Patna High Court
Kanak Kumari Sahiba vs Chandan Lall Khattry And Anr. on 30 July, 1953
Equivalent citations: AIR1955PAT215, AIR 1955 PATNA 215
JUDGMENT Ahmad, J.
1. This appeal is by the plaintiff. Mr. Nandlal Untwalia, whose name appears for the respon-dents, has informed us that he has no instruction to oppose the appeal. We have heard. Mr. B. C. De for the appellant.
2. The plaintiff is the wife of the Maharaja Bahadur of Dumraon. She. through her manager, Mr. H. Knight, entered into an agreement with. the two defendants, who are father and son, for the purchase of net-weaving and hosiery machines which had been installed at Barraekpore, Calcutta. The price fixed for the net-weaving machinery was Rs. 60,000/- and that for the hosiery machinery Rs. 40,000/-, the total being Rs. 1,00,000/-. The agreement for sale was drawn up between the parties on 13-1-1945. Under this agreement, a sum of Rs. 10,000/- out of the price was to be paid on that very date, and it was so paid. Another sum of Rs. 25,000/- was to be paid when the sale deed regarding the machinery was completed. This sum was paid on 7-2-1945, when the bale deed was drawn up.
A further sum of Rs. 40,000/- was to be paid when the machines would be despatched to Dumraon, and this took place on 9-2-1945. The balance of Rs. 25,000/- was payable when the machines were installed at Dumraon and put in working and running order by the defendants. It was further stipulated that, in case the machines were not put in working order at Dumraon, the machines would be kept by the purchaser; but the balance of Rs. 25,000/- would not be paid to the sellers and would be forfeited. There was a further stipulation that the purchaser would be further entitled to claim damages from the sellers.
3. The machines reached Dumraon in February, 1945. Both the defendants had gone to Dumraon. By the end of March, 1945, the machines were installed at their proper places. It was, however, found that the hosiery machines did not work at all, while the net-weaving machines were not working satisfactorily, and could not produce marketable goods. Defendant No. 1 left Dumraon, promising to return with certain parts of the machines which were wanting, and he took with himself two chain machines and one sock machine for certain repairs. Defendant No. 1 had, however, left his son, defendant No. 2, at Dumraon. Thereafter, defendant No. I never returned to Dumraon, although letters and telegrams were sent to him by defendant No. 2 as also by the plaintiff's men. When, however, a registered notice was sent on behalf of the plaintiff in August, 1945. the defendant claimed to have put everything in proper condition, and demanded the balance of Rs. 25,000/- which was the unpaid portion of the purchase money. It is the case of the plaintiff that she had to carry out the necessary repairs and had to purchase the necessary parts in order to put the machines going.
4. The suit was filed on 20-12-1945, and, in the suit, the plaintiff claimed a sum of Rs.
24,975/- as damages. In para. 13 of the plaint, it was stated :
"That Rs. 25,000 (rupees twenty-five thousand), the unpaid portion of the consideration money of one lac of the sale deed, the plaintiff is absolved from the payment of the same and is not liable to the defendants for it on account of the breach of the agreement by the defendants as stated above and that the said Net-weaving Mills and Hosiery Mills stand forfeited to the plaintiff to be held and enjoyed by her as an absolute proprietor and for ever."
5. In defence, the defendants filed a written statement, ana, in last paragraph, they made the following claim:
"It is, therefore, prayed that your honour may be pleased to dismiss the suit with costs and pass a decree in favour of the defendants in respect, of the .. counter-claim, namely, Rs. 25,0007-, besides interest at one per cent, on account of balance of unpaid price for the machines and machineries supplied amounting to Rs. 2,063-5-0 (rupees two thousand and sixty-three and five annas) and future interest till realisation and also Rs. 1,005 on account of costs incurred for the plaintiff in erection of the machinery and also on plaintiff's account in that connection, total value of defendants' claim being Rs. 28,068-5-0 (rupees twenty-eight thousand sixty-eight and five annas) on which courtrfee is paid."
6. By way of reply to the aforesaid counterclaim the plaintiff led evidence in support of the diminution of price on the ground that the mills were not put into working order as contemplated by the contract and thus were not fit for the purpose for which they were purchased.
