Fundamentals of Business Laws and Business Communication · Breach of Contract and Remedies for Breach of Contract

Kinds of Damages in Breach of Contract

Updated 10 October 2026 · Fact-checked

Damages are money paid to the innocent party to compensate for loss caused by breach of contract. Under Section 73 you can recover loss that naturally arises from the breach or that both parties knew was likely. Kinds include ordinary, special, nominal, vindictive and damages for inconvenience. Remote and indirect loss is not payable.

Understand Damages and Their Kinds

When one party breaks a contract, the other party can claim damages. Damages are money compensation for the loss suffered. Their aim is to put the innocent party, as far as money can, in the position they would have been in if the contract had been performed. They are not meant to punish.

Section 73 of the Indian Contract Act, 1872 is the key provision. It gives compensation for loss that arose naturally in the usual course of things from the breach, or loss that the parties knew, when they made the contract, would likely result from its breach. Compensation is not given for remote and indirect loss.

This is the rule of remoteness of damage, which comes from the English case Hadley v Baxendale. The idea is simple. A party is liable only for loss that was reasonably foreseeable at the time of making the contract. If a loss depended on special circumstances that the defaulting party never knew about, it is too remote.

The kinds of damages you must know are these. Ordinary (general) damages cover loss that naturally follows from the breach. Special damages cover loss from unusual circumstances, and are payable only if those circumstances were told to the other party at the time of contract. Nominal damages are a very small sum given when a right is broken but no real loss is proved. Vindictive (punitive/exemplary) damages are meant to punish, and are generally not awarded for breach of contract. Damages for inconvenience (mental distress) are generally not given for ordinary commercial breach.

Two more points help. The innocent party has a duty to mitigate the loss, meaning take reasonable steps to reduce it. Also, you must actually prove the loss. If the contract fixes the sum payable on breach, Section 74 applies, which is a separate topic.

Key formulas to remember

Section 73 rule: Damages = loss naturally arising from breach + loss the parties knew was likely at the time of contract; Remote and indirect loss is excluded. Foreseeability is judged when the contract is made, not when it is broken.
Ordinary damages: Ordinary damages = loss arising naturally in the usual course of things; No special notice needed. Example: difference between contract price and market price.
Special damages: Special damages = loss from special circumstances, payable only if communicated before or at contract; Without knowledge of the special circumstances, the claim fails as too remote.
Nominal damages: Nominal damages = token sum when breach is proved but no actual loss; Shows the right was violated.
Vindictive damages: Vindictive damages = punishment, not compensation; Generally not awarded for breach of contract. Exceptions are commonly noted for breach of promise to marry and wrongful dishonour of a cheque by a bank.
Duty to mitigate: Recoverable loss = total loss − loss that could reasonably have been avoided; The innocent party must take reasonable steps to reduce loss.

How to solve Damages and Their Kinds questions

Use this method for any question on damages, whether it is a theory MCQ or a short case.

1Identify the key words: natural loss, special circumstances, no actual loss, punishment, mental distress.
2Match the key words to a kind of damages: natural loss is ordinary, special circumstances is special, no actual loss is nominal, punishment is vindictive.
3Check knowledge: if the loss came from unusual circumstances, ask whether the defaulting party was told at the time of contract.
4Check remoteness: was the loss foreseeable when the contract was made? If not, it is too remote and not recoverable.
5Check mitigation: did the claimant take reasonable steps to reduce loss? Deduct avoidable loss.
6For numbers, compute actual proved loss, such as contract price against market price, and apply the rule.
7Pick the option that states the rule exactly. Reject options that say damages punish or that remote loss is payable.

Quickest way: Keyword matching for kinds of damages

When to use it: Use this for definition-based MCQs and short fact-based questions in the 1-hour paper.

