012-SLLR-SLLR-1991-V-1-HURBERT-FERNANDO-v.-KUSUMANANDA-DE-SILVA.pdf
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Hurbert Fernando v. Kusumananda De Silva
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HURBERT FERNANDOV.
KUSUMANANDA DE SILVA
SUPREME COURTAMERASINGHE, J.
DHEERARATNE, J. ANDGOONEWARDENA, J.
D.C. NEGOMBO CASE NO. 2570/LCA. 425/81 (F)
C.A. (LA) S.C. APPLICATION NO. 8/88S.C. APPEAL NO. 17/887 AND 11 DECEMBER 1990
Contract – Specific performance – Agreement to sell ■ Substituted obligationHeld-
On the terms of the agreement to sell no alternative was made available to the vendoias to the mode of performing the contract. The return of the deposit was no alternativein any true sense. Hence the vendor was obliged to make specific performance onthe purchase fulfilling his obligations. There was here no substituted obligation.
Cases referred to:
Thaheer v. Abdeen 57 NLR 1
Kannagammah v. Kumarakulasingham 66 NLR 523
APPEAL from judgment of the Court of Appeal
H.L. de Silva, P.C. with G. Dayasiri, P.M. Ratnawardene and Janaka de Silva forplaintiff -appellant
P.A.D. Samarasekera, P.C. with Bimal Rajepakse for defendant – respondent.
Cut. adv. vullt.
Januaiy 1991
GOONEWARDENA, J
This was an action filed in the District Court by the present appellantas plaintiff against the present respondent as defendant, seeking tcenforce by way of specific performance an agreement to transfer
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premises bearing assessment No. 200, Weboda Road, Negombocalled and known as 'Brindhaven'. The agreement which was not-arially attested as required by the Statute of'Frauds was producedat the trial of the action marked P1. It provided that the considerationfor the transaction of sale contemplated thereon was a sum of Rs.80,000/-. At its execution a sum of Rs. 8000/- was made payableby the plaintiff, the purchaser, as a ‘deposit. . . .being 1/10th shareof the purchase consideration1. The balance sum of Rs. 72,000/- wasto be paid to the vendor, the defendant, at the time of the executionby him of the contemplated deed of transfer and the deposit ofRs. 8000/- made was to be treated by him as a part payment ofthe purchase price of Rs. 80,000/-. The purchase itself had to becompleted not later than 31st July 1979.
Conveniently, at this point, I would reproduce the two principalclauses of P1 of importance to the question of specific performance,thus:-
“5. If upon the purchaser duly observing and performing the termsand condition set forth in this agreement the vendor shall wilfullyor otherwise refuse or fail to execute the deed of transfer asprovided for in clause 3 hereof then and in that event the vendorshall refund to the purchaser the said sum of Rupees EightThousand (Rs. 8000/-) deposited as aforesaid or alternatively thepurchaser shall on giving thirty (30) days notice to the vendorhave the right to enforce specific performance by the vendor ofthe agreement herein entered into.
6. If upon the vendor duly observing and performing the terms andconditions set forth in ths agreement the purchaser shall failwilfully or otherwise to complete the purchase as provided forin clause 3 hereof then and in that event the vendor shall retainthe said sum of Rupees Eight Thousand (Rs. 8000/-) depositedas aforesaid as liquidated damages and not as a penalty oralternatively the vendor shall on giving thirty (30) days notice tothe purchaser have the right to enforce performance by thepurchaser of the agreement herein entered into."
It was admitted that the plaintiff at the execution of P1 paid thedefendant the deposit of Rs. 8000/- and took the steps stated to berequired of him in the aforesaid clause 5, but by letter P3 the
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defendant refused to sell the property and returned the sum of Rs.8000/- so deposited with him. Thereupon the plaintiff sent back thissum to the defendant and gave him notice as set out in clause 5and upon the failure of the defendant to perform the contract of sale,instituted this action.