7. The two important issues framed by the learned Subordinate Judge and relevant to this appeal were issues Nos. 2 and 5. They are in the following terms:
"2. Whether the clause for the forfeiture of the last instalment of the consideration money, namely, Rs. 25,000/- on account of the alleged non-performance of the obligation imposed upon the defendants is a penal clause as alleged by them and cannot be given effect to?
5. Are the defendants entitled to recover from the plaintiff the sum of Rs. 25,000 with interest and other costs as balance of the consideration money remaining still unpaid as claimed?"
8. The learned Subordinate Judge came to the finding that the machines had not been put in working order by the defendants, as agreed upon by the parties, and, substantially accepting the plaintiff's case, passed a decree for a sum of Rs. 20,730/- as damages. So far as the question regarding the balance of the price, namely, Rs. 25,000/- was concerned, and to which the defendants had laid claim, the learned Subordinate Judge accepted the case of the defendants on the ground that this clause in the sale deed amounted to a penal clause. The learned Subordinate Judge has said as follows:
"The term is unreasonable and in my opinion the parties cannot have contemplated that it should receive effect. It was only inserted so that by reason of its oppressive character it may operate 'in terrorem' on the seller and drive him to fulfil the contract. The plaintiff under the last clause of the sale deed fs entitled to recover all her loses and thus there was no reason why he should not get a further sum of Rs. 25,000/- The fact that the price was settled at Rs. 1,00,000 a so shows that clause about forfeiture of Rs. 25 000 was not within the original intention of the parties."
Ultimately, the learned Subordinate Judge found that the defendants should be given relief against this clause, as this condition in the contract was meant to be "a punishment and nothing else."
9. The plaintiff has appealed against that judgment and decree of the learned Subordinate Judge. Her appeal was 4n respect of a sum of Rs. 4,245/- which sum, out of the amount claimed by her as damages, was disallowed. The further appeal was against that part of the decree of the learned Subordinate Judge by which he allowed the claim of the defendants in respect of Rs. 25,000/- as against the plaintiff as being the balance of the price due from the latter.
10. Mr. B. C. De, who has appeared for the appellant, has not pressed the appeal regarding the portion disallowed by the learned Subordinate Judge out of the claim made by the plaintiff for damages. Mr: De, however, has pressed the appeal only in respect of the sum of Rs. 25,000/-which the learned Subordinate Judge has allow- 4 ed the defendants to recover from the plaintiff.
11. The express warranty in the contract, which has given rise to the present litigation, was in the following terms:
"And it is hereby further expressly agreed and declared by and between the parties hereto that in . case the vendors fail forthwith to put the said Net-Weaving Mills and Hosiery Mills in satisfactory working and running order fit for production of the articles intended to be produced thereby the purchaser shall not be liable for and be absolved from payment of the said balance of the sum of rupees twenty-five thou--sand and the vendors will in that event accept (in lieu of the said sum of rupees one Lac) the said sum of Rupees seventy-five thousand paid or to be paid as aforesaid as being in full settlement and payment of the price of the said Net-weaving Mills and Hosiery Mills sold here-under and to be delivered as mentioned herein & the said Net-weaving Mills and Hosiery Mills will stand forfeited to the purchaser to be held and enjoyed by the purchaser absolutely and for ever as herein mentioned.
And this indenture also witnesseth and the vendors do and each of them doth hereby covenant with the purchaser that in case the vendors fail properly to instal the said Net-Weaving Mills and Hosiery Mills at Dumraon as aforesaid and7or fail to put the said 'Net-Weaving Mills and Hosiery Mills in satisfactory working order fit for production of the articles intended to be produced thereby, the vendors will indemnify and pay to the purchaser all losses and damages, costs and charges that the purchaser may be put to or suffer or incur in the premises aforesaid and also in properly installing these said Net-weaving and Hosiery Mills and 7 or in putting the said Net-weaving Mills and Hosiery Mills in satisfactory working order fit for production of the articles intended to be produced thereby."
