to the sum payable by a party on account of non-performance of the contract, which is stipulated in the agreement between the parties themselves. On the contrary, unliquidated damages are those damages, which are awarded by the courts after the complete assessment of injury caused to a party to the contract due to a breach of that contract by the other party.

 

  • Nominal and Substantial Damages

As discussed above, even if the plaintiff suffers no loss, the court may still award him, upon its discretion, nominal damages in recognition of the fact that he had a right and that right was injured due to breach of contract. Substantial damages are the opposite of nominal damages and these refer to the considerable amount or sum awarded to the plaintiff as compensation for considerable injury.

 

  • Aggravated Damages

These damages are recoverable by the plaintiff in case he is subjected to humiliation, embarrassment, or distress arising out of the conduct of the defendant or surrounding circumstances, which increase the injury to the plaintiff.

 

  • Compensatory Damages

Compensatory damages are equal to the actual loss incurred by the plaintiff, for example, payments for the purpose of reimbursing the plaintiff for medical expenses, loss of income, etc.

 

APPLICABILITY OF LAW OF DAMAGES IN INDIA

 

  • Sales of Goods Act, 1930

Under the Sales of Goods Act, 1930, both buyer and seller have the right to claim damages. The seller’s right to claim damages arises in the case of non-acceptance of delivery by the buyer. On the other hand, the buyer’s right to claim damages arises in case of intentional or wrongful non-delivery of goods by the seller. Damages may also be claimed by the buyer in case of breach of either warranty or condition that is to be treated as a warranty. If the contract is repudiated by one of the parties before the date of delivery, even then the other party has the right to sue for damages.

 

  • Arbitral Proceedings

The rules governing the provision of awarding damages in civil suits are also applicable to arbitral proceedings. In order to recover damages, the claimant must prove the injury or loss on the basis of which he/she is claiming damages. Thereupon, the arbitrator shall award damages only to the extent of reasonable compensation.

 

  • Consumer Protection Act

Under the Consumer Protection Act, 2019, the consumer may claim damages arising out of injury or loss caused by the seller. The seller is required to deliver the good within the stipulated time and if he wrongfully delays the delivery, the buyer can claim damages arising out of loss or injury caused by such delay. In case the seller breaches the contract, the buyer has the right to terminate the contract and thereafter, buy the product of the dame description from elsewhere. In doing so, if the product bought by the buyer is expensive then the price he pays is more than what he had paid the seller, the difference is to be paid by the seller to such buyer.

 

  • Tort Law

In tort, damages are primarily for compensatory purposes. The main objective of awarding damages under tort is to put the claimant in the same position as he would have been in, had the tort not been committed. This rule applies in cases of negligence, conversion, deceit, etc.

 

  • Intellectual Property/Trademarks

According to the Trademarks Act, 1999, the court may grant compensatory and punitive damages in case of infringement or passing off. Awarding of damages arises as a result of tortious liability. In the case of Hero Honda Limited v. Shree Assuramji Scooters, it was stated by the court that when dealing with suits relating to infringements of trademarks, patents, etc., courts should grant compensatory as well as punitive damages with the purpose of discouraging the lawbreakers.

 

BURDEN OF PROOF

 

In order to claim any kind of damages, breach of contract is the first and foremost pre-condition. If there is no breach of contract, then no suit for damages can be instituted. The burden of proof lies on the claimant, that is to say, the claimant is required to establish the fact that he incurred some loss or injury for the compensation of which he is claiming such damages.  

 

In the case law Fateh Chand v. Balkishan Dass the court demanded the parties to prove the degree of loss or damage suffered as a result of a breach of contract.

 

In the case of Maula Bux the court has specifically held that the court is competent to award reasonable compensation in a case of breach even if no actual damage is proved to have been suffered as a consequence of the breach of contract.

 

In the case of Indian Oil Natural Gas Corporation Ltd. v, Saw Pipes Ltd. the court held that if the terms of the contract are clear and unambiguous stipulating the liquidated damages unless it is held that such estimate of damages or compensation is unreasonable or is by way of penalty, the party who has committed the breach is required to pay such compensation. In such a case, there is no question of proving the loss by the claimant. The burden is then in fact on the breaching party to lead the evidence to prove that no loss is likely to occur by such breach.

 

In the case of M/s Herbicides (India) Ltd. v. M/s. Shashank Pesticides P. Ltd it was held by the court that in case of liquidated damages, even the party it does not prove the actual damage or loss suffered by it, it is still entitled to reasonable damages unless it is proved that no loss or damage was caused on account of breach of the contract.

 

In the case of ONGC v. Saw Pipes it was held that the provisions relating to liquidated damages are required to be drafted with clarity and one has to prove that the amount is a genuine pre-estimate of loss or injury suffered.

 

CONCLUSION

The purpose of awarding damages, in general, is to make the injured party whole, that is to say, to put the injured party in the same position he would have been in, had he not been wronged or had the contract not been breached. Even in cases where there is no loss or injury caused to a party due to breach of contractual terms by the other party, the court has the power to award nominal damages, merely as a sign of recognition of the party’s right. Nonetheless, the non-defaulting party is only entitled to such damages that arise out of a usual course of things resulting from a breach of contract. The Indian Courts have time and again construed principles relating to damages as flexible and have considered these principles to be capable of a liberal application. The claimant can only claim such amount as was reasonably foreseeable at the time of execution of the contract. This reasonably foreseeable loss, damage, or harm inter alia depends on the shared knowledge of both the parties to the contract.

 

REFERENCES

 

    1. http://docs.manupatra.in/newsline/articles/Upload/30C28D5D-262B-4A4A-AE17-C4D86F92BCE0.pdf accessed on 1 October 2020 at 12:30 p.m.
    2. http://www.nishithdesai.com/fileadmin/user_upload/pdfs/Research_Papers/Law_of_Damages_in_India.pdf accessed on 1 October 2020 at 11:23 a.m.
    3. https://web.iima.ac.in/assets/snippets/workingpaperpdf/4393447492015-10-06.pdf accessed on 2 October 2020 at 3:46 p.m.
    4. https://www.lexisnexis.co.uk/legal/guidance/damages-in-tort-claims-recovery-assessment accessed on 1 October 2020 at 3:14 p.m.
    5. http://nopr.niscair.res.in/bitstream/123456789/10213/1/JIPR%2015%285%29%20374-379.pdfaccessed on 2 October 2020 at 1:35 p.m.
    6. https://www.britannica.com/topic/damages-law accessed on 1 October 2020 at 7:52 p.m.
    7. https://www.law.cornell.edu/wex/damages accessed on 1 October 2020 at 4:12 p.m.
    8. https://www.mondaq.com/india/contracts-and-commercial-law/801620/proof-of-actual-damage#:~:text=Under%20the%20Indian%20Contract%20Act,party%20suffering%20breach%20of%20contract accessed on 2 October 2020 at 12:10 p.m.
    9. https://www.worldwidejournals.com/paripex/recent_issues_pdf/2014/November/November_2014_1416651736__33.pdf accessed on 2 October 2020 at 1:05 a.m.
    10. Singh. Avtar, Business Law, Eastern Book Company, 11th Ed, Lucknow, 2018.

 

Adv. Sakshi Shairwal, Head, Sakshar Law Associates

For further information on this topic please contact Advocate Sakshi Shairwal by email at [email protected]

The website of Sakshar Law Associates can be accessed at www.saksharlawassociates.com


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