Damages under the Contract Act 1872

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Damages under the Contract Act 1872

  1. 1. Damages Arpeeta Shams Mizan Lecturer NUB copyright (c) arpeeta shams mizan. all rights reserved
  2. 2. The Philosophy of damages • The interrelation of right and remedy • The difference between remedies and damages • The difference between rescinding and breach of contracts copyright (c) arpeeta shams mizan. all rights reserved
  3. 3. Mitigation • It is known as doctrine of avoidable consequence. It imposes on injured party duty to exercise reasonable diligence. copyright (c) arpeeta shams mizan. all rights reserved
  4. 4. Types of damages • Liquidated: the amount predetermined and agreed by the parties whilst making the contract. It is the sum agreed by the parties to be payable on default of one of them. • Unliquidated: when the sum is not fixed. The court quantifies or assesses the damages. • Contemplated breach: copyright (c) arpeeta shams mizan. all rights reserved
  5. 5. What kind of Damages Plaintiff is entitled to • The question is whether plaintiff is entitled to have compensation for whatever damage he has suffered as a consequence . copyright (c) arpeeta shams mizan. all rights reserved
  6. 6. Lord Wright (1933): • Law cannot take account of everything that follows a wrongful act. It regards some subsequent matters as outside the scope of its selection. Because ‘it were infinite for the law to judge the cause of the causes’ , or consequence of the consequences. copyright (c) arpeeta shams mizan. all rights reserved
  7. 7. The Rule of Remoteness of Damage • Hadley v. Baxendale (1854) The case defined what kind of damages is appropriate subject for compensation. According to Alderson B: “Where to 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 either naturally or according to the usual course of things, or such may reasonably be supposed to have been in the contemplation of the parties. copyright (c) arpeeta shams mizan. all rights reserved
  8. 8. • A shaft in Hadley’s (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale did not know that the mill would be inoperable until the new shaft arrived. Baxendale was negligent and did not transport the shaft as promised, causing the mill to remain shut down for an additional five days. Hadley had paid 2 pounds four shillings to ship the shaft and sued for 300 pounds in damages due to lost profits and wages. The jury awarded Hadley 25 pounds beyond the amount already paid to the court and Baxendale appealed. copyright (c) arpeeta shams mizan. all rights reserved
  9. 9. • The Court in this case held that, although the negligence of the Defendant was the direct cause of damage, but loss of profit cannot be termed as a natural and direct consequence of the breach of contract. copyright (c) arpeeta shams mizan. all rights reserved
  10. 10. Victoria Laundry Ltd. v. Newman Ltd. (1949) • Newman Industries Ltd was meant to deliver a boiler for Victoria Laundry (Windsor) Ltd. The delivery was five months late. As a result of not having enough laundry capacity, Victoria Laundry lost a lucrative cleaning contract from the Ministry of Supply. Victoria Laundry sued for the ordinary profit that it had forgone through not having the boiler on time. The question was whether it could also claim the extraordinary profit it would have made, had it been able to take advantage of the lucrative Ministry of Supply contract. copyright (c) arpeeta shams mizan. all rights reserved
  11. 11. • Asquith LJ in the Court of Appeal held that Newman Industries only had to compensate for the ordinary, not the extraordinary loss of profits. He distinguished (at p 543) losses from “particularly lucrative dyeing contracts” as a different type of loss which would only be recoverable if the defendant had sufficient knowledge of them to make it reasonable to attribute to him acceptance of liability for such losses. The vendor of the boilers would have regarded the profits on these contracts as a different and higher form of risk than the general risk of loss of profits by the laundry. copyright (c) arpeeta shams mizan. all rights reserved
  12. 12. • The crux of the matter is whether the special circumstances were within the actual or constructive knowledge of the defaulter at the time of contract. The Court said that mere difficulty in determining damages cannot be an excuse to avoid special damages. copyright (c) arpeeta shams mizan. all rights reserved
  13. 13. Chaplin v. Hicks (1961) • A theatre manager failed to carry out his contractual obligation to engage the D in remunerative employment. • Fletcher Moulton J. held: “whereby a contract a man has a right…which is something of value, it is the duty of the jury to estimate the pecuniary value of that advantage if it is taken from him.” copyright (c) arpeeta shams mizan. all rights reserved
  14. 14. Section 73 of the CA 1872 “……. Compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.” It is evident from s. 73 that law has imposed a duty to mitigate the loss. If the claimant fails to mitigate the amount of loss , this factor is of relevance in assessing the amount of damages. copyright (c) arpeeta shams mizan. all rights reserved
  15. 15. Province of West Pakistan v. Ms. Shaj & Co. (1964) • It is the undoubted law that the person who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot obtain as damages any sum which is due to his neglect. copyright (c) arpeeta shams mizan. all rights reserved
  16. 16. How to measure Damages the measure of damages is the difference between the contract price and the market price at the time of the breach. If the subject matter is not marketable, the value must be taken as fixed by the price. The fact that the buyer sustains no actual loss from the seller’s failure to deliver goods is no ground for awarding nominal damages. This is evident from the illustration A to s. 73. copyright (c) arpeeta shams mizan. all rights reserved
  17. 17. • The Delhi HC in the Tribhuvan Patel case noted: ‘Note may be taken of the market rate. Market rate is a presumptive test. The intention of Law is to place the injured party at par with the contract breaker by the subject test of market rate.’ copyright (c) arpeeta shams mizan. all rights reserved
  18. 18. Market Rate • 1. a contract tio supply goods of a particular sort which at the time of breach can be obtained in the market: the measure of damages is the difference between the contract price and the market price at the time of breach. • CP 5tk, MP 10 tk. Compensation 10-5= 5 tk. 100 unit has the gross loss of 500 tk. copyright (c) arpeeta shams mizan. all rights reserved
  19. 19. • 2. if the subject matter of contract may not be marketable: value must be taken as fixed by the price which actually has to be paid for the best and nearest available substitute. • 3. if the buyer after giving the seller time at his request, finally has to go to the market and buy at an advanced price, he may recover the whole difference between the contract price and the price he actually paid. copyright (c) arpeeta shams mizan. all rights reserved
  20. 20. • 4. Accordingly the decisive date for fixing the damages is the last date to which the contract was extended. copyright (c) arpeeta shams mizan. all rights reserved

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