Skip to content

IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Nilgiri Health Ltd contracted to buy a specially configured claims engine from Delta Systems for ₹40 lakh, delivery on 1 April. Delta repudiated on 15 March. Nilgiri could have bought an equivalent engine on the open market for ₹44 lakh, but instead did nothing for three months and then bought one for ₹52 lakh after prices rose sharply due to a shortage. Nilgiri claims ₹12 lakh. Which view is most consistent with the rules on damages?

Only about ₹4 lakh is likely recoverable. Nilgiri had a duty to mitigate and could have bought a substitute at ₹44 lakh against the ₹40 lakh contract price. The additional ₹8 lakh arose from its own delay, so it cannot be claimed from Delta.

  1. A₹12 lakh is recoverable, because the loss flowed naturally from the breach
  2. BOnly ₹4 lakh is likely recoverable, because Nilgiri failed to mitigate its loss when a reasonable substitute was availableCorrect
  3. CNothing is recoverable, because the price was fixed
  4. D₹52 lakh is recoverable, as damages equal the replacement price
  5. Damages are limited to a nominal sum because the engine was bespoke

Explanation

The injured party must take reasonable steps to mitigate loss and cannot recover loss it could have avoided. A substitute was available at ₹44 lakh, so the reasonable loss is 44 − 40 = ₹4 lakh. The extra ₹8 lakh came from Nilgiri's inaction, and claiming ₹12 lakh ignores this duty. Option ₹52 lakh also wrongly ignores the contract price.

Did you get it right without looking?

One question tells you little. A timed set on Implied terms, exclusion of liability, contractual remedies and damages shows your real accuracy, how long you take and where you lose marks.

Practise Implied terms, exclusion of liability, contractual remedies and damagesFree diagnostic mock

More Implied terms, exclusion of liability, contractual remedies and damages questions