COVER PAGE

TITLE : DAMAGES FOR BREACH OF CONTRACT

SUBJECT : LAW OF CONTRACT AND SPECIFIC RELIEF

STUDENT NAME : YAGNIK POOJA JAGDISHBHAI

ROLL NUMBER AND DIVISION : 240-D FY LL.B.

COLLEGE NAME : JITENDR CHAUHAN COLLEGE OF LAW

FACULTY NAME : PROF POORVA DIGHE AND PROF SNEHA NAIR

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 ACKNOWLEDGEMENT

I would like to thank Prof. Poorva Dighe & Prof. Sneha Nair, my professors for the subject
CONTRACT-I and our Principal, Dr. Priya J. Shah , The University of Mumbai and The
Jitendra Chauhan College of Law of SVKM for giving me this opportunity to study with their
support and guidance in completing our project on the topic called damages for breach of
contract. It was a great learning experience. All the respected teachers provided me with their
vital support and guidance because of which I could make this project. This Project helped in
finding my capabilities and also enhanced my research skills.

I would also like to express my sincere thanks to my family; it would not have been possible
to finish this project without their support and coordination.

Date : 8th December,2023

Yagnik Pooja Jagdishbhai

FY LL.B - D-240

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 Table of Contents

Sr. No. Particulars Page No.

1. Introduction 4
2. Breach of contract 5
3. Damages caused by breach of contract &
Compensation for failure to discharge obligation resembling those 6-7
created by contract.
4. Illustrations 8-12
5. Case Laws 13-14
6. Conclusion 15
7. Bibliography 16

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 INTRODUCTION

A breach of contract occurs when one party in a binding agreement fails to deliver according
to the terms of the agreement. A breach of contract can happen in both a written contract and
an oral contract.

A breach of contract is when one party breaks the terms of an agreement between two or
more parties. This includes when an obligation that is stated in the contract is not completed
on time for example, you are late with a rent payment or when it is not fulfilled at all, such as
a tenant vacating their apartment owing six months’ back rent.

Sometimes the process for dealing with a breach of contract is written in the original contract.
For example, a contract may state that, in the event of late payment, the offender must pay a
$25 fee along with the missed payment. If the consequences for a specific violation are not
included in the contract, then the parties involved may settle the situation among themselves,
which could lead to a new contract, adjudication, or another type of resolution.

Section 73-75 under the Indian Contract Act 1872 details the consequences of a breach of
contract. The breach of contract may be actual or anticipatory. In case of any breach of
contract, the affected party can claim the damage from the court, and the court forces the
other party to perform as promised.

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 BREACH OF CONTRACT

Section 73-75 under the Indian Contract Act 1872 details the consequences of a breach of
contract. The breach of contract may be actual or anticipatory. In case of any breach of
contract, the affected party can claim the damage from the court, and the court forces the
other party to perform as promised.

Types of Contract Breaches

One may think of a contract breach as either minor or material.

Minor breach: A minor breach happens when you don’t receive an item or service by the
due date. For example, you bring a suit to your tailor to be custom fit. The tailor promises (an
oral contract) that they will deliver the adjusted garment in time for your important
presentation but, in fact, they deliver it a day later.

Material breach: A material breach is when you receive something different from what was
stated in the agreement. Say, for example, that your firm contracts with a vendor to deliver
200 copies of a bound manual for an auto industry conference. But when the boxes arrive at
the conference site, they contain gardening brochures instead.

Further, a breach of contract generally falls under one of two categories:

Actual breach: When one party refuses to fully perform the terms of the contract.

Anticipatory breach: When a party states in advance that they will not be delivering on the
terms of the contract.

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 DAMAGES CAUSED BY BREACH OF CONTRACT

As Per Section 73: Compensation for loss or damage caused by breach of contract or
caused due to failure to discharge obligation

a) Compensation for loss or damage caused by breach of contract :

When a contract has been broken, the party who suffers by such breach is entitled to receive,
from the party who has broken the contract, compensation for any loss or damage caused to
him thereby, which naturally arose in the usual course of things from such breach, or which
the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by
reason of the breach.
b) Compensation for failure to discharge obligation resembling those created by
contract :
When an obligation resembling those created by contract has been incurred and has not been
discharged, any person injured by the failure to discharge it is entitled to receive the same
compensation from the party in default, as if such person had contracted to discharge it and
had broken his contract.
Explanation, In estimating the loss or damage arising from a breach of contract, the means
which existed of remedying the inconvenience caused by the non-performance of the contract
must be taken into account. 1

As Per Section 74: Compensation for breach of contract where penalty stipulated for.

