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Rameshwarlal and anr. Vs. Balabux Tamra - Court Judgment

LegalCrystal Citation
SubjectContract
CourtRajasthan High Court
Decided On
Case NumberSecond Appeal No. 547 of 1966
Judge
Reported inAIR1974Raj158; 1973()WLN677
ActsContract Act, 1872 - Sections 74
AppellantRameshwarlal and anr.
RespondentBalabux Tamra
Appellant Advocate C.L. Aggarwal and; R.S. Keiriwal, Advs.
Respondent Advocate Magh Rai Bhansari, Adv.
Cases ReferredFateh Chand v. Balkishan Dass
Excerpt:
.....entitled to the sum named in the agreement.;doubtless the plaintiff is entitled to recover the earnest money amounting to rs. 6,000/- as also the interest thereon, as the defendants must have derived benefit on that amount. - - it was agreed between the parties that if the vendors failed to complete the sale they would be liable to refund the earnest money and further pay a sum of rs. it was also agreed that in case the vendee failed to complete the sale, he will be liable to forfeiture of the earnest money amount-ins to rs. it was alleged that the defendants failed to get the signature of their brother's widow on the agreement ex. 1: that they failed to execute the sale-deed within the stipulated period of one month; it has been further held that the plaintiff was entitled to..........rs. 13,000 and the plots at the rate of rs. 11.75 per sq. yd. the plaintiff paid rs. 5,000/- as earnest money. the agreement was executed by the defendants on their own behalf and on behalf of their brother's widow mst. ajodhia bai, who was at indore. the sale was to be completed within one month when the remaining purchase money was to be paid by the vendee. it was agreed between the parties that if the vendors failed to complete the sale they would be liable to refund the earnest money and further pay a sum of rs. 5,000/- as damages forthe breach of contract. it was also agreed that in case the vendee failed to complete the sale, he will be liable to forfeiture of the earnest money amount-ins to rs. 5,000/-. on 14-12-1962 the plaintiff instituted the present suit for recovery of.....
Judgment:

S.N. Modi, J.

1. This is a second appeal by the defendants Rameshwarlal and Gopikishan in a suit for damages.

2. On 16-3-1962 the defendants had entered into an agreement with the plaintiff Balabux by which the former agreed to sell to the latter plots Nos. 1 to 12 measuring 3158 sq. yds. and a bungalow situated in Aimer. The bungalow was agreed to be sold for Rs. 13,000 and the plots at the rate of Rs. 11.75 per sq. yd. The plaintiff paid Rs. 5,000/- as earnest money. The agreement was executed by the defendants on their own behalf and on behalf of their brother's widow Mst. Ajodhia Bai, who was at Indore. The sale was to be completed within one month when the remaining purchase money was to be paid by the vendee. It was agreed between the parties that if the vendors failed to complete the sale they would be liable to refund the earnest money and further pay a sum of Rs. 5,000/- as damages forthe breach of contract. It was also agreed that in case the vendee failed to complete the sale, he will be liable to forfeiture of the earnest money amount-ins to Rs. 5,000/-. On 14-12-1962 the plaintiff instituted the present suit for recovery of earnest money amounting to Rs. 5,000/- and the stipulated damages amounting to Rs. 5,000/-, total Rs. 10,000 on the around that the defendants had broken the contract. It was alleged that the defendants failed to get the signature of their brother's widow on the agreement Ex. 1: that they failed to execute the sale-deed within the stipulated period of one month; and that during this period the plaintiff received notices from two persons in whose favour certain portions of the land sought to be sold to the plaintiff had been earlier agreed to be sold to others by the defendants. The defendants admitted having executed the agreement Ex. 1 dated 16-3-1962. They resisted the suit mainly on two grounds-- (1) that time was not the essence of the contract and it was the plaintiff who backed out from the contract and (2) that the claim for damages amounting to Rs. 5,000/- over and above the refund of earnest money was not liable to be decreed in view of the provisions of Section 74 of the Contract Act. The trial Judge held that the defendants and not the plaintiff were responsible for the breach of contract. It has been further held that the plaintiff was entitled to recover the amount of earnest money as well as the sum of Rs. 5,000/- named in Ex. 1 as damages. The suit was accordingly decreed for Rs. 10,00,0/-. On appeal, the defendant-appellants did not challenge the trial Court's finding that the defendants were responsible for the breach of contract. The only point that was urged before the appellate Court was that the plaintiff was not entitled to recover the amount of Rs. 5,000/- claimed as damages. The learned District Judge placing reliance on the principles laid down in the case of Badhava Singh v. Charan Singh, 1955 Rai LW 174 = (AIR 1955 Rai 87) affirmed the decree passed by the trial Court and dismissed the appeal. The reasons which persuaded the learned District Judge to dismiss the appeal are contained in paras. 8 and 9 of the judgment. They run as follows:--

