Section 73 of Indian Contract Act

73. Compensation for loss or damage caused by breach of contract.— When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract.— When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation.— In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

Illustrations

(a) A contracts to sell and deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like quality at the time when the saltpetre ought to have been delivered.

(b) 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 to bring it to Calcutta, the freight to be paid when earned. B’s ship does not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.

(c) A contracts to buy of B, at a stated price, 50 maunds 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.

(d) A contracts to buy B’s ship for 60,000 rupees, 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.

(e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for 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 difference 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 price at the time when it actually arrived.

(f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conform to the contract.

(g) 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 contract price and the price for which B could hire a similar ship for a year on and from the first of January.

(h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.

(i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A’s mill informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.

(j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 80 rupees a ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B.

(k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece of machinery at the time specified, and in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a third person at the time of his contract with A (but which had not been then communicated to A), and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation, the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation.

(l) A, a builder, contracts to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January, it falls down and has to be re-built by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost, and for the compensation made to C.

(m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.

(n) A contracts to pay a sum of money to B on a 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.

(o) A contracts to deliver 50 maunds of saltpetre to B on the first of January, at a certain price. B afterwards, before the first of January, contracts to sell the saltpetre to C at a price higher than the market price of the first of January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account.

(p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B’s mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by the closing of the mill.

(q) A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making preparation for the manufacture.

(r) A, a ship-owner, contracts with B to convey him from Calcutta to Sydney in A’s ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being in consequence detained in Calcutta for some time and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit, with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship over that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late.

MCQs Based on Section 73 of the Indian Contract Act, 1872

1. Under Section 73, compensation can be claimed for which type of loss?

A) Remote and indirect loss
B) Loss that naturally arises in the usual course of things
C) Emotional distress
D) Loss not connected with the contract at all

Correct Answer: B
Explanation: Compensation is allowed for loss that naturally arises in the usual course of things due to breach.

2. Which of the following losses is not recoverable under Section 73?

A) Market price difference
B) Loss of government contract not disclosed
C) Loss due to non-delivery of goods
D) Expenses incurred to mitigate loss

Correct Answer: B
Explanation: Losses that are remote and not communicated to the party at the time of contract are not recoverable.

3. When an obligation resembling a contract is not discharged, the injured party is entitled to compensation under Section 73:

A) Only if there is a written contract
B) Only if the damage is physical
C) As if the obligation was part of a contract
D) Only if a third party suffers loss

Correct Answer: C
Explanation: Section 73 covers non-contractual obligations resembling contracts, and compensation is given as if it was a contract.

4. In which of the following cases will the court consider the injured party’s effort to reduce the loss?

A) If no communication was made
B) While calculating compensation
C) While proving breach of contract
D) During criminal prosecution

Correct Answer: B
Explanation: The Explanation to Section 73 states that means of remedying the inconvenience must be considered while estimating compensation.

5. A fails to deliver goods to B. B finds alternate goods at higher price. What compensation is B entitled to?

A) Only refund of advance
B) Difference in price between the two goods
C) Expected profit from resale
D) Penalty

Correct Answer: B
Explanation: Compensation includes direct loss like price difference; not speculative profits unless foreseeable.

6. Which case will not qualify for compensation under Section 73?

A) B knew about A’s resale to C and delivery delay affected it
B) A fails to pay loan on time, and B is ruined
C) A delays delivery of machine, B hires new one at higher cost
D) A fails to deliver jute, B loses value due to market drop

Correct Answer: B
Explanation: Under Illustration (n), emotional or personal financial ruin is too remote to be compensated.

7. Which of the following is true under Section 73?

A) All kinds of losses are recoverable
B) Only direct and foreseeable losses are recoverable
C) No losses are recoverable if there’s no written contract
D) Mental agony is always compensated

Correct Answer: B
Explanation: Section 73 clearly limits compensation to direct and foreseeable losses, not remote or emotional ones.

8. In the case of delay in delivery of cloth for making seasonal caps, B can claim:

A) Compensation for entire business loss
B) Loss of expected profit
C) Only difference between contract price and market price
D) Full refund and penalty

Correct Answer: C
Explanation: As per Illustration (q), profit loss is not allowed since it was not foreseeable, only market difference is paid.

9. A fails to complete B’s house by deadline. B had promised possession to C. A knew about it. B can claim:

A) Only cost of rebuilding
B) Rebuilding cost, lost rent, and compensation to C
C) Only compensation to C
D) Nothing

Correct Answer: B
Explanation: As A was aware of the sub-contract, all related losses are recoverable (Illustration l).

10. Under Section 73, which of the following is not required to claim compensation?

A) Written contract
B) Proof of breach
C) Actual loss suffered
D) Loss must be direct or foreseeable

Correct Answer: A
Explanation: Section 73 applies even to implied contracts or obligations resembling contracts, not just written ones.

