Description
Compensation is an essay by Ralph Waldo Emerson. It appeared in his book Essays, first published 1841. In 1844, Essays: Second Series was published, and subsequent republishings of Essays were renamed Essays: First Series.
Breach, Damages and Compensation
1
Breach, Damages and Compensation
2
Case: Carriage of Computers
Sudip contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. Later, Sudip got a more lucrative deal and refused to transport Prakash’s goods. Prakash found Akash to do the work for him. However, it cost him Rs 2.25 lakh. How could we compensate Prakash for the breach?
3
Contract Act: Compensation
73. 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.
4
Case: Carriage of Computers
Raman contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. It was agreed that in the case of a breach of contract, Raman would pay damages worth Rs 50,000. How much should Raman be made to pay in the following different situations: 1. The actual damage came out to be Rs 60,000. 2. The actual damage was Rs. 10, 000. 3. There was no damage to Prakash.
5
Contract Act: Liquidated Damages
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.
6
Supreme Court: Compensation
The Indian courts have adopted the judgement in the Hadley case. The Supreme Court stated the principle for awarding compensation thus: ... such money compensation as will put him in the position in which he would have been but for the breach... In working out the compensation you should as nearly as possible get at that sum of money which will put the party ...in the same position as he would have been in if he had not sustained the wrong.
7
… Cond
... the rule laid down as to measure of damage is the same, namely, the party in breach must make compensation in respect of the direct consequences flowing from the breach and not in respect of loss or damage indirectly or remotely caused, which is also the rule in English common law.
8
ONGC v. SAW Pipes Ltd.
Through a tender, SAW got in a contract with the ONGC to supply it casing pipes for Offshore Oil exploration and maintenance. Due to strike in Italy, from where SAW was procuring the pipes, the pipes could not be delivered on time. The contract had a liquidated damages clause which stipulated that damages, at the rate of 1% of the contract price per week, would be payable. There was no dispute on this amount. The arbitrator, however, did not allow damages as it was not proved that the ONGC had indeed suffered damages. The case came before the Supreme Court.
9
Judgement: Supreme Court
… when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arise in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the Court arrives at the conclusion that no loss is likely to occur because of such breach.
10
… Cond
Further, in case where Court arrives at the conclusion that the term contemplating damages is by way of penalty, the Court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same.
11
Judgement: Supreme Court
if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine preestimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty.
12
Judgement: Supreme Court
The Supreme Court, in summary, mentioned the following principles: (1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same;
13
… Cond
(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.
14
… Cond
(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract.
15
… Cond
(4) Is some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.
16
doc_417104602.ppt
Compensation is an essay by Ralph Waldo Emerson. It appeared in his book Essays, first published 1841. In 1844, Essays: Second Series was published, and subsequent republishings of Essays were renamed Essays: First Series.
Breach, Damages and Compensation
1
Breach, Damages and Compensation
2
Case: Carriage of Computers
Sudip contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. Later, Sudip got a more lucrative deal and refused to transport Prakash’s goods. Prakash found Akash to do the work for him. However, it cost him Rs 2.25 lakh. How could we compensate Prakash for the breach?
3
Contract Act: Compensation
73. 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.
4
Case: Carriage of Computers
Raman contracted to transport computer components from Mumbai to Bangalore, for Prakash, for a consideration of Rs 2 lakh. It was agreed that in the case of a breach of contract, Raman would pay damages worth Rs 50,000. How much should Raman be made to pay in the following different situations: 1. The actual damage came out to be Rs 60,000. 2. The actual damage was Rs. 10, 000. 3. There was no damage to Prakash.
5
Contract Act: Liquidated Damages
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.
6
Supreme Court: Compensation
The Indian courts have adopted the judgement in the Hadley case. The Supreme Court stated the principle for awarding compensation thus: ... such money compensation as will put him in the position in which he would have been but for the breach... In working out the compensation you should as nearly as possible get at that sum of money which will put the party ...in the same position as he would have been in if he had not sustained the wrong.
7
… Cond
... the rule laid down as to measure of damage is the same, namely, the party in breach must make compensation in respect of the direct consequences flowing from the breach and not in respect of loss or damage indirectly or remotely caused, which is also the rule in English common law.
8
ONGC v. SAW Pipes Ltd.
Through a tender, SAW got in a contract with the ONGC to supply it casing pipes for Offshore Oil exploration and maintenance. Due to strike in Italy, from where SAW was procuring the pipes, the pipes could not be delivered on time. The contract had a liquidated damages clause which stipulated that damages, at the rate of 1% of the contract price per week, would be payable. There was no dispute on this amount. The arbitrator, however, did not allow damages as it was not proved that the ONGC had indeed suffered damages. The case came before the Supreme Court.
9
Judgement: Supreme Court
… when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss which naturally arise in the usual course of things from such breach. These sections further contemplate that if parties knew when they made the contract that a particular loss is likely to result from such breach, they can agree for payment of such compensation. In such a case, there may not be any necessity of leading evidence for proving damages, unless the Court arrives at the conclusion that no loss is likely to occur because of such breach.
10
… Cond
Further, in case where Court arrives at the conclusion that the term contemplating damages is by way of penalty, the Court may grant reasonable compensation not exceeding the amount so named in the contract on proof of damages. However, when the terms of the contract are clear and unambiguous then its meaning is to be gathered only from the words used therein. In a case where agreement is executed by experts in the field, it would be difficult to hold that the intention of the parties was different from the language used therein. In such a case, it is for the party who contends that stipulated amount is not reasonable compensation, to prove the same.
11
Judgement: Supreme Court
if the parties have pre-estimated such loss after clear understanding, it would be totally unjustified to arrive at the conclusion that party who has committed breach of the contract is not liable to pay compensation. It would be against the specific provisions of Sections 73 and 74 of the Indian Contract Act. There was nothing on record that compensation contemplated by the parties was in any way unreasonable. It has been specifically mentioned that it was an agreed genuine preestimate of damages duly agreed by the parties. It was also mentioned that the liquidated damages are not by way of penalty.
12
Judgement: Supreme Court
The Supreme Court, in summary, mentioned the following principles: (1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same;
13
… Cond
(2) If the terms are clear and unambiguous stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.
14
… Cond
(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract.
15
… Cond
(4) Is some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.
16
doc_417104602.ppt