Damages For Breach of Contracts: by Poorvi Chothani, Esq. Lawquest

Damages for Breach of Contracts
by Poorvi Chothani, Esq. LawQuest

www.lawquestinternational.com
September 12, 2012

IIM - Ahmedabad
LawQuest 2012. All Rights are Reserved.
Introduction
An agreement enforceable by law is a contract. A contract, which imposes a legal relationship between the contracting parties, can be brought to an end only by the Discharge of the Contract.
Discharge of Contract may take place in various ways as follows by:

1. 2. 3. 4. 5. 6. 7. Performance Attempted Performance or Tender Impossibility of Performance Agreement Lapse of Time Operation of Law Breach of Contract
3
Definition of Breach of Contract

Breach of Contract under the Indian Contract Act, 1872 : A breach of contract gives rise to a legal cause of action in which a binding agreement or bargainedfor exchange is not honoured by one or more of the parties to the contract by non-performance or interference with the other party's performance without any lawful excuse
Nature of Breach
Actual Breach: Actual breach occurs where one party refuses to perform his side of the bargain on the due date or performs incompletely. Anticipatory Breach: Where one party announces, in advance of the due date for performance, that he intends not to perform his side of the bargain.
Innocent party may sue for damages as soon as breach is announced.

5
Forms of Breach of Contract

A party renouncing his obligations under the contract A party by his own act making it impossible that he should fulfill his obligations under the contract A party may fail to perform what he has promised
6
Innocent Partys Options in Face of a Breach

a) Renunciation (where a party refuses to perform his obligations under the Contract) Breach of condition (where the party in default has committed a breach of condition) Fundamental Breach (where the party in breach has committed a serious (or fundamental) breach of an innominate term or totally fails to perform the contract)
b)
c)
General Principles
When there is such a breach of contract by one party then the other party is entitled to discharge himself and does so, he is released from further performance. He is not obliged to accept any performance from the party in breach. further
Remedy
Equitable or Common Law Remedy a. Specific Performance b. Injunction
Legal Remedy a. Damages
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Remedy
Damages should be Capable of being fairly and reasonably be considered arising naturally in the usual course of things; or As per the knowledge of both the parties at the time of entering into the contract as the natural consequence of such breach.
11
Specific Performance
Is an exceptional but specific remedy, which is granted: In rare cases where the court considers it just and equitable If movable property is an extra ordinary article that is not easily available in the market or is of special value of interest to the plaintiff Where a movable property is held as agent or trustee of plaintiff. Where transaction involves land or other immovable property
12
Specific Performance Not Granted Where

Compensation is an adequate relief Contract involves minute and numerous details Contract is dependant on personal qualifications of the parties Contract involves performance of a continuous nature that constant supervision by the court would be required Specific performance would be possible against one party but not the other Damages are not as speedy or efficacious as specific performance
13
Prithvi Raj Singh Vs. Dalip Kulkarni (Rajasthan High Court, 1999)
An agreement for taking over of a company provided that the defendant shall discharge the liabilities of the plaintiff towards various financial institutions. In pursuance of the agreement, the plaintiff handed over the assets of the company and their possession to the defendants. The defendant failed to pay the institutions.
Order of specific performance was awarded on the ground that damages are not as speedy and efficacious a remedy as specific performance.
14
Surjit Kaur Vs. Naurata Singh (Supreme Court, 2000)

Specific performance cannot be granted to a party who has not been ready and willing at all stages to perform the contract In cases where a contract is not capable of being performed in whole then the readiness and willingness, at all stages, is the readiness and willingness to accept part performance
If a contract is not capable of being performed in whole and a party clearly indicates that he is not willing to accept part performance, then there is no readiness and willingness, at all stages, to accept part performance.
15
Shanker Singh Vs. Narinder Singh (Supreme Court, 2011)