Natural and usual loss: choose ordinary or general damages.
Unusual circumstances told to the other party: choose special damages.
Right broken but no loss: choose nominal damages.
Aim to punish: choose vindictive damages, and remember they are generally not given in contract.
Loss that depends on facts the other party did not know: choose too remote, no compensation.
In numerical questions, subtract avoidable loss first, then give the answer.

Common mistakes in Damages and Their Kinds

Thinking damages are meant to punish the defaulter.
Students link breach with penalty in everyday language.
Fix: Remember that contract damages compensate. Punitive or vindictive damages are generally not awarded for breach of contract.
Awarding special damages without checking whether the defaulter knew of the special circumstances.
The loss looks real, so students allow it.
Fix: Special loss is recoverable only if it was within the knowledge of both parties when they made the contract.
Judging foreseeability at the date of breach.
Students focus on what happened later.
Fix: Judge it at the time the contract was made.
Allowing remote or indirect loss.
Students feel any loss caused by breach must be paid.
Fix: Section 73 excludes remote and indirect loss. Only natural or known-likely loss counts.
Ignoring the duty to mitigate.
Students stop at the loss figure given.
Fix: Deduct loss the claimant could reasonably have avoided, for example by buying similar goods elsewhere.
Confusing nominal damages with ordinary damages.
Both words sound like small or basic amounts.
Fix: Nominal means a token sum where no loss is proved. Ordinary means real compensation for natural loss.

Worked examples

Example 1

Asha agrees to sell 100 bags of rice to Ravi at ₹2,000 per bag, delivery on 1 March. Asha fails to deliver. On 1 March the market price is ₹2,300 per bag. Ravi buys 100 bags in the market. What damages can Ravi claim?

Show the solution

The loss arises naturally from the breach, so it is ordinary damages.
Cost of buying in market = 100 × ₹2,300 = ₹2,30,000.
Contract price = 100 × ₹2,000 = ₹2,00,000.
Loss = ₹2,30,000 − ₹2,00,000 = ₹30,000.
Ravi mitigated by buying at the market price, so no further deduction applies.

Answer: Ravi can claim ₹30,000 as ordinary damages.

Example 2

A carrier agrees to deliver a machine part to a factory. He is not told that the factory will stop working without that part and that a big order will be lost. He delays delivery. Can the factory recover the profit lost on the big order?

Show the solution

The lost profit on the big order arises from special circumstances.
Special damages are payable only if the carrier knew of these circumstances when the contract was made.
He was not told, so the loss was not foreseeable at that time.
Under Section 73 such loss is remote and not recoverable.

Answer: No. The lost profit on the big order is too remote. The factory can claim only ordinary damages for the natural loss from the delay.

Exam tips

Most questions ask you to match a description to a kind of damages. Learn the one-line meaning of each.
If an option says damages are given to punish for ordinary breach, it is almost certainly wrong.
For case-style questions, look for whether special facts were communicated at the time of contract.
Watch for the phrases remote, indirect and not known. They signal no compensation.
Do not confuse this topic with liquidated damages and penalty under Section 74, which deals with a sum named in the contract.

Practice questions from Breach of Contract and Remedies for Breach of Contract

Damages and Their Kinds: frequently asked questions

What is the difference between ordinary and special damages?

Ordinary damages cover loss that arises naturally from the breach in the usual course of things. Special damages cover loss from unusual circumstances. They are payable only if those circumstances were known to the defaulting party when the contract was made.

What is the rule of remoteness of damage?

A party is liable only for loss that naturally arises from the breach or that both parties knew was likely when they made the contract. Loss that is remote or indirect is not payable. This rule comes from Hadley v Baxendale and is reflected in Section 73.

How is compensation calculated for breach of contract?

Find the actual loss that is proved and not too remote. In a sale of goods this is often the difference between the contract price and the market price. Then reduce it by any loss the claimant could reasonably have avoided.

Are vindictive damages given in breach of contract?

Generally no, because damages in contract compensate and do not punish. Some exceptions are mentioned in textbooks, such as breach of promise to marry and wrongful dishonour of a cheque by a bank.