In summary, Section 73 of the Indian Contract Act, 1872 governs the compensation for loss or damage caused by a breach of contract, ensuring that the affected party is fairly compensated for direct and foreseeable losses while excluding remote or indirect losses.
The term 'remoteness of damages' refers to a legal test used to determine which types of losses resulting from a breach of contract can be compensated through an award of damages. It is distinct from the concept of measure of damages or quantification, which deals with the method of assessing the monetary compensation for a specific consequence or loss that has been deemed not too remote.
Under this branch of the rule, compensation can be claimed for any loss or damage that arose in the usual course of things from the breach of contract. If the loss is one which does not arise in the usual course of things but in special loss arising out of special circumstances, then the situation would be covered by the second branch of the rule.
The first part of this section operates to affix liability on the person who has committed a breach of those matters as may fairly and reasonably be considered as arising naturally from the breach. Such matters would include the normal circumstances prevailing within the type of transaction in question. It is assumed for the purpose that a reasonable businessman must be taken to understand the ordinary business practices and exigencies of the other's trade or business without the need for any special discussion or communication.
If the carrier is responsible for delaying the delivery of goods to their destination, they may be held liable for the difference in prices between the agreed delivery date and the actual delivery date. This loss is considered a natural consequence of the breach, as it arises in the usual course of events. In the case of Wilson v. Lancashire and Yorkshire Railway , the plaintiff, a cap manufacturer, entrusted the defendants with a consignment of cloth meant for cap production. Due to the defendants' delay in delivering the cloth, the plaintiff was unable to fulfill cap orders because the season for cap production had passed. The court ruled that the plaintiff could only claim the difference in value of the cloth between the agreed delivery date and the actual delivery date. However, the plaintiffs were not entitled to compensation for the loss of profits resulting from the inability to prepare or sell the caps.
In the case of Ghaziabad Development Authority v. Union of India, the Ghaziabad Development Authority announced a scheme for the allotment of developed plots through advertisements. However, there was an unreasonable delay by the Authority in completing the scheme for plot development. As a result of this delay, the purchaser was entitled to claim the loss of profit that occurred due to the delay caused by the vendor of the plots.
However, the buyer of the plots could not claim any compensation for mental anguish caused by the delay in contract performance. The Supreme Court (SC) held that mental anguish cannot be considered a basis for damages in ordinary commercial disputes. Damages in such cases are typically limited to actual financial losses incurred as a result of the breach of contract.
In cases of breach of promise to marry, the injured party may experience feelings of hurt and disappointment, which can lead to claims for exemplary damages. A notable case illustrating this is Laxminarayan v. Sumitra . In this case, after the engagement, the prospective husband continued to assure the girl of marriage and engaged in sexual relations with her, resulting in her pregnancy. However, he later reneged on his promise to marry her. The court ruled in favor of the girl, awarding her damages for various factors, including physical pain, emotional distress, loss of marriage prospects, and social stigma. The initial compensation of Rs. 30,000 awarded by the lower court was upheld by the M.P. High Court.
When a breach of contract leads to losses that do not occur naturally or in the usual course of events, but rather due to special circumstances, the party breaching the contract can be held liable for those losses. However, this is contingent upon the special circumstances being communicated to the breaching party at the time of contract formation. If the breaching party was unaware of the special circumstances that resulted in the specific loss, they cannot be held responsible. The extent of liability depends on the knowledge and acceptance of one party regarding the purpose and intention of the other when entering into the contract. The defendant's liability increases with the degree of knowledge they possess regarding the special circumstances.
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1. What are the different types of remedies available under the Indian Contract Act, 1872? |
2. How does the Indian Contract Act, 1872 define 'damages' in relation to a breach of contract? |
3. Can a party claim both specific performance and damages for the same breach under the Indian Contract Act, 1872? |
4. What is the significance of 'reasonable foreseeability' in awarding damages under the Indian Contract Act, 1872? |
5. How does the Indian Contract Act, 1872 address the issue of mitigation of damages? |
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