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

A, who owes money to B, a money-lender, agrees to repay by delivering 10 maunds of grain on a fixed date, and stipulates that if he fails he will deliver 20 maunds. A fails to deliver on time. What can B recover?

B can recover only reasonable compensation, because the stipulation to deliver double the grain on default is a penalty under Section 74. B cannot claim the 20 maunds as of right, and need not prove actual loss to be compensated.

  1. A20 maunds, because it was agreed
  2. BReasonable compensation only, as the stipulation is by way of penaltyCorrect
  3. CNothing, unless B proves actual loss
  4. D10 maunds plus interest at any rate B chooses

Explanation

This is an illustration to Section 74: doubling the quantity on default is a stipulation by way of penalty, so B is entitled only to reasonable compensation. B need not prove actual loss to claim, which rules out the third option. The 20 maunds is not recoverable as of right.

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