The party seeking part performance must unambiguously relinquish all claims to performance of remaining part of the contract. Damages and specific performance are both remedies available upon breach of obligations by a party to the contract. Unless the contrary is proved, the Court shall presume that breach of contract to transfer immovable property cannot be adequately relieved by compensation in money. There must be certainty with respect to the property to be sold.
16
Jabalpur Cable Network Pvt. Ltd Vs. ESPN Software India Pvt. Ltd. (Madhya Pradesh High Court, 1999)
Contract to send messages and satellite signals by a cable operator has been held as specifically enforceable as they are not goods, ordinary article of commerce, nor easily available/obtainable in the market nor there are any standards of ascertaining loss caused to the aggrieved party to the contract.
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Injunction
An injunction is an order of the court requiring a person to perform a negative obligation.
For granting injunctions a court applies the same principles as are applicable in granting specific performance of a contract.
Two broad categories of injunction:

a)Prohibitory injunction b)Mandatory injunction
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Damage or Loss
1. Pecuniary (loss of profits, damage to goods, loss of future earnings) 2. Non-pecuniary (pain, suffering, loss of reputation)
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Damages and Compensation

Damages are the pecuniary recompense given by process of law to a person for the actionable wrong done to him by another person. Compensation for damage or loss due to an actionable wrong like compensation for loss arising out of breach of contract or termination of employment and so on. In the Indian Contract Act, 1872, the word damages for breach of contract is used in the sense of compensation.
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Damages
Types of Damages: Nominal Damages Substantial Damages Aggravated and Exemplary Damages Liquidated and Un-liquidated Damages Consequential Damages Damages for pain and suffering Punitive Damages
21
Dhulipudi Namayya Vs. Union of India (Andhra Pradesh High Court, 1958)
Function of damages for breach of contract is compensatory not punitive.
Ruxley Electronics Vs. Forsyth (House of Lords, 1995)

The amount of damages cannot exceed the loss actually suffered by the claimant or which he is likely to suffer.
Ghansiram Court,1956)
Vs.
Municipal
Board
(Bhopal
High
The amount of damages cannot exceed the loss actually suffered by the claimant, or which he is likely to suffer.
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Quantification of Damages
The only measure of damages in a contract is the loss truly suffered by the promisee The amount of damages cannot exceed the loss actually suffered by the claimant of which he has or is likely to suffer Damages are compensation for natural and probable consequence of the breach i.e. which could reasonably be foreseen The function of damages is compensatory not retributive. They are based on loss of plaintiff not on gain of defendant
23
Jwala Prasad Vs. Jwala Bank Ltd. (Allahabad High Court, 1957)
Managing Director is deemed to be dismissed on winding up of a company. Claim for damages evaluated at the date of the winding up after deducting what he is able to earn by doing any other business he likes. He was awarded half of the evaluated amount.
24
State of Uttar Pradesh Vs. Debi Prasad (Allahabad High Court, 1966)
A was dismissed by one department of the Government and was then employed by another department. The dismissal was declared illegal by a court of law. A claimed salary in respect of his employment in the first department. A was awarded salary after deducting the salary for the period for which he served in that other department.
25
One-Time, Single Assessment of Damages

When claim arises from one and the same cause of action. A second proceeding cannot be brought in respect of the same cause of action even though the plaintiff suffers an unexpected or very great loss in the future. However, separate suits may be maintained for separate breaches of different promises in the same contract
A claim for un-liquidated damages does not give rise to a debt until the liability is adjudicated upon and the damages assessed.
26
Legal Remedies
Section 73 of the Contract Act, 1872: When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract a compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
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Liquidated Damages
Section 74 of the Indian Contract Act: 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.
28
Liquidated Damages and Penalty

Interchangeable use of the terms liquidated damages and penalty creates ambiguities Penalty deterrent value, often considered as a means of terrifying a party to fulfill his or her obligation. Exorbitant Unconscionable Breach consists in paying of money and the sum stipulated is greater than the sum which ought to have been paid.
Liquidated damages genuine, covenanted pre-estimate of damages.