12. In the circumstances of the present case, there is little scope for any difference of opinion on the point as to whether the term stipulated to the contract in telling a liability on the vendors to instal Net-weaving Mills and Hosiery Mills and to put them in satisfactory working order fit for production of the articles intended to be produced thereby is a warranty and not a condition. The mills sold under the contract have already been, as stated above, transferred to the vendee. Section 13, Sale of Goods Act, provides that even in the case of a breach of condition, if the buyer has accepted the goods or in the case of entire contracts, part of them, either voluntarily, or act-ing in such a way as to preclude himself from exercising his right to reject them, his remedy is. to set up a claim for damages as if the breach of the condition was a breach of warranty. Further Benjamin in his book on sale at p. 986 in its 8th Edn. says:
"The learned author of the Leading Cases thus expresses the rules deduce from the autho-
rities (2 Sm. L. C. 11th Ed. 28): 'A warranty, properly so called, can only exist where the subject-matter of the sale is ascertained and existing, so as to be capable of being inspected at the time of the contract and is a collateral engagement that the specific thing so sold possesses certain qualities; but the property passing by the contract of sale, a breach of the warranty cannot entitle the vendee to rescind the contract and revest the property in the vendor without his consent.....But where the subject-matter of the sale is not in existence, or not ascertained at the time of the contract, an engagement that it shall, when existing or ascertained, possess certain qualities, is not a mere warranty, but a condition the performance of which is precedent to any obligation upon the vendee under the contract, because the existence of those qualities, being part of the. description of the thing sold, becomes essential to its identity; and the vendee cannot be obliged to receive and pay for a thing different from that for which he contracted."
13. Here the mills which were the subject-matter of sale were things ascertained and existing and were capable of being inspected at the time of the contract. In this view of the matter also, the stipulation as to the fitness 'and as to the liability of the vendor to out the mills in running condition is prima facie an independent contract collateral to the principal bargain. It, therefore, only gives rise to an action for damages for the breach of warranty in accordance with the procedure laid down in Section 59, Sale of Goods Act, which reads as follows:
"59(1) Where there is a breach of warranty by the seller or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is not by reason only of such breach of warranty entitled to reject the goods; but he may--
(a) set up against the seller the breach of. warranty in diminution or extinction of the price; or
(b) sue the seller for damages for breach of warranty:
(2) The fact that a buyer has set up a breach of warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage."
The buyer has under this section along with the remedy available to him by way of counter-claim two remedies. (1) He may bring an action for the breach of warranty. (2) Or in cage he has not paid the price, he may plead the breach of warranty in reduction or extinction of the price in the seller's action, and may also maintain an action or set up a counter-claim for any further damage he may have suffered.
14. In the present case, the procedure followed by the plaintiff is alleged to be in line with that stated in the second alternative and in order to substantiate it Mr. B. C. De contended that it was open -to the plaintiff not only to split up the cause of action into two parts and to follow two independent remedies for each of them but also to follow those two remedies in any order convenient to her. The remedy, of the buyer in the second alternative can be best explained by extracts from the lucid decision given by Parke, B. in --'Mondel v. Steel', (1841) 8 M & W 858 at pp. 870-871 (A) :
"In that case the action was by the buyer for damages for breach of an express warranty of the quality of a ship built under written contract. The defendant pleaded in effect that the buyer had already recovered damages by setting up the breach of warranty in defence when sued for the price of the ship. This reduction was in respect of the difference at the time of delivery between the ship as she was and what she ought to have been according to the contract; but the damages claimed in the present action were special, and such as could not have been allowed in the former action, being in respect of subsequent necessary repairs, so that the plaintiff was deprived of the use of the vessel.
A general demurrer to the plea was sustained. The Court said : 'Formerly it was the practice where an action was brought for an agreed price of a specific chattel sold with a warranty or of work which was to be performed according to contract to allow the plaintiff to consider the stipulated sum, leaving the defendant to a cross-action for breach of the warranty or contract (As in -- 'Broom v. Davis',. (1794) 7 East 480 (n) (B)).....
In the one case, the performance of the warranty not being a condition precedent to the payment of the price, the defendant.....
has all that he stipulated for as the condition of paying the price, and therefore it was held that he ought to pay it, and seek his remedy on the plaintiff's contract of warranty. In the other case, the law appears to have construed. the contract as not importing that the performance of every portion of the work should be a condition precedent to the payment of the stipulated price, otherwise the least deviation would have deprived the plaintiff of the whole price; and therefore the defendant was obliged to pay it, and recover for any breach of contract -on the other side.