In the trial Court the District Judge, placing reliance upon certainpassages in the judgment of Gratiaen J in the case of Thaheer vAbdeen (1), concluded that it could not be said that the mere refundby the defendant of the sum or Rs. 8000/- was the performance ofa substituted obligation for the plaintiff's right to specific performance,as was the defendant's contention, that under the Roman Dutch Lawa purchaser is entitled to the right of specific performance providedthat he had carried out his part of the contract and that in the eventof a breach of the contract it is not the defaulting party but theinnocent one who is entitled to exercise the option of an alternativeremedy. Consequently he declared judgment for the plaintiff and thatresulted in an appeal to the Court of Appeal.
The Court of Appeal overturned the judgment of the District Judgeand that in turn has resulted in the present appeal being taken. ThatCourt considered that the words 'or alternatively' as used in clause5 demonstrated an intention to create a right to elect given xo thevendor. Of importance to emphasize is that the Court of Appealconsidered that this was a right given to the vendor and that thereturn of the part payment of Rs. 8000/- necessarily implied that the'primary obligation' to sell came to an end taking away the plaintiffsfight to demand specific performance, but that if on the other handthe defendant failed or neglected to return or refund the said depositof Rs. 8000/- and instead chose to keep it, that only then the 'primaryobligation' to sell was kept alive so as to place the defendant undera duty to convey the property to the plaintiff capable of beingenforced by way of specific performance. The Court of Appealconcluded that therefore the purchaser, the plaintiff, was denied theright to seek specific performance and that the language of ci-use5 was not open to the construction placed upon it by the DisLIctJudge.
In argument before us, in essence the contention of learned Counselfor the plaintiff Mr. H. L. de Silva was that clause 5 of PI did netcontain alternative modes of performing the contract available to -.ho
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defendant. He contended that the mere return of a deposit could notin any sense be considered a performance of the contract.
Conversely, learned Counsel for the defendant Mr. Samarasekeracommended the approach of the Court of Appeal and urged us toadopt it as being the correct one, having regard to the provisions ofthe document P1. He placed strong reliance himself on the judgmentof Gratiaen J in Thaheer v Abdeen (Supra) and emphasised theimportance of the following passages (at P 4 and 5):
"The conclusion which I have reached is that the language ofclause 8 is not open to the construction contended for on behalfof the purchaser. The parties must clearly have appreciated on3rd October, 1947, that failure on the part of the 'vendors' tosecure a conveyance of the entire property to the purchaser onor before 31st December, 1947, in terms of the contract couldresult from a variety of causes. For example.
the sanction of the District Court to the proposed sale mightnot be obtained or not be obtained in time;
(This was a reference to the agreement to sell inter aliacertain undivided rights in the property belonging to minors)
the title of the premises might not be 'deduced to thesatisfaction of Mr. John Wilson' – Clause 5;
One or more of the 'vendors' might back out of thetransaction during the interval between the date of thecontract and the date fixed for completion.
In the first of these contingencies, specific performance of theindivisible obligation to secure the sale of the entire propertywould in the very nature of things have been impossible, becausethe 'vendors' could not be compelled to achieve a result whichit was beyond their power to bring about. Clause 8 certainlyprovides the purchaser's only remedy in that particularcontingency, namely, that the vendors' shall forthwith' (the wordsare imperative, and exclude the notion of an option being grantedto either of the parties) refund the part consideration previouslydeposited with them and also pay an agreed sum by way of
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liquidated damages.
What then if the vendors should, for some other reason equallywithin the contemplation of the parties, default in the performanceof their primary obligation? Clause 8 equally provides that in anysuch contingency the deposit must forthwith' be refunded and alike sum paid to the purchaser by way of compensation.
It follows from this analysis that what was clearly intended toconstitute a substituted obligation upon the first contingencyreferred to must equally have been intended to constitute the soleobligation arising upon a default in any other contemplatedcontingency. Had it been the intention of the parties that thesubstituted obligation provided by clause 8 should represent thepurchaser's sole remedy in one situation, but that the alternativelegal remedy of specific performance (i.e. under the general law)should nevertheless be reserved to him at his option in another,it would have been a simple matter to insert in the contractexpress terms making separate provisions for each separatecontingency".