'8. Applying the above principles to the present case, it is to be noted that it has been stipulated in agreement Exhibit 1 that either party in the event of breach would be liable to Pay a sum of Rs. 5,000/- to the other by way of damages. In the case of breach by the vendors, they were held liable to refund the earnest money and were to pay asum of Rs. 5,000/- as damages to the vendee and in case of breach on the part of the vendee the amount of Rs. 5,000/-as earnest money with the vendors was to be forfeited. The question to be considered is whether the amount of Rupees 5,000/- as damages for the breach by the vendors would be termed as 'reasonable compensation.' The plaintiff's version is that he wanted to construct a cinema house on the piece of land covered by Exhibit 1 and that he had to incur heavy loss because of the defendants' failure to have completed the contract as he was forced to dismantle his own bungalow for the construction of a cinema house called Ajanta Cinema. The bungalow, which was dismantled by the plaintiff for the construction of a cinema-house had also been purchased by the plaintiff from these very defendants some-time back for a sum of Rs. 32,000/-. Defendant Rameshwarlal does not deny the fact of the sale of the bungalow to the plaintiff. , He has also admitted that the said bungalow has been got dismantled by the plaintiff and a cinema house has been constructed. The cost of dismantling alone was not less than Rs. 4,000/-. Besides, the plaintiff had to keep ready money either at his house or at the bank to the tune of Rs. 50,000/- to meet the cost of the land and the house covered by Exhibit 1. To that extent, the plain-tiff was deprived to utilise the money in his business.

9. The estimate of damages amounting to Rs. 5,000/- seems very much a reasonable compensation for the breach and cannot be characterised as a sum fixed in terrorem. If the plaintiff had committed the breach, he would have lost Rs. 5,000/- which he had advanced as earnest money. It was likewise provided that if the defendants committed the breach they would as well be liable to pay damages amounting to Rs. 5,000/-. The plaintiff had to demolish his own residential bungalow, which he had purchased from the very defendants at a cost of Rs. 32,000/- on account of the breach of agreement Ex. 1. The suggestion on behalf of the defendants that the plaintiff purchased that bungalow for construction of a cinema house does not seem to be true. Had it been so, there would have hardly been any necessity for the plaintiff to again enter into the deal contained in Ex. 1, by which the plaintiff purported to purchase the piece of land for the construction of a cinema house with necessary facilities of car parking, cycle stand etc. These facilities could not be provided on the site where the plaintiff has constructed the cinema after demolishing hisbungalow. The plaintiff had also to keep blocked amount equivalent to the purchase money covered by Exhibit 1. The trial Court's finding that the amount of Rs. 5,000/- claimed by the plaintiff as damages is quite reasonable and is not in terrorem seems to be justified and does not call for any interference by this Court.'

Having lost in the appellate Court, the defendants have preferred this second appeal.

3. Learned Advocate for the defendant-appellants has not challenged the plaintiff's right to claim refund of Rupees 5,000/- paid to the defendants as earnest money. His sole contention in this appeal is that the Courts below committed gross error in awarding a decree for Rs. 5,000/- as damages. It is contended that the covenant which gave to the plaintiff the right to claim Rs. 5,000/- as damages in addition to the refund of the earnest money is a stipulation in the nature of penalty and the plaintiff can get that amount or part thereof, if he establishes that in consequence of breach of contract he suffered loss and that in the opinion of the Court the amount of Rs. 5,000/- is a reasonable compensation for that loss. Learned counsel next contends that the learned District Judge completely ignored the allegations contained in the plaint with regard to the quantum of loss suffered by the plaintiff. It is argued that in the plaint the plaintiff claimed damages on the ground that he suffered loss of interest on the amount of Rs. 50,000/-, which he had to keep with him ready cash to cover the sale price and loss of interest on Rupees 5,000/-, which he had paid to the defendants as earnest money. It is further argued that neither in the agreement Exhibit 1 nor in the plaint it was mentioned that the plaintiff wanted to construct any cinema house on the suit property and on account of breach of contract he had to demolish his own bungalow for construction of a cinema house and thereby he suffered a loss of Rs. 5,000/- or more. It is urged that these facts were disclosed by the plaintiff for the first time when he appeared In the witness box as P. W. 1. It is also urged that the demolition of the bungalow by the plaintiff took place after the filing of the suit and, therefore, it had nothing to do with the breach of contract. The alleged loss incurred by the demolition of the bungalow, in any case, cannot be deemed as arising in consequence of the breach of contract. It has been further argued that in these circumstances the plaintiff cannot claim damages on that account.

