Meaning of Suit for Damages
When two parties undergo any signed contact, both agree to perform certain obligations. However, if any of the parties break the promise bringing loss to the other party, the latter has complete right to file a damage case against the former. The Indian Contract Act, 1872 has laid down specific clauses under the suit for damages, giving full right to file the lawsuit against the party for breaking the promise.
Compensation in Damages for Breach of Contract Cases
The Indian Contract Act, 1872 has laid down some rules that determine the compensation to be paid by the party for breaking the contract. Here are some of the rules-
The suffering party has the complete right to claim compensation for the loss arising naturally or due to the course of certain events.
In case the party knew about the breach of the contract and loss to be suffered, he can claim the compensation.
Special damages if claimed when the suffering party has already served notice about it earlier. Moreover, the party suffering the loss has the complete right to take steps to minimize the loss.
In case of exceptional damage cases, it is best to check out with a professional lawyer who can describe the law or act stated under the Indian Contract Act, 1872.
Three Essential Elements of the Damage
There are three essentials’ elements of damages pointed by the act-
Detriment the wrongdoings by another
Compensation awarded to the loss bearded through legal remedies
Quantum being determined by dual components for the tangible loss suffered
Types of Damages
The Indian Contract Act, 1872 has led to different types of damages in contract law, which both parties should be aware of before signing. Let us now check types of damages in the contract law-
Compensatory Damages
Under this, there are two types of compensatory damages- General Damages and Special Damages.
General Damages- Also known as Ordinary Damages, these are the damages caused naturally due to contract breach. These damages are restricted to direct consequences arising due to unforeseen circumstances.
Special Damages- These are consequential damages caused due to the breach of contract and special circumstances. Special damages are awarded by courts when parties are making a contract; these circumstances are unforeseen by the party committing the violation.
Let us clear this idea with an example- A hired the service of B to transport a machine to his factory on an urgent basis. Meanwhile, A informed B that his business stopped for the need of the machine. However, B delayed the delivery of the machine for some time. This resulted in the loss of a huge order for A since he did not have the machine.
In this case, A has the full right to claim compensation from B. The amount could be the profit that can be made by A from the project.
Nominal Damages
In this type of suit for damages, if the party files the lawsuit for the loss occurred by the second party and proves there has been a breach of contract, he is liable to get compensation. The nominal damage suit is established to keep the right to a decree for the violation of the contract.
Liquidated Damages
Some contracts include provisions having a pre-set amount of damages that will come to use during the event of a breach. These types of suits for damages are called Liquidated Damages. These damages are included when they are difficult to predict and have no clue about the estimated damage.
Damages for Deterioration Caused by the Delay
In this case of damage, if party B transporting the goods of A, and delays causing them to deteriorate, then A has full right to file the suit for damages for the delay caused. Here, deterioration can be physical damage to goods and loss of the sale opportunity.
Speculative Damages
The speculative damages are allowed during the circumstances which can lead to a loss for the party. There are two circumstances in this regard-
When the damage is uncertain, i.e., not due to a specific result of the breach
Damages, which are uncertain in the amount
In many cases, uncertain damages are unrecoverable. However, damages, which are attributable to the wrong, is recoverable. Parties falling under speculative damages situations must connect with professionals.
Aggravated and Exemplary Damages
These damages are those, which exceeds the speculated amount, resulting from the conduct of the defendant. Aggravated damages gain importance when the plaintiff due to motives, behaviour or manner of inflicting injury causes the damage. These damages are compensatory in all nature.
Exemplary Damages, on the other hand, are punishable. They intend to punish the defendant.
Limitation Period for a Suit of Damages
The limitation period for a suit for damages in a court of law following a breach of contract, whether express or implicit, is three years when not specified explicitly. In the case of a complaint about damages, the period of limitations begins when the real contract is violated.
Remoteness of Damages
The idea of remoteness of damage is significant. Once a mistake has produced harm, there must be liabilities. The question is how much responsibility can be fixed and what factors influence it. The legal criteria used to establish which sorts of losses caused by a breach of contract may be compensated by a monetary judgement are known as the remoteness of damages. The standard for determining whether the claimed damages are too remote is whether the damage is such that the parties must have contemplated it as a possible effect of the breach. If it is, it cannot be regarded too far away. The damages must be calculated based on the natural and foreseeable consequences of the breach. Actual knowledge must be demonstrated to demonstrate that knowledge is more than simple imprudence and negligence. The defendant is only responsible for reasonably foreseeable losses—those that a normally prudent person would have reason to anticipate as possible results of a future breach if he were standing in his position and knowing his information at the time of contracting.