When a contract has been broken, if a sum is named in the contract as the amount to be paid
in case of such breach, or if the contract contains any other stipulation by way of penalty, the
party complaining of the breach is entitled, whether or not actual damage or loss is proved to
have been caused thereby, to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be, the penalty
stipulated for.
Explanation - A stipulation for increased interest from the date of default may be a stipulation
by way of penalty.
Exception - When any person enters into any bail-bond, recognizance or other instrument of
the same nature, or, under the provisions of any law, or under the orders of the 2 [Central

1
Indian Contract Act, 1972 by Prof .Prakash Mokal. Page 63

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Government] or of any 3[State Government], gives any bond for the performance of any
public duty or act in which the public are interested, he shall be liable, upon breach of the
condition of any such instrument, to pay the whole sum mentioned therein.
Explanation - A person who enters into a contract with Government does not necessarily
thereby undertake any public duty, or promise to do an act in which the public are interested.2

As Per Section: 75 Party rightfully rescinding contract entitled to compensation

A person who rightfully rescinds a contract is entitled to compensation for any damage which
he has sustained through the non-fulfilment of the contract.

2
Indian Contract Act, 1972 by Prof .Prakash Mokal. Pg. 65

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 ILLUSTRATIONS
Section 73
(a) A contracts to sell and deliver 50 maunds of saltpeter to B, at a certain price to be paid on
delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the
sum, if any, by which the contract price falls short of the price for which B might have
obtained 50 maunds of saltpeter of like quality at the time when the saltpeter ought to have
been delivered.
(b) A hires B’s ship to go to Bombay, and there take on board, on the first of January, a
cargo, which A is to provide, and to bring it to Calcutta, the freight to be paid when earned.
B’s ship does not go to Bombay, but A has opportunities of procuring suitable conveyance
for the cargo upon terms as advantageous as those on which he had chartered the ship. A
avails himself of those opportunities, but is put to trouble and expense in doing so. A is
entitled to receive compensation from B in respect of such trouble and expense.
(c) A contracts to buy of B, at a stated price, 50 maunds of rice, no time being fixed for
delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is
entitled to receive from A, by way of compensation, the amount, if any, by which the contract
price exceeds that which B can obtain for the rice at the time when A informs B that he will
not accept it.
(d) A contracts to buy B's ship for 60,000 rupees, but breaks his promise. A must pay to B, by
way of compensation, the excess, if any, of the contract price over the price which B can
obtain for the ship at the time of the breach of promise.
(e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that
place, starting on a specified day. The boat, owing to some avoidable cause, does not start at
the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time
when it would have arrived if the boat had sailed according to the contract. After that date,
and before the arrival of the cargo, the price of jute falls. The measure of the compensation
payable to B by A is the difference between the price which B could have obtained for the
cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its
market price at the time when it actually arrived.
(f) A contracts to repair B's house in a certain manner, and receives payment in advance. A
repairs the house, but not according to contract. B is entitled to recover from A the cost of
making the repairs conform to the contract.
(g) A contracts to let his ship to B for a year, from the first of January, for a certain price.
Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the

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contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal
to the difference between the contract price and the price for which B could hire a similar
ship for a year on and from the first of January.
(h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher
price than that for which A could procure and deliver the iron. B wrongfully refuses to
receive the iron. B must pay to A, by way of compensation, the difference between the
contract price of the iron and the sum for which A could have obtained and delivered it.
(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A's mill,
informing B that his mill is stopped for want of the machine. B unreasonably delays the
delivery of the machine, and A, in consequence, loses a profitable contract with the
Government. A is entitled to receive from B, by way of compensation, the average amount of
profit which would have been made by the working of the mill during the time that delivery
of it was delayed, but not the loss sustained through the loss of the Government contract.
(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be
delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees
a ton, telling C that he does so for the purpose of performing his contract with B. C fails to
perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds
the contract. C must pay to A 20,000 rupees, being the profit which A would have made by
the performance of his contract with B.
(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a
certain piece of machinery. A does not deliver the piece of machinery at the time specified,
and in consequence of this, B is obliged to procure another at a higher piece than that which
he was to have paid to A, and is prevented from performing a contract which B had made
with a third person at the time of his contract with A (but which had not been then
communicated to A), and is compelled to make compensation for breach of that contract. A
must pay to B, by way of compensation, the difference between the contract price of the price
of machinery and the sum paid by B for another, but not the sum paid by B to the third person
by way of compensation.
(l) A, a builder, contracts to erect and finish a house by the first of January, in order that B
may give possession of it at that time to C, to whom B has contracted to let it. A is informed
of the contract between B and C. A builds the house so badly that, before the first of January,
it falls down and has to be re-built by B, who, in consequence, loses the rent which he was to
have received from C, and is obliged to make compensation to C for the breach of his

