Types of Damages, and the Remedies for Breach
Chapter Sixty-Seven
Syllabus topic 3.4, "Types of Damages & Remedies for Breach"
Pages 326 to 330 of 462
In one line
MU's topic word is "Types", so this chapter names each kind of damages and each remedy, and says when a student should reach for which.
In the words a student can write in an exam: the remedies for breach of contract are damages under sections 73 and 74 of the Indian Contract Act 1872, compensation on rightful rescission under section 75, specific performance and injunction under the Specific Relief Act 1963, and a claim on a quantum meruit. Damages themselves are classified as ordinary or general, special, nominal, exemplary or vindictive, and liquidated, and the classification decides what has to be pleaded and proved in each case.
Why the classification is worth learning
Naming a kind of damages is not a labelling exercise. Each label carries a different requirement.
Ordinary damages need no special notice. Special damages need knowledge at the time of contracting. Nominal damages need a breach but no loss. Exemplary damages are almost never given in contract at all. Liquidated damages need a clause and are capped by it.
So a student who can classify the loss in a problem question has already decided what must be proved, and that is most of the answer.
The types of damages
(a) Ordinary or general damages
The loss that naturally arose in the usual course of things from the breach, under the first limb of section 73. It is presumed to have been in the parties' contemplation from the nature of the transaction and needs no special notice.
The usual measure in a sale is the difference between the contract price and the market price at the time and place of the breach.
(b) Special damages
Loss that is not ordinary, recoverable under the second limb of section 73 only where the parties knew, when they made the contract, that it was likely to result from a breach.
They must be pleaded and proved, and the knowledge must be brought home to the defendant at the time of contracting. See [Remoteness of Damage, and the Duty to Mitigate].
(c) Nominal damages
A small sum awarded where a breach is proved but no loss has been suffered. They vindicate the right without compensating anything, since there is nothing to compensate.
Do not confuse nominal damages with the position under section 74. On Kailash Nath Associates a section 74 claim where no loss at all was caused yields nothing, because that section compensates for loss or damage caused by the breach.
(d) Exemplary or vindictive damages
Damages awarded to punish rather than to compensate. Because the object of section 73 is compensation, they are not generally awarded in contract in India.
Types of Damages, and the Remedies for Breach
Two recognised exceptions, and they are worth naming:
- breach of a promise to marry, where the injury to feelings and reputation is taken into account; and
- wrongful dishonour of a customer's cheque by a banker where the customer is a trader, the injury to commercial credit being treated as the greater the smaller the amount of the cheque.
(e) Liquidated damages
A sum named in the contract as payable on breach. In India, by section 74, the named sum is a ceiling and the court awards reasonable compensation not exceeding it, whether the sum is a genuine pre estimate or a penalty. See [Liquidated Damages and Penalty].
The types in a table
| Type | Provision | What must be shown | Measure |
|---|---|---|---|
| Ordinary | s.73, limb one | a breach and loss arising naturally | usually contract price against market price |
| Special | s.73, limb two | knowledge at the time of contracting that the loss was likely | the actual special loss proved |
| Nominal | general law | a breach with no loss | a token sum |
| Exemplary | exceptional | one of the recognised exceptions | at large, and rare |
| Liquidated | s.74 | a named sum or penalty stipulation, and loss caused | reasonable compensation, not exceeding the sum |
Two principles that cut across all of them
Compensation, not punishment. The innocent party is put, so far as money can, in the position he would have occupied had the contract been performed. That is the expectation measure.
Mitigation. By the Explanation to section 73, the means which existed of remedying the inconvenience must be taken into account, so avoidable loss is not recovered.
The remedies for breach
Damages are the primary remedy, and they are not the only one. MU's topic asks for remedies as well as types, so all five should be named.
(a) Damages, sections 73 and 74
As above.
(b) Compensation on rightful rescission, section 75
A person who rightfully rescinds is entitled to compensation for the damage sustained through the non fulfilment of the contract. See [Compensation to a Party Rightfully Rescinding].
(c) Specific performance, Specific Relief Act 1963
An order that the defendant actually perform. Since the Specific Relief (Amendment) Act 2018, in force 1 October 2018, section 10 provides that specific performance "shall be enforced by the court" subject to sections 11(2), 14 and 16. It is therefore the rule and no longer a discretionary remedy, and any statement that it is granted only where damages are inadequate is the pre 2018 law. See [Specific Performance After 2018: the Rule, Not the Discretion].
(d) Injunction, Specific Relief Act 1963
An order restraining a party from doing something. Temporary injunctions are governed by the Code of Civil Procedure 1908; perpetual and mandatory injunctions by sections 36 to 42 of the Specific Relief Act. Section 42 is the provision on enforcing a negative agreement. See [Preventive Relief, and the Kinds of Injunction].
Types of Damages, and the Remedies for Breach
(e) Quantum meruit
Latin for "as much as he has earned". A claim for the value of what has been done, rather than for the loss of the bargain, and it lies where the contract has come to an end and one party has received a benefit.
Within this Act it is reflected in section 65, where an agreement is discovered to be void or a contract becomes void, and in section 70, where a person lawfully does something for another, not intending to do it gratuitously, and that other enjoys the benefit. See [Quasi Contracts: Obligations Resembling Those Created by Contract].
When to reach for it: where the contract is at an end, where work has been done but the contract price cannot be claimed, and where the alternative claim for expectation damages is unavailable or unattractive.
