Types of Damages in breach of contract are provided under Section 73 of the Indian Contract Act, damages means, the damage or loss caused to the party due to non-performance of the other contracting party. Here, the term damages mean if any party suffered loss due to breach of contract by the other party, the loss to the party is referred to as damages.
Types of Damages in Contract Law
Types of damages in breach of contract are provided Section 73 and 74 of the Indian Contract Act, 1872 are dealing with the important provisions relating to the remedies (damages) available for the breach of contract. What are the types of damages for breach of contract? These are the kinds of damages in breach of contract;
- Ordinary Damages
- Special Damages
- Vindictive or Exemplary Damages
- Nominal Damages
- Substantial Damages
- Pre-fixed Damages
1. Ordinary / General Damages
Ordinary damages are the damages when one party breaches the contract and the aggrieved party incur some damages arising naturally in the usual course of the event. A suit for damages for breach of contract can be filed at a place where the contract is breached.
Ordinary damages are also known as General Damages. It is one of the types of damages in the breach of contract. General damages are those damages that occur naturally due to the normal course of events. In this case of breach of contract, the party suffers from damages can claim compensation in monetary terms.
In this ordinary damages caused due to breach of contract, even if the aggrieved party knows about the damages when the contract is breached then also the aggrieved party can claim for compensation if any loss caused to him due to breach of contract.
Example: A agrees to sell and deliver the 5 bags of potatoes for Rs. 1500/ on the 1st day of next month at B's house. Meanwhile, before the delivery, the market price of potatoes increased, therefore A refuses to deliver the bags of potatoes. B purchased 5 bags of potatoes from another vendor for Rs. 1700/-. Here, B can claim Rs 200 from A as he spend an extra amount and incurred loss.
2. Special Damages
The second type of damages in the breach of contract is Special Damages. Special damages are the damages when one party to the contract might receive a notice of special circumstances affecting the contract.
Special damages are those damages where there is a breach of contract due to some special circumstances. This type of damages does not occur due to breach of the terms and conditions by the defendant but because of the special circumstances that happened.
In this situation, if the party breaches the contract then he is made liable for the special damages and also ordinary/general damages.
Example: A is a transporter and agreed to deliver a machine urgently to B's factory for a certain price. B informed A that his business has been stopped for want of this machine. But, A failed to deliver the machine within the prescribed time and due to the delay of the delivery of machine B get a huge loss in business.
Here, in the above example, B gets a huge loss in his business due to a delay in the delivery of the machine hence B can claim compensation from A. The amount of compensation will include the amount of loss B has suffered in his business.
In the above example, B must be specifically pleaded and proven the exact amount of loss he suffered in his business due to a delay in the delivery of the machine.
3. Vindictive or Exemplary Damages
The vindictive damages are intended to compensate an aggrieved party for the mental stress or injury sensations in the circumstances where the injury was caused or increased by the manner in which the defendant acted wrongfully. The vindictive damages are also known as aggravated damages.
The exemplary damages are intended to give punishment to the defendant when the defendant does not intend to compensate for the loss caused to the plaintiff instead of punishing the defendant.
4. Nominal Damages
The nominal damages are the damages where if the defendant is made liable for the breach of contract then the plaintiff is entitled to nominal damages even the plaintiff has not proven the actual damage caused to him. In this situation, nominal damages are awarded to the plaintiff.
The nominal damages are awarded when the defendant infringed the legal right of the plaintiff and if such infringement of right does not rise to actual damages then it gives the right to verdict because of the infringement of the right.
There are four circumstances when the court can award nominal damages, these are;
1. When the defendant committed a technical breach of contract and the plaintiff does not willing to perform the further obligations in the contract.
2. When the plaintiff failed to prove the actual damages he suffered because of the breach of contract.
3. When the plaintiff suffered a loss not because of the breach of contract by the defendant but because of the plaintiff’s own fault.
4. When the plaintiff proves the infringement of the legal right of the plaintiff by the defendant but failed to prove the actual loss caused to him.
5. Substantial Damages
In the case of the offence committed and guilt of the person is proved then many authorities can claim substantial damages as the committing offence is against the society. In this case, if it is difficult to calculate the damages caused to the society the court may award the substantial damages to the authorities who were affected by that offence.
When the defendant refuses to accept the goods sold or manufactured for him and after the plaintiff sells those goods to another person and makes similar profit as agreed with the defendant if the plaintiff did not get similar profit about of this transaction then the plaintiff is entitled to nominal damages if the demand exceeds the supply of the same goods.
6. Pre-fixed Damages
During the formation of the contract, the contracting parties may make payment of a certain amount as a compensation amount upon the breach of contract. This means, the parties to the contract are mutually agreed to pay the compensation amount when there is a breach of contract by either party, and this is agreed upon during the formation of the contract.
As per section 74 of the Indian Contract Act, 1872, section 74 stated that if an amount is mentioned in the contract as compensation to be paid in the case of breach of contract then the victim party is entitled to reasonable compensation.
Types of Damages in Tort
There are two kinds of damages in tort;
- Liquidated Damages
- Unliquidated Damages
1. Liquidated Damages
The liquidated damages are the damages that are once agreed upon and fixed by the parties during the formation of the contract. This means liquidated damages are those damages where the compensatory amount which has to be paid to the aggrieved party is fixed and predetermined by the contract parties during the formation of the contract.
2. Unliquidated Damages
The unliquidated damages are those damages that are not fixed or predetermined by the contracting parties. This means the parties to the contract are not decided on the compensatory amount which has to be paid when there is a breach of contract by either party.
Conclusion
The types of damages and remedies to the breach of contract are provided under sections 73 and 74 of the Indian Contract Act, 1872. When one of the contracting parties to the contract failed to perform the obligations agreed between the contracting parties then the contract is breached, and these are remedies available for the breach of contract.
- Law of Contract - Bare Act 2021 Edition Professional
- The Indian Contract Act 1872 Bare Act 2021 Edition
- Law of Contract & Specific Relief Dr Avtar Singh Latest Edition-2020
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- CONTRACT Paper-II - By R. K. Bangia
- NOTES ON INDIAN CONTRACT ACT 1872: BEST NOTES FOR LAW STUDENTS