NATIONAL LAW INSTITUTE UNIVERSITY

BHOPAL

PROJECT WORK

IN

LAW OF CONTRACTS

ON

MEASURES OF DAMAGES

SUBMITTED TO: Mohd. Ishaq Qureshi

Professor NLIU

SUBMITTED BY: Akanksha Tambulkar

2008 B.A.L.L.B 47

Enrolment No. - A-0821

 DECLARATION

The text reported in the project is the outcome of my own

efforts and no part of this report has been copied in any
unauthorised manner and no part in it has been incorporated
without due acknowledgement.

AKANKSHA TAMBULKAR
TABLE OF CONTENTS

• INTRODUCTION

• SATEMENT OF PROBLEM

• COMPENSATORY DAMAGES

• NOMINAL DAMAGES

• RESTITUTIONARY DAMAGES

• ACTIONABLE DAMAGES

• CONCLUSION

• REFRENCES
INTRODUCTION
The practical step which an innocent party may take if the other party breaks the contract is
mainly the claim for compensation of damages. Unlike in other branches of law, in the Law of
Contract, rights and remedies are inextricably intertwined. If a party is induced to enter into a
contract by the other party’s misrepresentation, he can rescind and similarly, serious failure by
one party to perform may entitle the other to withhold his performance and or to terminate the
contract. In actual practice, the injured party’s remedy is most commonly an action for
damages to compensate him for the breach of contract.

During the nineteenth century there was legislation which enabled common law courts to
order specific performance and the Court of Chancery to award damages. The parties enjoy a
wide freedom not only to provide for their primary rights but also to plan their own remedies.
Damages for breach of contract are a common law remedy, available as of right. In case no
actual loss is suffered by the plaintiff but where a legal wrong has been committed only
nominal damages will be awarded. A victim will not necessarily recover every loss which
flows from breach by the defendant. In order to recover damages, the loss suffered must be
caused by the defendant and should not be too remote.

It was first acknowledged in the case of Hadley v Baxendale in 1854 that the remoteness of
damage for which compensation is claimed must be distinguished from the monetary
assessment of that compensation. The latter can be appropriately called as the question of the
MEASURES OF DAMAGES. It is the evaluation of the loss suffered by the victim in terms
of money. The damages are compensatory and not penal. It is basically designed to
compensate the victim for their actual loss as a result of the wrongdoer’s breach rather than
punish the wrongdoer.

Another noteworthy thing is the explanation attached to Section 73 i.e., Compensation for loss
or damage caused by breach of contract provides for the duty of the plaintiff to mitigate
damages. This means that the injured party has to take reasonable steps to see that his loss is
kept to the minimum.

STATEMENT OF PROBLEM
This projects deals with how the damages are assessed in monetary terms in case of breach of
Contract. It mainly studies the different measures of damages.
COMPENSATORY DAMAGES
Compensatory damages, also called actual damages, are paid to compensate the claimant for
loss, injury, or harm suffered by another's breach of duty. On a breach of contract by a
defendant, a court generally awards the sum which would restore the injured party to the
economic position that he or she expected from performance of the promise or promises
(known as an "expectation measure" or "benefit-of-the-bargain" measure of damages).

The breach of contract may cause the injured party a loss by depriving that party, at least to
some extent, of the performance expected under the contract. The difference between the
value to the plaintiff of the performance that should have been received and the value to that
party of what , if anything actually was referred to as the loss in value.

The basic principle behind measuring damages is the principle adopted by the courts in many
cases that is of restitutio in integrum. this principle means “if the plaintiff has suffered
damage that is not to remote ,he must , so far as money can do it, be restored to the position
he would have been in had that particular damage not occurred1”.