11. Which of the following best describes “remoteness of damages” under Section 73?

A) Losses caused by third parties
B) Losses not reasonably foreseeable by parties at the time of contract
C) Any loss after contract termination
D) Personal inconvenience or stress

Correct Answer: B
Explanation: “Remoteness” means the loss was not foreseeable or within the contemplation of parties when the contract was made.

12. B breaches contract and A is forced to spend money to hire another service provider. What is A entitled to?

A) Compensation for inconvenience only
B) Penalty
C) Compensation for additional expense and trouble
D) No compensation

Correct Answer: C
Explanation: According to Illustration (b), A can claim expenses and trouble due to breach.

13. If buyer refuses to accept goods, what can seller claim?

A) Full price of goods
B) Compensation if market price falls
C) Only interest on amount
D) No compensation unless in writing

Correct Answer: B
Explanation: As per Illustration (c), seller can claim loss due to fall in price at time of buyer’s refusal.

14. Which of the following is an exception to claiming loss of profit?

A) Profit was shared with third party
B) Profit was not part of the contract discussion
C) Profit was minor
D) Profit was below cost price

Correct Answer: B
Explanation: Unless expected profit was within contemplation of parties at contract time, it is not compensable.

15. If a party fails to deliver on time and this causes buyer to default on another contract, unknown to seller, compensation is:

A) Full compensation for buyer’s default
B) None for the unknown third-party loss
C) Only for seller’s cost
D) Full refund and damages

Correct Answer: B
Explanation: As per Illustration (k), seller is not liable for third-party loss not disclosed at the time of contract.

Section 73 Problem-Based Practice Questions

1. Destruction of Subject Matter Before Performance

Q: A agrees to sell his rare painting to B for ₹5 lakhs. Before the delivery date, the painting is destroyed in a fire without A’s fault. B files a suit for damages.

Answer: B is not entitled to compensation.
Explanation: The contract becomes void due to impossibility (S.56). Hence, no breach occurs, and S.73 is inapplicable.

2. Secret Profit in Subcontract

Q: A contracts to sell 100 bags of wheat to B at ₹2,000 per bag. B, without A’s knowledge, enters into a resale contract with C at ₹2,500 per bag. A fails to deliver. B sues A for ₹50,000 profit loss.

Answer: B is not entitled to the profit loss.
Explanation: This is a remote loss. A was unaware of the resale deal. Only market price difference is compensable.

3. Delivery Delay – Foreseeable Market Loss

Q: A delays delivery of cotton to B due to his own fault. During this time, the price of cotton drops in the market. B suffers loss and sues A.

Answer: B is entitled to compensation for the price difference.
Explanation: This is a natural consequence of delay and direct loss under Section 73.

4. Replacement from Market at Higher Price

Q: A agrees to supply machinery to B by 1st June. A fails to deliver. B buys another machine at a higher price and sues A.

Answer: B can recover the extra amount paid.
Explanation: This is the actual loss arising naturally from the breach.

5. Unknown Business Dependency

Q: A agrees to deliver 500 kg of cotton to B. A was unaware that B needed it to run his factory. A fails to deliver, and B’s factory shuts down for a week. B sues for the loss.

Answer: B cannot recover factory loss.
Explanation: Loss from shutdown is remote, as A didn’t know B’s business dependency.

6. Warranty Breach Leading to Third-Party Claim

Q: A sells B goods with a warranty. B resells to C with a similar warranty. Goods are defective. C sues B, and B claims damages from A.

Answer: B can recover from A.
Explanation: A’s breach of warranty entitles B to be reimbursed for third-party compensation.

7. Buyer Wrongfully Refuses to Accept Goods

Q: A contracts to supply goods to B at ₹1,000 per unit. B wrongfully refuses delivery. A sells in the market at ₹800/unit. A sues B.

Answer: A can recover ₹200 per unit.
Explanation: Direct loss of profit due to wrongful refusal is compensable.

8. Damages for Construction Delay Known to Both Parties

Q: A agrees to construct a house for B by 1st January. B had informed A that he would rent it to C from that date. A delays. B pays compensation to C and sues A.

Answer: B can recover rent loss and compensation paid to C.
Explanation: Loss was foreseeable and within the knowledge of both parties.

9. Compensation for Efforts to Mitigate Loss

Q: A contracts with B to ship goods. A fails. B arranges alternative transport at the same cost but spends extra effort and time. B sues A.

Answer: B can recover compensation for inconvenience and expenses.
Explanation: Even if no monetary loss, inconvenience and mitigation expenses are recoverable.

10. Unpaid Debt Leads to Personal Ruin

Q: A fails to repay ₹2 lakhs to B on the due date. B is unable to repay his debts and is declared bankrupt. B claims compensation for ruin.