Counsel referred in this context to certain provisions in P1 whichmade the transaction in question subject to (a) in the vendorstitle being satisfactory (b) vacant possession being granted and
the boundaries being properly defined on a plan (clause 4).He pointed to clause 7 of P1 which provided that the vendorshall be entitled if the purchase did not materialise for any reasonwhatsoever (other than the reasons referred to in clause 4) toappropriate the deposit (without prejudice to his other rights)against damages payable and made further provision to enabiethe vendor to refund to the purchaser the deposit of Rs. 8000/-in case the requirements of clause 4 were not met. His argumentwas that if as Gratiaen J held, provision for certain contingenc esimpliedly excluded specific performance there, likewise specificperformance was by contract expressly excluded in the instantcase. He adopted the approach of the Court of Appeal that thevendor by the terms of clause 5 had a choice as to whether heshould keep the deposit of Rs. 8000/- or else refund it. If thevendor, he contended chose to keep it he was liable tospecifically perform the contract. If on the other hand he electedto return it the matter ended there. In other words the effect ofwhat he submitted was that the whole question hinged upon the
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decision which the vendor had the right to make under clause5, whether to refund the deposit or else to retain it.
I think that it is possible to say at this point itself that since byclause 6 which deals with a situation in which the purchaser wasin default, there was a clear right of election given to the vendorto demand specific performance to compel the purchaser to buythe property or alternatively to retain the deposit of Rs. 8000as damages, it would not be correct to consider (as the Courtof Appeal in the event did) that by clause 5 which deals with asituation in which the vendor was in default and which also refersto a right to obtain specific performance given to the purchaser,there was once again a right of election given to the vendor toreturn the deposit or in the alternative to specifically perform thecontract of sale. It is neither reasonable nor logical to think thatthe parties intended that clause 5 as well as clause 6 shouldboth give such a right of election only to the vendor in eitherinstance, that is, whether the default was his or that of thepurchaser.
Since the word 'alternative' figures prominently in this case, in thebelief that it would serve the purpose of facilitating an understandingof what that word should in this context properly signify, I havereproduced from the texts, provisions ( which include the effect ofthe case law as well) of both the Roman Dutch Law which admittedlyis the law applicable in this case and also of the Eglish Law, and ifthat has been done to an extent that might appear excessive orunnecessary, that was in order to extract the principlescomprehensively and to place the problem we are faced with in acorrect legal perspective. I have also not been unmindful of theprobability that these books are not too readily available and thatthe reproduction of these passages could therefore also serve asomewhat general useful purpose.
As regards the Roman Dutch Law, Wessels on The Law of Contractin South Africa' (2nd Edition 1951) states thus:-
Section 1453 "The object of an obligation may be either a singlething or a single act, or else it may consists of severalthings or several acts, or of both things and acts. Inthe former case we say that the object of the obligationis 'simple', in the latter case that it is 'compound'.
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If the object of the obligation is compound, the promisemay be framed in such a way as to be fulfilled onlywhen all things are delivered or all the acts areperformed (conjunctive obligation), or else that thedelivery or a single thing or the performance of a singleact absolves the debtor (facultative or alternative) . .
Section 1454". . .In the facultative obligation there is a promise todeliver some definite things or to perform some definiteact, but at the same time the debtor reserves to himselfthe right to perform his contract by some otherprestation, e.g. I promise to deliver A, but I reserve tomyself the right of delivering B instead. The primaryobject of the obligation is A but I have the power(facultas) of substituting B . . .An obligation is said tobe alternative when the promise involves twoprestations, but in such a way that the debtor isabsolved by either prestation, I promise to deliver A or
Both are equally due until the choice is effected, butafter that only the one chosen is due . . .”.
Section 1459 “If two things are promised alternatively and one ofthem at the moment of the clinching of the contractbelongs to the creditor, the agreement must beregarded as a simple promise of the other. . .“.
Section 1460 "If one of the alternative promises is the performanceof an act and the other the payment of money, we mustgather from the contract and the circumstances whetherthe payment of the money is intended merely as apenal clause or whether it is to operate as a liquidateddebt. If the clause providing the money payment is apenalty, it is not ‘in obligation, for the law will thenconsider it a mere accessory undertaking and only dueif the principal obligation is not executed, and then onlyto the extent of the actual damage suffered.
If, however, the payment of the money is not construedto be a penal clause, but an alternative prestation, thendirectly the performance of the act becomes impossibleor the promisor refuses to carry it out or cannot do so,
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the money is due . .
