Bernard Perera V. Wijeyatunga
COURT OF APPEALPALAKIDNAR, J. &
SENANAYAKE, JC.A. NO. 403/80FD C. COLOMBO 3139/ZLMAY 10, 1991
Contract – Specific performance ■ Roman Dutch Law – Liquidated damages – Penalty- Substituted alternative obligation.
In an agreement to sell, a clause for liquidated damages which is really in terrorema penalty cannot be treated as a substituted alternative obligation available to thevendor who declines to go through with the agreement
The clause regarding damages is only accessory to the principal obligation. TheRoman Dutch Law applies.
Cases referred to:
Thaheer v. Abdeen 57 NLR 1,3
Lombard Bank Ltd. v. Excell and another (1963) 3 all ER 486.
Dunlop Pneumatic Tyre Co. Ltd. v. New George and Motor Co. Ltd. (1914 -1915 All ER 739)
Hoole v. Natarajan 66 NLR 484
APPEAL from judgment of the District Court of Colomoo.
H.L. de Silva, P.C. with S. Parathalingam for appellant.
L.C. Seneviratne, P.C. with R. Perera for respondent.
Cur. adv. vult.
July 25, 1991
Mrs. Nanda Wijeyatunga the plaintiff-respondent is the administratrixof her husband’s estate. Her husband Wijeyatunga died on22.10.1977. They were in occupation of premises mentioned in theschedule to the plaint as tenants of the owner Bernard Perera thedefendant-appellant in this appeal.
Sri Lanka Law Reports
(1991) 1 Sri L.R.
Prior to his death Wijeyatunga entered into a notarial agreement topurchase the premises from Bernard Pereira for a sum ofRs. 100,000/- by Indenture dated 10.6.1977 (marked P2).
Wijeyatunga died and the plaintiff-respondent to the appeal havingobtained letters of administration to the deceased's estate (markedP1) filed this action for specific performance on the agreement P2.At the argument of the appeal learned counsel for the appellent drewattention to clauses six and seven of the agreement p2 which readthus; Clause 6. "In the event of the Vendor failing and neglecting totransfer the land and premises described in the schedule hereto thepurchaser, free from encumbrances, on the purchaser being readyto pay the balance sum of Rs. 60,000/- on or before the 31stDecember 1978, the vendor shall be liable to refund the said sumof Rs. 40,000/- together with a further sum of Rs. 40,000/- asliquidated damages and not as a penalty and it is agreed that thepurchaser shall not be called upon to prove the damages in theevent of such eventuality". Clause 7. "In the event of the purchaserfailing and neglecting to purchase the land and premises describedin the schedule hereto on or before 31st December 1978 the vendorshall be entitled to appropriate the said sum of Rs. 40,000/- asliquidated damages and not as a penalty and the vendor shall notbe called upon to prove the damage in the event of such eventuality".
It was stated by the defendant in his answer that the purchaser didnot pay the forty thousand rupees agreed upon in clause six. Thisissue (No 4) was answered in favour of the plaintiff. The learnedtrial judge having regard to the evidence of the attorney who draftedthe agreement P2 and the testimony of the plaintiff; widow of thedeceased held that the purchaser had in fact paid the money. Thisfinding on the facts was not challenged by the appellant counsel.
On the question of the claim for specific performance by the plaintiffthe learned trial judge has observed that the defendant did not denythe claim in his answer, but chose to rest his case on the non-performance of the purchaser's obligations under the agreement P2.In regard to this aspect the learned judge has said that at the trialthe defendant was clutching at straw in seeking to avoid specificperformance. It was urged by appellant's counsel that the agreementmade it quite plain that if the vendor did not transfer the land he
CABernard Perera V» Wijeyatunga (Paiakidnar, J.)
would refund Rs. 40,000/- paid to him and Rs. 40,000/- as liquidateddamages and not as penalty. A tenant who had the expectation ofownership of the property cannot be denied of his right under thelaw of specific performance unless he agreed specifically to avail ofa substituted obligation clearly stated in the agreement.
It is settled law that specific performance of an obligation asgoverned by the Roman Dutch Law is the relief available in thesecircumstances when the vendor resiles from his obligation. VideThaheer Vs. Abdeen (1) Justice Gratiaen stated that every partywho is ready to carry out his terms of contract prima facie enjoys alegal right to demand performance. It was contended that the words"liquidated damages and not a penalty" in clause six quoted aboveconstituted a substituted obligation. Whether in fact such a clausewas a substituted alternative obligation or was it an accessory to theprincipal obligation is a matter not to be understood by the wordsused in the agreement but the circumstances of every case, (vide13 N.L.R. 47 and 59 N.L.R. 385 Pv.CI).
The scope of this inquiry is set out in Lombard Bank Ltd. vs. Excelland another (2).
Law Dunedin in Dunlop Pneumatic Tyre Co. Ltd. vs. New Georgeand Motor Co. Ltd. (3) stated that the court must in fact find outwhether the amount stipulated is in truth penalty or liquidateddamage.
Penalty is an amount of money to be paid as stipulated in terroremby the offending party.
Liquidated damages is a genuine conventional preestimate of thedamage. It is in fact a question of construction to be judged as atthe time of making the contract and not at the time of the breach.
In Hoole vs. Natarajan (4) the clause 8 in the agreement read “inthe event of the owner refusing or neglecting to obtain the balanceconsideration within the stipulated time and convey the said propertythe owner shall pay the sum of Rs. 2000/- as damages". Justice T.S.Fernando held that the clause was accessory to the principalobligation and not a substituted alternative obligation. Viewsexpressed in the cases referred to above are all relatable to the factsof each case.
(1991) 1 Sri L.R.
Sri Lanka Law Reports
In the instant case if Wijayatunga did not pay the balance 60,000/-rupees on or before 31.12.78 the defendant would have kept the40,000/- rupees already paid and become entitled to another sumof Rs. 40,000/- Thus the position would be that he would remainowner of this property having sustained loss and become entitled toreceive the 40,000/- rupees while the plaintiff losing 80,000/- wouldbe in the same position of the tenant. It is clear from thiscircumstances that the 40,000/- was "in terrorem" a penalty and nota substituted obligation. Clause seven also does not lend itself tothe view that it was anything other than a penalty.
We are of the view that the learned District Judge was correct inholding that it was not a substituted obligation but a penalty andordering specific performance of the contract entered into by theagreement.
In fact the plaintiff had paid the balance 60,000/- into court before30.12.78. The obligation of the purchaser has been fullfilled.
I therefore dismiss the appeal with costs.
SENANAYAKE, J. – I agree.