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CS Executive · Jurisprudence, Interpretation and General Laws · Contract Law

Sharma Traders agreed to supply 500 bags of rice to Gupta Stores by 1 March and the contract named Rs. 50,000 as the sum payable by the defaulting party on breach. Sharma Traders failed to deliver. Gupta Stores sues without proving the exact loss it suffered. Under Section 74 of the Indian Contract Act, 1872, what is the position?

Gupta Stores may recover reasonable compensation not exceeding the Rs. 50,000 named in the contract, even without proving actual loss. Section 74 sets the named sum as a ceiling, and the court decides what is reasonable within it.

  1. AGupta Stores gets nothing unless actual loss is proved
  2. BGupta Stores may receive reasonable compensation not exceeding Rs. 50,000, whether or not actual loss is provedCorrect
  3. CGupta Stores must always be paid the full Rs. 50,000
  4. DGupta Stores may receive any amount the court thinks fit, even above Rs. 50,000

Explanation

Section 74 entitles the party complaining of breach to reasonable compensation not exceeding the named sum, whether or not actual damage is proved. Option C is wrong because the court awards only reasonable compensation, which is not automatically the full named sum. Option A is wrong because proof of actual loss is not required.

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