Multiple choice

Where a contract contains a stipulation by way of penalty on breach of contract, the aggrieved party is entitled for compensation:

  1. Stipulated amount, if actual loss is proved

  2. Stipulated amount, even actual loss is not proved

  3. Reasonable amount but not more than stipulated amount

  4. Reasonable amount, even more than stipulated amount if loss is proved
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under Indian Contract Act, Section 74, when a contract contains a penalty stipulation, the aggrieved party can claim reasonable compensation not exceeding the stipulated amount. Courts are not bound by the penalty amount and award only actual loss proved, subject to the penalty ceiling. Option D is incorrect because compensation cannot exceed the stipulated amount regardless of proved loss.

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