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

Under Section 74 of the Indian Contract Act, 1872, when a contract names a sum payable on breach, the party complaining of the breach can receive from the defaulting party:

The aggrieved party gets reasonable compensation not exceeding the sum named in the contract, and this is available even if actual loss is not proved. The named amount acts only as a maximum limit, and the court decides what is reasonable.

  1. AReasonable compensation not exceeding the amount named, whether or not actual loss is provedCorrect
  2. BThe entire named sum in every case, without any court assessment
  3. COnly the actual loss proved, and nothing if no loss is shown
  4. DDouble the named sum as punitive damages

Explanation

Section 74 entitles the aggrieved party to reasonable compensation not exceeding the named sum or penalty, and proof of actual loss is not a precondition. The named sum is a ceiling, not an automatic entitlement, so the option giving the entire sum in every case is wrong.

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