But after the case of -- .'Basten v. Butter, (1806.) 7 East 479 (C),. a different practice.....
began to prevail, and.....has been since generally followed; and the defendant is now permitted to show that the chattel by reason of the non-compliance with the warranty in the one case, and the work in consequence of the non-performance of the contract in the other, were diminished in value.....
The rule is, that it is competent for the defendant.....simply to defend himself by showing how much less the subject-matter of the action was worth by reason of the. breach of contract; and to the extent that he obtains, or is capable of obtaining, an abatement of price on that account, he must be considered as having received satisfaction for the breach of contract, and is precluded from recovering in another action to that extent, but no more."
15. In reference to the passage quoted above Benjamin in his book on sale at p. 990 observed:
"Accordingly a reduction of extinction of the price under the rule in 'Mondel v. Steel (A)' is not a set-off (which is based upon statute).
But the rule applies only to cross-claims under the same contract. A buyer therefore cannot defend himself against the seller by a cross- claim arising under a different contract." I may point out here that in the case of 'Mondel v. Steel (A)' the action was started by the seller for the price, left unpaid followed by a defence in diminution or extinction of the price and also an independent action by the buyer for special damages. The principle laid down in those cir cumstances in that case was that the claim, for special damages was not barred on account of the plea set up against the seller for the breach of warr'anty in diminution or extinction of the price.
16. The Queen's Bench in the case of -- 'Davis v. Hedges', (1871) 6 QB 687 (D) followed 'Mondel v. Steel (A)' and explained the language of Parke B. "to the extent that he obtains, or is capable of obtaining, an abatement....." That suit as it appears from the placitum of that case arose out of an action for damages for the non-performance and improper performance of certain work which the plaintiff had employed the defendant to do, the defence' set up was that the defendant had sued the plaintiff for the price of the work alleged to have been improperly done, and the'plain tiff had settled by paying the whole amount then sued for; and that, as the plaintiff might have given the non-performance and the defective performance complained of in evidence in reduction of damages, the plaintiff was pre-. eluded from bringing a cross-action for them. In those circumstances the Court held:
"The particular point decided in (1841) 8 M & W 858 (A) was, that a person who has in fact obtained, in an action brought against him, an abatement of the price of work done, by reason of a breach of contract in its execution, is not precluded from suing for special damage resulting from the breach of contract; but it leaves undecided the question whether he was bound to obtain the abatement in the action in which he was a defendant, or might recover it as damages in a cross-action."
In answering that question it was observed therein:
"We have though not without some doubt, come to the conclusion that the better rule is that the defendant has the option, if he pleases, to divide the cause of action, and use it in diminution of damages, in which case, as Parke, B. says, he is concluded to the extent to which he obtained, or was capable of obtaining a reduction, or he may, as in the present case, claim no reduction at all, and afterwards sue for his entire cause of action."
In giving reasons for the aforesaid conclusion it was said in that case:
"Another inconvenience which would result from holding that the inferiority of the thing done to that contracted for must, if an action be commenced, be used by way of defence, is that instead of furthering the object for which this defence was permitted, namely, the prevention of circuity of action, it would in many cases tend to complicate and increase litigation. The cases are, perhaps, rare in which the consequences of defective performance of work are limited to the depreciation of the value of the work done; they usually involve consequential "damage by reason of the necessity of repairing the defective work; and for this the case of 'Mondel v. Steel (A)' decides a separate action must be brought.
Parke, B. there says: .'All the plaintiff could by law be allowed in diminution of damages on the former trial was a deduction from the agreed price, according to the difference at the time of delivery between the ship as she was, and what she ought to have been according to the contract; but all claim for damages beyond that on account of the subsequent necessity lor more extensive repairs could not have been allowed in the former action, and may now be recovered'. So that two litigations instead of one would be frequently necessary, with the additional inconveniences that it would be very difficult to discriminate in each action between that which ought to be allowed in diminution of price, and that which should be compensated for as special damage."
