How are liquidated damages different from general damages? Are liquidated damages required to be proved?

Question: How are liquidated damages different from general damages? Are liquidated damages required to be proved? [DJS 2010]

Find the answer to the mains question only on Legal Bites. [How are liquidated damages different from general damages? Are liquidated damages required to be proved?]

Answer

Section 74, ICA- Compensation for breach of contract where penalty stipulated for:- When a contract has been broken, if 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 party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Section 74 basically talks about the liquidated damage that the affected party is entitled to. This section states that if there is any clause in the contract which states that in case of breach by either party the defendant shall be liable to pay the certain specified amount then the plaintiff can claim the amount if there is a breach in contract.

It means that the plaintiff can claim the amount mentioned in the contract (also called liquidated amount) from the defendant in case there is a breach of contract. It can be further deduced that amount stipulated in the contract can be claimed even if the actual loss or the damage was proved by him or not. It is the sum is a genuine pre-estimate of damages likely to flow from the breach, called liquidated damages.

In case of a breach, the innocent party is not automatically entitled to the amount stipulated as liquidated damages; he must prove the loss suffered by him and is only entitled to reasonable compensation. The only exception to this general rule is where it is not possible for a court to assess compensation, in which case the court may award the amount stipulated without proof of actual loss. The burden of proving that no loss arose lies on the party that has committed the breach.

The caveat as per this rule is that the amount stipulated in the contract is the maximum amount that the plaintiff can claim. Cases may arise that the court can award compensation less than the stipulated amount if it appears reasonable as per the circumstance of the case, but the no case the amount awarded by the court should be more than the stipulated amount.

On the other hand, General Damages are those damages that arise out of the normal course of action. It’s the damage that arises in the normal course of events. Once the damage is proven general damage can be claimed by the affected party.

In relation to liability, general damages are those which arise naturally and in the normal course of events; whereas special damages are those which do not arise naturally out of the defendants’ breach, and are recoverable only where they were in the reasonable contemplation of the parties at the time they made the contract.

In relation to pleadings, general damages are those which will be presumed to be the natural or probable consequence of the wrong complained of, and the plaintiff is required only to assert that such damage has been suffered.

---

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