Skip to content

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

A borrows Rs. 1,000 from B at 12 per cent interest repayable after six months. The bond states that on default interest will be 75 per cent from the date of default. How does the law treat this stipulation?

The increased interest rate is a stipulation by way of penalty, so B can recover only such compensation as the court considers reasonable. Section 74 and its illustration on a bond with 75 per cent default interest show that such a term is not enforced strictly as written.

  1. AIt is a valid term enforceable strictly as written
  2. BIt makes the whole contract void
  3. CIt is a stipulation by way of penalty, so B gets only reasonable compensation as the court considers fitCorrect
  4. DIt is enforceable only if A signed before two witnesses

Explanation

Section 74, including its Explanation and illustration (d), treats increased interest from the date of default as a stipulation that may be a penalty. B is then limited to reasonable compensation. Option A is wrong because strict enforcement is not allowed.

Did you get it right without looking?

One question tells you little. A timed set on Breach of Contract and Remedies for Breach of Contract shows your real accuracy, how long you take and where you lose marks.

Practise Breach of Contract and Remedies for Breach of ContractFree diagnostic mock

More Breach of Contract and Remedies for Breach of Contract questions