📜 Indian Contract Act 1872: Section 73 – Compensation for Breach of Contract
📖 The Classic Privy Council Case Law [Indian]
A. K. A. S. Jamal v. Moolla Dawood Sons and Co [1915 PC]
Facts of the case:
Under six contracts between April and August 1911, the Plaintiff was seller to the Defendants of 23,500 shares at a price of Rs. 1,84,125. The date for delivery was the 30th December 1911. By 30th December the shares had fallen largely in value. On that day plaintiff the vendor tendered the shares and asked payment of the price.
The purchasers did not pay the sum demanded. They set up a contention that the seller was indebted to them on another transaction, and they sent cheques for the differential sum of Rs. 75,925, and called for a transfer of the shares.
Then the seller commenced to make sale of the shares. He sold them all at various dates from the 26th February onwards. In one case the sale was at less than 4s. 3d. In one case it was at 4s. 3d. In every other case it was at a higher price.
On the 22nd March the seller commenced a suit to recover Rs. 1,09,218 as damages for breach, measured by the difference between the contract price of the shares and their market price (4s 3d a share) on the date of the breach, the 30th December 1911.
The decision under appeal gives the purchaser benefit of the increased prices which the shares realised, by giving him credit in reduction of damages for the increased prices in fact realised over the market price on 30th December, the date of the breach.
⚖️ Judgment of the Privy Council
Upon breach by the purchaser, his contractual right to the shares fell to the ground and there arose a right to damages.
❓ Questions
- Q 1: In a contract for sale, what is the measure of damages for breach?
- Q 2: Is it the difference between the contract price and the market price at the date of the breach – with an obligation on the part of the seller to mitigate the damages by getting the best price he can at the date of the breach? Or is the seller bound to reduce the damages, if he can, by subsequent sales at better prices?
✅ Answer
If the seller holds on to the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer. The seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market rises.
It is undoubted law that a Plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect.
But the loss to be ascertained is the loss at the date of the breach. If at the date the Plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.
The Chief Judge rested his judgment on a finding that the seller reduced his loss by selling the shares at a higher price than obtained at the date of the breach by assuming that loss means loss generally, not loss at the date of the breach.
The seller’s loss at the date of the breach was and remained the difference between contract price and market price at that date.
When the buyer committed this breach the seller remained entitled to the shares and became entitled to damages. The shares he kept for a time and subsequently sold them in a rising market. His pocket received benefit, but his loss at the date of the breach remained unaffected.
📝 Some More Illustrations to Section 73
- Illustration (d): A contracts to buy B’s ship for 60,000 rupees but breaks his promise. A must pay to B excess of the contract price over the price which B can obtain for the ship at the time of the breach of promise.
- Formula for compensation: (1) When buyer breaks his promise, seller gets compensation: Contract price – Market price.
(2) When seller breaks his promise, buyer gets compensation: Market price – Contract price. - Illustration (e): A, owner of a boat, contracts with B to take a cargo of jute to Mirzapur for sale there. A fails to start in time whereby arrival of cargo at Mirzapur is delayed. After that date, and before arrival price of jute falls, compensation payable to B: market price at Mirzapur on the scheduled arrival date – market price on the actual arrival date.
- Illustration (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 the contract. B is entitled to recover the cost of making the repairs conform to the contract.
- Illustration (g): A contracts to let his ship to B for a year, from first January. Freights rise, and on first January hire obtainable for ship is higher than contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to difference between contract price and price for which B could hire a similar ship for a year from first January.
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❓ Frequently Asked Questions
Section 73 of the Indian Contract Act 1872 provides that when a contract is broken, the party who suffers is entitled to receive compensation for losses that naturally arise from the breach or that were in the contemplation of both parties at the time of making the contract.
Compensation is calculated based on the difference between the contract price and the market price at the date of breach, and by considering any mitigation of loss by the aggrieved party, as explained in case law like A.K.A.S. Jamal v. Moolla Dawood Sons.
The Privy Council held that the seller’s loss at the date of the breach is the difference between contract price and market price at that date. Any subsequent gains or losses due to market fluctuations are the seller’s speculation, not the buyer’s liability.
Yes. The plaintiff must take reasonable steps to mitigate the loss. Any loss avoidable due to the plaintiff’s own actions or neglect cannot be claimed as damages under Section 73.
Illustrations include: (d) buyer breaks promise to buy ship → pay difference between contract and market price, (e) cargo arrival delayed → pay market price difference, (f) defective house repair → pay cost to conform, (g) ship hire contract broken → pay difference between contract hire and market hire.
No. Only the actual loss at the date of breach is considered. Speculative or subsequent market gains/losses are not recoverable from the other party.
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