Nature of damages depends on facts of the case.
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Liquidated Damages
Nature of damages depends on: Character of transaction and its special nature, if any The relative situation of the parties The statutory rights and obligations accruing from the transaction Intention of the parties as evidenced in the contract The particular stipulation which is contended to be penal in nature
30
Business Contracts
If the contract does not provide on the consequences of breach, the loss of profit is awarded as damages. The theme can be divided in to further parts. In a sale contract, there is a reference to the sale price. This makes quantification of the loss relatively easy. The courts have formulated specific principles in relation to this. In other business contracts the assessment would be on the general principles.
31
Damages for Mental Pain and Suffering

Ordinarily, in commercial contracts damages are not allowed for mental suffering. Damages, in principle cannot be recovered in a contract for injury to reputation. Damages for mental distress in contract are limited to a certain class of cases where the contract itself is to provide peace of mind and not in commercial contracts.
32
Mitigation
The rule that the party in breach of contract be placed as far as money can do it, in as good a situation as if the contract had been performed, is qualified by one more principle:
- It imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part which is due to his neglect to take such steps.
33
Rules of Mitigation
The plaintiff cannot recover the losses consequent upon the default of the defendant if the plaintiff could have avoided the loss by taking reasonable steps. If the plaintiff avoids or mitigates the loss, he cannot recover for such avoided loss even if he takes steps which are more than what was reasonable required of him. Where the plaintiff suffers loss or incurs expense despite taking reasonable steps to avoid or mitigate the loss resulting from the defendants default, he may recover the further loss due to expense. Contd
34
Rules of Mitigation
The explanation of Section 73 does not create an independent actionable duty to mitigate but a factor to be taken into account in assessing the damages naturally flowing from the breach. Mitigation also finds applications in the contract of employment.
35
Remoteness of Damage
Compensation must be in respect of the direct consequences flowing from the breach and not in respect of loss or damage indirectly or remotely caused.
The party who has suffered the loss should be placed in the same position, as far as compensation in money can do, as if the party in breach has performed his contract or fulfilled the duty.
36
Hadley Vs. Baxendale (Court of Exchequer Chamber, 1854)

The Crankshaft Case delay in transportation by canal instead of rail
Criteria for award parties intent, purposes and awareness. Absent explicit communication inference based on parties actions. Importance of communicating special circumstances. Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should as such as may fairly and reasonably be considered either arising naturally i.e. according to the usual course of things, from such breach of contract, itself.
37
Position in India
The principles of Hadley Vs. Baxandale
First: If the parties have in express terms impliedly provided for the consequences, these should be followed. Second: Take the contract and its breach to be as it usually happens in general practice.
38
Remoteness of Damage Illustrations to S. 73

A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day. B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the day of payment. A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of Bs mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by closing of the mill.
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A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery, but not the profit which he expected to obtain by making caps, nor the expenses which he has been put to in making of preparation for the manufacture.
40

A, a ship owner, contracts with B to convey him form Calcutta to Sydney in As ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being, in consequence, detailed in Calcutta for some time, and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money which B lost by arriving in Sydney too late
41
Remoteness of Damage: Parties are bound by the consequences they have contemplated
A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place, starting on a specified day. The boat, owing to some avoidable cause, does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived
42
A delivers to B, a common carrier, a machine, to be conveyed, without delay, to As mill, informing B that his mill is stopped for want of machine. B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.
43
A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece of machinery, at the time specified, and, in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a third person at the time of his contract with A (but which had not been communicated to A), and is compelled to make compensation, the difference between the contract price of the machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation
44
A, a builder, contracts to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, with whom B has contracted to let it. A is informed of the contract between B and C. A builds by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensations to C for the breach of his contract. A must make compensation to B for the constructing or re-building the house, for the rent loss, and for the compensation made to C Explanation: The parties have shared the consequences of breach in the loss of tenancy.
45
In Pannalal Jankidas Vs. Mohanlal (Supreme Court, 1950) the Supreme Court has recognized that Section 73 codifies the judgment in Hadely Vs. Baxendale. The cases on remoteness of damage have abated as all commercial contracts have a clause stating: Neither party shall be liable to the other party for indirect or consequential losses.
46
Measure of Damages - The Principle

