Legal principle :when there is breach of contract, the resulting damages will have to be paid by the party breaching the contract to the aggrieved party. However, the parties are free to agree as to damages payable n advance in case three is breach of contract.
Factual Situation: Mr. Ramesh entered into a contract with Mr. Ramakrishna for selling his green Alto Car for Rs. 3 Lakhs. Mr. Ramakrishan was to pay Rs. 3 lakhs on or before 25 April, 2005 and take possession of the car. The party failing to honor the contract has to pay Rs. 40,000 as damages to the other party. Mr. Ramakrishna has not performed his part of the contract . Mr. Ramesh is claiming Rs.40,000.