Types of Damages for Breach of Contract with Examples

Types of Damages for Breach of Contract

There are four types of damages which can be claimed by the aggrieved party.

1. Ordinary Damages or General Damages.
2. Special Damages
3. Exemplary or Vindictive Damages.
4. Nominal Damages.

1. Ordinary Damages or General Damages

Damages that arise in the ordinary course of events from the breach of contract are called ordinary damages. Damages arising out of natural and probable consequences of breach of contract are also considered an ordinary damage. General damages are such damages, which the law presumes from the breach of the contract.

Generally they are awarded to compensate the affected party and its intentions was not to punish. General damages are usually judged taking into account of the actual loss suffered by the affected party.

The quantum of damages which the court can award will be just that amount which would place the innocent party in the same position, which he would have occupied, had the contract been performed, and not broken.

Example 1

A contracted to sell and deliver B 50 bags of rice at Rs. 1, 450 per bag, the price to be paid at the time of delivery. The price of rice rose to Rs. 1, 500 per bag and A refused to sell the rice. B can claim damages at the rate of Rs.50 per bag.

They constitute the direct loss suffered by the aggrieved party. They are measured by estimating the ordinary loss caused by the breach of contract. As per law, compensation is not to be given for any remote or indirect damage.

Example 2

A contracts to pay Rs.5, 000 to B on a specified day. He does not pay the money on that day. So B is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay together with interest upto the day of payment.

2. Special Damages

Special damages are those damages that are payable for the loss arising on account of some special or unusual circumstances. That is, they are not due to the natural and probable consequences of the breach of the contract. Indirect loss experienced by the affected party out of breach of contract is treated as special damage.

Special damages can be recovered only when the other party, while signing the contract, is informed of the special circumstances which are responsible for the special losses. Subsequent knowledge of special circumstances will not create any special liability.

Example 1

A contracted with B to supply a particular type of machinery at Rs.5, 000 to be delivered on a fixed day. A did not deliver the machinery on the day specified. So B had to purchase the same from another dealer at Rs.6,500. Moreover, B was also prevented from performing a contract with C which he had already made based on the contract with A, and was compelled to make compensation to C for the non-performance of the contract.

Here the amount of compensation paid by B to C are the special damages because they arise on account of the special circumstances i.e. B’s contract with C at the time of the contract. These damages can be recovered only if A was informed of the contract between B and C. However, the difference amount of Rs.1,500 between the contract price and the price paid by B to another dealer is the ordinary damages and can be recovered from A.

Example 2

A contracted with B to supply steel rails who had in his turn contracted to supply the same to a railway company at a very high profit. At the time of entering into the contract, B’s contract with the railway company was made clear to A. A committed a breach of contract. B can claim not only the difference between the market price and the contracted price on the delivery date, but will also be entitled to the profit which he would have made and the damages which he would have to pay to the railway company.

3. Exemplary or Vindictive Damages

These damages are awarded against the party who has committed a breach of the contract with the object of punishing the erring as defaulting party and to compensate the aggrieved party. Generally, these damages are awarded in case of action on lost or breach of promise. E.g., breach of contract to marry, dishonor of cheque by the bank without any proper reason.

Such damages are awarded due to its difficulty in measuring the amount of the mental suffering or the extent of the injury to the feelings of the aggrieved party. The main aim of awarding such damages is to deter a person from committing a breach of such contract.

Example 1

A libel was committed by an author and its publisher against a distinguished naval officer. The officer sued for damages. He was awarded £ 15, 000 compensatory and £ 25, 000 exemplary damages against both defendants.

Example 2

The bank disobeyed the customer’s order to stop payment of a particular cheque and as a consequence another cheque for £ 25,000 was dishonored due to inadequate funds. The court awarded £ 250 as damages to the plaintiff.

4. Nominal Damages

Nominal damages are awarded to the aggrieved party when there is only technical violation of the legal rights. Here no substantial loss is caused. These damages are very small in amount. They are awarded simply to recognize the right of the party to claim damages for the breach of the contract.

Example

A contracted to purchase a Scooter from B, a dealer. But he failed to purchase the scooter. However, the demand for the scooters far exceeded the supply, and B could sell the scooter agreed to be purchased without loss of profit. B is entitled only to nominal damages.