Section 73 (2) of Indian Contracts Act deals with remoteness of damages. The rule has been laid down in the leading case on the point pf Hadley v. Baxendale (1854 – 9 Ex. 341) where it has been observed that the Court will take into account only such loss as may be fairly, as reasonably be considered either arising naturally, i.e. according to the usual of things, from breach of contract itself, or such as may reasonable supposed to have been in the contemplation of both the parties at the time they made the contract as the probable result of the breach of it. Remoteness of damages for remote consequences is usually not allowed.
The loss from the breach must naturally arise in the usual course of things or it must be such as the parties knew when they made the contract to be likely to result from the breach of it. In other words, damages would be considered as too remote if they are not the direct consequence of the breach or they are not in the contemplation of the parties when the contract was made.
However, if the special circumstances were common to both parties, damages would be then amount of injury which would follow from such special circumstance.
A contracts to pay a sum of money to B on day specified. A does not pay the money on that day, B in consequence of not receiving the money on that day, 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 up to the day of payment.
A hires B’s ship to go to Bombay, and there take on board on the first of January, a cargo which A is to provide, and bring it to Calcutta, the freight to be paid when earned. B’s ship does not go to Bombay, but has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous to those on which he had chartered the ship. A avails himself of these opportunities but is put to trouble and expenses in doing so. A is entitled to receive compensation from B in respect of such trouble and expenses.
A contracts to buy from B at a stated price, 50 tons of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation the amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.
A contracts to buy B’s ship for Rs 60,000 but breaks his promise. A must pay to B, by way of compensation the excess if any of the contract price over the price which B can obtain for the ship at the time of the breach of promise.
A, the owner of boat contracts with B to take a cargo of jute to Mirzapur for the sale at that place, starting on a specified day. The boat owing to some avoidable cause does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the differences between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course and its market at the time when it actually arrived.
A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house, but according to contract. B is entitled to recover from A the cost of making the repairs that conform to the contract.
A contracts to let his ship to B for a year from the first of January, for a certain price. Freights rise and on the first of January the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation a sum equal to the difference between the contact price and the price for which B could hire for a year on and from the first of January.