There Must Be Causal Connection Between Breach Of Contract And Loss Sustained By Party Claiming Damages: Calcutta High Court
The Calcutta High Court has held that for claiming damages, there must be a causal connection between the breach of contract and the loss sustained by the party who suffers the breach.While dealing with a suit for recovery of earnest money, Justice Ravi Krishan Kapur observed,"The general aim of the law of damages is to protect the innocent party's defeated financial expectation and...
The Calcutta High Court has held that for claiming damages, there must be a causal connection between the breach of contract and the loss sustained by the party who suffers the breach.
While dealing with a suit for recovery of earnest money, Justice Ravi Krishan Kapur observed,
"The general aim of the law of damages is to protect the innocent party's defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness. There must be a causal connection between the breach of contract and the loss sustained by the party who suffers the breach. The important issue is whether a particular loss was within the reasonable compensation of the parties."
The bench said that the respondent party could not claim damages for expenses incurred for his medical expenditure, for the same not being a foreseeable event when the underlying transaction is one for sale of land. It held that the general aim of law of damages is to protect the innocent party's defeated financial expectation and compensate him for his loss of bargain, subject to the rules of causation and remoteness.
The instant proceedings arose out of an agreement for purchasing commercial premises whereby the instant petitioners had deposited an earnest money of Rs. 25,00,000 as security deposit. However, subsequent to such payment, the respondents failed to either handover documents for regularisation of the premises or handover symbolic possession of such premises.
Counsels for the respondents contended that petitioners had failed to make payment of entire sale consideration and accordingly agitated for specific performance of the agreement. Respondents further contended that, in the alternative, they were entitled to forfeit the entire earnest money deposit on account of loss and damages suffered by the respondents due to the alleged default of the petitioners.
Observing that forfeiture of the right to earnest money was ordinarily available as a right only if the contract contains a stipulation in that regard, the Court held:
"To justify forfeiture of earnest deposit the contract between the parties should also be sufficiently explicit. Smaller payments are likely to be treated as deposits and are liable to be forfeited. Larger payments are more likely to be treated as part payments towards consideration."
So far as damages suffered by the respondents are concerned, the Court found the same to be indirect and remote.
The claims of loss and damages as agitated by the respondents were accordingly rejected by the Court and interim injunction for preserving and protecting any future money judgment in favour of the petitioners was granted.
"The final outcome of suits takes years if not decades. Even without an intention to defraud creditors, the vicissitudes of the market, cycle changes of any business, the overall financial condition of any respondent is such that may with the passage of time make any plaintiff disinterested and the claim irrelevant."
Case: Usha Devi Chokhani & Anr. v. Kusum Surekha & Anr., CS 263 of 2021
Date: 22.11.2022
Citation: 2022 LiveLaw (Cal) 344
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