4. In reply, the learned counsel for the plaintiff-respondent relied on Section 74, Contract Act, and urged that in the present case a sum of Rs. 5,000/-was named in the agreement Exhibit 1 as payable on breach of contract to the party not guilty of the breach. It was a genuine pre-estimate of damages which a party complaining of the breach was likely to suffer as a result of the breach. The plaintiff in the circumstances was rightly held entitled to recover that amount irrespective of the fact whether or not he succeeded in proving the actual damage or loss.

5. The sole controversy for determination between the parties is as to whether the claim for damages to the tune of Rs. 5,000/- was rightly decreed by the Courts below in the light of Section 74 of the Contract Act. The material part of Section 74 of the Contract Act reads as under:--

'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.'

6. This section provides that where a sum is named in the agreement as payable on breach, 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' subject to the amount named therein being the maximum, The expression 'the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby' came for interpretation before their Lordships of the Supreme Court in Maula Bux v. Union of India, AIR 1970 SC 1955 J. C. Shah. Acting Chief Justice, as he then was observed,--

'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 a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.'

Section 74, therefore, contemplates that 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 ft 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 ore-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 extravagent, the plaintiff would be entitled to only such sum as may appear to the Court as reasonable. Both the Courts below have held that the amount of Rs. 5,000/- specified in the agreement was a genuine pre-estimate of damages and was not fixed in terrorem. In my opinion this finding is based on no evidence. In the present case the plaintiff neither pleaded nor proved that a sum of Rs. 5,000/- fixed in the agreement was a genuine pre-estimate of damages. No material has been placed on record by the plaintiff, which may go to show that a breach by a party was likely to cause loss to the other party to the extent of Rs. 5,000/-. On the contrary the plaintiff in para. No. 8 of the plaint claimed damages on two grounds, (1) 'the plaintiff had always kept a sum of nearly Rs. 50,000/- to cover the sale price' and (2) 'he lost interest on the amount already advanced' to the defendants as earnest money. The agreement Ex. 1 also does not suggest that the amount, of Rs. 5,000/- specified therein was a genuine pre-estimate of damages. It is true that by the agreement each party was fastened to pay an equal sum of Rs. 5,000/- in the event of breach, but simply on that account it cannot be inferred that the amount specified in the agreement was a genuine pre-estimate of damages or was otherwise a reasonable compensation for the breach. The plain-tiff in the present case made no attempt to show that the value of the property to be sold had increased subsequent to the date of the agreement. Again there is no evidence that the defendant sold the property to some other person at a higher price so that inference of loss suffered by the plaintiff may be assessed on that footing. In the absence of any pleading or proof, direct or circumstantial, on the question that the sum specified in the agreement was fixed as a genuine pre-estimate of damages or is otherwise a reasonable compensation, the plaintiff cannot be held entitled to the sum named in the agreement. The present contract is also not that type of a contract where it may be impossible for the Court to assess compensation arising from the breach. On the contrary the plaintiff himself in the plaint pointed out the loss suffered by him and that shows not only that it was possible for the Court to assess compensation, but also that he suffered no other loss than that pleaded by him. I may now cite a few cases where in similar circumstances the plaintiff was held entitled to the actual loss suffered by him for the breach of contract and not the sum specified in the contract.

7. In Bhai Panna Singh v. Bhai Arjun Singh. AIR 1929 PC 179 there was a contract for sale of a building for Rs. 1,05,000/- and it was one of the conditions in the agreement that ' the party retracting from the contract shall pay Rs. 10,000/- as pashemana (damages).' The vendors eventually sold the building to another purchaser at Rs. 1,04,000/- as the vendee had broken the contract. The case ultimately went to the Privy Council and it was observed by their Lordships,--

