DAMAGES UNDER INDIAN CONTRACT ACT

Section 73 of the Contract Act is lays down the provision relating to damages. It provides that the party, who
breaches a contract, is liable to compensate the injured party for any loss or damage caused, due to the breach
of contract. For compensation to be payable, Two things should be taken into consideration (i) The loss or
damage should have arisen as a natural consequence of the breach, or (ii)It should have been something the
parties could have reasonably expected to arise from a breach of the contract. In the former case, an objective
test would be applied where as in the latter case a subjective test would be applied. Under this section, the
burden of proof lies on the injured party. This section, however, provides that compensation shall not be
awarded for any remote or indirect loss sustained by the parties. Section 73 also provides that the same
principles will apply for breach of a quasi-contractual obligation, i.e. in the event that an obligation resembling
that created by contract has not been discharged, the injured party is entitled to receive compensation as if a
contractual obligation has been breached.

Compensatory Damages

Compensatory damages help compensate you for the economic loss

caused by a broken contract.

For example, Mr. Smith signs a contract agreeing to buy 10 hours of

landscaping services from Greens Landscaping for $50 an hour. If Mr.
Smith breaks the contract and doesnt use any of Greens Landscapings
services, compensatory damages paid to Greens Landscaping would be
$500, which is the economic loss they suffered. If Greens Landscaping
breaks the contract, and Mr. Smith is forced to hire another service for
$60 an hour, compensatory damages paid to Mr. Smith would equal
$100 ($10 an hour, the difference in price between the original contract
and the new contract).

Consequential Damages

Consequential damages are those caused indirectly by the broken

contract.

For example, a retail store buys customized software to run its cash
registers and inventory system. One day the system breaks down
completely. As a result, the store must close for the day to repair the
system. The stores loss of business for that day is a consequential
damage of the broken contract.
Liquidated Damages

Liquidated damages are damages specified in the contract itself. They

may operate as an incentive not to break the contract but dont have to
be directly related to the actual loss caused by the breaking of the
contract.

For example, you want to have your kitchen remodeling job finished in
time for your big party. You include a provision in the contract that says
the contractor must pay you $100 per day for every day after the
completion date that the job isnt completed.

Courts dont like liquidated damages clauses and wont enforce them if
they have the effect of being a punishment.

Punitive Damages

Punitive damages are damages that punish the wrongdoer in a breach

of contract lawsuit. They arent based on actual economic loss like
compensatory damages. Theyre designed to make an example out of
the party who broke the contract and punish them for their wrongful
conduct. You usually cant recover punitive damages in a contract
lawsuit.