Every party injured by the breach of a contract may bring an action for damages and every action for damages raises certain problems. Discuss the problem raised in every action for damages.

Question: Every party injured by the breach of a contract may bring an action for damages and every action for damages raises certain problems. Discuss the problem raised in every action for damages. [BJS 2011]

Find the answer to the mains question only on Legal Bites. [Every party injured by the breach of a contract may bring an action for damages and every action for damages raises certain problems. Discuss the problem raised in every action for damages.]

Answer

A contract is not a property. It is only a promise supported by some consideration upon which either the remedy of specific performance or that of damages is available. The party who is injured by the breach of a contract may bring an action for damages.

“Damages” means compensation in terms of money for the loss suffered by the injured party. The burden lies on the injured party to prove his loss. Every action for damages raises two problems. The first is the problem of “remoteness of damage” and the second is that of “measure of damages”.

Remoteness of Damage

Every breach of contract upsets many a settled expectation of the injured party. He may feel the consequences for a long time and in a variety of ways. For instance, A person contracts to supply to a shopkeeper pure mustard oil, but he sends impure stuff, which is a breach. The oil is seized by an inspector and destroyed.

The shopkeeper is arrested, prosecuted, and convicted. He suffers the loss of oil, the loss of profits to be gained on selling it, the loss of social prestige and of business reputation, not to speak of the time and money and energy wasted on defense and the mental agony and torture of the prosecution. Ram Kumar Agarwala v. Lakshmi Narayan Agarwala, [AIR 1947 Cal 157]

Thus, theoretically, the consequences of a breach may be endless, but there must be an end to liability. The defendant cannot be held liable for all that follows from his breach. There must be a limit to liability and beyond that limit, the damage is said to be too remote and, therefore, irrecoverable.

How much compensation is to be paid for the same is a question. And this involves determining the quantum of compensation. The statement was given by Alderson B, in the case of Hadley v. Baxendale [(1854) 9 Ex. 341 at 354] is considered to be the basis of the law to determine whether the damage is the proximate or the remote consequences of the breach and carries reasonableness arising out of probable consequences considered naturally by the parties to contract. The case essentially laid down two principles:

1. The claim should arise naturally- i.e. the claim should arise as per the usual course of action
2. The claim should be reasonable, in the sense that both the parties reasonably supposed that a certain act if occurred then it would probably result in the breach of the contract

Measures of Damages

The object of awarding damages to the aggrieved party is to put him in the same position in which he would have performed. Once it is determined whether general or special damages have to be recovered they have to be evaluated in terms of money. This is the problem of measure of damages and is governed by some fundamental principles such as:

1. Claim for damages is not debt
2. Damages are compensatory, not penal
3. Inconvenience caused by the breach may be taken into consideration
4. Loss caused by misrepresentation is also considered while paying damages and so on.

In Jamal v. Moola Dawood Sons & Co. [I.L.R. (1916) 43 Cal. 493] the privy council has held that the proper measure of damages is the difference between the contract price and the market price on the date of the breach of the contract irrespective of the fact that the seller does not sell the goods on that day, but sells the same on a subsequent date and the actual loss to him is different from the difference in the prices on the date of the breach.

Apart from it Section 74 of the Indian Contract Act emphasizes that when the parties have mentioned in the agreement the amount of compensation to be paid in the event of a breach, the injured party is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount mentioned in the contract.

For e.g: ‘A’ contract with ‘B’ to pay Rs 1000/-, if he fails to pay ‘B’ Rs 500/- on a given day. ‘A’ fails to pay ‘B’ Rs 500/- on that given day, thus ‘B’ is entitled to recover from ‘A’ such compensation not exceeding Rs 1000/-, as the court considers reasonable.

Section 74 of the Indian Contract Act,1872 draws an exception to the measures of damages. Here, it connotes that when any person enters into any bail bond, recognizance; or other instruments of the same nature; or, under the provisions of any law; or under the order of Central government; or any state government, gives any bond for the performance of any public duty or act in which the public are interested. He shall be liable upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X