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Present: Bertram G.J. and De Sampayo J.
SUBRAMANIAM v. ABETWARDENE.
142—D. C Kalutara, 7,270.
Liquidated damages—Penalty—Agreement to sell arrack at market rateless Rs. 25-=-Breaeh of agreement.
In consideration of a sum of Ba. 8,000 advanced by the plaintiffto the defendant, the defendant covenanted, that he would deliverto the plaintiff all arrack, not lesa than 70 leagues, manufacturedin his distilleries as and when required by the plaintiff at any timebefore a specified day at the market price less Bs. 26; half theprice of arrack was to be paid for on delivery, and the otherhalf was to be credited to the defendant against the advance. Itwas further provided that in the event of the defendant failing todeliver the arrack, the defendant was to pay to the plaintiff Bs. 100as liquidated damages for each leaguer not delivered, and if theplaintiff should refuse to take delivery, he should pay Bs. 100 perleaguer. The plaintiff sued defendant (inter olio) for damages fornon-delivery of a certain quantity of arrack.
.Held, the amount stipulated in the bond should be treated aspenalty, and not as liquidated damages.
JI ’MIS was an action for the recovery of a. sum alleged to be dueto the plaintiff on account of advances and payments madeagainst the supply of arrack under an agreement and for the recoveryof damages for failure to supply part of the arrack promised at therate of Bs. 100 per leaguer. The material portions of the agreementwere as follows: —
(1) That in consideration ofthe sum ofBs.8,000lawful money of
Ceylon, being amount paid on the execution of these presents by the saidwholesale dealer '(the receipt whereof is hereby admitted and acknow-ledged), thesaiddistiller doth hereby covenantandagreewith the said
wholesale dealer that he, the said distiller, shall and will sell and deliverto the .saidwholesale dealer, or Messrs. Kasi NadarVaitialingam or Kasi
Nadar Vaitialingam Marcandan,or -hisheirsortheiragent or agents
duly authorized by him, all arrack, not lesB than 70 leaguers, of161 gallons per leaguer, manufactured in the distillery standing onHatarahawulmanana bearing excise No. 197, situated at Galbodaaforesaid,andinthe distillerystanding on Mukkanappugewatta
bearing excise No. 200, and situated at Talagama, in or over which thesaid distillershallhave the management, control,or interest,as and when
required by the said wholesaledealer orhis agentor agents at any time
before December 31, 1915, commencingfromthedateof these presents
the price to be paid for all anack being any sum less Bs. 25 than thethen market price per each leaguer to the said distiller
(5) That in the event of the said distiller failing, refusing, or- neglect-ing to sellanddeliver the said arrack withintheperiodaforementioned,
he, the said distiller, doth hereby covenant and agree that he shall and
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will pay to the said wholesale dealer Rs. 100 per each leaguer as liquid-ated damages. In like manner, if the said wholesale dealer shall refuse,fail, or neglect to "purchase and take delivery of all Buch arrack as afore-said within the period aforementioned, he shall and will pay as damagesBs. 100 to the said distiller.
The Distinct Judge gave judgment for plaintiff as prayed for.
The defendant appealed.
Bawa, K.G., and F. de Zoysa, for the appellant./
W. Jayawardena and Balasingham, for the respondent.
The following authorities were cited at the argument: —Halabury, vol. X., p. 331, s. 605; (1915) A. G. 79; 15 N. L. R.125; (1892) 1 Q. B. 127; 47 L. T. 389; 21 Ch. D. 243; 22 Mad.453; 27 Gal. 421; (1886) 11 A. G. 332; 14 N. L. R. 170; 13 N.L. R. 47.
September 19, 1918. Bertram C.J.—
[His Lordship dealt with the questions of fact raised, andcontinued]: —
The only question left for us to consider is the question of thedamages to which the plaintiff is entitled. He claims damages onthe footing of the words of his agreement. That agreement showsthat in consideratiori of the sum of Bs. 8,000 advanced by theplaintiff to the defendant, the defendant, who is a distiller, cove-nanted that he would deliver to the plaintiff all arrack, not lessthan 70 leaguers, manufactured in two distilleries as and whenrequired by the plaintiff at any time before December 31, 1915.The price to be paid for all the arrack was the market price per.leaguer less Bs. 25 and it was provided that half the price of arrackshould be paid for on delivery, and that the other half should becredited to the defendant against' the advance of Bs. 8,000.
Now comes the provision as to damages. It was provided on theone side that, in the event of the defendant failing, refusing, orneglecting to sell or deliver the said arrack within the period afore-mentioned, the defendant was to pay to the plaintiff Bs. 100 foreach leaguer as liquidated damages. Similarly, it was providedthat if the plaintiff should refuse, fail, or neglect to purchase or takedelivery of all such arrack stipulated to be purchased, he shouldpay Bs. 100 per leaguer to the defendant.
Now, the plaintiff claims that the Bs. 100 per leaguer mentionedin the deed shall be taken as the measure of his damages. To thatthe defendant replies that that measure cannot be taken, because,though it is spoken of as liquidated damages, the facts show it to- be.a penalty.
It is argued on behalf of the plaintiff in this case that we oughtnot to go into that question, because the issue as to whether or
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not the suin mentioned in the deed should be treated as liquidated *
damages or as a penalty was never before the District Court. I am BmmMnot satisfied on that point. I think that the expressions used inthe judgment of the learned District Judge indicate pretty clearly Subroma*that he had the question in mind. At any rate, I think that, onthe issues actually framed, the parties ought to have addressedthemselves to that question.