Historically it has been treated as clear in principle that what is to be recovered by way of
damages is the loss which the plaintiff has suffered due to breach of contract but not the profit
that the defendant has made.
In Surrey County Council v Bredero Homes, the plaintiff sold two parcels of land to the
defendant for developing as the housing estate. The written contract to sell the entire site was
subjected to the defendant obtaining planning permission for the development of the site in
accordance with the councils development brief and the scheme for the development of the
site. The defendant convenanted with the council that it would carry out the development of
the housing estate in accordance with the terms of the planning permission and the approved
scheme. Later the defendant obtained a fresh planning permission permitting more houses to
be built than that specified in the approved scheme. Though this was not a breach of the
public law but it was a clear breach of the defendant's contractual obligations to the council.
The plaintiff was aware about the new approval but they did not take any legal steps to
1
Robinson v Harman (1848) 1 Exch 850
restrain the revised development. Later after the completion of the development they argued
that they are entitled to recover as damages for breach of contract the extra profits which the
defendant had made by more intensive development of site. The court of appeal held that the
plaintiff could recover nominal damages.
A difficult case in this respect is the case of White Arrow Express Ltd. v Lamey's Distribution
Ltd, where the defendants charged for deluxe services and provided only a basic service.
However the plaintiff’s failure to recover substantial damages may be explained as turning on
inadequate pleadings.

The question regarding what exactly is that the plaintiff has lost is often subtle and requires
distinguishing between expectation loss and reliance loss.

EXPECTATION LOSS
The general rule is thus that the measure of damages protects the plaintiff's expectation loss.
This represents the loss of bargain or profit that the plaintiff has suffered. Expectation loss is
the loss of that which the plaintiff would have received if the contract had been properly
performed. This is in a sense that the plaintiff has not lost this because he never had it but he
expected to have it and the position he would have been in if the contract had been performed.
The most obvious expectation loss is the profit the plaintiff would have made on the contract.

Damages are available as a remedy as of right to the party who has suffered the breach of
contract. Obviously the party claiming will have to show that the breach caused the loss
suffered but even if this can be achieved the full expectation loss will only be recoverable if
the plaintiff does not fall foul of the two rules set out below:

• If the loss is too remote no damages will be recoverable. Not all losses flowing from a
breach of contract will be recoverable as damages due to the rule in Hadley v
Baxendale which states that the defendant will only be liable for losses which occur as
a natural result of the breach or which were in the reasonable contemplation of both of
the parties at the time the contract was formed. As a consequence of this rule the
plaintiff in Victoria Laundry ( Windsor ) Ltd v Newman Industries Ltd was only able
to recover damages for profits lost on normal contracts and not on especially profitable
contracts as a result of the late delivery of a boiler by the defendants.
 • Damages will only be recoverable to the extent that the plaintiff did not have a
reasonable opportunity to mitigate his loss. A plaintiff who could therefore easily
remedy the breach by purchasing or selling to another party in the market will be
expected to do so and whether the plaintiff does in fact mitigate his damage or not he
will only be entitled to receive damages to compensate him on the basis that he did
mitigate. This principle clearly reduces the impact of the idea that damages in contract
are primarily seeking to protect the expectation interest.

Naturally if the plaintiff has made a bad bargain in the contract the plaintiff's actual loss made
in reliance of the contract (e.g. start up costs) may be greater than the expectation losses: in
such a case the plaintiff can only elect to claim the reliance measure of damages if there has
been a total failure of consideration on behalf of the defendant.

RELIANCE LOSS
This is the loss that has been incurred in relying on other party's promise. Sometimes the
contract may be so speculative that it is unclear what, if any, profit it would have made. This
does not means that the plaintiff has suffered no loss since he may have relied upon the
defendant honoring his contract and incurred expenditure which was wasted as a result.
In the case of, Anglia Television Ltd. v Reed2,the plaintiffs engaged the defendant, to appear
in a film which they were making for television. At last moment he repudiated the contract
and, as the plaintiff could not find a replacement, they abandoned the project. The plaintiff
could not claim the profit they would have made on the film because it is impossible to
predict the profits that the movie if completed would have unearned. It does not means that
the plaintiff cannot recover any damages. Instead the plaintiff recovered that amount as
damages which they had spent in preparation such as hiring other actors, engaging a script
writer, looking for suitable location and all other pre-movie activities. The decision was
criticized by the Court of Appeal awarded expenditure incurred before the contract. This can
be justified on the ground that if the contract had not been broken the film would have been
sufficiently successful to cover all these setting up costs.