Declarations
The Civil Court's pronouncement in respect of a person's claim to the property, whether movable or immovable or any other right, which once passed, becomes enforceable on the entire world, is known as a declaration. It is used in civil cases where the court declares the parties' rights, liabilities, and responsibilities in relation to specific issues.
Who is eligible to file a declaration suit:
Persons having any legal character or
The person has no right to any property.
Whom the suit can be brought against:
Any person who is denying a right or
Interested to deny his title of such character of right.
Conclusion
Since we have listed different types of damages, you must have complete knowledge about how the Indian Contract Act, 1872 has accordingly explained each. This suit of damages is an essential part of a business deal to make things look professional.
FAQs on Suit for Damages: Meaning and Process
1. What is a ‘suit for damages’ under the Indian Contract Act, 1872?
A suit for damages is a legal action taken by a party who has suffered a loss due to the breach of a contract by another party. The primary objective is not to punish the party at fault but to claim monetary compensation to restore the injured party to the position they would have been in if the contract had been performed. This remedy is governed by the principles laid out in the Indian Contract Act, 1872.
2. What are the main types of damages that can be claimed for a breach of contract?
In the context of a breach of contract, several types of damages can be claimed, depending on the nature of the loss. The primary types include:
- General or Ordinary Damages: These are losses that arise naturally and directly from the breach in the usual course of things.
- Special Damages: These are losses that arise from special circumstances known to both parties at the time of making the contract. The party at fault must have been aware that such a loss was a probable result of the breach.
- Exemplary or Punitive Damages: These are awarded to punish the defendant rather than just compensate the plaintiff. They are rare in contract law but may be awarded in specific cases like a breach of promise to marry.
- Nominal Damages: Awarded when the plaintiff's legal right has been violated, but they have not suffered any actual monetary loss. It is a small sum awarded to acknowledge the breach.
3. What is the key difference between General (Ordinary) and Special Damages?
The key difference lies in foreseeability. General Damages are awarded for losses that any reasonable person would expect to occur from a breach. For example, if a supplier fails to deliver raw materials, the loss incurred from buying them at a higher price from another supplier is a general damage. In contrast, Special Damages are for losses that are not a natural consequence but occur due to unique circumstances communicated to the breaching party. For example, if the supplier knew the raw materials were for a specific, highly profitable government contract that would be lost due to the delay, the loss of that contract's profit would be a special damage.
4. How does a court determine the amount of compensation in a suit for damages?
A court determines the amount of compensation based on established legal principles. The fundamental rule is that the damages must be a direct and foreseeable consequence of the breach. The court assesses the actual loss suffered by the injured party. It will not award compensation for any remote or indirect loss. The calculation is intended to be compensatory, not punitive, aiming to put the aggrieved party back in the financial position they would have occupied had the contract been fulfilled.
5. What is the difference between a 'penalty' and 'liquidated damages' in a contract?
Liquidated damages represent a genuine, fair, and reasonable pre-estimate of the probable loss that might occur from a breach. Courts generally enforce such clauses. A penalty, on the other hand, is a sum that is disproportionately high compared to the likely loss and is intended to terrorise or compel the other party to perform. Indian courts will not award the full penalty amount; they will only award reasonable compensation up to the amount specified. For instance, if a contract mentions a penalty of ₹1,00,000 for a breach, but the actual loss is only ₹70,000, the court will only grant ₹70,000 as compensation.
6. What is the legal basis for filing a suit for damages in India?
The legal framework for claiming damages for a breach of contract in India is primarily established under the Indian Contract Act, 1872. Specifically, Section 73 of the Act deals with compensation for loss or damage caused by a breach of contract, covering both ordinary and special damages. Section 74 addresses situations where a penalty or liquidated damages amount is stipulated in the contract itself.
7. Can a person claim damages for non-economic losses like mental distress in a business contract breach?
Generally, for commercial or business contracts, damages for non-economic losses like mental distress, disappointment, or loss of reputation are not awarded. The primary focus is on compensating for financial and economic losses. However, exceptions exist in non-commercial contracts, such as a breach of a promise to marry or if a breach of contract results in significant physical inconvenience or discomfort.
8. What is the 'duty to mitigate loss' in the context of claiming damages?
The 'duty to mitigate loss' is a legal principle that requires the party who has suffered a loss (the plaintiff) to take reasonable steps to minimise the extent of their loss after a breach of contract has occurred. The plaintiff cannot simply allow the losses to accumulate and then claim the full amount from the defendant. For example, if a seller fails to supply goods, the buyer has a duty to try and procure similar goods from another source at a reasonable price, rather than waiting and claiming for massive production losses.