17. This case, therefore, also clearly laid down that the option is given to the buyer either to split, up his damages one covering the general damages arising out of the depreciation of the value in the object of sale for the non-compliance of the warranty stipulated in the contract and the other covering consequential damage by reason of the necessity, of repairing the defect in the objects sold contrary to the terms of the contract or to combine the two damages into one and to bring one separate action for both of them. In the case of 'Davis v. Hedges (D)' too the litigation between the parties started by an action by the . buyer, both for special and consequential damages. On the similar line is the decision given in the case of -- 'Rigge v. Burbridge', (1846) 15 M & W 598 (E). In that case in an action for the stipulated price of a specific chattel, defen-dent pleaded payment into Court of sum which the plaintiffs took out in satisfaction of the cost of action and then the defendant brought an action against the plaintiffs for damages arising out of the negligence in the construction of the Chattel. In that action the seller raised the plea that " 'Fisher v. Samuda', (1808) 1 Camp 190 (F) appears to be an authority for the proposition, that where an action has been brought for the value of goods supplied on a stipulated price, and the buyer does not, either in bar of the action or in reduction of the damages, object to the quality of the goods but let the seller; recover a verdict for the full price agreed upon, he cannot then maintain a cross-action on the ground of the goods being of not good quality, or unfit for the purpose for which they were ordered."
In answer to that plea it was held therein that the buyer in the action was not estopped thereby from suing the plaintiffs for negligence in the construction of the chattel.
18. These decisions, in my opinion, leave no doubt that the buyer has got an option to split up his claim for total damages into one for general damages which he can set up against the seller in diminution or extinction of the price and the other for special damages for which he can bring a separate action. The principles laid down in them are on all fours applicable to the cases arising under the Indian Sale of Goods Act, remedy provided under Section 59, Sale of Goods Act, is substantially the same as that laid down in Section 53, Sale of Goods Act, 1893 of England.
19. It has next to be answered whether the words of Section 59(1) (a), Sale of Goods Act, "has set up" cover only the case where the action for further damage is subsequent to an action in which the breach of warranty was set up by the buyer in defence. This question is important to be considered as in the present case the action for further damage is in fact precedent to the counter-claim in which the breach of warranty was set up by the buyer in defence as an answer to the counter-claim. In my opinion, the sequence of action is immaterial. Once it is held that the damages available. to the buyer can be split up into two, one covering general damage and the other covering special damage, there is little importance left in the discussion as to what should be consequence (sequence?) in which the remedies for the two damages should be exercised. . That question has to surrender itself to the other principles of law whereby circuity of action has to be avoided as far as possible as laid down in the case of (1846) 15 M & W 598 (E).
In the present case, it was open to the seller not to press for the balance of the consideration left unpaid by the buyer in order to compensate him for the general inefficiency in the mills arising out of the fact that they were not put in working order and in that view of the matter it was necessary for the purchaser to sue the buyer for a sum of Rs. 25,000/- on account of the general damages as stipulated in the contract and thereby to force the seller to advance his claim for the balance of his unpaid consideration. In a case at common law the Supreme Court of Canada also took the similar view that the sequence of action was immaterial. That was the case of --'Church v. Abell' reported in (1877). 1 Canada SCR 442 (G). "The facts of that case as stated in the placitum of the report was that "C wishing to produce a water wheel which, with the existing water power would be sufficient to drive the machinery in his mill, undertook to put in a 'Pour-Foot Sampson Turbine Wheel", 'which he warranted would be sufficient for the purpose. The wheel was afterwards put in, but proved not to be~" fit for the purpose for which it was wanted. The time for payment of the agreed price of the article having elapsed, C sued A for breach of the warranty and recovered £438 damages. A subsequently sued C for the price, and C offered to give evidence in mitigation of damages that the wheel was worthless and of no value to him. Objection was taken that it was not competent to C to give any evidence in reduction of damages by reason of the breach of warranty, or on the ground of the wheel nor answering the purpose for which it was intended, apd the learned Judge presiding at the trial declared the evidence inadmissible."