A basis for damages has already been adopted in the principle restitutio in integrum, namely that when an injured person has suffered damage, he must, so far as money can do it, be restored to the position before he suffered it.
47
Measure of Damages
In business contracts, parties come together to earn a profit so loss of profit is the most common claim. In a sale contract - difference between the contract price and the price of the goods on the date of performance adequately measures the loss. Difficult to measure loss of profit in other contracts such as work contracts. The courts take a percentage of the contract value as a measure of loss.
48
Murlidhar Chiranjilal Vs. Harishchandra Dwarkadas (Supreme Court, 1962)

Measure of damages has to be calculated as would place the party suffering breach as far as money can do it in as good a condition in which he would had been had the contract been performed The injured party has the corresponding duty to take all reasonable steps to mitigate the loss consequent on the breach The injured party is debarred from claiming any part of damages which is due to his neglect in taking such steps
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Measure of Damage
Illustrations: A contracts to sell and deliver 50 mounds of saltpeter to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 mounds of saltpeter of like quality at the time when the saltpeter ought to have been delivered
50
Performance Interest: Damages that should be awarded to the innocent party

A hires Bs ship to go to Bombay, and there takes on board, on the first of January, a cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned. Bs ship does not go to Bombay, but A has opportunities as those on which he had chartered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense. Explanation: A can only receive the expenses incurred for arranging the alternate carriage.
51

A contracts to let his ship to B for a year, from the first of January, for a certain price. Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January. Explanation: A must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship, for a year on and from the first of January. The illustration does not mention the expenses for finding the alternate carriage.
52

A, a builder, contracts to erect and finish a house by the first of January in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January, it falls down and has to be re-built by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. Explanation: If the contract, had been performed, B would not have incurred the cost of rebuilding the house. Thus, A should reimburse him the cost of rebuilding the house. It was expressly understood by the parties that A had contracted to rent the house to C. The consequences of breach reached to the contract between B and C. Thus A should pay to B the rent B lost and the compensation he had to pay to C.
53

A, a ship-owner, contracts with B to convey him from Calcutta to Sydney in As ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being in consequence detained in Calcutta for some time and thereby put to some expenses, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money Explanation: In the case of a breach of carriage, the passenger would have to buy another ticket and suffer miscellaneous expenses in the while. However, as a result of the delay in reaching Sydney, he would incur losses is remote to the contract which is for carriage.
54
Business Contract Knowledge of Special Circumstances

A delivers to B, a common carrier, a machine, to be conveyed, without delay, to As mill informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine Explanation: The parties know that the mill will be idle if the contract is breached. As a result of this, the loss to the party will be of profit.
55
Business Contract Usual Course of Business

A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of Bs mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by the closing of the mill.
Explanation: It is not shared between the parties that B has a mill and it would be closed if the delivery were delayed.
56
Sale Contract
A contracts to sell and deliver 50 mounds of saltpeter to B, at a certain price to be paid on delivery. A breaks his promise.
Explanation: B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 mounds of saltpeter of like quality at the time when the saltpeter ought to have been delivered.
57
Sale Contract
A contracts to sell and deliver 50 mounds of saltpeter to B on the first of January, at a certain price. B afterwards before the first of January, contracts to sell the saltpeter to C at a price higher than the market price of the first of January.
Explanation: In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the sale of C, is to be taken into account.
58
Sale Contract
A contracts to buy Bs ship for 60,000 rupees, but breaks his promise. Explanation: A must pay to B, by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time of the breach of promise.
59
Sale Contract
A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. Explanation: B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.
60
W L Thompson Limited Vs. R Robinson (Gunmakers) Limited (1955)