Section 1461 English Law is similar . . .
As regards the English Law in the work 'A Treatise on the Specific
Performance of Contracts' by Fry (6th Edition 1985) it is stated thus:
Section 140 "From the principles stated in the last Chapter, itappears that where a contract is substantially performedby the payment of a sum of money, the Common Lawremedy being adequate, Equity will not interfere. Hence,in cases where there is added to the contract a clausefor the payment of a sum of money in the event of nonperformance the question arises whether the contractwill be satisfied by the payment, or whether it will not.In the former case, Equity will not interfere; in the latterit may".
Section 141 "The question always is, what is the contract? Is it thatone certain act shall be done, with a sum annexed,whether by way of penalty or damages, to secure theperformance of this very act? or is it that one of twothings shall be done at the election of the party whohas to perform the contract, namely, the performanceof the act or the payment of the sum of money? If theformer, the fact of the penal or other like sum beingannexed will not prevent the Court's enforcingperformance of the act, and thus carrying into executionthe intention of the parties: If the latter, the contract issatisfied by the payment of a sum of money, and thereis no ground for proceeding against the party having theelection to compel the performance of the otheralternative".
Section 142 “From what has been said it will be gathered thatcontracts of the kind now under discussion are divisibleinto three classes:-
(i) . . .Where the sum mentioned is strictly a penalty- a sum named by way of securing theperformance of the contract as the penalty in a
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Where the sum named is to be paid as liquidateddamages for a breach of the contract;
Where the sum named is an amount the paymentof which may be substituted for the performanceof the act at the election of the person by whomthe money is to be paid or the act done. .
It will be convenient to consider the threeclasses of cases separately.
Section 143 (i) "A penalty (strictly so called; attached to the breachof the contract will not prevent it from being specificallyenforced . .
Section 146 (ii) "The difference between penalty and liquidateddamages is, as regards the Common Law remedy, mostmaterial. For according to the Common Law, if the sumnamed is not a penalty, but the agreed amount ofliquidated damages, the contract is satisfied either byits performance or the payment of the money. But asregards the equitable remedy the distinction isunimportant; for the fact that the sum named is theamount agreed to be paid as liquidated damages is,equally with a penalty strictly so called, ineffectual toprevent the Court from enforcing the contract in specie".
Section 153 (iii) “In the third class of contracts which may bedistinguished as alternative contracts, the intention isthat a thing shall be done or a sum of money paid atthe election of the person bound to do or pay.
In these case, the contract is as fuiiy performed by thepayment of the money as by the doing of the act, andtherefore where money is paid or tendered there is noground for interference by way of specific performanceor injunction".
Section 154 "The question to which of the three foregoing classesof contracts any particular one belongs is of course aquestion of construction. In considering it ‘the Courts
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must, in all cases, look for their guide to the primaryintention of the parties, as it may be gathered from theinstrument upon the effect of which they are to decide,and for that purpose to ascertain the precise nature andobject of the obligation'. Consequently each casedepends on its own circumstances . .
Section 155 "On this question it is by no means conclusive that thecontract may be alternative in its form.For never thelessthe Court may clearly see that it is essentially a contractto do one of the alternative
Section 158 "The fact that the benefit of the contract would resultto one person or flow in one channel and the benefitof the sum if paid, in another, is a strong circumstancesagainst considering the contract alternative in its nature
If these citations bring out anything clearly it is that in every referenceto an 'alternative obligation’ there is to be found that upon aperformance thereof some benefit (generally monetary) passes to thecreditor from the debtor, which in the instant case would come fromthe vendor to the purchaser. This is strongly brought out by anexpression often used in this context "an alternative obligation ofequal work". As Wessels in his work "The Law of Contract in SouthAfrica" (ibid) points out at section 385 "The object of the obligationto which the contract gives rise in the thing or act which has beenpromised". In the case of two alternative obligations this must applyto either of such alternatives. Can it be said that one of theobligations in clauses 5 was such that if the vendor defaulted thepurchaser should merely get back his deposit? To put it somewhatdifferently can it reasonably be said that the object of this so calledalternative obligation looked at from the purchaser's angle was to getback his own money whereas by contract in the event of thepurchaser's default the vendor could claim the alternative ofdamages. I certainly do not think so.