In those circumstances the matter went up in appeal where it was held as stated above. The Court of appeal was composed of five Judges and the judgment in favour of the appellant was recorded by 4 : 1, Strong, J., dissenting. The leading judgment of the majority was by" the Chief Justice with whom Rilchie, Taschereau and Pournier JJ., agreed. It must, however, be observed here that in that case the buyer had not accepted the wheel nor had paid for it and had undertaken to return it and it did in fact return it to the seller. This, however, in my opinion, does not make any difference for, in the present case, it can be said that to the extent to which the value of the mills was diminished the buyer did not get the materials for that or that he returned the parts or that he condemned the parts bearing that much value. Ritchie, J. in that case observed :
"The question to be decided in this case is of very considerable practical importance, viz., whether we are constrained by general principles or the weight of authority to enunciate a technical rule fraught with consequences so inconvenient and unreasonable as those so clearly and forcibly pointed out in this Court by the Chief Justice, and by Mr. Justice Moss in the Appeal Court of -Ontario; or whether we can recognize and promulgate as law, a rule, which, while doing full and ample_ justice to all parties, is calculated to prevent unnecessary litigation, and that circuity of action which it is always the policy of the law as far as possible to avoid.'.' On the similar line the learned Chief Justice in the leading judgment observed:
"To force this state of things by a technical rule seems to be inconsistent with the general views which now prevail in the administration of the law. The tendency of modern decisions is to have the rights of parties settled, if possible, in one action rather than by a multiplicity of suits. The absurdity of regulating the rights of parties by the accidental circumstances as to which party may first commence his action, is referred to in the judgment of Mr. Justice Hennen in 'Davis v. Hedges (D)'.....it seems to me that in harmony with the decisions of 'Mondel v. Steel (A)' and 'Davis v. Hedges (D)', it is a reasonable rule to lay down for the ascer-tainnient of damages, where a purchaser with a warranty brings an action before he has paid the contract price, or at least, rendered himself absolutely liable to pay.it, as by giving a bill of exchange or a promissory note, that he shall only recover the amount of his special damage, and that he shall be left to use the inferiority of value as a weapon of defence if the vendor claims from him the full contract price.....
The fitting deduction from the language used and principles laid down in the cases of 'Mondel v. Steel (A)' and 'Davis v. Hedges (D)', to quote again from the judgment of Mr. Justice Moss, is to hold that when the purchaser brings his action upon the warranty before making payment, and I should add to this when the payment is due, he shall be restricted to the recovery of any special damages he has sustained and shall not be permitted to recover for inferiority of value for the simple reason that if he is afterwards sued for the price, the law affords him full, protection by enabling him to assert this inferiority as a ground of defence.....
The only objection to extending the same rule when the action is first brought by the purchaser of the article instead of the seller is the technical one that you must recover all your damages in that action and not separate them. The argument of convenience was allowed in 'Mondel v. Steel (A)' to prevail to establish the rule that the damages having been separated by the diminished value being set up in the first action the rest of the damages, viz., the special damages, could be recovered in the last. Our decision is merely the converse of that and based on the same principles of convenience and justice viz., that not having paid the price, the same being due, the purchaser should only recover his special damages if this be the first action, and shew the diminished value when called on to pay the price."
In my opinion, therefore, Mr. De was right in contending also that the sequence of action did not stand in the way of his pleading diminution of the price by a sum of Rs, 25,000/- as an answer to the counter-claim pleaded by the defendants in the action for damages brought by the plain-tiff, though I must concede that the point is not free from difficulties. In the case of -- 'Barker v. Clevland' reported in 19 Michigan Reports 23/- 8 (H), the rule laid down is just to the contrary. I, however, think that looked at from the larger point of view the law laid down in the case of -- 'Church v. Abell (G)' is more consistent with the rule preventing circuity of action.
20. The last matter for consideration is the measure of damage to be allowed to the plaintiff covering both special and general damages for the breach of warranty alleged in the plaint. The rule regulating the measure of damage for the breach of warranty in our country is not exactly what is laid down in Clauses (2) and (3) of Section 53, Sale of Goods Act, 1893 of England. It is by now well settled that the Indian Sale of Goods Act does npt include in itself any specific rule as to the quantum of damage to be awarded in case of breach of warranty and for that purpose the provisions of Section 59 of the Indian Sale of Goods Act are controlled in matters of quantum of damages by the provisions laid down in Ss. 73' and 74. Those sections read as follows:
"73. When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things from.such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and Indirect loss or damage sustained, by reason of the breach.
When an obligation resembling those created by contract has been incurred and has not been discharged, any person -injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract."
"74. When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of breach is entitled, whether or not actual damage or loss is proved to have been caused thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for."
