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Suit for damages

The word ‘damages’ means monetary compensation for the loss suffered. Whenever a breach of contract takes place, the remedy for ‘damages’ is the one that is applied by the aggrieved party as a consequence of breach of contract. A breach of contract may put the aggrieved party to some disadvantage or inconvenience or may cause a loss to him. The Court would direct the guilty party to accept responsibility for any such loss of the aggrieved party and compensate him adequately.

Types of damages

On the basis of the provisions of Sec. 73 of the Indian Contract Act and the court judgments, the aggrieved party would be entitled to one of the following types of damages, depending upon the circumstances of the case:
  • General or ordinary damages: Ordinary damages are those which naturally arise in the course of things from such breach of contract. These damages can be recovered if the following conditions are fulfilled:
    • The aggrieved party must have suffered a loss by breach of contract and
    • The damages must be a proximate (i.e. direct) consequence of the breach of contract and not an indirect or remote consequence
    • Generally, these damages are measured on the basis of the difference between the contract price and the market price on the date of breach

Ram agrees to sell 100 bags of cotton at ₹ 1000 per bag to Mohan. On the day of delivery, Mohan refuses to buy the cotton. The price of cotton on such date is ₹ 900 per bag. Mohan, being a guilty party, has to compensate Ram for the difference in price between contract price and price on date of breach i.e. ₹ 100 per bag *100 bags = ₹ 10,000.



  • No damages can be claimed for indirect losses
  • ƒIn case the same type of goods are not available in market, then the price of nearest and available substitute will be taken into account.
  • ƒIn case if no market is exists at such a place then the prices existing in the nearest market place are taken into account to calculate damages.
  • ƒIf the goods are custom made the cost of the goods are taken into account for calculating damages.
  • Special damages: Under ordinary circumstances any damages which arise as an indirect consequence of non performance of obligation by a party to the contract are not awarded by the court. These kinds of damages are known as special damages and they appear due to some special or unusual circumstances. Some important rules to be taken into account for the purpose of claiming special damages are:-
    • These damages are recoverable only if the special circumstances were in the knowledge of the parties at the time of making the contract, or if these special circumstances were brought to the notice of the defaulting party at or before entering into contract.
    • If the special circumstances were within the contemplation of the parties then the party at fault would be liable for special damages
    • If the defaulting party had no knowledge of the special circumstances, he will not be liable for special damages.

  • Exemplary or vindictive damages: Sometimes, the courts also award damages for mental or emotional suffering caused by the breach. Such damages are called exemplary or vindictive damages. These may be taken as an exception to the general principle that damages are not penal but compensatory in nature. Therefore these kinds of damages are penal in nature as the damage caused to the aggrieved party cannot be ascertained.
    In the following cases, mental suffering and pain of the aggrieved party has been taken into account to award exemplary or vindictive damages:
    • Breach of contract to marry: In such cases the extent of injury to the party’s feelings is difficult to ascertain thus the court on some reasonable grounds compute and award compensation to the other party.
    • Unjustified dishonor of a cheque: When there are sufficient funds to the credit of customers, but still the banker dishonor’s the cheque, the customer can claim for damages. In this case, the rule of ascertaining damages will differ according to the status of party. The general rule stands “more the amount of cheque dishonored lesser would be damages and lesser the amount of cheque dishonored more would be the damages”
  • Nominal damages: These are damages for namesake only. If the breach of contract does not cause any loss to the aggrieved party, no damages need to be awarded to him. These are neither awarded by way of compensation to the aggrieved party nor by way of punishment to the guilty party. However, in order to record the fact of breach by the guilty party, the court may award nominal or token damages. The amount offered in case of nominal damages are very less, it can be as less as one rupee.

In a contract of sale of goods, if the contract price and the market price is the same at the date of breach of contract, then the aggrieved party is entitled only to nominal damages.

  • Damages for inconvenience and discomfort: If a party has suffered physical inconvenience and discomfort due to the breach of contract, that party can recover the damages for such inconvenience and discomfort, subject to the inconvenience being caused due to a direct cause of breach.
  • Liquidated damages and penalty: To avoid the difficulty of assessing the damages, parties generally fix in advance, the amount of damages that would be payable in case of breach of contract. This amount may be called liquidated damages or penalty.
    Liquidated damages are a fair and reasonable estimate of loss which a party may suffer due to the breach of contract.
    On the other hand, a penalty is an unfair and unreasonable estimate of loss which is fixed with the intention of coercing or compelling the other party to perform the contract. The terms ‘liquidated damages’ and ‘penalty’ are essentially British terms and the distinction in their meaning is relevant under the English law only. In India, no such distinction is made. In India, in every case of stipulation of the amount of damages in the contract, the court will work out the amount of loss suffered by the aggrieved party and award a reasonable amount as damages subject to the maximum of the stipulated amount as the court allows only a reasonable compensation (Sec 74).

S agrees to pay ₹ 1,000 to D on 5th January. It was agreed between the parties that if S fails to do so then he has to pay ₹ 2,000. The extra ₹ 1,000 is in the way of penalty and would not be awarded by the court. Rather the court would award reasonable compensation to D.

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