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

8. In the case of Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 the vendor by agreement dated 21-3-1949 agreed to sell his rights in the land and the building standing thereon for Rupees 1,12,500/- and Rs. 1,000/- were recovered by him as earnest money. The vendor agreed to deliver the property to the vendee on further payment of Rs. 24,000/-out of sale price on 30th March, 1949. The agreement provided that for anyreason if the vendee failed to get the sale registered by 1-6-1949 the amount of Rs. 25,000/- (Rs 1,000/- paid as earnest money and Rs. 24,000/- paid out of the sale price on delivery of Possession) shall stand forfeited and the agreement shall be deemed cancelled and the vendee shall have to deliver back vacant possession of the property to the vendor. Likewise the agreement provided that if the contract is not completed on account of delay on the part of the vendor, the latter shall be liable to pay a sum of Rs. 25,000/- as damages apart from the sum of Rs. 25,000/- received by him from the vendee. On March 25, 1949, the plaintiff-vendor received Rs. 24,000/- and delivered the possession of the property to the vendee, but the sale of the property could not be completed 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 question arose whether the plaintiff-vendor in the circumstances was entitled to forfeit the amount of Rs. 25,000. Their Lordships of the Supreme Court held,--

'There is no evidence that any loss was suffered by the plaintiff in consequence of the default by the defendant, save as to the loss suffered by him by being kept out of possession of the property. There is no evidence that the property had depreciated in value since the date of the contract provided; nor was there evidence that any other special damage had resulted. The contract provided for forfeiture of Rs. 25,000/- consisting of Rs. 1,000/- paid as earnest money and Rs. 24,000/- paid as part of the purchase price. The defendant has conceded that the plaintiff was entitled to forfeit the amount of Rs. 1,000/- which was paid as earnest money. We cannot however agree with the High Court that 13 per cent of the price may be regarded as reasonable compensation in relation to the value of the contract as a whole, as that in our opinion is assessed on an arbitrary assumption. The plain-tiff failed to prove the loss suffered by him in consequence of the breach of the contract committed by the defendant and we are unable to find any principle on which compensation equal to ten per cent of the agreed price could be awarded to the plaintiff. The plaintiff has been allowed Rs. 1,000/- which was the earnest money as part of the damages. Besides he had use of the remaining sum of Rs. 24,000/-, and we can rightly presume that he must have been deriving advantage from that amount throughoutthis period. In the absence therefore of any proof of damage arising from the breach of the contract, we are of opinion that the amount of Rs. 1,000/- (earnest money) which has been forfeited and the advantage that the plaintiff must have derived from the possession of the remaining sum of Rs. 24,000/- during all this period would be sufficient compensation to him.'

9. I would now like to refer to 1955 Rai LW 174 = (AIR 1955 Rai 87) relied upon by the learned District Judge In that case the sum specified in the agreement as damages was held to be reasonable compensation, because it was found that on re-sale the defendant got price of the property in excess of the amount agreed upon by the party to the tune of the amount of damages specified in the agreement. This case is, therefore, clearly distinguishable.

10. In my opinion in the circumstances of the case the plaintiff is entitled to the loss suffered by him in consequence of the breach of contract. Doubtless the plaintiff is entitled to recover the earnest money amounting to Rs. 5,000/- as also the interest thereon, as the defendants must have derived benefit on that amount. Looking to the prevailing market rate of interest during the period 1962-65, the interest @ 12% per annum appears to be reasonable. The amount of Rs. 5,000/- was paid to the defendants as earnest money on 16-3-1962 The trial Court decreed the suit on 30th July, 1965. The amount of interest @ 12% on the sum of Rs. 5,000/- from 16-3-1962 to 30-7-1965 comes to Rupees 2,025/-. The plaintiff has deposed in his statement that he kept with him ready cash to the tune of Rs. 40,000 to Rupees 50,000/- to meet the sale Price of the property. It is further deposed that he was willing to purchase the suit property upto the time he received telegrams informing him of prior agreements to sale of certain portions of the suit property. The telegrams were received by the plaintiff on 14-4-1962. He is, therefore entitled to a month's interest on a sum of Rs. 40,000/-, which comes to Rs. 400/- @ 12% per annum. The plaintiff has further deposed in his statement that he had incurred an expenditure of Rs. 4,000/- in dismantling his bungalow. In my opinion he cannot get this amount or part thereof for the simple reason that no allegation to that effect was made in the plaint. That apart this expenditure cannot be regarded to have been incurred in consequence of the breach of contract.

11. In the result I allow the appeal partly and modify the decree passedby the trial Court and affirmed by the appellate Court by reducing the decretal amount from Rs. 10,000/- to Rupees 7,425/-. The decretal amount shall carry interest @ 6% per annum from the date of the decree passed by the trial Court till realisation. The defendant-appellants shall pay costs to the plaintiff on the decretal amount in this Court as well as in both the Courts below.

12. Learned counsel for the appellants prays for leave to appeal to Division Bench. The prayer is refused.


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