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

Anil agrees to repay a loan of Rs. 1,000 to Bharat in five equal monthly instalments, with a stipulation that if any instalment is not paid, the whole amount becomes due. Under Section 74 illustrations, this stipulation is:

The acceleration stipulation is not by way of penalty, so the contract can be enforced according to its terms. Section 74 illustration (f) treats making the whole loan due on default of an instalment as valid, since it adds no extra sum beyond the debt.

  1. AA penalty, so only reasonable compensation is recoverable
  2. BVoid because it accelerates the debt
  3. CNot by way of penalty, and the contract may be enforced according to its termsCorrect
  4. DValid only if the Court first finds actual loss to Bharat

Explanation

Illustration (f) states that an acceleration clause making the whole sum due on default of an instalment is not a penalty and the contract can be enforced as written. Option A confuses it with illustration (g), where the bond amount was inflated.

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