Sale of Goods Award of Lost Commission Where the buyer wrongfully neglects or refuses to accept and pay for the goods - action against damages for non-acceptance. The measure of damages - estimated loss directly and naturally resulting in the ordinary course of events, from the buyers breach of contract. Where there is an available market for the goods the measure of damages is the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no, time was fixed for acceptance, then at the time of the refusal to accept. If on investigation of facts, one finds that it is unjust to apply that rule, in the light of the general principles mentioned above it is not to be applied.
61
Charter Vs. Sullivan (1957)

The Car Dealer Case:
Consequences of excess demand over supply on loss of profit when no loss of profit Nominal damages
Union of India Vs. M/s Commercial Metal Corporation (Delhi High Court, 1981)
The decisive element is the date of breach and the market price prevailing on that date. The law does not penalise the buyers inaction
62
Non-Pecuniary Losses
Generally, there is no award for inconvenience, pain and suffering. The exception is limited to contracts whose purpose is to provide peace of mind or freedom from distress.
Jarvis Vs. Swans Tours Limited (1972) - The Swiss holiday case
Watts Vs. Morrow (1991) The house appraisal case The damages will be awarded if the fruit of the contract is not provided or if the contrary result is procured instead.
63
Liquidated Damages
A fixed amount decided by the contracting parties to be paid in the case of a breach. Maximum award subject to the stipulated amount. Award subject to actual damages excess amount considered to be penal in nature.
Except if the stipulated amount is a genuine pre-estimate of the losses.

64
Liquidated Damages
Compensation and Penalty: Actual damages are more than the total amount stipulated, the party pays only the total stipulated amount. Fateh Chand Vs. Balkrishna Dass (Supreme Court, 1963): The Sale of Property Case - In assessing damages the court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Duty not to enforce the penalty clause but only to award reasonable compensation is statutorily imposed upon Courts by Section 74. As the party had not suffered any loss, no damages were awarded
65
Liquidated Damages
Maula Bux Vs. Union of India (Supreme Court, 1969) Reasonable amount of earnest deposit. Forfeiture of earnest money under a contract for sale of property movable or immovable if the amount is reasonable, does not fall within Section 74. If forfeiture is of the nature of penalty, Section 74 applies. Not required to prove actual loss or damages before he can claim a decree and the court is competent to award reasonable compensation in case of breach even if no actual damage is proved.
66
Liquidated Damages Maula Bux

To summarize the court interpreted Section 74 as follows:
The court should assess the actual damages even in the case of contracts where damages are stipulated. Actual damages not exceeding the stipulated amount should be awarded.
In some cases, it may not be possible to assess damages. In such cases, if the stipulated sum is genuine pre-estimate, it should be awarded or taken into consideration for working out a reasonable compensation.
67
ONGC Vs. SAW Pipes Limited (Supreme Court, 2003)

In case of failure to deliver goods within the period fixed for such delivery the aggrieved party is entitled to recover from the contractor liquidated damages as agreed when there is specific stipulation in the agreement that the time and date of delivery of the goods was the essence of the contract It is understood that the agreed liquidated damages were genuine pre-estimate of damages when agreement is executed by experts Condition to extend the time limit for supply of goods on condition of paying stipulated liquidated damages as agreed at the time of entering into contract is held to be valid
68
Oil and Natural Gas Corporation Limited Vs. SAW Pipes Limited (Supreme Court, 2003)
Liquidated damages for delay in supply of goods were held to be recoverable by paying authorities from the bills for payment of cost of material supplied by the contractor Stipulation for recovering liquidated damages is held not to be a penalty or that the said sum was in any way unreasonable.
In certain contracts, it is impossible to assess or prove damages. Sections 73 and 74 cover such matters in the absence of any specific contractual terms.
69
Award of Damages Case-By-Case Determination

