Kinds of Damages Under Breach Of Contract
Different kinds of damages. Damages may be of four kinds:
1. Ordinary or General or Compensatory damages (i.e., damages arising naturally from the breach).
2. Special damages (i.e., damages in contemplation of the parties at the time of contract).
3. Exemplary, Punitive or Vindictive damages.
4. Nominal damages. We shall now see these kinds one by one.
1. Ordinary Damages
When a contract has been broken, the injured party can, as a rule, always recover from the guilty party ordinary or general damages. These are such damages as may fairly and reasonably be considered as arising naturally and directly in the usual course of things from the breach of contract itself. In other words, ordinary damages are restricted to the “direct or proximate consequences” of the breach of contract and remote or indirect losses, which are not the natural and probable consequence of the breach of contract, are generally not regarded.
(a) The leading case of Hadley vs Baxendale, which is said to be the foundation of modern law of damages in England and India (as Sec, 73 is almost based on the rules laid down in this case); is an authority on the point. In that case:
(b) A contracts to pay a sum of money to B on a specified day. 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 upto the date of payment [Illustration (n) to Section 73]. (If a suit has been filed then A will have also to pay ‘cost of the suit’ to B.)
In the case of a contract for ‘sale and purchase’ the general rule as regards measure of damages is that the damages would be assessed on the difference between the contract price and the market price at the date of breach and any subsequent increase or decrease in the market price would not be taken note of. If there is no market price for the subject matter of the contract, the rule is to take the market price of the nearest substitute. If there is no nearest substitute, the market price is to be ascertained by adding to the price at the place of purchase, the conveyance charges to the place of delivery plus the usual profit of the importer (Hajee Ismail & Sons vs Wilson & Co). If the delivery is to be made in installments, then the due date of each installment is taken as the date of breach and the measure of damages is the sum of the difference of the market value at the several dates of delivery.
(a) A agrees to sell to B 5 bags of rice at Rs 500 per bag, delivery to be given after two months. On the date of delivery the price of rice goes up and the rate is Rs550 per bag. A refuses to deliver the bags to B, B can claim from A Rs 250, as ordinary damages arising directly from the breach, being the difference between the contract price (i.e.; Rs 500 per bag) and the market price (i,e” Rs 550 per bag) on the date of delivery of 5 bags. Notice that if Rs 250 are paid to B by way of damages, then he will be in the same position as if the contract has been performed.
Under a contract of ‘sale of goods,’ if there is a breach of ‘warranty,’ the seller is liable to pay all damages which the purchaser has to pay to the person to whom the goods are sold by him, whether the seller is aware of such a sale or not. In order that the purchaser should be able to claim such damages and costs it is an overriding requirement that the sub-contracts should have been made on the same terms and conditions as the first contract.
Illustration A sells certain’ merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.
2. Special Damages
Special damages are those which arise on account of the special or unusual circumstances affecting the plaintiff. In other words, they are such remote losses which are not the natural and probable consequences of the breach of contract. Unlike ordinary damages, special damages cannot be claimed as a matter of right. These can be claimed if the special circumstances which would result in a loss in case of breach of contract are brought to the notice of the other party. It is important that such damages must be in contemplation of the parties at the time when the contract is entered into. Subsequent knowledge of the special circumstances will not create any special liability on the guilty party.
A having contracted with B to supply B 1,000 tons of iron at Rs 100 a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at Rs 80 a ton, telling C that he does so for the purpose of performing his contract with B, C fails to perform his contract with A, and A could not procure other iron, and B, in consequence rescinds the contract. C must pay to A Rs 20,000 being the profit which A would have made by the performance of his contract with B. [Illustration to Section 73]. (If C was not told of B’s contract then only the difference in contract price and market price, if any, could be claimed.)
3. Exemplary or Vindictive Damages
These are such damages which are awarded with a view to punishing the guilty party for the breach and not by way of compensation for the loss suffered by the aggrieved party. As observed earlier,’ the cardinal principle of the law of damages for a breach of contract is to. compensate the injured party for the loss suffered and to punish the guilty party. Hence, obviously exemplary damages have no place in the law of contract and are not recoverable for a breach of contract. There are, however, two exceptions to this rule.
(a) Breach of a contract to marry. In this case the amount of the damages will depend upon the extent of injury to the party’s feelings. One may be ruined, other may not mind so much.
(b) Dishonor of a cheque by a banker when there are sufficient funds to the credit of the customer. In this case the rule of ascertaining damages is, “the smaller the cheque, the greater the damage.” Of course, the actual amount of damages will differ according to the status of the party.
4. Nominal Damages
Nominal damages are these which are awarded only for the name sake. These are neither awarded by way of compensation to the aggrieved party nor by way of punishment to the guilty party. These are awarded to establish the right to decree for breach at contract when the injured party has not actually suffered any real damage and consist of a very small sum of money, say, a rupee or two. For example, where in a contract of sale of goods, if the contract price and the market price is almost the same at the date of breach at the contract, then the aggrieved party is entitled only to nominal damages.