W. Comer Petheram, C.J.
1. This appears to ma to be a case in which it will be well to consider the proper manner of dealing with bonds of this description. The suit was brought to recover the principal and interest due on two bonds, and the question was what amount was recoverable for interest? By the terms of the first bond, the interest was to be at the rate of Rs. 9 per cent., and was payable yearly, and there was a proviso that if it was not paid when due, it should be increased to Rs. 15 per cent., and should be calculated as compound, and not as simple interest. It is clear that when a man lends money, for the use of which interest is to be paid, and the interest is not paid when it becomes due, the borrower breaks his contract, and the lender may re-cover damages for such breach, and, at the time of making the contract, it is open to the parties to consider and agree the amount of damage which in such a case the borrower shall pay for having broken his contract, or may name a penal sum which shall be the outside limit of the damage which can be recovered. It is clear that an agreement, that if the interest is not paid punctually, the lender shall be entitled to add it to the principal, and so recover compound interest, will indemnify the lender against loss, because although he does not get his money, he leaves it at interest, and therefore sustains no loss. Again, it is clear that a lender may indemnify himself in another way. He may do so by stipulating that, in the event of interest not being paid punctually upon the date it is due, the rate of interest shall be increased. But it is obvious that if he insists on both kinds of damages, that cannot be a fair agreement with reference to the loss sustained by him, as the two together amount to more than an indemnity against loss, and so must be a penalty.
2. In this case, the lender stipulates for both kinds of damages. He stipulates for compound interest as an indemnity against loss, and also for interest to be paid at an increased rate. These two stipulations put together cannot, as I have said, be regarded as a fair agreement with reference to the loss sustained by the lender, but as a penalty; and it is therefore the Court's duty to limit that penalty to what is the real amount of damage sustained by the plaintiff, who is the lender, in consequence of the defendant's breach of the contract to pay the interest at the due date. The rate of interest at which the money was lent was Rs. 9 per cent, per annum, and if the interest be calculated with rests, that is if compound interest is allowed, the lender will be completely indemnified against loss. The proper course therefore will, I think, be to reduce the interest to Rs. 9 per cent, per annum, reckoned at compound interest, with yearly rests, to the due date of the bond. From the time when the principal became due under the bond, no provision for payment of interest is made, and the plaintiff is to blame for not having enforced his remedy of an earlier date; and, in my opinion, he should only recover simple interest at Rs. 9 per cent, from the due date of the bond to the date of payment, upon the entire sum which was due when the bond became due, that is to say, the principal added to the compound interest calculated at Rs. 9 per cent.
3. With reference to the second bond, in which the parties agreed upon an increased rate of interest on non-payment by the borrower at the specified time, and in which they did not agree that interest should be calculated at compound interest, it seems to me that such increased rate of interest may fairly be considered as representing the damages sustained by the lender by reason of the borrower's failure to pay on the due date, and therefore that Rs. 2 per cent, per mensem, the increased amount agreed on, should be paid down to the date when the bond became due. But as the plaintiff failed to compel payment, and allowed it to remain overdue for a long time, I think that the interest may fairly revert to the old rate of Rs. 9 per cent, from the due date of the bond, and the amount must be calculated from that date on that basis on the whole amount of principal and interest then due on the bond. Costs will be paid in both cases in all Courts in proportion to success.
4. I am of the same opinion.