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A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments, with a stipulation that,…

Illustration (f) to section 74: "This stipulation is not by way of penalty, and the contract may be enforced according to its terms." Making the rest of the loan payable at…

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A undertakes to repay B a loan of Rs. 1,000 by five equal monthly instalments, with a stipulation that, in default of payment of any instalment, the whole shall become due. A defaults on the second instalment. What is the position?

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Correct answer B

Illustration (f) to section 74: "This stipulation is not by way of penalty, and the contract may be enforced according to its terms." Making the rest of the loan payable at once only accelerates a debt A already owes and adds nothing to it. Contrast illustration (g), where a Rs. 200 bond for a Rs. 100 loan became wholly payable on default, which is a penalty.

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