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contract. A must make compensation to B for the cost of rebuilding the house, for the rent
lost, and for the compensation made to C.
(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in
reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not
according to the warranty, and B becomes liable to pay C a sum of money by way of
compensation. B is entitled to be reimbursed this sum by A.
(n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on
that day, B, in consequence of not receiving the money on that day, is unable to pay his debts,
and is totally ruined. A is not liable to make good to B anything except the principal sum he
contracted to pay, together with interest up to the day of payment.
(o) A contracts to deliver 50 maunds of saltpeter to B on the first of January, at a certain
price. B afterwards, before the first of January, contracts to sell the saltpeter to C at a price
higher than the market price of the first of January. A breaks his promise.
In estimating the compensation payable by A to B, the market price of the first of January,
and not the profit which would have arisen to B from the sale to C, is to be taken into
account.
(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing
of B’s mode of conducting his business. A breaks his promise, and B, having no cotton, is
obliged to close his mill. A is not responsible to B for the loss caused to B by the closing of
the mill.
(q) A contracts to sell and deliver to B, on the first of January, certain cloth which B intends
to manufacture into caps of a particular kind, for which there is no demand, except at that
season. The cloth is not delivered till after the appointed time, and too late to be used that
year in making caps. B is entitled to receive from A, by way of compensation, the difference
between the contract price of the cloth and its market price at the time of delivery, but not the
profits which he expected to obtain by making caps, nor the expenses which he has been put
to in making preparation for the manufacture.
(r) A, a ship-owner, contracts with B to convey him from Calcutta to Sydney in A's ship,
sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-
money. The ship does not sail on the first of January, and B, after being in consequence
detained in Calcutta for some time and thereby put to some expense, proceeds to Sydney in
another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is
liable to repay to B his deposit, with interest, and the expense to which he is put by his
detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship

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over that agreed upon for the first, but not the sum of money which B lost by arriving in
Sydney too late.3

Section 74
(a) A contracts with B to pay B Rs.1,000, if he fails to pay B Rs.500 on a given day. A fails
to pay B Rs.500 on that day. B is entitled to recover from A such compensation, not
exceeding Rs.1,000, as the Court considers reasonable.
(b) A contracts with B that, if A practices as a surgeon within Calcutta, he will pay B
Rs.5,000.A practices as a surgeon in Calcutta. B is entitled to such compensation; not
exceeding Rs.5,000 as the Court considers reasonable.
(c) A gives a recognizance binding him in a penalty of Rs.500 to appear in Court on a certain
day. He forfeits his recognizance. He is liable to pay the whole penalty.
(d) A gives B a bond for the repayment of Rs.1,000 with interest at 12 per cent. at the end of
six months, with a stipulation that, in case of default, interest shall be payable at the rate of 75
per cent. from the date of default. This is a stipulation by way of penalty, and B is only
entitled to recover from A such compensation as the Court considers reasonable.
(e) A, who owes money to B a money-lender, undertakes to repay him by delivering to him
10 maunds of grain on a certain date, and stipulates that, in the event of his not delivering the
stipulated amount by the stipulated date, he shall be liable to deliver 20 maunds. This is a
stipulation by way of penalty, and B is only entitled to reasonable compensation in case of
breach.
(f) A undertakes to repay B a loan of Rs.1,000 by five equal monthly installments, with a
stipulation that in default of payment of any installment, the whole shall become due. This
stipulation is not by way of penalty, and the contract may be enforced according to its terms.
(g) A borrows Rs.100 from B and gives him a bond for Rs.200 payable by five yearly
installments of Rs.40, with a stipulation that, in default of payment of any installment, the
whole shall become due. This is a stipulation by way of penalty. 4

Section 75
a) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights
in every week during the next two months, and B engages to pay her 100 rupees for each

3
Indian Contract Act, 1972 by Prof .Prakash Mokal. Pg. 63-65
4
Indian Contract Act, 1972 by Prof .Prakash Mokal. Pg. 66

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b) night's performance. On the sixth night, A willfully absents herself from the theatre, and
B, in consequence, rescinds the contract. B is entitled to claim compensation for the
damage which he has sustained through the non-fulfillment of the contract. 5

5
Indian Contract Act, 1972 by Prof .Prakash Mokal. Pg. 66

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 CASE LAWS:

