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Mohanlal Vs. Dayaldas and Co. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtRajasthan High Court
Decided On
Case NumberCivil First Appeal Nos. 54 and 74 of 1973
Judge
Reported inAIR1976Raj68; 1975()WLN437
ActsContract Act, 1872 - Sections 74
AppellantMohanlal
RespondentDayaldas and Co.
Appellant Advocate G.L. Parook, Adv. for Mohanlal, Adv. in Appeal No. 54 of 1973 and; P.C. Bhandari, Adv. for Dayaldas a
Respondent Advocate G.L. Parook, Adv. for Mohanlal, Adv. in Appeal No. 74 of 1973 and; P.C. Bhandari, Adv. for Dayaldas a
Cases ReferredIn Rameshwarlal v. Balabux Tamra
Excerpt:
contract act - section 74--plaintiff guilty of breach of contract--actual loss not proved by defendant--whether he is entitled to refund of advance amount inspite of condition incorporated in agreement.;(b) whether he is entitled to interest on advance money.;(c) damages for keeping land fallow - he is not entitled to damages because his gain exceeds his loss. - - 74 of 1973, frankly conceded that he would not like to challenge the finding of the court on issue no. 2 of the additional pleas, the defendant in his written statement had specifically mentioned that time was the essence of the contract and within that time that is up to december 6, 1970, if the plaintiff failed to pay the balance of the sale money to the defendant and prepare the sale-deed then the defendant was entitled to..........that he was entitled to retain rs. 10,000/- by way of damages, as the plaintiff was guilty of breach of contract. 4. the learned judge after framing issues and recording the evidence of both the parties, recorded his conclusion that the plaintiff himself was guilty of breach of the contract, but while dealing with the issues nos. 3 and 7 the learned judge held that the reasonable compensation could be determined for the breach of contract in accordance with section 74 of the contract act and taking into consideration the entire circumstances the learned judge awarded a decree of rupees 5,000/- in favour of the defendant and ordered that he would refund to the plaintiff rs. 5,000/- from the advance that he had received at the time of the execution of the agreement. it is against this.....
Judgment:

V.P. Tyagi, J.

1. Both these appeals arise out of the judgment of the learned District Judge, Jaipur District, Jaipur, dated February 7, 1973, in a suit filed by the plaintiff Dayaldas and Co. for the refund of Rs. 10,000/- which was paid to the defendant as an advance money for the purchase of lands Khasra Nos. 261, 266 and 268 measuring 6 Bighas and 9 Biswas.

2. The facts giving rise to this litigagation are, in a nut shell, as follows :

Mohanlal defendant entered into an agreement on June 8, 1970, to sell to the plaintiff agricultural land measuring 6 Bighas and 9 Biswas (bearing Khasra Nos. 261, 266 and 268). The plaintiff paid to the defendant as an advance Rs. 10,000/-. It was agreed between the parties that by December 6, 1970, the defendant shall execute the sale deed in favour of the plaintiff and the possession of the plots of land agreed to be sold by the defendant shall be transferred to the plaintiff. One of the conditions of the sale was that out of these three plots of land, one Biswa of land shall be retained by the defendant. It appears that the plaintiff did not comply with the obligation cast on him under the agreement and, therefore, the sale could not take effect on December 6, 1970. Thereafter the plaintiff filed a suit for the refund of Rupees 10,000/- paid by him as an advance money,because in his opinion the agreement was void due to the vagueness. Before filing a suit a notice was served by the plaintiff on the defendant to return the money, but it was not paid and, therefore, the plaintiff claimed interest by way of damages @ Rs. 12% per annum.

3. The defendant admitted the agreement between the parties but he came out with a plea in his written statement that the plaintiff committed the default and, therefore, he was liable to pay damages as per the stipulation in the agreement, which reads as follows:--

^^;g fd vxj e;kn etdwj esa ;kusrk- 6 fnlEcj lu~ 70 bZ- rd srk bldk cs;ukek rS;kj djkdj u nsa ;k ckdh :i;knsus ls bUdkj djsa rks e ;g :i;s esjs gtsZ ds j[k ywaxk] fQj ;g lkSnk dsaflyle>k tkosxk A vkSj vxj eSa e;kn etdwj esa srk }kjk cSukek rS;kj djkdj nsusij mldh jftLVh djkus ls bUdkj d:a ;k ckdh :i;s ysdj letk u nwa rks srk dksvnkyr }kjk eq> ls c;uke dh jftLVh djkus rFkk dCtk ysus dk gd gksxk ftldsgtsZ c [kpsZ dk eSa nsunkj jgwaxk A**

It was, therefore, claimed by the defendant that he was entitled to retain Rs. 10,000/- by way of damages, as the plaintiff was guilty of breach of contract.