21. The rules for measuring the damage laid down in Section 73, Contract Act, are in fact themselves based on the rules laid down in the leading case of -- 'Hadley v. Baxendale', (1854) 23 LJ Ex 179 (I). According to the principles laid down in that case where two parties have made a contract which one of them has broken the damages which the other party ought to receive in respect of such breach of contract should be such as may . fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself or such as may reasonably be supposed to have in, the contemplation of both parties, at the time they make the contract as the probable result of the breach of it. In cases where the circum-stances under which the contract is actually made are special and are communicated by the plaintiff to the defendants, the damages resulting from the breach of such a contract which they would reasonably contemplate would be the amount of injury which would ordinarily follow from a breach of contract under the special circumstances so known and communicated.
If, however, the special circumstances are wholly unknown to the party breaking the Contract, he at the most, can only be supposed to have had in his contemplation the amount of injury which could arise generally, and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. It is the general intention of the law that in giving damages for breach of contract, the party complaining should, so far as it can be done. by money, be placed in the same position as he would have been in if the contract had been performed. That is, in fact, the ruling principle.
In the pres'ent case the primary contract was the sale of the two mills by the defendants to the plaintiff in accordance with the contract entered into by the parties. These two mills have by now been in fact transferred to the plaintiff and the property in the Mills is now admittedly in her. The contract collateral to the contract for sale of the two mills was the. obligation accepted by the defendants that they would properly instal the said two mills at Dumraon and would put them . in satisfactory working order fit for the production of articles intended to be produced thereby. As a security to fulfil the obligation arising out of this collateral contract, the defendants agreed to leave the balance of the consideration unpaid, that is Rs. 25,000/- with the plaintiff on the condition that they would be entitled to get that amount only on fulfilling the obligation under the collateral contract and in case of failure to lose the claim for that amount.
The allegation of the plaintiff is that the defendants did not. discharge the obligation under the collateral contract and failed to set the two mills in satisfactory working order fit for production of the articles intended to be produced by them with the result that she had to purchase a number of extra parts of the machines in order to be fitted in the mills sold and had also incurred other minor expenses over the stuff in the course of repairs of the machines for bringing them in satisfactory working condition. The total loss thus sustained by the plaintiff is given in the schedule attached to the plaint, the total of which cames to Rs. 24,975/-. The trial court has found "The evidence taken as a whole, in my opinion, proves sufficiently that the machines were not put in working order by the defendants as agreed upon by the parties", and decreed the claim of the plaintiff for damages to the tune of Rs. 20,730/-out of her total claim of Rs. 24,975/-.
The matter so far is simple. The difficulty that however arises is due to the stipulation in the contract that on the failure of the defendants to put the mills in satisfactory working order, the defendants would also lose their claim for the balance of the consideration money of Rs. 25,000/- kept unpaid by the plaintiff over and above the incurring of the liability to indemnify and pay to the purchaser all losses and damages, costs and charges that the purchaser would be. put to suffer or incur in the premises and also in properly installing the mills and in putting the said mills in satisfactory working order fit for the production of the articles intended to be produced thereby. This, therefore leads to the consideration whether this sum of Rs. 25,000/- stipulated in the contract was by way of penalty or as sum named therein to be paid in case of the breach of warranty?
But before answering that question this much can be said at the very outset that in either case the provisions of Section 74, Contract Act will come into play. For that reason there is no escape from the conclusion that the plaintiff cannot in any view of the matter get on account of his total damages, both general and special, a sum more than Rs. 25,000/- which was stipulated In the contract either as the amount to be paid in case of breach of warranty or by way of penalty. Section 74, as is evident from its terma is not limited to the case of liquidated damage or pre-estimated damage only. It covers the case of penalty as well. In the case of liquidated damage or what is known as pre-estimated damage settled at the time of making the contract damage to be decreed is generally the figure settled by the parties, though in the case of penalty the court is not to act on that figure but has to come to its own conclusion about the actual damage suffered by the plaintiff as a result of breach of warranty.
"Under a contract the parties may agree that a particular sum shall be pavable for the breach of the contract. The sum so fixed may be either in the nature of liquidated damages. I.e. a sum payable as damages the amount oij wrrch Instead of being left to the determination of the court, is proriously determined by the agreement of the parties; or in the nature of a penalty for breach of the agreement. The distinction between liquidated damages and penalty is to be found in this, that the essence of a penalty is' a payment of money stipulated as 'in terrorem' of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage."
