Passage Based Questions - 2: Contract Law | Legal Reasoning for CLAT PDF Download

Read the passage and answers the questions given below:

A breach of contract occurs when one party fails to perform their obligations under a valid contract, as per the Indian Contract Act, 1872. Breaches can be anticipatory (before performance is due, Section 39) or actual (at the time of performance). For example, if a supplier informs a retailer three weeks before delivery that they cannot supply 500 units of goods, it constitutes an anticipatory breach, allowing the retailer to terminate the contract or claim damages. Actual breach occurs when performance is incomplete or defective, such as delivering only 300 units or faulty goods. Section 73 entitles the non-breaching party to damages for losses naturally arising from the breach or those reasonably foreseeable at the time of contract formation, as established in Hadley v. Baxendale (1854). The non-breaching party must mitigate losses, and remote or indirect losses are not compensable. For instance, if a wedding planner fails to book a venue, causing the client to pay extra for an alternative, the client can claim the additional cost but not emotional distress unless specifically contemplated.

Q1: What type of breach occurs when a party informs before the due date that they cannot perform their contractual obligations?
(A) Actual breach
(B) Anticipatory breach
(C) Partial breach
(D) Material breach

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Answer: (B) Anticipatory breach
Explanation: The passage defines an anticipatory breach as occurring when a party indicates before the performance date that they cannot fulfill the contract, governed by Section 39.

• (A) Actual breach occurs at the time of performance.
• (C) Partial breach is not a term used in the passage.
• (D) Material breach is not specifically defined in the passage.

Q2: Under which section of the Indian Contract Act, 1872, can a non-breaching party claim damages for losses naturally arising from a breach?
(A) Section 73
(B) Section 39
(C) Section 14
(D) Section 21

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Answer: (A) Section 73
Explanation: The passage states that Section 73 entitles the non-breaching party to damages for losses naturally arising or reasonably foreseeable at contract formation.

• (B) Section 39 governs anticipatory breaches, not damages.
• (C) Article 14 (from the remembered equality passage) relates to equality, not contracts.
• (D) Article 21 (from the remembered privacy passage) is irrelevant.

Q3: Anil contracts with a bakery to deliver 500 cakes for a festival by October 10, 2025. On October 1, the bakery informs Anil they can only deliver 200 cakes. Anil terminates the contract and buys cakes elsewhere at a higher cost. What is the strongest legal basis for Anil’s claim against the bakery?
(A) The bakery’s actions violate Anil’s right to privacy under Article 21
(B) The anticipatory breach allows termination and damages under Section 39
(C) The bakery failed to mitigate losses as required under Section 73
(D) The higher cost is a remote loss not compensable under Section 73

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Answer: (B) The anticipatory breach allows termination and damages under Section 39
Explanation: The passage explains that an anticipatory breach (the bakery’s refusal before October 10) allows the non-breaching party to terminate the contract and claim damages under Section 39. Anil’s higher costs are compensable under Section 73 if foreseeable.

• (A) Privacy (Article 21, from the remembered passage) is unrelated.
• (C) Mitigation is Anil’s duty, not the bakery’s.
• (D) Higher costs are typically foreseeable, not remote, per Hadley v. Baxendale.

Q4: Suman, a wedding planner, hires a decorator to set up a venue by July 15, 2025. The decorator delivers defective decorations on the day, forcing Suman to rent replacements at a 20% higher cost. Suman sues for the extra cost and emotional distress. Which factor will most likely determine whether Suman can claim damages for emotional distress?
(A) Whether the defective decorations violated equality under Article 14
(B) Whether the decorator mitigated losses by offering a refund
​(C) Whether the distress was reasonably foreseeable at contract formation
(D) Whether Suman’s replacement costs were minimal

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Answer: (C) Whether the distress was reasonably foreseeable at contract formation
Explanation: The passage, citing Hadley v. Baxendale, states that damages under Section 73 cover losses foreseeable at contract formation. Emotional distress is compensable only if specifically contemplated in the contract, making foreseeability the key factor.

• (B) The decorator’s mitigation doesn’t affect Suman’s distress claim.
• (A) Equality (Article 14, from the remembered passage) is irrelevant.
• (D) Replacement costs don’t determine distress claims.

Q5: Rhea, a retailer, contracts with a supplier to deliver 1,000 units of eco-friendly packaging by August 1, 2025, to meet environmental compliance. The supplier delivers only 600 units, causing Rhea to lose a major client. Rhea claims damages for lost profits. Which of the following best strengthens Rhea’s claim for lost profits?
(A) Evidence that the supplier knew the packaging was critical for Rhea’s client
(B) Proof that Rhea failed to mitigate losses by sourcing alternatives
(C) Testimony that the supplier’s delivery violated privacy under Article 21
(D) Data showing the lost client had no environmental impact

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Answer: (A) Evidence that the supplier knew the packaging was critical for Rhea’s client
Explanation: The passage states that Section 73 allows damages for losses reasonably foreseeable at contract formation (Hadley v. Baxendale). Evidence that the supplier knew the packaging’s importance makes lost profits foreseeable, strengthening Rhea’s claim. The environmental context ties to the remembered passage (Article 48-A), but the focus remains on contract law.

• (B) Failure to mitigate weakens Rhea’s claim.
• (C) Privacy (Article 21, from the remembered passage) is irrelevant.
• (D) Environmental impact doesn’t affect the foreseeability of profits