4. The learned Judge after framing issues and recording the evidence of both the parties, recorded his conclusion that the plaintiff himself was guilty of breach of the contract, but while dealing with the issues Nos. 3 and 7 the learned Judge held that the reasonable compensation could be determined for the breach of contract in accordance with Section 74 of the Contract Act and taking into consideration the entire circumstances the learned Judge awarded a decree of Rupees 5,000/- in favour of the defendant and ordered that he would refund to the plaintiff Rs. 5,000/- from the advance that he had received at the time of the execution of the agreement. It is against this judgment that both the parties have come in appeal.

5. Learned counsel appearing on behalf of the plaintiff-appellant, who opened the arguments in appeal No. 74 of 1973, frankly conceded that he would not like to challenge the finding of the court on issue No. 4 whereby the learned Judge has come to the conclusion that the plaintiff was himself guilty of breach of contract, but he urged that even if the plaintiff did not carry out his part of the contract the defendant cannot claim any damages, because in the month of March 1970 the defendant sold these three pieces of lands to a third party at an enhanced price of Rs. 23,000/- per Bigha and, therefore, he contended that instead of suffering any damages, the defendant has made profits out of this breach of contract.

6. Learned counsel appearing on behalf of the defendant-respondent in Appeal No. 74 of 1973, however, urged that for six months his land remained idle and he could not cultivate these three pieces of lands, because he had to deliver vacant possession on December 6, 1970, and, therefore, he is entitled to get the damages and since the plaintiff had already agreed to pay Rs. 10,000/-as damages he had no case for the refund of the advance money. He also urged that this money was deposited with him by the plaintiff as security money and, therefore, on the breach of the agreement he was entitled to forfeit the entire amount.

7. The controversy that has now come before this court is in a very narrow corn-pass. The question is whether under the circumstances of this case when the plaintiff himself is found guilty of the breach of contract, can he claim the refund of Rs. 10,000/-in spite of the condition incorporated in para No. 4 of the agreement, referred to above.

8. In para No. 2 of the Additional pleas, the defendant in his written statement had specifically mentioned that time was the essence of the contract and within that time that is up to December 6, 1970, if the plaintiff failed to pay the balance of the sale money to the defendant and prepare the sale-deed then the defendant was entitled to receive from the plaintiff Rs. 10,000/- as damages and this right was exercised by him by not returning that amount to the plaintiff on receipt of his notice. Nowhere in his reply, he pleaded that Rs. 10,000/- was given to the defendant as an earnest money with a right to forfeit it in case the plaintiff failed to discharge his obligation under the agreement. The defendant also could not establish from his evidence that Rs. 10,000/- given in advance at the time of the execution of the agreement on June 8, 1970, was recorded by the parties as genuine pre-estimate of the damages, as a measure of reasonable compensation in case of breach of the agreement. In this view of the matter the only question that remains to be decided is that what is the reasonable compensation that can be awarded to the defendant in case of the breach committed by the plaintiff.

9. It is not denied by the learned counsel appearing on behalf of the defendant that in March 1970 these lands were sold by the defendant to a third party @ Rupees 23,000/- per Bigha and thus he earned a profit of Rs. 8,000/- per Bigha, which profit accrued to him only because of the breach committed by the plaintiff. It has to be seen in these circumstances whether the defendant can claim any reasonable compensation for the breach of agreement.

10. Section 74 of the Contract Act reads as follows :--

'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 the 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.'

The contention of the learned counsel for the defendant is that even if no loss is caused to the defendant or if he failed to prove any loss sustained by him due to the breach of the contract, he is entitled to get the reasonable compensation and in the circumstances of this case the reasonable compensation should have been assessed at Rs. 10,000/-, which amount has been named in the agreement itself.

11. The scope of Section 74 of the Contract Act has come up for scrutiny before the Supreme Court in various cases. Learned counsel appearing on behalf of the plaintiff placed reliance on Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405; Maula Bux v. Union of India, AIR 1970 SC 1955; Bhai Panna Singh v. Bhai Arjun Singh, AIR 1929 PC 179 and authority of our Court in Rameshwarlal v. Balabux Tamra, AIR 1974 Raj 158.

12. In Maula Bux v. Union of India, AIR 1970 SC 1955 while scrutinising the scope of Section 74 of the Contract Act the learned Acting Chief Justice J. C. Shah observed as follows:--

'It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression 'whether or not actual damage or loss is proved to have been caused thereby' is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be impossible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.'

