Passage Based Questions - 3: Contract Law | Legal Reasoning for CLAT PDF Download

Read the passage and answers the questions given below:

When a contract is breached, the Indian Contract Act, 1872, provides remedies to protect the non-breaching party’s interests. Section 73 allows compensatory damages to cover losses directly resulting from the breach. Section 74 governs liquidated damages, where parties agree on a fixed sum payable upon breach, provided it is a genuine pre-estimate of loss, as seen in Fateh Chand v. Balkishan Dass (1963). If the sum is a penalty (unreasonably high), courts may award reasonable compensation instead. Specific performance, under Section 10 of the Specific Relief Act, 1963, compels the breaching party to perform their obligations, typically for unique goods or property, but not for personal services. For example, if a developer agrees to sell a specific plot to a buyer but sells it to another, the buyer may seek specific performance if the plot is unique. Injunctions, another remedy, prevent a party from breaching a negative term of the contract, such as a singer contracted not to perform for others during a tour. The choice of remedy depends on the breach’s nature and the contract’s terms.

Q1: Which section of the Indian Contract Act, 1872, allows compensatory damages for losses directly resulting from a contract breach?
(A) Section 10
 (B) Section 73
 (C) Section 74
 (D) Section 14

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Answer: (B) Section 73
Explanation: The passage states that Section 73 allows compensatory damages for losses directly resulting from a breach.
Why other options are incorrect: (A) Section 10 (from remembered contract formation passage) governs contract elements; (C) Section 74 covers liquidated damages; (D) Section 14 (from remembered contract formation passage) defines free consent.

Q2: What remedy compels a breaching party to fulfill their contractual obligations, typically for unique goods or property?
(A) Injunction
 (B) Liquidated damages
 (C) Specific performance
 (D) Compensatory damages

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Answer: (C) Specific performance
Explanation: The passage explains that specific performance, under Section 10 of the Specific Relief Act, 1963, compels performance for unique goods or property, like a specific plot.
Why other options are incorrect: (A) Injunctions prevent breaches of negative terms; (B) Liquidated damages involve pre-agreed sums; (D) Compensatory damages cover monetary losses, not performance.

Q3: Vikram contracts with a jeweler to purchase a unique antique necklace for Rs. 2,00,000, but the jeweler sells it to another buyer. Vikram seeks a legal remedy. What is the most appropriate remedy for Vikram to pursue?
(A) Compensatory damages under Section 73
(B) Specific performance under Section 10 of the Specific Relief Act
(C) Injunction to prevent future sales
(D) Penalty under Section 74

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Answer: (B) Specific performance under Section 10 of the Specific Relief Act
Explanation: The passage notes that specific performance is suitable for unique goods, like an antique necklace, compelling the breaching party to perform, as in the plot example.
Why other options are incorrect: (A) Compensatory damages (Section 73) cover monetary losses, not unique items; (C) Injunctions prevent negative acts, not sales already made; (D) Section 74 applies to pre-agreed sums, not applicable here.

Q4: Nisha hires a band to perform exclusively at her event for Rs. 50,000, with a clause prohibiting performances for others during the event week. The band performs elsewhere, breaching the clause. Nisha seeks a remedy. Which remedy is most suitable, and why?

(A) Specific performance, as the performance is unique
(B) Liquidated damages, for environmental harm
(C) Compensatory damages, for emotional distress
(D) Injunction, to enforce the negative term of the contract

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Answer: (D) Injunction, to enforce the negative term of the contract
Explanation: The passage states that injunctions prevent breaches of negative contract terms, such as a singer (or band) performing for others, as in the example provided.
Why other options are incorrect: (A) Specific performance doesn’t apply to personal services; (C) Emotional distress isn’t typically compensable (from remembered breach passage); (B) Liquidated damages require a pre-agreed sum, and environmental harm (from remembered environmental material) is irrelevant.

Q5: Arjun contracts with a supplier to deliver 1,000 units of raw materials for Rs. 1,00,000, with a clause stating Rs. 20,000 as liquidated damages for non-delivery. The supplier fails to deliver, causing Arjun a Rs. 30,000 loss. Arjun claims Rs. 20,000. Which factor best determines whether Arjun receives the full Rs. 20,000?
(A) Whether the Rs. 20,000 is a genuine pre-estimate of loss
(B) Whether the supplier’s breach violates equality under Article 14
(C) Whether Arjun mitigated his losses
(D) Whether the contract protects privacy under Article 21

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Answer: (A) Whether the Rs. 20,000 is a genuine pre-estimate of loss
Explanation: The passage, citing Fateh Chand v. Balkishan Dass, states that Section 74 awards liquidated damages if they are a genuine pre-estimate of loss; otherwise, courts award reasonable compensation.
Why other options are incorrect: (B) Article 14 (from remembered equality material) is unrelated; (C) Mitigation (from remembered breach passage) applies to Section 73, not liquidated damages; (D) Article 21 (from remembered privacy material) is irrelevant.