What are Damages: Damages are monetary compensation allowed to the aggrieved party by law for the loss or injury he suffered for the breach of contract.A breach of contract occurs when a party entered into a contract fails to fulfill their promised obligations.


There are some essential elements which are to be proved by the party claiming the compensation for breach of contract. They are as follows,
  • A valid contract has to be there for making such a claim.
  • Another party to the contract must have breached the contract.
  • Due to such breach of contract, the party claiming must have suffered the loss.
In the case of Jalpaiguri zilla Parishad vs. Shankar Prasad Halder the apex court has observed that damages can be given only for the actual loss and not for the remote or indirect loss.
Section 73 of the Indian Contract Act, 1872 provides compensation for the loss or damage caused by the breach of contract.


These are the damages which are payable for the loss arising naturally and directly as a result of breach of contract. This damage is also known as proximate or natural damage.


X agrees to sell and deliver 10 bags of onion to Y for Rs, 5000 after two months. On the date of delivery, the price of onion increases and X refuses to perform his promise. Y purchases 10 bags of potatoes for Rs.5,500. He can receive Rs 500 from X as ordinary damages arising directly from the breach.

In the case of Hadley vs. Baxendale (1854), Plaintiff's flour mill was stopped due to the breakdown of a crankshaft, he delivered it to the defendant, it has to be taken to a manufacturer to copy it and make a new one. Plaintiff didn't know to the defendant  that delay would result in a loss of profits. By some neglect on the part of the defendant the delivery of the shaft was delayed. House of Lords held that the defendant was not liable for loss of profit, since the planintiff didn't disclose the defendant that the mill was closed for want of shaft; if the plaintiff informed then defendant could have made althernative arrangements for quick transportation of the shaft.  


Also called consequential damages, covers any loss incurred because of special circumstances or conditions that are not ordinarily predictable. To obtain this type of damage, the non breaching party must prove that the breaching party knew of the special circumstances or conditions at the time of the contract was made.


X hired services of Y, a goods transporter, to deliver a machine to his factory urgently. X also informed that his business has stopped for want of the machine. However, X delayed it, Y missed out on a huge order since he didn't have the machine with him. X can claim compensation from Y. The compensation amount will include the amount of profit he could have made by running his factory during the period of delay.


Where breach of contract results in loss of credibility of one party besides damages, the court may order for payment of exemplary damages. These damages are allowed only

  1. In case of breach of marriage
  2. Dishonour of a cheque by banker wrongfully
This damage is intended to punish the defendant and to prevent others from acting in a similar manner.


Here X is a business man. He issues a cheque for his next order. He has sufficient funds in his account but the bank mistakenly dishonours the cheque. X files a suit claiming compensation for damages to his reputation. The Court awards a nominal amount as damage.


Nominal damages simply means "very small". Where the injured party has not suffered any damages or loss by reason of breach pf contract, the court may award very nominal sum as damage. This type of damage is awarded if there is an infringement of legal right. The amount can be as low as Re. 1


They are awarded when the extent of breach of contract is proved but there are uncertainities regarding calculation of damages. In such types of damages there is a complete failure in performing the terms and conditions of the contract at the end of one party.


In the case of liquidated damages, the parties to the contract fix a certain amount for the compensation.
These damages are paid out in the case of a breach of contract, and are a pre-estimated and spelled out in advance when the contract is signed.


If X makes a contract with Y to build a temple that they need for use by a certain date, they could include a provision in the contract that Y must pay Rs.500 per day for every day longer it takes to finish the building than the date which is mentioned in the contract.


It is not pre-agreed and amount of money is to be determined by court by taking all facts into consideration. Damages that are claimed which are unforseeable is called as unliquidated damages.