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

Meera Traders signs a contract with Kapoor Logistics. It says that if Kapoor Logistics breaks the contract, it will pay Rs. 50,000. Kapoor Logistics breaks the contract, and Meera Traders cannot prove any actual loss. What is the legal position under Section 74 of the Indian Contract Act, 1872?

Under Section 74, when a sum is named for breach, the injured party may receive reasonable compensation not exceeding that sum, even if no actual loss is proved. The amount is fixed by reasonableness, not automatically the full named figure, and it can never exceed the stipulated amount.

  1. AMeera Traders gets nothing, because no actual loss is proved
  2. BMeera Traders may receive reasonable compensation not exceeding Rs. 50,000, whether or not actual loss is provedCorrect
  3. CMeera Traders must receive exactly Rs. 50,000 in every case
  4. DMeera Traders may receive any amount the Court considers fair, even above Rs. 50,000

Explanation

Section 74 entitles the complaining party to reasonable compensation not exceeding the named sum, whether or not actual damage or loss is proved. So proof of loss is not required. The option of exactly Rs. 50,000 is wrong because the Court awards only what is reasonable, subject to that ceiling.

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