Terms of the contract. If the terms are clear and unambiguous liquidated damages to be granted unless claim is unreasonable or penal in nature.
Section 74 is to be read along with Section 73 - therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree.
Award reasonable compensation granted even if no actual damage is proved.
70
Earnest Money and Deposit
Earnestmeant something given for the purpose of binding a contract, something to be used to put pressure on the defaulter if he failed to carry out his part.
Deposit.is a guarantee that the contract shall be performed.
71
Earnest Money and Damages

Earnest money did not preclude the party from claiming damages for breach.
1. It must be given at the time of execution of the contract

2. It represents a guarantee that the contract will be fulfilled or, in other words, earnest is given to bind the contract 3. It is part of the purchase price when the transaction is carried out 4. It is forfeited when the transaction falls through by reason of the default or failure of the purchaser. 5. Unless there is anything to the contrary in the terms of the contract, on default committed by the buyer, the seller is entitled to forfeit the earnest.
72
Recent Judgments
Gatta Rattaiah Vs. Food Corporation of India (Andhra Pradesh High Court, 2011) Under the common law a genuine pre-estimate of damages by mutual agreement in regarded as a liquidated damages and binding between the parties. A stipulation in a contract seeks to terrorize it is a penalty and the Court refuses to enforce it awarding to the aggrieved party only reasonable compensation. When evidence shows that the extent of the damages or loss suffered by the party is less no one can be allowed to enrich by taking undue advantage of the forfeiture clause.
73
Recent Judgments
MSK Projects Vs. State of Rajasthan (Supreme Court, 2011) A reasonable expectation of profit is implicit in a works contract and its loss has to be compensated by way of damages if the other party to the contract is guilty of breach of contract cannot be gainsaid. BSNL Vs. Reliance Communication Ltd. (Supreme Court, 2010) Liquidated damages serve the useful purpose of avoiding litigation and promoting commercial certainty and, therefore, the court should not be astute to categorize as penalties the clauses described as liquidate damages.
74
Recent Judgments
ONGC Vs. Oil Country Tubular Limited (Bombay High Court, 2011)
Quantum of damages must be determined with reference to the provisions as it stood, at the time of commission of the breach where the parties agreed to pay damages in case of breach of contract. Confirming Saw Pipes has recognized the importance of leading evidence to prove damages or reasonable compensation. Quantum of damages cannot be awarded only on the basis of presumption and assumption.
75
Recent Judgments
Herbicides (India) Ltd. Vs. Shashank Pesticides P. Ltd. (Delhi High court, 2011) Innocent party is entitled to receive compensation from the guilty party. Innocent party entitled to direct damages but not remote damages. No need to prove the actual loss/damage suffered when contract has a liquidated damages clause. Reasonable damages cannot exceed the amount of liquidate damages stipulated in the contract
76
Recent Judgments
Herbicides (India) Ltd. Vs. Shashank Pesticides P. Ltd. (Delhi High court, 2011)
If the amount stipulated on account of breach of contract is shown to be by way of penalty, the innocent party suffering on account of the breach is entitled only to a reasonable compensation and not the amount stipulated in the contract. If it is not possible to assess damages the amount stipulated in the contract as liquidated damages should normally be accepted as a fair and reasonable pre-estimate of damages. The law imposes a duty upon the Plaintiffs to take all reasonable steps to mitigate loss
77
Recent Judgments
Phulchand Exports Ltd. Vs. OOO Patriot (Supreme Court, 2011) A contract for sale stipulated for delivery of the goods sold within 180 days; the shipment should be done by a vessel that is on way to Novorossiysk as the first port of discharge SC held the reimbursement as neither to be punitive nor vindictive notwithstanding the availability of the right to the buyer against the insurer or carrier.
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Recent Judgments
GAIL Vs. Surya Roshni (Delhi High Court, 2012) Pipe line installed by Surya Roshni Ltd. failed GAIL chose to de-rate the said pipe line to make it workable Surya Roshni paid for de-rating. Hence GAIL not entitled to additional compensation Parties may provide for reimbursement on account of replacement of defective goods and provide for consequential damages
79
Recent Judgments
M/s J. K. Cement Works Vs. Delhi Jal Board (Delhi High Court, 2012)
Genuine pre-estimate of damages on account of loss and did not require any further proof of such loss. Vishal Engineers & Builders Vs. Indian Oil Corporation Ltd. Airports Authority of India Vs. R. K. Singhal 2011 (126) DRJ 250 Sudhir Gensets Ltd. Vs. Indian Oil Corporation Ltd.
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Recent Judgments
Jyoti Sarup Mittal Vs. Abhiyan Cooperative (Delhi High Court, 2012) Delay in a construction project Amount mentioned in claim Penal in nature and penal provisions are not enforced in law Liquidated damages require proof of such loss
81
Recent Judgments
Airports Authority of India (AAI) Vs. Shri Shakti Resorts & Hotels Limited (SSRHL) (Delhi High Court, 2012) SSRHL applied for NOC from AAI for mortgaging his leasehold right Arbitrator held AAI to be liable to issue NOC and asked AAI to pay damages. Held AAI is not liable for damages
82
Recent Judgments
National Highways Authority of India Vs. Tantia-TBL (Delhi High Court, 2012) There was delay in completion of work by Tantia. Tantia was found to have issued early warning' notices and also necessary notification to NHAI while seeking extension of time and was held not to have committed any breach of contract. Delay is attributed to NHAI. Compensation allowed to Tantia for loss suffered due to delay in completion of contract and for idling and under utilization of machinery and equipment.
83
Recent Judgments
Cybernetics Network Pvt. Ltd. Vs. Bisquare Technologies Pvt. Ltd. (Delhi High Court, 2012) Bisquare entered into a fraudulent contract with CNPL for technology transfer. CNPL sued Bisquare. CNPL was held to be entitled under section 73 to get back the technical assistance fee paid to Bisquare, restoring it to the position it was in, prior to MOU and TSSA
84
The Situation Abroad