The remedies compared
| Remedy | Source | What the claimant gets | When it is the right choice |
|---|---|---|---|
| Damages | ss.73, 74 | money for the loss of the bargain | almost always available |
| Compensation on rescission | s.75 | money, having ended the contract | he has rightfully rescinded |
| Specific performance | Specific Relief Act 1963, s.10 | actual performance | the subject matter is unique, or damages would not do; the rule since 2018 |
| Injunction | Specific Relief Act 1963, ss.36 to 42 | restraint of a threatened act | a negative obligation is being broken |
| Quantum meruit | ss.65, 70 | the value of what was done | the contract is at an end and a benefit was conferred |
A worked example
Nandini contracts to sell Omkar a specific antique clock for six lakh rupees, delivery on 1 March, Omkar paying two lakh in advance. She fails to deliver.
- Ordinary damages. If comparable clocks are available at seven lakh, his ordinary loss under limb one is one lakh rupees.
- Special damages. If he had told her at the time of contracting that he had resold it at nine lakh, and she knew a breach would cost him that sale, the three lakh loss falls within limb two.
- Nominal damages. If the market has fallen and he could buy the same clock for five lakh, he has suffered no loss, and only a token sum would be awarded for the breach.
- Restitution. Whatever else happens, the two lakh advance is recoverable under section 65 once the contract is at an end.
- Liquidated damages. If the contract had said "the seller shall pay four lakh on failure to deliver", section 74 gives reasonable compensation not exceeding four lakh, and on Kailash Nath nothing at all if no loss was caused.
- Specific performance. The clock is a specific antique and therefore not readily replaceable. Since the 2018 amendment section 10 says specific performance shall be enforced subject to sections 11(2), 14 and 16, so this is a strong claim and Omkar need not show that damages are inadequate.
- Injunction. If Nandini is about to sell the clock to somebody else, an injunction restraining her from doing so protects the subject matter pending the suit.
- Quantum meruit. Not apt here, because Omkar has conferred no benefit beyond the advance, which section 65 returns. It would be apt if he had partly performed work under a contract that then became void.
Types of Damages, and the Remedies for Breach
What it does NOT mean
"Damages punish the defaulter." They compensate. Exemplary damages are exceptional in contract and confined to the recognised categories.
"Nominal damages are awarded whenever loss is hard to prove." They are awarded where a breach is proved but no loss was suffered. Where loss exists but is hard to quantify, the court assesses it as best it can, and under section 74 the named sum may be awarded.
"Special damages can be claimed by giving notice after the contract." The knowledge must exist when the contract is made.
"Specific performance is granted only if damages are inadequate." That was the law before 1 October 2018. Section 10 as substituted says specific performance shall be enforced subject to sections 11(2), 14 and 16.
"Quantum meruit is a claim for damages." It is a claim for the value of what was done, not for the loss of the bargain, and it lies when the contract is at an end.
Quick revision
- Types of damages: ordinary or general (s.73 limb one, no notice needed); special (s.73 limb two, knowledge at the time of contracting); nominal (breach, no loss); exemplary (rare in contract; breach of promise to marry and wrongful dishonour of a trader's cheque); liquidated (s.74, a ceiling).
- Two principles across all: compensation not punishment, and mitigation under the Explanation to s.73.
- Remedies: damages (ss.73, 74); compensation on rightful rescission (s.75); specific performance (Specific Relief Act 1963, s.10); injunction (ss.36 to 42 of that Act); quantum meruit (ss.65, 70).
- Specific performance is the RULE since 1 October 2018, subject to ss.11(2), 14 and 16.
- Quantum meruit = "as much as he has earned": the value of what was done, not the lost bargain.
- Under s.74, on Kailash Nath, no loss means no compensation, which is not the same as nominal damages.
Test yourself
1. Name the types of damages and what each requires. Ordinary or general damages, for loss arising naturally in the usual course of things, needing no special notice. Special damages, for loss the parties knew at the time of contracting to be likely, which must be pleaded and proved. Nominal damages, where a breach is proved but no loss was suffered. Exemplary damages, which are exceptional in contract. And liquidated damages, where a sum is named, section 74 giving reasonable compensation not exceeding it.
Types of Damages, and the Remedies for Breach
2. When are exemplary damages awarded in contract? Rarely, because section 73 is compensatory. The recognised exceptions are a breach of a promise to marry, where injury to feelings and reputation is taken into account, and the wrongful dishonour by a banker of a trader customer's cheque, where the injury to commercial credit is treated as greater the smaller the amount of the cheque.
3. List the remedies for breach of contract. Damages under sections 73 and 74; compensation under section 75 for a party who rightfully rescinds; specific performance under section 10 of the Specific Relief Act 1963, which since 1 October 2018 the court shall grant subject to sections 11(2), 14 and 16; an injunction under sections 36 to 42 of that Act; and a claim on a quantum meruit for the value of what has been done, reflected in sections 65 and 70 of the Contract Act.
4. What is quantum meruit and when does it lie? It means as much as he has earned, and it is a claim for the reasonable value of what a party has done rather than for the loss of his bargain. It lies where the contract has come to an end and one party has received a benefit, and within the Contract Act it appears in section 65, where an agreement is discovered to be void or a contract becomes void, and in section 70, where a person lawfully does something for another non gratuitously and that other enjoys the benefit.
5. Distinguish nominal damages from the position under section 74 where no loss is caused. Nominal damages are a token sum awarded to mark a proved breach that caused no loss. Under section 74 the court awards reasonable compensation for loss or damage caused by the breach, and Kailash Nath Associates v. Delhi Development Authority, (2015) 4 SCC 136, holds that where no loss at all is caused no compensation can be awarded, so the named sum yields nothing rather than a token.
The rest of this subject
These notes are cut from the University's printed syllabus. Open the syllabus itself, or the past papers, for the same subject.