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

Nisha, who owes money to a money-lender Gopal, undertakes to repay him by delivering 10 maunds of grain on a fixed date. She also stipulates that if she fails to deliver on time she will deliver 20 maunds. She defaults. What can Gopal recover under Section 74?

Gopal can recover only reasonable compensation. Under illustration (e) to Section 74, a stipulation to deliver 20 maunds instead of 10 on default is a penalty, so the creditor cannot enforce the larger quantity as agreed.

  1. AReasonable compensation only, because the stipulation is by way of penaltyCorrect
  2. B20 maunds of grain, because Nisha agreed to it
  3. COnly 10 maunds, with no compensation
  4. DNothing, because the contract is not enforceable

Explanation

Illustration (e) to Section 74 treats doubling the quantity on default as a stipulation by way of penalty. The creditor is only entitled to reasonable compensation. Claiming 20 maunds is wrong because that is the penalty, and the option of only 10 maunds with no compensation ignores the right to reasonable compensation for the breach.

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