What then is the true effect of the vendor retaining or endeavouringto return to the purchaser the deposit. Fry in his work on SpecificPerformance of Contract (ibid) in Chapter VI deals with The Deposit1,
such as is also entered in P1. So much of sections 1477 and 1478
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in such chapter as are relevant are reproduced thus:-
Section 1477"lt is common on sales of real estate for the purchaserto pay to the vendor at the time of the contract aportion of the purchase money by way of part payment.
Section 1478"The deposit unless paid on any special terms, is atmerely part payment but is an earnest: so that, on ,.oone hand if the contract be performed, it is brought moaccount as part payment: On the other hand if bspurchaser makes-default it may be retained by mevendor. The deposit is therefore security for fr:performance of the purchaser's part of the contra: . .Where without any default on the part of the pure:the contract fails, the deposit and all other co-payments ought to be repaid . .
A deposit then, as explained above, being something which has tobe paid back to the plaintiff where he was without default it cannot,when so paid back, as I see it, be considered the performance ofan alternative obligation under the contract. As I understand section1459 of Wessels on "The Law of Contract in South Africa" (ibid) thewords I earlier referred to "If two things are promised alternativelyand one of them at the moment of the clinching of the contractbelongs to the creditor the agreement must be regarded as a simplepromise of the other", are a pointer in that direction.
Counsel for the respondent read out the dictionary meaning of theword ’alternative' as part of his argument as to the alternatives heclaims were available to the defendant under clause 5. In this regardthe judgment of the Court of Appeal, as I read it, emphasises anaspect suggesting that the first of the choices was one given to thevendor to refund the deposit of Rs. 8000/- which upon beingrefunded brought the matter to an end, so that the situation pertainingto the exercise of the right of specific performance said to beavailable to the purchaser did not arise, and in that way treated thenas alternative choice available to the vendor. It seems to me thatthis way of looking at it, made as it is to depend upon the order inwhich these claimed alternatives occur in clause 5 can be misleadingas I shall endeavour to show. If, as contended, the stipulations inclause 5 are true alternatives, then it should be possible to rearrange
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the structure of such clause without in any way distorting its meaningby transposing these two claimed alternatives to read, thus:
"If upon the purchaser duly observing and performing the termsand conditions set forth in this agreement the vendor shall wilfullyor otherwise refuse or fail to execute the deed of transfer asprovided for in clause 3 hereof then and in that event thepurchaser shall on giving thirty (30) days notice to the vendorhave the right to enforce specific performance by the vendor ofthe agreement herein entered into or alternatively the vendor shallrefund to the purchaser the said sum of Eight thousand (Rs.8000/-) as aforesaid".
Referred in this way one sees that the meaning thereby conveyedsuggests a "right of election" available to the purchaser, unlike inthe structure of clause 5 as it exists in P1. It seem to me thereforethat if they were true alternatives, clause 5 rendered as set outabove should not achieve the result of altering the party having theright of election from the vendor to the purchaser. By contrast a likeexercise with respect to clause 6 does not bring about such a result.The inference therefore must be that there is no alternative madeavailable to the vendor here as to the mode of performing thecontract and I would express my view that the return of the depositwas no alternative in any true sense, despite that use of the wordin clause 5 with unfortunate consequences for the plaintiff.
The 'alternative' referred to in clause 5 was not in reality an inferenceto a performance of an act in any particular way but rather to a nonperformance or breach. The word ’discharge' when used in relationto a contract can be understood to mean, the contractual obligationbeing extinguished, and as pointed out in section 2117 of 'The Lawof Contracts in South Africa' by Wessels (ibid), the various modeswhereby that can be brought about are grouped under three headsnamely (1) performance or payment (2) mutual agreement (3)operation of law. The expression 'discharge of a contract' issometimes used in a sense suggesting a breach, and as Wesselsalso points out (at section 2912) "English text – books speak of thedischarge of a contract by breach" although as he comments (atsection 2913) "It is doubtful whether that Civil Law regarded a breachof contract in this light". Therefore when one encounters a provisionin a contract which at first glance may take the appearence of an
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'alternative' (as here) one can all too easily fall into the error ofconfusing a 'breach' for a 'performance' in the context of an obligationbeing discharged or extinguished.
