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

Neha agrees to deliver 10 maunds of grain to Omkar, a money-lender, in repayment of a debt. She stipulates that if she fails to deliver on the due date, she will deliver 20 maunds. She fails to deliver on time. What may Omkar recover?

Doubling the grain to be delivered on default is a stipulation by way of penalty under illustration (e) to Section 74. Omkar cannot demand 20 maunds as of right. He is entitled only to reasonable compensation as the Court considers fair.

  1. AExactly 20 maunds, as the parties agreed
  2. BOnly 10 maunds, with no compensation for delay
  3. CReasonable compensation as the Court considers fair, as the stipulation is by way of penaltyCorrect
  4. DNothing, because a stipulation of this kind makes the contract void

Explanation

Illustration (e) to Section 74 treats the doubling of the quantity on default as a stipulation by way of penalty. The creditor is entitled only to reasonable compensation. Exactly 20 maunds is wrong because penalties are not enforced as written.

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