Rules regarding award of damages
The following rules will guide the courts in measuring damages for the aggrieved party:
- Purpose is compensation, not penalty: The fundamental purpose of awarding damages is to compensate the aggrieved party for the loss suffered and not to punish the guilty party for causing breach. Breach of contract is not a crime to attract punishment.
- Limited damages: The damages are always a limited amount awarded to the aggrieved party to compensate it for the loss caused by the non-performance of the contract. Expectations of the aggrieved party from the contract which have remained unfulfilled shall not be taken into account.
- Damages only for attributed losses: Damages are awarded for the losses which can be attributed to the breach. Court will not take into account all fallout of the breach which may only be remotely and indirectly related to the breach.
- Mitigation of losses: The aggrieved party is expected to make sincere efforts to mitigate or minimize the losses that are resulting out of the breach of the contract. The aggrieved party cannot be careless about the happenings after the breach of the contract. Any losses which could have been avoided would not be compensated.
- Cost of suit: The breach of contract by a party forces the other to initiate legal action against the guilty party. This necessarily entails expenditure. This cost of suit can be recovered from the guilty party only at the discretion of the court. The court may award cost of suit to the aggrieved party if this is necessary in the interest of justice.