📖 The Classic English Case Law on Compensation for Breach of Contract

📌 Breach of Contract: Principles of Damages

Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered as either arising naturally, i.e., according to the usual course of things, from such breach of contract itself or such as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it.

If special circumstances of the contract were communicated by plaintiffs to defendants and thus known to both parties, damages for breach of such contract would be the amount of injury which would ordinarily follow from a breach under the special circumstances so known and communicated.

But, on the other hand: if these special circumstances were wholly unknown to the party breaking the contract, he at the most could only be supposed to have had in his contemplation the amount of injury which would arise generally, not affected by any special circumstances.

💡 Application of Principles

In the present case, we find that the only circumstances communicated by the plaintiffs to the defendants were that the article to be carried was the broken shaft of a mill and that the plaintiffs were the millers of that mill. The same results would follow if plaintiffs had another shaft in their possession at the time or at that time, machinery of the mill had been in other respects defective.

⚖️ Decision

It follows, therefore, that the loss of profits cannot reasonably be considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract.

For such loss would neither have flowed naturally from the breach of this contract in the great multitude of such cases occurring under ordinary circumstances nor were the special circumstances, which, perhaps, would have made it a reasonable and natural consequence of such breach of contract, communicated to or known by the defendants.

📜 Compensation for Breach of Contract as per the Indian Contract Act – Section 73

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 loss/damage caused to him which naturally arose in usual course of things from such breach or which parties knew, when they made the contract, likely to result from its breach.

Such compensation is not to be given for any remote and indirect loss/damage sustained by reason of breach.

💡 Compensation for Failure to Discharge Quasi-Contract Obligations

When an obligation resembling those created by a 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 loss or damage arising from breach of contract, means which existed of remedying the inconvenience caused by the non-performance of contract must be taken into account.

📝 Illustrations to Section 73

• (a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a price to be paid on delivery and subsequently breaks his promise. B is entitled to receive from A by way of compensation the sum by which the contract price falls short of price for which B might have obtained 50 maunds of saltpetre of like quality at the time when delivery was due.
• (b) A hires B’s ship to go to Bombay and take on board A’s cargo and to bring it to Calcutta. B’s ship does not go to Bombay but A has opportunities of procuring conveyance for his cargo upon equally advantageous terms. A does so but is put to trouble and expense in doing so. A is entitled to receive from B compensation for such trouble and expense.
• (c) A contracts to buy of B 50 maunds of rice. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A the amount by which the contract price exceeds that which B can obtain at the time when A informs B that he will not accept it.