Under Section 74 of the Contract Act, 1872, a party cannot recover a stipulated sum for breach of contract as a matter of right; they must prove the actual loss suffered to claim damages.

Lord Atkin.:-

This is an appeal from the Court of the Judicial Commissioner, North-West Frontier Province at Peshawar. The dispute arises out of an agreement for the sale of a serai in Peshawar. There were cross suits, vendors and purchasers, each alleging that the others bad broken the contract and claiming damages. The vendors succeeded before the Subordinate Judge, the purchasers before the Judicial Commissioner. The vendors appeal. In 1924 the vendors were the owners of the serai in question upon which there were mortgages amounting to Rs. 80,000 in favour of one of the former owners. They were being pressed by their creditors and found it desirable to sell the property. The sale was negotiated by brokers and the agreement was dated 19th February 1924. The agreement provided for the sale to the purchasers for Rs. 1,05,000. Cost of stamp paper and registration was to be borne equally. The purchasers were to pay Rs. 500 earnest money.

"The party retracting from the contract shall pay Rs. 10,000 as pashemana (damages)."

Vendors-purchasers were each to pay one per cent brokerage. No time was fixed for completion but on the same day the purchasers paid the earnest money and were given a receipt which provided that the balance should be received before the Sub-Registrar and the deed registered within a month. Each party found its half share of the stamp paper, the purchasers on 18th March. According to the plaintiffs the purchasers delayed the preparation of the conveyance as they wished to see the will of a deceased brother of one of the vendors in order to exclude the possibility of an outstanding claim by his widow. The plaintiffs alleged that on 8th April the parties met to complete the conveyance. A writer, Ganga Bishan, was present and began the conveyance but his work was broken off as the purchasers raised further points. They wanted on the conveyance the name of Ishar Singh, who was apparently their partner but who had not signed the agreement. They raised a question about boundaries, and they desired to see the outstanding mortgage. The plaintiffs alleged that they consented to all three points. The boundaries were forthwith investigated with Ishar Singh and the purchasers were provided with a copy of the mortgage. According to the plaintiffs they thereafter requested the defendants to complete but were put off. On 26th April, the conveyance was completed by Ganga Bishan in the presence of the purchasers and the brokers. The vendors were not present but it is significant that the boundaries inserted were in accordance with the alteration. On the same day there was a fight between a Sikh and a Mahomadan on the premises (which contained a mosque), which the plaintiffs suggest may have deterred the defendants from completion. On 9th May the purchasers sent a written notice saying that the vendors had not got the sale-deed registered within a month, and claiming payment of Rs. 10,000 within a week. On 10th May the vendors sent a telegram in reply stating that they had always been ready and willing to complete, that the delay was on the part of the purchasers, and specifically calling attention to the fact that at the request of the purchasers the name of Ishar Singh had been inserted in the sale-deed. The telegram concluded by saying that the vendors gave the purchasers four days to complete, and that in default they would sue for specific performance or damages. The purchasers made no reply, saying that it was ambiguously worded and they could not make out what it meant. On 9th June the vendors agreed to sell to another purchaser at Rs. 1,01,000 and on 1st October 1924, they issued their plaint claiming Rs. 10,000 and further damages. On 11th October the purchasers filed their cross suit, claiming Rs. 10,000 and the sum paid for earnest money and stamp paper.

The Subordinate Judge, before whom both suits were heard together, rightly concluded that the real issue was which party had broken the contract. He heard the witnesses