MCQ 29 Nov 2023

Daily Static MCQs for CLAT Prelims Exams - (29 November 2023)



In relation to a contractual dispute arising out of a coal supply agreement, the Meghalaya High Court held that party in breach would be liable to compensate the other party only to the extent of the loss suffered by such other party, unless there is a genuine pre-estimate indicated by way of liquidated damages. The case involved a coal supply agreement between Coal India Limited, and Cement Manufacturing Company Limited. The agreement stipulated that the latter would lift a certain guaranteed amount of coal periodically. However, since the private respondent failed to do so, Coal India (appellant herein) sought compensation. The writ court ruled in favour of the private respondents, holding that they were not liable to pay compensation because Coal India sold the unlifted coal to another company and thus had not suffered any loss. The primary legal question before the court was whether the private respondents should be held liable for compensating Coal India for the value of the coal that remained unlifted, especially considering that the coal had been sold to a subsequent purchaser. The private respondents argued that compensation should only cover the actual loss suffered by the aggrieved party, without allowing them to profit from the breach. The bench of Chief Justice Sanjib Banerjee and Justice W Deingdoh acknowledged the general principle that compensation cannot be treated as a penalty, as this would be prohibited by the Contract Act, 1872. Instead, the court held that the guaranteed amount or its value can be considered as liquidated damages—a pre-estimated sum representing the highest amount the appellant could have received for the unlifted coal. However, the court also recognized that if the unlifted coal had been subsequently sold, the amount realized from the sale should be deducted from the compensation claim. Nevertheless, the appellant would be entitled to reimbursement for any additional costs incurred in conducting the second sale, the bench reasoned. The court stressed the need for evidence-based calculations to determine the quantum of compensation, considering factors such as the original price of the product, the price at which it was sold to the subsequent purchaser, and the costs associated with the second sale. Drawing attention to the frequent occurrence of similar contractual breaches in international grain trade or high-sea sales of commodities, the court said, “In such a scenario, as per the law in force in this country, notwithstanding any agreement between such parties, the party in breach would be liable to compensate the other party only to the extent of the loss suffered by such other party, unless there is a genuine pre-estimate indicated by way of liquidated damages”.

Question1:-Angad enters into a contract to deliver 20 maunds of gunpowder to Brijesh, at a certain price which is to be paid at the time of delivery. Due to some reason, Angad did not delivered the gunpowder to Brijesh on time because of which Brijesh suffered monetary loss. Brijesh sued Angad for the breach of contract. Decide.
  • A. Brijesh is entitled to receive compensation from Angad for the loss he suffered due to breach of contract
  • B. Brijesh is not entitled to receive any compensation from Angad because he was not obliged to perform the contract
  • C. Brijesh is entitled to receive compensation because Angad promised to pay if any breach occurs
  • D. Can’t be determined
Answer is A is correct. As per section 73 of Indian Contract Act, when a contract has been broken or breached, the party who suffers by such breach is entitled to receive compensation from the party who breached the contract. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. Hence, A is the correct option.
Question2:-Which of the following statements is/are correct in relation to the Indian Contract Act, 1872?
  • A. An aggrieved party can claim for direct as well as remote damages that arise due to the breach of contract
  • B. An aggrieved party cannot claim damages for breach of contract
  • C. An aggrieved party can only file a criminal complaint for a breach of contract
  • D. An aggrieved party can only claim for the direct damages which arise due to the breach of contract
Answer is D is correct. Section 73 of the Indian Contract Act, 1872 states that an aggrieved party can only claim damages for the loss incurred due to the direct breach of the contract. The aggrieved party cannot claim remote damages which are not directly related to the breach. Hence, (d) is the correct answer.
Question3:-Rohan asks a cab company to take him to Chandigarh on 14.03.2022, however, the company refuses to take him to Chandigarh on that particular day after assenting to the same earlier. Rohan rents a private plane to Chandigarh and books a 5-star hotel for his stay. He subsequently sues the company to claim the expenses. Decide the liability of the cab company.
  • A. The cab company would be liable to pay all the expenses incurred by Rohan
  • B. The cab company would only be liable to pay the travel expenses incurred due to the private plane
  • C. The cab company would not be liable to pay any expenses to Rohan
  • D. The cab company would only be liable to pay reasonable expenses in line with the fare of the cab company
Answer is D is correct. Section 73 of the Indian Contract Act, 1872 states that while estimating the damages arising from a breach of contract, it is necessary that only reasonable expenses incurred by the aggrieved party are awarded. Therefore, in this case, the private plane and five-star hotel are unreasonable expenses. Hence, Rohan would only be entitled to claim only reasonable expenses and the cab company would only be liable to pay same. Hence, (d) is the correct answer.
Question4:-Rajesh books a car from a car dealership and also makes the advance payment for it. The car is also available at other dealerships. Later on, the car dealership refuses to deliver the car to him, and Rajesh files a suit for specific performance of the contract. Decide the liability of the car dealership.
  • A. The car dealership would be obligated to perform the contract
  • B. The car dealership would only be liable to pay the damages for the loss incurred to Rajesh
  • C. The car dealership would have to perform the contract as well as pay the damages to Rajesh
  • D. Rajesh would not be entitled to any remedy or relief
Answer is B is correct. The Court orders the specific performance of the contract only if monetary damages are not sufficient enough to compensate the client or the product is not available in the general market. In this case, since the car is available in other dealerships, Rajesh cannot sue the car dealership for more than the loss incurred to him by their refusal. Hence, (B) is the correct answer.
Question5:-A enters into a contract to repair B’s house in a certain manner for which B has made an advance payment to A. A completed the repair works on time but not as per the contract. B sued A for the breach of contract. Decide the liability A.
  • A. A is liable to pay damages to B for the breach of contract
  • B. B is entitled recover from A the cost of repair which A failed to do as per contract
  • C. This is not a case of breach of contract, so B is entitled for the damage
  • D. None of the above
Answer is B is correct. As per section 73 of Indian Contract Act, when a contract has been broken or breached, the party who suffers by such breach is entitled to receive compensation from the party who breached the contract. In above case the performance of the contract is not as per the conditions mentioned in the contract which amounts to breach of contract. Hence, B is the correct option.