Compensation is not to be given for any remote or indirect loss or damage sustained by reason of the breach of contract. Discuss.


It refers to one of the remedies available with the aggrieved party to file a suit for damages and thus claim damages. Section 73 of the Indian Contract Act deals with the compensation for loss or damage caused due to the breach of the contract. The leading case of Hadley v. Baxendale is used as the basis for deciding the rules pertaining to the damages. In other words, if the defaulting party is considered guilty of non-performance then the aggrieved party must be compensated to the extent to the position which he would have been provided the contract was performed. The reason for non-performance must be related with the contract, that is, any reason which has no bearing or relation with the performance of the contract should be taken into account.

The general rule relating with the compensation from the above case states that, Where two 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 arising naturally, that is, according to the usual course of things, from such-breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.

The aggrieved party may claim ordinary damages, that is, which arise in the usual course of things from such breach. The ordinary damages may be calculated as the difference between the contract price and the market price on the date of the breach.

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