Question

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 in advance in case there is breach of contract.
Facts: Mr. Ramesh entered into a contract with Mr.Ramakrishna for selling his green Alto Car for 3 lakhs. Mr. Ramakrishna was to pay Rs.3 lakhs on or before 25 April, 2005 and take possession of the car. The party failing to honour 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.

Choose the correct option.

• A. Mr. Ramesh can sell the car in the second hand market and if he suffers any loss, then only he can claim that amount from Mr.Ramkrishna.
• B. Mr. Ramkrishna is liable to pay the agreed damages.
• C. Mr. Ramesh has to prove that he has suffered Rs.40,000 as damages to get it.
• D. None of the above.

Answer 1

Answer: (B)

Mr. Ramkrishna is liable to pay the agreed damages.

• Section 74 of the Indian Contract Act, 1872 states that in case of breach of contract, if the sum of penalty on breach of contract is mentioned in the contract itself, the aggrieved party is entitled to receive only this stipulated sum.
  
• The amount of compensation cannot be changed even if the actual damage or loss caused may be more or lesser than the amount through proper analysis. Therefore, Mr. Ramesh is entitled to receive compensation of Rs 40,000 even if the actual damage may be more.