Notes and Articles for Law students

User Tools

Site Tools


Principles Underlying Award of Compensation for Breach of a Contract

Remedy for breach of contract lies in damages. Normally the purpose of the award of damages is compensation. According to section 73 of Indian Contract Act 1872 , when a contract is broken, the party who suffers breach is entitled to receive from the party who has broken the contract compensation for any loss or damage caused to him thereby. The damage should have arisen in the usual course of things from breach. This is known as “general damages” which is otherwise popularly known as the rule in Hadley v Baxendale (1854). The section also provides for special damages for loss which the parties knew, when they entered into contract, to be likely to result from the breach of it. The extent of liability for special damages depends upon the knowledge of the parties at the time of contract about the probable result of the breach. Compensation for the breach of contract giving rise to claims for general and special damages is not to be given for any remote and indirect loss or damage sustained by reason of breach. Compensation will also be allowed for failure to discharge quasi contracts and consequent damage. Explanation to Section 73 provides for mitigation of damages. Accordingly, while estimating the loss or damage arising from a breach of contract, the means which existed for remedying the inconvenience caused by the nonperformance of the contract must be taken into account. Section 74 speaks of the measure of damages in two classes of cases:

  1. where the contract fixes an amount to be paid in case of its breach; and
  2. where the contract provides for any other stipulation by way of penalty.

In the second class of cases, the measure of damages is reasonable compensation, not exceeding the stipulated penalty; Dharam Chand v. Sunil Ranjan A.I.R. 1981 Cal. 323. Section 75 provides that a person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract.
(Note: John v. Devan Pillai 2013 (3) KLT 226. Contract Act, 1872, S.73. It is the fundamental principle that the party who commits the breach is liable to compensate and the party who reach is entitled to claim damage.Therefore, it is essential that a person who claims damage for breach of a contract should have performed or should have been ready to perform his part of the obligation arising under the contract. It is trite that a person claiming compensation on account of damages alleged to have been suffered by him consequent to a breach of agreement committed by the other party to the agreement has to plead and prove the extent of the damages suffered by him. There is no plea or evidence as regards the loss suffered by the defendants.)

Navigation: Home»Law of Contract