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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Sundaram Textiles Ltd agrees to deliver 500 bales of cloth to Kavya Garments on 1 March. It delivers late, and Kavya Garments loses the ordinary profit it would normally have earned from using the cloth in its usual business. Under the Indian Contract Act, which statement best describes the loss that Kavya Garments can recover?

Kavya Garments can recover loss arising naturally in the usual course from the breach, or loss both parties knew at the time of contracting would probably result. Remote or indirect losses are not recoverable, so ordinary lost profit is claimable but unusual losses are not.

  1. AOnly losses that arise naturally in the usual course of things from the breach, or that both parties knew would probably resultCorrect
  2. BEvery loss that followed from the breach, however unusual, provided it was caused by the delay
  3. COnly losses that can be measured exactly in rupees before the contract was signed
  4. DRemote and indirect losses, because the supplier is in breach
  5. Only the price already paid, with no allowance for lost profit

Explanation

Compensation is available for loss naturally arising in the usual course from the breach, or loss the parties knew at contract time was likely. Ordinary lost profit from usual use falls within this. Unusual losses and remote or indirect losses are excluded, so the second and fourth options are wrong.

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