In the opinion of the trial court, this sum Rs. 25,000/- was inserted in the contract to operate 'in terrorem' on the seller and as such the amount named in the contract is to be considered as a penalty and not to be treated as liquidated damages. In my opinion, as well, the amount stipulated in the contract was by way of penalty. Had that amount been in fact the pre-estimate of the entire losses likely to be incurred by the plaintiff in case of default on the part of the defendants to fulfil the obligation under the collateral contract, there cduld not be any occasion for including a further clause in the contract to the effect that in the case of failure on the part of the vendors "the vendors will indemnify 'and pay to the purchaser all losses and damages, costs and charges that the purchaser may be put to or . suffer or incur in the premises aforesaid and also in properly installing these said net-weaving and hosiery mills and7or in putting the said net-weaving mills and hosiery mills in satisfactory working order fit for production of the articles intended to be produced. thereby."
This shows that the basic idea under the contract was not the pre-estimation of damages arising out of the failure on the part of the defendants to put the machinery in satisfactory working order, rather to lay down a general liability to pay all the losses arising therefrom in the case of default on their part in putting the machinery in satisfactory working order. The amount of Rs. 25,000/- which was part of the consideration money and was left in the deposit of the purchaser to be paid only on fulfilment of the obligation under the contract by the defendants was, in my opinion left as a security to discharge the obligation resting on them under the contract.
That being so, the term "was only inserted" as held by the trial court "so that by reason of its oppressive character it may operate 'in terrorem' on the seller and drive him to fulfil the contract." In my opinion, therefore, the plaintiff cannot be entitled to receive from the defendants compensation exceeding the amount of Rs. 25,000/- that is, more than the penalty stipulated for in the contract. The trial court has assessed the damage to the extent of Rs. 20,730/-. Mr. De appearing for the appellant has not contested this figure; neither he has placed any material before me to hold, that the damage assessed by the trial court to the extent of the amount stated above was not correct. He. in fact, did not press his claim for the balance of the damage not allowed to the plaintiff by the trial court.
On principle as well, as laid down in the cn.se of -- 'Jayaraghavan v Leo Films'. AIR 1948 Mad 442 (j). the annulate court should as a rule be reluctant to interfere with the finding of the trial court on the amount of damages to be awarded in a particular case.
"The Privy Council in the case of, -- 'Thomas Charles William Skipp v. Lilian Mildred Kelley', AIR 1926 PC 27 (K) on this point observed that their Lordships "would never think of interfering with a measure of damages which, had been fixed by a learned Judge unless they saw that there was something very clearly wrong .with the figure, he had fixed upon". To the same effect is the law in -- 'Bisseswar Lal v. Rup Kishore', AIR 1921 Pat 341 (1) (L) and -- Kunbha Haji Raghaw v. Motichand Makan-
ji', AIR 1917 Low Bur 31 (1) (M)."
I have therefore, no ground to differ with the amount of damage assessed by the trial court to be awarded to the plaintiff for the breach of warranty as stipulated in the co' trac .
22. As already held by me Rs. 25,000/- were nothing but a part of the consideration money for the two mills sold by the defendants to the plaintiff and that had been left in the custody of the plaintiff by the defendants as a security to discharge the obligation resting on them, to put the machinery in satisfactory working order. The damage suffered by the plaintiff on account of the default on the part of the defendants as found above comes to the total amount of Rs. 20,730/- only and that amount has been awarded to the plaintiff as damages. Therefore, the amount of Rs. 25,000/- which was left unpaid with the plaintiff out of the total consideration money has to be paid back by her to the defendants. Thus, on mutual adjustment of the liabilities between the parties the defendants are entitled to get from the plaintiff only the sum of Rs. 4,270 with interest at six per cent from September, 1945 till the date of realisation, and in this respect the conclusion arrived at by the trial court is, I think, correct.
23. The appeal is accordingly dismissed but in the circumstances of the case there will be no order for costs.
The cross-objection filed by the respondents, as already stated above was not pressed during the hearing of the appeal. In fact the appeal was heard ex parte. The cross-objection therefore, is also dismissed without costs.
Jamuar, J.
24. I agree.