All India Bar Examination (AIBE) 3-III Previous Year Question Papers with Answers

The correct option is A: A is entitled to receive as compensation the average amount of profit that he would have made from the working of his factory during the period of delay, but not the loss sustained through the loss of the contract with the Japanese company.

This option is correct, because it follows the principle that a party to a contract who breaches the contract must compensate the other party for any loss or damage that arises naturally from the breach, or which the parties knew, when they made the contract, to be likely to result from the breach of the contract. In this case, A handed over a permit to a courier company, who agreed to deliver it without delay to A's paper factory. A informed the courier company that his factory cannot restart production till the permit is delivered to them. This means that the courier company knew, when they made the contract, that a delay in delivering the permit would cause a loss of production to A. Therefore, they are liable to compensate A for this loss, which can be measured by the average amount of profit that A would have made from the working of his factory during the period of delay. However, A cannot claim compensation for the loss sustained through the loss of the contract with the Japanese company, because this was not a loss that arose naturally from the breach, nor was it a loss that the parties knew, when they made the contract, to be likely to result from the breach. The loss of the contract with the Japanese company was a remote and indirect loss that was caused by other factors, such as market conditions, competition, etc., and not by the breach of the courier company. Therefore, this loss is not recoverable under Section 73 of the Indian Contract Act, 1872.

The other options are incorrect for the following reasons:

B: A is entitled to receive as compensation an amount equal to overhead costs of his factory that were incurred during the period of delay. This option is incorrect, because it underestimates the compensation that A is entitled to receive. The overhead costs of his factory are not a measure of his loss or damage caused by the breach of contract. The overhead costs are fixed expenses that A has to incur regardless of whether his factory is producing or not. The actual loss or damage caused by the breach is the loss of profit that A would have earned from his production during the period of delay.

C: A is not entitled to any compensation. This option is incorrect, because it denies any compensation to A for his loss or damage caused by the breach of contract. This is contrary to Section 73 of the Indian Contract Act, 1872, which clearly states that a party who suffers by a breach of contract is entitled to receive compensation from the party who has broken the contract.

D: A is entitled to receive as compensation the profits that he would have made from the unusually lucrative contract with a Japanese company. This option is incorrect, because it overestimates the compensation that A is entitled to receive. The profits that he would have made from the unusually lucrative contract with a Japanese company are not a measure of his loss or damage caused by
the breach of contract. The profits from this contract are not a loss that arose naturally from the breach, nor were they a loss that the parties knew, when they made the contract, to be likely to result from the breach. The profits from this contract are a remote and indirect loss that was caused by other factors, such as market conditions, competition, etc., and not by the breach of the courier company. Therefore, this loss is not recoverable under Section 73 of the Indian Contract Act, 1872.

E: A is entitled to receive as compensation the profits that he would have made had he entered into a similarly lucrative contract with an Indian Company. This option is incorrect, because it also overestimates the compensation that A is entitled to receive. The profits that he would have made had he entered into a similarly lucrative contract with an Indian Company are also not a measure of his loss or damage caused by the breach of contract. The profits from this hypothetical contract are also not a loss that arose naturally from the breach, nor were they a loss that the parties knew, when they made the contract, to be likely to result from the breach. The profits from this hypothetical contract are also a remote and indirect loss that was caused by other factors, such as market conditions, competition, etc., and not by the breach of the courier company. Therefore, this loss is also not recoverable under Section 73 of the Indian Contract Act, 1872.