“Damage” refers to a sum of money given as compensation for loss or harm of any kind. In legal terms, “damages” signify the monetary compensation awarded for causing injury, loss, or breach of rights—whether through negligence, a deliberate act, or a contractual failure.
It is the amount which the court imposes as pecuniary compensation—to make good the harm suffered. At common law, it represents a remedy for the violation of a legal right.
Measurement of Damages
Damages are fundamentally compensatory in nature. The objective is to place the aggrieved party in the same position they would have been in, had the contract been properly performed. However, the nature and extent of damages vary based on the circumstances of each breach. Here’s how:
Kinds of Damages
1. Ordinary Damages
These are damages that arise naturally and directly from the breach in the usual course of events. The non-breaching party can recover compensation for foreseeable losses, but not for remote or indirect consequences.
2. Special Damages
Special damages refer to compensation for losses that occur due to specific and exceptional circumstances, which are known to both parties at the time of contract formation. If one party is informed in advance of special risks, and the breach causes those losses, they are liable for them.
3. Vindictive or Exemplary Damages
These are awarded not merely to compensate but to punish the defaulting party for egregious or outrageous conduct. They serve as a deterrent for future similar behavior and are more common in tort cases than in contract law.
4. Nominal Damages
When a breach of contract is proven, but no substantial harm is done, the court may award nominal damages—a token amount (even as low as ₹1)—just to recognize the infringement of a legal right.
Standard Form of Contract
Standard form contracts are pre-drafted agreements where one party sets all the terms, and the other party must accept them as-is—often referred to as signing on the “dotted line.” These are common in insurance, telecom, transport, and software services.
In view of the unequal bargaining power of the two parties, the courts and the legislature have evolved certain rules to protect the interest of the weaker party which are as follows:
- There must be a contractual document: The agreement must be properly documented.
- No misrepresentation: The offering party must not mislead the other.
- Reasonable notice of terms: The important clauses must be fairly brought to the notice of the accepting party.
- Notice must align with the contract: Terms should not contradict or surprise the signer.
- Contract terms must be reasonable: Unfair or harsh terms may be struck down by courts.
- Strict Implementation of Exemption Clauses- Courts often strictly interpret exemption clauses (like disclaimers of liability), especially when the parties do not enjoy equal bargaining power. This ensures that unfair advantages aren’t legally upheld.
- Fundamental Breach of Contract- Another judicial tool is to deny the enforcement of terms if doing so results in a fundamental breach. The court prioritizes the overall purpose and fairness of the agreement over technicalities.
- Non-Contractual Liability- If a contract tries to exclude liability, it doesn’t necessarily mean all forms of liability are negated. The law ensures that statutory and tort liabilities remain enforceable even when contractual obligations are limited or denied.