Answer: B can only recover principal + interest.
Explanation: Personal ruin is remote loss, not compensable under Section 73.

11. Substitute Contract Causes Extra Loss

Q: A contracts to supply raw material to B. A fails. B purchases the same at a higher price and also loses a resale contract with C, which A was unaware of. B sues A.

Answer: B can recover the extra price paid, but not loss from contract with C.
Explanation: The resale contract was not known to A. Only foreseeable direct losses are covered.

12. Failure to Deliver Perishable Goods in Time

Q: A agrees to deliver mangoes to B by a fixed date. Due to A’s delay, the mangoes rot. B sues A.

Answer: B can recover the loss.
Explanation: The loss was foreseeable and natural, especially since mangoes are perishable.

13. Loss of Seasonal Market

Q: A fails to deliver cloth to B for manufacturing Holi garments. B misses the seasonal demand and sues for expected profit.

Answer: B cannot recover expected profit unless A was informed.
Explanation: If A was unaware of seasonal dependency, the profit loss is remote.

14. Extra Cost Due to Substandard Work

Q: A contracts to build B’s office using quality materials but uses poor materials. B repairs it later at extra cost and sues A.

Answer: B can recover the cost of repairs.
Explanation: Cost to bring work in conformity with contract is direct and compensable.

15. Third Party’s Default Affects Performance

Q: A contracts with B to supply iron. A procures it from C, informing C of the purpose. C fails to deliver. A loses contract with B. A sues C.

Answer: A can recover the profit lost.
Explanation: Since C was aware of the downstream contract, lost profits are recoverable.

16. Passenger Misses Business Opportunity

Q: A fails to provide ship transport to B on time. B travels later and loses a business deal. B sues A.

Answer: B cannot recover business loss unless A knew about it.
Explanation: Loss of opportunity is remote unless specifically communicated.

17. Payment Default for Construction

Q: A agrees to complete building by Jan 1. A delays and the building is completed in April. Rent is lost for 3 months. B sues A.

Answer: B can recover the 3 months’ rent.
Explanation: This is foreseeable loss directly arising from breach.

18. Compensation for Failure to Discharge Quasi-Contractual Obligation

Q: A receives money by mistake from B but fails to return it. B suffers financial loss due to non-availability of funds.

Answer: B can claim compensation.
Explanation: This is an obligation resembling a contract, covered under the second limb of Section 73.

19. Delay in Supply of Industrial Equipment

Q: A agrees to supply a machine to B by a date. A delays, and B is forced to rent a machine temporarily. B sues for rental cost.

Answer: B can recover rental cost.
Explanation: Rental cost is a natural means of remedying inconvenience and is recoverable.

20. Non-Delivery of Commercial Goods

Q: A agrees to deliver 500 bales of cotton to B. A fails. B buys from the market at a higher price. A claims he is not liable as cotton prices fluctuated.

Answer: A is liable for the price difference.
Explanation: Market difference is the standard method of calculating damages in commercial contracts.

Final Thoughts

Introduction

Contracts are legal promises. When one party fails to keep the promise, the other party suffers a loss. To protect the rights of the innocent party, Section 73 of the Indian Contract Act, 1872, provides a legal remedy in the form of compensation (damages).

Full Provision – Simplified Explanation

Section 73 says that:

Also, if someone fails to do something similar to a contract (but not an actual contract), and that failure causes loss, then compensation will be given as if it were a contract.

Important Explanation

While calculating the compensation:

Illustrations (Examples)

(a) Price Difference Due to Breach

(b) Alternate Arrangement with Trouble

(c) Refusal to Accept Goods

(d) Breach in Sale of Ship

(e) Delay in Delivery and Fall in Market Price

(f) Improper Repair

(g) Ship Hire and Market Rise

(h) Buyer Refuses to Accept Goods

(i) Delay in Delivery of Machine

(j) Chain Contracts and Breach

(k) Late Delivery and Lost Business

(l) Bad Construction and Loss of Rent

(m) Goods Not Matching Quality

(n) Late Payment and Personal Ruin

(o) Market Price vs. Profit

(p) Unknown Business Impact

(q) Seasonal Business Loss

(r) Failure to Provide Passage

Key Points to Remember for Exams

  1. Only direct and foreseeable losses are compensated
  2. Indirect and remote losses are not compensated
  3. Injured party must try to reduce loss (mitigation)
  4. Damages include both actual loss and loss of profit, if foreseeable
  5. Section applies to breach of contract and similar obligations

Conclusion

Section 73 is a foundation of contractual remedies in Indian law. It balances the rights of both parties. It ensures that the innocent party is not left helpless but also protects the other party from unfair or unlimited liability.