1. Kerala High Court: The Division Bench of P.B. Suresh Kumar and C.S. Sudha, JJ.,
expressed that, “…compensation payable under Sections 73, 74 as also under Section 75
is only for loss or damage caused by the breach and not account of the mere act of breach.
If in any case the breach has not resulted in or caused any loss or damage to a party,
person concerned cannot claim compensation.” The words ‘loss or damage’ in the
Sections 73 and 74 would necessarily indicate that the party who complains of breach
must have really suffered some loss or damage apart from being faced with the mere act
of breach of contract. That is because every breach of every contract need not necessarily
result in actual loss or damage. An appeal was filed under Section 37 of the Arbitration
and Conciliation Act, 1996 against the District Court’s Order. Appellant was the
petitioner before the lower court and the claimant before the Arbitral Tribunal.
Respondent warded the work of ‘doubling of track between Shornur and Mangalore,
Cannanore-Uppala section: collection and stacking of 50mm size machine crushed hard
stone ballast alongside the alignment/station yards/on top of the new formation between
Kottikulam and Kasaragod stations to the claimant for a value of Rs.1,19,39,274. The
work had to be completed within a period of 9 months, alleging the breach by claimant;
the contract was terminated by the respondent. In view of the above, disputes arose
between the parties and arbitration proceedings were initiated. Aggrieved with the order
of the arbitral tribunal, the claimant/contractor took up the matter before the District
Court. The said application which was filed under Section 34 was dismissed by the
impugned order.

Analysis, Law and Decision

Firstly, the High Court referred to Sections 73 and 74 of the Indian Contract Act, 1872.
Bench noted that for a case coming under Section 74, it is not necessary for the party
claiming compensation under this Section to prove that actual damage or loss has been
caused. Whether even in the absence of legal injury, compensation is liable to be paid for
breach simplicitor? The Court stated that whether it is a case of liquidated damages or
penalty, what the party faced with the breach gets is only reasonable compensation,
subject to the limit of the amount stipulated in the contract itself. Section 74 dispenses
with proof of the extent of real or actual or factual loss or damage, but provides for grant
of reasonable compensation, subject to the condition that it shall not exceed the sum

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 stipulated as penalty in the contract. Adding to the above, Bench expressed that the proof
of the extent of loss or damage suffered in fact, i.e. proof of the extent of actual damage or
loss suffered is dispensed within Section 74. This would not mean that there need not be
any loss or damage. What is meant is only that proof of actual damage or loss is not
necessary. In Court’s opinion, Section 74 could not be invoked in the present matter
because the Award did not say that any sum had been named in the contract as the amount
to be paid in case of breach. “Parties had never made a genuine pre-estimate of the
amount to be paid in the event of any damage or loss likely to be caused by the breach or
that there is any clause relating to liquidated damages in the contract.” Elaborating
further, the Bench stated that compensation payable under Sections 73, 74 as also under
Section 75 is only for loss or damage caused by the breach and not account of the mere
act of breach. If in any case the breach has not resulted in or caused any loss or damage to
a party, person concerned cannot claim compensation.
In the Supreme Court decision of Union of India v. Rampur Distillery and Chemical
Co. Ltd., (1973) 1 SCC 649,6 it was held that a party to a contract taking security deposit
from the other party to ensure due performance of the contract, is not entitled to forfeit the
deposit on the ground of default when no loss was caused to him in consequence of such
default. If the party complaining is in a position to adduce evidence whereby the court can
assess reasonable compensation, then without proof of actual loss, damages will not be
awarded and amount mentioned by the contract will be penalty. In such circumstances, it
has been held that the security amount is liable to be forfeited. The Award in the present
matter clearly did not say that any loss or damage had been caused to the respondent,
hence neither the provisions of Sections 73, 74 or 75 could have been invoked nor the said
sections are applicable in the present case. In view of the above discussion, Arbitral
Tribunal was certainly wrong in rejecting the claim of the claimant for release of the
amount of security deposit of Rs.3 lakhs. Arbitral Tribunal’s finding of the provisions of
Section 73 to 75 of the Contract Act, was certainly in contravention of the fundamental
policy of Indian Law as contemplated in Section 34(2)(b)(ii) of the Act. Concluding the
matter, High Court allowed the appeal and set aside the impugned order.7

6
[Link] ,[Link],[Link]
7
[Devchand Construction v. Union of India, 2022 SCC Online Ker 826, decided on 16-2-2022]

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 CONCLUSION:

There are provisions for remedies in the Indian Contract Act 1872 to protect the interest of
the parties in a contract. In case of breach of a contract, it provides the aggrieved party with
the required compensation or legal action from the other party. In certain cases, the court
orders the parties to perform their obligations. On the other hand, in many cases, the court
orders the parties not to perform the obligation they promised to perform in a contract.

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 BIBLIOGRAPHY

For successfully completing my project, I have taken help from following:

 Books
 Indian Contract Act, 1972 by Prof .Prakash Mokal.
 Journal article from electronic source
 [Link]
 [Link]
 [Link]

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