In principle it seems that the plaintiff has a free choice whether to quantify his loss on an
2
[1972] 1 QB 60, [1971] 3 All ER 690
expectation or a reliance basis. however it is open to a defendant to show that the plaintiff
made a bad bargain so that there was no loss on an expectation basis and the wasted
expenditure would have been incurred whether the contract was broken or not.

In Commonwealth of Australia v Amann Aviation Pty Ltd , Amann secured a contract of the
North coastline for three years. The contract was wrongfully terminated by the
Commonwealth of Australia before the three year period had run. Amann had spent much
money in acquiring suitable aircraft and the resale value was substantially less than the cost
and there was no ready market for such specially designed aircraft. The High Court of
Australia held that at the end of the three years although Amann would not have been certain
to secure a renewal of the contract, that they would having acquired so much relevant
equipments have had made an excellent chance of being the most competitive bidder. Taking
loss of this chance, the Common wealth could not demonstrate that the contract was in fact
unprofitable and therefore Amann recovered its reliance loss.
The amount of money adjudged to be due to the plaintiff has usually been assessed as at the
time when the contract was broken. Traditionally this “Breach Date Rule” has meant that any
change in the value of sterling after the date when the cause of action accrued must be
ignored. But the House of Lords has now mitigated the effect of this rule in an era of
fluctuating currencies by holding that in appropriate circumstances judgments may be given
in a foreign currency.

In Wroth v Tyler Megarry J held that if the plaintiff is claiming not damages at common law
but damages in lieu of specific performance under the Chancery Amendment Act 1858( Lord
Cairns Act) damages will be assessed as at the date of judgment. In Malhotra v Choudhary
this was treated as correct by the Court of Appeal but in Johnson v Agnew Lord Wilberforce
was clear that the same principles must govern damages at common law and under Lord
Carins act. He left open the question whether the cases of contracts for the sale of land were
correctly decided on the basis that the ‘breach-date’ rule did not apply.

The evaluation of the damage, however, must be based solely upon the legal obligations of the
defendant. A defendant is not liable in damages for not doing that which he is not bound to
do. An employee, for instance, who has been wrongfully dismissed, is admittedly entitled to
recover what he would have received had his employment run its full course; but if his
contractual salary was increasable by any bonus that the employer at his discretion might
from time award, the assessment of damages must ignore undeclared bonuses, even though it
is highly probable that they would have been declared had the employment continued. The
reason behind this is that the law is concerned with legal obligations created by mutual
agreement between contractors not with the expectations. Thus principle also means that if the
contract provides for the defendant have an option as to performance, damages should be
calculated on the basis that the defendant would have exercised this option in the way which
would minimize his liability. So, is the contract provides for 1000 tons of coffee, 10% more
or less at the seller’s option, a defaulting seller can argue that he would have chosen only to
deliver 900 tons.

NOMINAL DAMAGES

Nominal damages are awarded where a legal wrong has been committed but no consequential
loss has been caused. The purpose of the award is vindicatory – to mark the existence of the
right in question and to mark the fact of its violation by the wrongdoer. These are very small
damages awarded to show that the loss or harm suffered was technical rather than actual.
Nominal damages are awarded by a court when no damage is caused as a result of the breach
of contract by the defendant, or when the loss cannot be proved. An award of nominal
damages is likely to be of the order of £100.

RESTITUTIONARY DAMAGES

The defendant is made to give up the profits made through the civil wrong in restitution. The
plaintiff thereby gains damages which are not measured by reference to any loss sustained. In
some areas of the law this heading of damages is uncontroversial; most particularly
intellectual property rights and breach of fiduciary relationship.

