Breach of contract and Compensation

Section 74 entitles a person complaining of breach of contract to get reasonable compensation and does not entitle him to realize anything by way of penalty. When there is a breach of contract and when the contract itself has provided that an amount of compensation has to be paid, the Court has power to award either the entire amount so fixed or a reasonable portion thereof, whether or not the actual loss is proved.

Illustrations

1. A contracts with B to pay B Rs. 1,000 if he fails to pay B Rs 500 on a given day. A fails to pay Rs 500 on that day. B is entitled to recover from A such compensation not exceeding Rs 1,000 as the Court considers reasonable.
2. A contracts with B, if A practices as surgeon within Calcutta he will pay Rs 5,000. A practices as a surgeon in Calcutta. B is entitled to such compensation, not exceeding Rs 5000 as the Court considers reasonable.
3. A gives a recognizance binding him in a penalty of Rs 500 to appear in Court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.
4. A gives B a bond for the repayment of Rs 1000 with interest at 12 percent payable at the end of six months with a stipulation that in case of default interest shall be payable at the rate of 75 percent from the date of default. This is stipulation by way of penalty and B is only entitled to recover from A such compensation as the Court considers reasonable.
5. A, who owes money to B, a moneylender, undertakes to repay him by delivering to him 10 maunds of grain on a certain date, and stipulates that, in the event of his delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 maunds. This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach.
6. A undertakes to repay B a loan of Rs 1000 by five equal monthly installments with a stipulation that in default of payment of any installment, the whole sum shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms.
7. A borrows Rs, 100 from B and gives him a bond for Rs 200 payable by five yearly installments of Rs 4 by five yearly installments of Rs 40, with a stipulation that in default of payment of any installment, the whole sum shall become due. This is stipulation by way of penalty.

Exception: When any person enters into bail bond, recognizance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the Central Government or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested he shall be liable upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

In India, an exception is made in case of bail bond, recognizance or other instruments under the provisions of any law for the performance of any public duty, when the whole sum mentioned becomes payable on breach of a condition stipulated.

Illustration:

A gives a recognizance binding him in a penalty of Rs 500 to appear in Court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.

However, this exception does not cover ordinary contracts with the Government. A person who enters into a contract with the Government does not necessarily undertake any public duty, or promise to do an act in which the public are interested.

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