Thursday, June 20, 2024

𝗝𝘂𝗱𝗶𝗰𝗶𝗮𝗹𝗗𝗿𝗲𝗮𝗺™

𝙰𝙵𝙵𝙾𝚁𝙳𝙰𝙱𝙻𝙴 & 𝙰𝙲𝙲𝙴𝚂𝚂𝙸𝙱𝙻𝙴

CONTRACTMODEL ANSWER

DAMAGES

What principles have been incorporated in the Indian Contract Act, 1872, for determining the amount of damages to be awarded in the event of breach of contract. Discuss in the light of decided cases.

According to the provisions of Indian Contract Act, 1872, if any of the two or more parties enter into a contract, then it is duty of each and every party to perform his contractual obligations but if any of the parties fails to perform his contractual obligations and breaches the contract, then the aggrieved party has right to claim the damages from the wrongdoer.

Section 73 and 74 of the Indian Contract Act, 1872, deals with the provisions of compensation in case of breach of contract and some important principles have been incorporated under these sections for determining the amount of damages to be awarded in the event of breach of contract.

According to section 73 of the Indian Contract Act, 1872, if any party to the contract breaches the contract, then in such a case, a party who has suffered damages has right to claim compensation from the wrongdoer if the damages or loss has arisen naturally in the usual course of things or if both the parties to the contract knew at the time of making the contract that in case of breach of contract such a loss will be caused to the party.

If these two conditions are satisfied, then only an aggrieved party can claim compensation. He can not claim the remote and indirect losses caused by breach of contract.

In the leading case of Hadley vs. Baxendale, the Hon’ble court held that party to a contract is only entitled to claim the compensation if: –

  1. Damages have arisen naturally in the usual course of things.
  2. Parties knew at the time of making a contract that such a damage will be caused in case of breach of contract.

Whereas, section 74 of the Indian Contract Act, 1872, deals with the provisions of liquidated damages and penalty. According to this section, if parties to the contract determine the amount of damages which will be paid to the aggrieved party if the contract is broken in the future that amount of damages is known as liquidated damages and in the event of breach of contract, such damages are paid to the aggrieved party.

According to this section, it is not essential for an aggrieved party to prove the actual damages or loss. He will have to prove that particular sum has been decided by parties at the time of making a contract.

In the leading case of Chunnilal Mehta & Sons. Ltd. vs. Century Spinning & Mfg. Co. Ltd., the Hon’ble court held that if the amount of damages has been determined by the parties at the time of making a contract, then in case of breach of contract, a reasonable amount not exceeding the amount decided will be paid to the aggrieved party and the question of determining the actual loss will not arise at all.

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