The case of Thaheer v Abdeen (Supra) as also the later case ofKanagammah v Kumarakulasingham (2) which purported to follow itmust be distinguished. If however the judgment in the latter of thesecases is in conflict with the conclusion I reach in the instant case,with respect I would have to disagree with it. As contended byCounsel for the appellant the technique of interpretation used byGratiaen J in the circumstance of the case before him isinappropriate here. To apply what Gratiaen J said in the former caseto the facts of the present one in the manner suggested would befar from taking the correct course. As Gratiaen J himself pointed outthere, “it would have been a single matter to insert in the contractexpress terms making separate provision for each separatecontingency". That I think has been done in the document underconsideration here. Further, in the instant case the right of seekingspecific performance was granted to both parties (thereby conformingto the aspect of mutuality) and thus by express inclusion in thecontract, unlike in that case where this right was being ciaimed onlyas available under the Roman Dutch Law applicable, and where thecontract there made provision for the repayment forthwith by thevendor of the deposit and a further sum by way of liquidated andascertained damages.
To recapitulate, what then is a contract? What are the legal relationscreated by it? The striking difference between the position of thevendor and the purchaser is this. In the event of a breach, as analternative to specific performance the vendor by contract gavehimself the right to recover damages, whereas by contract, as analternative to specific performance the purchaser by contract did notgive himself that right and was content to get back his deposit, liseems to me therefore that it is possible to think that at the timethe contract was entered into there was a greater anxiety on the partof the vendor to see that the sale went through for it may well besaid, to use the words of Fry in specific performance (ibid) alreadyreferred to, that 'the sum was annexed by way of damages to securethe performance of this very act'. Analytically what were the rightsand duties of the parties? Counsel for the appellant contended thatclause 5 created rights in the purchaser with correlative duties on
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the part of the vendor, while clause 6 did the reverse. I do agree.In a situation of the vendor’s default clause 5 gave the purchaser'the right’ to enforce specific performance placing the vendor undera corresponding duty to comply. If the purchaser chose not toexercise that right, he instead had the right (or entitlement which thecommon law in any event gave him) to get back his deposit withthe corresponding duty cast on the vendor to pay back that deposit.In a situation of the purchaser's default, clause 6 on the other handgave the vendor ’the right1 to enforce specific performance placingthe purchaser under the corresponding duty to comply. If the vendorchose not to enforce that right, he instead had the right to retainthe deposit as liquidated damages and the purchaser was under acorresponding duty to permit that.
The general position under the Roman Dutch Law is referred to byWessels in his Law of Contract in South Africa (ibid) thus:-
Section 3102"Prima facie, every party to a binding agreement whois ready to carry out his own obligation under it, had aright to demand from the other party, so far as it ispossible, a performance of his undertaking in terms ofthe contract. As remarked by Kotze, C.J. in Thompsonv Pullinger (1894 1 O R at 301): ’The right of a plaintiffto the specific performance of a contract where thedefendant is in a position to do so is beyond all doubt’.
Section 3013“lt is therefore part of oOr law that a defendant who hasbroken his contract has not got the option of purginghis default by the payment of money. For, in the wordsof Story (Equity Jurisp., S 717 (a): ’It is againstconscience that a party should have a right of electionwhether he would perform his contract or only paydamages for the breach of if. The election is rather withthe injured party, subject to the discretion of the Court"(per innes C.J. ibid. See also Shill v Milner 1937 A D191; Nobertson Municipality v Jansen 1944 C.P.d. 526at p 543)
In the instant case there was an express right available to the plaintiffin the event of the defendant's breach to demand specificperformance and there was no alternative mode of performance
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made available to the defendant.
I am of the view that the Court of Appeal misdirected itself in regardto the conclusion reached that the plaintiff was not entitled to demandspecific performance of the contract as claimed. The contract Itselfexamined against the background of the relevant law gave theplaintiff that right. In the circumstances I would while reversing thejudgment of the Court of Appeal restore the judgment of the DistrictCourt and accordingly allow this appeal with costs payable here andin both Courts below.
AMARASINGHE, J – I agree.
DHEERARATNE, J – I agree.
Appeal allowed