Law Answer Writing Practice 2018 - Week 8 - Question 4
90 Days Law Answer Writing Practice Question 2 for 02-Jan-2019
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02-Jan-2019 - Question 2
"Section 74 of the Indian Contract Act, 1872 has cut down the most troublesome knot of Common law doctrine of awarding damages". Discuss the statement. (2017) - 20 Marks
For Question 1 - Click Here
n certain “Breach of Contracts”, it is impossible to assess the damages or prove the same. Such situation is taken care of by Sections 73 and 74 of the Indian Contract Act (Section 74 is to be read along with Section 73).
Section 74 talks about stipulation by way of penalty, I.e. an amount in form of compensation promised must be paid to the person who suffered loss by the breach of contract. But, the penalty must not be excessive and unreasonable. Section 74 dispenses with the requirement of distinguishing liquidated damages from penalty. It enacts a uniform principle applicable to all stipulations.
The court has been granted power to either accept the amount or reduce it to what appears reasonable. The named sum constitutes the maximum limit of liability. The court cannot order damages beyond that. Further, the actual loss or damage suffered by the party is immaterial.
Thus in india, even if the actual loss exceed the liquidated damages, the damages payable will not exceed the stipulated sum unlike the Common law doctrine of awarding the damages where the court has to award the damages as per the contract, not looking into its reasonability.
But, as per exception to Section 74 which states that if a party enters into a contract with the State or Central government for the performance of an act in the interest of the general public, then a breach of such a contract makes the party liable to pay the entire amount mentioned in the contract.