Remedies and Damage under Indian Contract Act, 1872 | Law of Contracts - CLAT PG PDF Download

Remedies and Damages Under the Indian Contract Act, 1872 

• When a contract is broken, the party affected by the breach is entitled to receive compensation from the party who breached the contract. This compensation is for any loss or damage that naturally arises from the breach in the usual course of events or that both parties were aware of when making the contract as likely to result from the breach.
• However, compensation is not awarded for any remote or indirect losses or damages that occur due to the breach.

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.

 Remoteness of Damage 

 Key Principles from Hadley v Baxendale 

• The rules regarding remoteness of damage in contract law are derived from the Court of Exchequer's judgment in  Hadley v Baxendale  and its subsequent interpretations in later cases.
• In the case of  Hadley v Baxendale  , the plaintiffs faced a disruption in their mill operations due to a broken crankshaft. The defendant carrier was responsible for delivering the broken crankshaft to the manufacturer but failed to do so within the agreed-upon timeframe, causing a delay in restarting the mill.
• The plaintiffs sought to recover the profits they would have earned had the mill been operational without delay. However, the court rejected this claim on the grounds that the profits were not a direct consequence of the carrier's delay in delivering the broken shaft to the third party.
• According to the principles established in  Hadley v Baxendale  , damages awarded to the aggrieved party for a breach of contract should either arise naturally and reasonably from the breach itself, or be reasonably deemed to have arisen within the contemplation of the parties at the time of contract formation.

 Rule in Hadley v Baxendale 

• The rule in Hadley v Baxendale consists of two key parts:
•  Arising Naturally:  Damages that can be fairly and reasonably considered to arise naturally from the breach, according to the usual course of events.
•  Contemplation of the Parties:  Damages that both parties could reasonably have contemplated at the time of entering into the contract.

 Damage Arising in the Usual Course of Things 

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.

 Usual Course of Things 

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.

 Delay in Carriage of Goods Meant for Sale 

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.

 Compensation for Mental Anguish 

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.

 Breach of Promise to Marry

 Loss Arising from Special Circumstances