The principles on which the Courts act with regard to the questionof penalty and liquidated damages have been discussed in a greatnumber of cases from the days of Lord Mansfield, and they havebeen reviewed and very lucidly explained in recent years in the judg-ment of the House of Lords in the case of Dunlop Pneumatic TyreCompany, Limited v. New Oarage and Motor Company, Limited.1
The problem that arises in this case is a comparatively simpleone. It is not necessary for us to review all the classes of caseswhich are referred to in the judgments of the Lords in that case,because, in this particular instance, the stipulation we have toconsider is a single stipulation. The difficulty usually ariseswhere there are a great number of stipulations, some of which are ofdifferent degrees of importance, or, where there is a single stipula-tion, of which there may be several breaches of different degreesof importance.
In the present case the stipulation is single, capable only ofone sort of breach, and the principle which we have to apply tothat determination has been very clearly defined. The questionin each case is, What actually was the intention of the parties?
If by inserting a'clause fixing the damages in the deed the partiesintended that that sum should be held out in terrorem against anyperson committing a breach, then clearly it is a penalty. If, onthe other hand, the circumstances show that the amount stated inthe document may reasonably be considered as what is describedas a pactional pre-estimate,” then the amount is to be treatedas liquidated damages, even though in the document it may bedescribed as a penalty.
Now, we have to apply that principle to this particular case,where there is a single stipulation and a single breach. We may take. the law applicable to that question as formulated by Lord Parmoorat page 110 of the report. He there mentions that there are twoclasses of cases in which the Court has interfered, when the agreedsum is referable to the breach of a single stipulation. The secondclass need not concern us. This case, if at all, comes within thefirst, as to which Lord Parmoor says, “ the agreed sum, thoughdescribed in the contract as liquidated damages, is held to be apenalty, if it is extravagant or unconscionable in relation to anypossible amount of damages that could have been within the con-templation of the parties at the time when the contract was
* (19IS) A. C. 79.
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made.” He further says, “ to justify interference there must bean extravagant disproportion between the agreed sum and the amountof any damage capable of pre-estimate. ”
Now, applying those principles to the present facts, what is theposition? We have to ask ourselves, firstly, Do the circumstancesshow that the parties intended Bs. 100 as a pre-estimate of thedamage, or must it, on the contrary, be regarded as a penaltyin terrorem; and Secondly, to assist us to determine that question,we have to ask ourselves, Is there an extravagant disproportionbetween the agreed sum and the amount of damage capable of pre-estimate? In my opinion this sum is a penalty, and not liquidateddamages.
My reasons for thinking so are as follows. This is a bilateralstipulation. 1 mean by that that the deed provides for thesedamages both as regards the obligation of the plaintiff and asregards the obligation of the defendant. If the defendant failed todeliver arrack when called upon, he was to pay Bs. 100 per leaguer.If the plaintiff failed to take the arrack when tendered, he was to payBs. 100 per leaguer. There cannot be the slightest possible doubtwith regard to the obligation of the plaintifi. The amount therefixed was a penalty. If he declined to take any delivery of arracktendered by the defendant, he was to pay that sum. That beingthe case, it surely follows almost of necessity that the corresponding-Bs. 100 imposed upon the defendant is also in the nature of a penalty.
Further, that the amount is a penalty and not liquidated damages
is indicated by this fact. By the terms of the agreement the parties
indicate what the actual damages would really be. The arrack was
to be paid for, not at a fixed rate, but by reference to the market
price. The plaintiff was to pay the market price less Bs. 25 per
leaguer. That indicates pretty clearly that what he stood to gain if
the agreement was fulfilled was a sum of Bs. 25 per leaguer. That
was the measure of the benefit he was to derive from the fulfilment
of the contract. If, therefore, the contract was not fulfilled, this
Bs. 25, the measure of his benefit, would be also the measure of his
loss. Then we have to ask ourselves, is there such an extravagant
disproportion between the agreed sum and the amount of damages
capable of pre-estimate? In this case what the plaintiff is asking
for is practically four times the amount of the actual damage-. That
being so, it seems to me that it follows almost conclusively on the
principles expounded above that the sum must be treated as a
penalty, and not as liquidated damages.'
[After discussing a point arising out of the facts, the Chief Jwjffccecontinued]— .
I am .clearly of opinion, therefore, that the sum must be treatedas a penalty. That being the case, what is, in fact, to be the measureof his damages? In the first place, I think the plaintiff is certainly
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entitled to claim a sum of Be. 25 per leaguer in respect of eachleaguer not delivered. He must be presumed to have suppliedhimself with arrack to the extent to which he was not able to getthe arrack under his contract. But, in addition to this, he hassustained a further loss. Had the defendant carried out the stipula-tions of his agreement, the plaintiff would, on December 81, 1915,have been in possession of the whole of his Bs. 8,i#0u advanced. Byreason of the failure of the defendant to supply the arrack providedfor, the plaintiff was kept out of his money, and is still out of hismoney. The consequences, therefore, of the breach of the stipula-tions of the deed by the defendant is that the plaintiff suffered thatdamage, and was continuing to suffer that damage down to actionbrought. We have, therefore, in awarding the plaintiff damages, toarrive at some estimate of his loss. I think the reasonable estimateof the damage he has sustained would be the legal interest fromDecember 31, 1915, down to action brought. I would, therefore,add that sum to the sum calculated on the basis of Bs. 25 per leaguer,and give him judgment for the total amount. In all other respectsI would leave the judgment of the District Judge as it stands.
With regard to costs, the costs as ordered by the judgment ofthe District Judge should stand. With regard to the costs of theappeal, the appellant has substantially improved his position onthe question of damages. I think, therefore, that the equitablecourse would be that there should be no order as to the costs ofthe appeal.
Db Sampayq J.—I agree.
SUBRAMANIAM v. ABEYWARDENE