In England and Wales the House of Lords case of Attorney-General v. Blake opened up the
possibility of restitutionary damages for breach of contract. In this case the profits made by a
defecting spy, George Blake, for the publication of his book, were awarded to the British
Government for breach of contract. Lord Nicholls, delivering the principle speech, deplored
yhe use of the expression ‘restitutionary damages’ and preferred to talk of ‘requiring a
defendant to account to the plaintiff for the benefits he had received from his breach of
contract.’ The case has been followed in English courts, but the situations in which
restitutionary damages will be available remain unclear.

The basis for restitutionary damages is much debated, but is usually seen as based on denying
a wrongdoer any profit from his wrongdoing. The really difficult question, and one which is
currently unanswered, relates to what wrongs should allow this remedy.

The breach may cause the injured party loss other than loss in value, and the party is also
entitled to recovery for this, subject again to limitations such as that of unforseeability. Such
loss will be referred to as other loss and is sometimes said to give rise to ‘incidental” and
“consequential” damages. INCIDENTAL DAMAGES include additional costs incurred after
the breach in a reasonable attempt to avoid loss, even if the attempt is unsuccessful. Is, for
example, the injured party who has not received the promised performance pays a fee to a
broker in a reasonable but unsuccessful attempt to obtain a substitute, that expenses is
recoverable. CONSEQUENTIAL DAMAGES include such items as injury to person or
property caused by the breach. If, for example, services furnished to the injured party are
defective and cause damage to that party’s property, that loss is recoverable3.

ACTIONABLE DAMAGES

Those damages which occurs in the usual course of things, as we have seen, the loss of the
value of the goods at the time and place of delivery, diminished by the price. The therefore

3
UCC 2-710
should be placed in the position that he would have occupied in case the supply of goods takes
place according to his condition. The market value is taken because it is presumed to be the
true value of the goods to the purchaser. In case of non-delivery, where the purchaser does not
get the goods he purchased, it is assumed that these would be worth to him, if he had them,
what they would have fetch in the open market; and that , if he wanted to get others in their
stead, he could obtain them in that market at that price.
Therefore, the actual sum payable by way of actionable damage in case of breach of contract
by the seller depends upon the difference between the market and the contract prices upon the
day appointed for delivery. If the market price is higher than the contract then he will get the
difference and in case the market price is less than that of the contract price he will receive
nominal damages only. The difficulty arises while estimating what sum suffices for the
purchase of similar goods arises where there is no available market. In such cases the value of
the goods must be otherwise ascertained.
A slightly different analysis is required in the situation when it is the buyer who breaks the
contract. The loss resulting from such breach varies with the character of the seller and the
local demand for goods of the kind in question. If the seller is not a dealer that is, he is a
householder who has agreed to sell an antique table to the defendant, his losss is the
deprivation of the purchase price upon a certain date, less the value of the table that he still
unwillingly possesses. He will be indemnified against this loss. In case the plaintiff is the
dealer in the particular goods sold, the position may be different in such situation what
ensures from the breach in the usual course of things is that the plaintiff loses the profit that
he would have made had the sale to that particular buyer have been completed.

CONCLUSION
It can be inferred that in cases of frequent occurrences, such as contract for the sale of goods,
certain rules relating to the measure or assessment of damages have gradually been evolved,
as for instance the rule that a defaulting seller must pay to the buyer the difference between
the market and the contract price of the goods. But in general there is no specific rule upon the
matter, and it is left to the good sense of the court to assess as best it can what the court
considers to be an adequate recompense for the loss suffered by the plaintiff. At one time it
was general rule that one can recover non-pecuniary losses in actions for breach of
confidence. Now there is no such rule. So a plaintiff a holiday with a tour operator may
recover for loss of enjoyment in case of breach of contract. The same principal is applied in
case of damage caused in the form of distress and it seems that damages cannot be recovered
for distress arising from breach of an ordinary commercial contract.
The noteworthy point is that for quantification of damages is what the loss which the injured
party has suffered is.
Refrences
1. Law of Contract- R.K Bangia 21st edition
2. Mercantile Law- Avtar Singh
3. Cheshire fifoot- 8th edition