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CA Foundation · Business Laws · The Indian Contract Act, 1872

Vikram, a tailor, agrees to stitch 20 uniforms for Sharma School. He breaches the contract. Sharma School claims Rs 2,00,000 for loss of a possible big order from a college, which it had never told Vikram about when contracting. Which statement is correct?

The Rs 2,00,000 claim fails because it is a remote loss. Damages cover only loss arising naturally from the breach or loss the parties knew was likely when contracting. Since the college order was never disclosed to Vikram, he could not have contemplated it, so it is not recoverable.

  1. ARs 2,00,000 is not recoverable because it is a remote loss not within the parties' contemplationCorrect
  2. BRs 2,00,000 is recoverable because loss actually occurred
  3. CRs 2,00,000 is recoverable because Vikram committed the breach
  4. DRs 2,00,000 is recoverable as special damages without notice

Explanation

Damages are allowed only for loss that naturally arises from the breach or that the parties knew, when contracting, to be likely. Remote and indirect losses are not recoverable. Since the college order was not communicated to Vikram, the loss is too remote. Special circumstances must be brought to the other party's notice.

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