13. In Fateh Chand v. Balkrishan Dass, AIR 1963 SC 1405 the vendor by agreement dated 21-3-1949 agreed to sell his rights in the property for Rs. l,12T500f- and Rupees 1,000/- were paid as earnest money by the vendee to the vendor. The vendor agreed to deliver the property to the vendee on furtherpayment of Rs. 24,000/- on 30th March, 1949. On March 25, 1949, the plaintiff-vendor received Rs. 24,000/- and delivered possession of the property to the vendee, but the sale of the property was not completed on or before the stipulated date due to the default of the vendee. There was a clause in the agreement that if for any reason the vendee failed to get the sale registered by the date stipulated the amount of Rs. 25,000/- shall stand forfeited and the agreement shall be deemed cancelled. The sale of the property could not take effect on or before the stipulated date due to the default of the vendee. The vendor then filed a suit for recovery of possession of the property alleging that the sum of Rs. 25,000/-paid to him by the vendee stood forfeited under the agreement. The learned Judges after reviewing the entire position of the parties held that the vendor was entitled to forfeit Rs, 1,000/-, which he had received as earnest money and for the rest of the claim their Lordships came to the conclusion that the plaintiff having taken advantage of the possession of the property and as no evidence was led to prove the actual damages suffered by the plaintiff for the breach of the contract, he could not get any thing by way of damages except Rs. 1,000/-.

14. In Bhai Panna Singh v. Bhai Arjun Singh, AIR 1929 PC 179 their Lordships of the Privy Council held,--

'The effect of Section 74, Contract Act of 1872, is to disentitle the plaintiffs to recover simpliciter the sum of Rs. 10,000/-whether penalty or liquidated damages. The plaintiffs must prove the damages they have suffered. The only evidence of loss is that the loss on resale by Rs. 1,000.'

15. In Rameshwarlal v. Balabux Tamra, AIR 1974 Raj 158 the learned Judge while discussing the scope of Section 74 laid down,--

'Where loss in terms of money on account of breach of contract can be ascertained in accordance with the established rules, the party claiming compensation must prove the actual loss. If it fails to prove the actual loss in such a case it cannot be held entitled to the sum named in the agreement simply because such a sum is mentioned therein. It is only in those cases where the Court is unable to assess the actual loss that the sum named in the agreement may be taken into consideration provided the sum named be regarded as a genuine pre-estimate of damages or otherwise be a reasonable compensation for the breach. If on the other hand the Court comes to the conclusion that the amount so fixed was in terrorem, excessive or extravagant, the plaintiff would be entitled to only such sum as may appear to the Court as reasonable.'

16. In the present case there was a condition in the agreement that if the vendee failed to discharge his obligation under the agreement the vendor shall have a right to forfeit Rs. 10,000/- as his damages. In his additional plea the defendant claimed to forfeit this amount as damages without, of course, proving the actual loss to him for the non-performance of the obligation by the vendee.

17. Learned counsel for the defendant urged that for six months he kept the land lying fallow in the expectation that he would deliver the vacant possession thereof to the vendee in the month of December and, therefore, he suffered damages. He is not in a position to say as to how much damage he suffered on account of non-cultivation of the land measuring 6 Bighas 9 Biswas. If the loss is assessed at the highest rate of earning Rs. 500/- per Bigha from agriculture, then the loss does not exceed Rs. 3,250/-. It has been conceded by learned counsel for the defendant that this very land was sold by him in the month of March 1971 at the rate of Rs. 23,000/- per Bigha and thus earned a profit at the rate of Rs. 8,000/- per Bigha. It is contended by the learned counsel for the defendant that this gain to the defendant has nothing to do with the breach of contract and, therefore, it cannot be taken into consideration while assessing the loss of the vendor defendant. I cannot agree with the contention of the learned counsel because if there had not been breach of contract the defendant-vendor could not have sold this land at Rs. 23,000/- per Bigha and he could not have earned this profit, if the sale-deed had been executed in the month of December 1970 in favour of the plaintiff in pursuance of the agreement dated June 8, 1970. In my opinion the defendant-vendor is not entitled to get any loss even if suffered by him for keeping the land fallow for six months as the gain accrued to him exceeded the loss, if at all suffered by him.

18. The appeal No. 54 of 1973 filed by defendant Mohanlal is, therefore, dismissed, while the appeal No. 74 of 1973 filed by Messrs Dayal Dass and Company, is allowed and the decree of the lower court is modified to this extent that the plaintiff-appellant shall be entitled to receive back from the defendant-vendor Rs. 10,000/- (ten thousand), which he had paid as an advance money to the defendant-vendor at the time of the execution of the agreement. Since the plaintiff was found guilty of breach of contract, I do not think that he is entitled to receive any interest on that amount, by way of damages.

19. Looking to the circumstances of the case the parties shall bear their own costs throughout.


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