When one party fails to fulfill a contract, the law ensures the injured party gets fair compensation. The Indian Contract Act lays down clear rules on how compensation works when a contract is broken or an obligation is not fulfilled.
Is There Compensation for Loss or Damage
In case of breach of contract, the affected party has the right to receive compensation. This applies to losses or damages that occur naturally in the normal course of things. It also covers losses that both parties knew could happen if the contract was broken.
However, the law does not allow compensation for indirect or remote losses. Only direct and predictable losses qualify for compensation.
Is There Compensation for Non-Contractual Obligations
Sometimes, a party fails to meet obligations that resemble a contract. If someone is harmed due to that failure, they can still claim compensation. The law treats it as if a contract existed and was broken.
Penalty Clauses and Reasonable Compensation
If a contract mentions a fixed amount to be paid in case of breach or includes a penalty clause, the injured party can claim reasonable compensation. It does not matter whether actual loss is proven. However, the amount paid cannot exceed the amount stated in the contract.
Example:
If A promises to pay B ₹1,000 for failing to pay ₹500 on a certain date, and A fails, B can claim compensation. But the court will decide the amount, not exceeding ₹1,000.
Another example: If A agrees to pay ₹5,000 for practicing surgery in Calcutta and breaks that term, B can claim compensation up to ₹5,000, based on what the court finds reasonable.
What Is The Exception in Public Duty Contracts
If someone gives a bond or recognizance for performing a public duty and breaks it, they must pay the full amount mentioned. This rule applies even if the sum looks like a penalty.
But, just signing a contract with the government does not mean the person has taken on a public duty.
Is There Compensation for Rightful Cancellation
If a person cancels a contract lawfully due to the other party’s fault, they can claim compensation. This applies when the cancellation results in a loss.
Example:
If a singer skips a scheduled show without reason, the theatre manager can cancel the contract. The manager can then claim compensation for the loss caused by the singer’s absence.
Conclusion
The Indian Contract Act protects the rights of parties affected by a breach. It ensures fair compensation for direct and expected losses. Whether it’s a standard contract, a bond, or a penalty clause, the law ensures that justice is delivered in case of a breach.