In the US stipulations for liquidated damages are intended to estimate damages. Differs from state to state but subject to two principles:
Uncertainty whether harm caused is difficult to calculate Reasonableness in proportion to actual or anticipated harm
Most common law countries do not allow penal damages India does not differentiate between liquidated damages and penalties contractual damages may be granted even if intent was to penalize subject to certain criteria. Civil law countries - Penalties allowed but recently have been reduced by courts based on circumstances.
85
Thank You
86

Damages For Breach of Contracts: by Poorvi Chothani, Esq. Lawquest

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Damages For Breach of Contracts: by Poorvi Chothani, Esq. Lawquest

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Damages for Breach of Contracts

by Poorvi Chothani, Esq. LawQuest

September 12, 2012

LawQuest 2012. All Rights are Reserved.

LawQuest 2012. All Rights are Reserved.

Discharge of Contract may take place in various ways as follows by:

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Definition of Breach of Contract

Innocent party may sue for damages as soon as breach is announced.

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Forms of Breach of Contract

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LawQuest 2012. All Rights are Reserved.

Innocent Partys Options in Face of a Breach

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Specific Performance Not Granted Where

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Surjit Kaur Vs. Naurata Singh (Supreme Court, 2000)

Shanker Singh Vs. Narinder Singh (Supreme Court, 2011)

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Two broad categories of injunction:

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Damages and Compensation

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Ruxley Electronics Vs. Forsyth (House of Lords, 1995)

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One-Time, Single Assessment of Damages

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Liquidated Damages and Penalty

Liquidated damages genuine, covenanted pre-estimate of damages.

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Damages for Mental Pain and Suffering

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Hadley Vs. Baxendale (Court of Exchequer Chamber, 1854)

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Remoteness of Damage Illustrations to S. 73

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Remoteness of Damage Illustrations to S. 73

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Remoteness of Damage Illustrations to S. 73

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Measure of Damages - The Principle

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