1930

Present: Maartensz A.J. and Jayewardene A.J.

ABDUL MAJEED v. SILVA.

162-D. C. Colombo, 26,795.

Liquidated damages-Breach of contract- Sum recoverable as a fine-Pre-estimate of possible damage.

Where the plaintiff entered into a contract with the defendant to make and supply certain roofing sheets by a certain date and in default to pay a fine of Rs. 500, which the defendant was authorized to deduct from the balance sum due to the plaintiff who had received an advance,-

Held, that the sum provided for was liquidated damages and was recoverable as being a genuine pre-estimate of the damage which the defendant might sustain from a breach of the contract.

THE plaintiff sued the defendant to recover a sum of Rs. 610.65, balance due to him for supplying certain goods and roofing sheets. The defendant, while admitting his liability in a sum of Rs. 110,63, claimed to set off a sum of Rs. 500 as damages in terms of an agreement (Dl) dated July 20, 1927. By the agreement the plaintiff agreed to supply the roofing sheets by August 20, 1927, and in default to pay a fine of Rs 500, which the defendant was authorized to deduct from the balance due to the plaintiff, who had received an advance. The roofing sheets were supplied in consignments, the last of which was delivered on September 3, 1927. The learned District Judge held that the sum provided for was a penalty and, as the defendant had not proved damages, entered judgment for the plaintiff.

De Zoysa, K.C. (with him Rajapakse), for defendant, appellant.-The amount specified may be deemed " liquidated damages " despite the use of the words " fine " and " penalty" in the agreement, if such intention can be gathered from a perusal of the whole instrument. (Wallis v. Smith [(1882) 21 Ch. D. 243.] ; Elphinstone v. Markland Iron and Coal Co. [ (1886) 11 A. C. 332.] )

If the agreement contains several covenants of varying importance and a large sum is made payable upon the breach of any of them irrespective of its importance, or where the sum named is out of proportion to the contract, it is a penalty in terrorem. (Subbramaniam v. Abeywardene 1; Wickremasuriya v. Appuhamy 2 ; Wijewardene v. Noorbhai. 3)

It is " liquidated damages " if the sum specified is a genuine pre-estimate by the parties of the loss they contemplated ; or where a particular specified act had to be performed and, as the extent of the damage is difficult to estimate exactly, the parties fix upon a certain sum. (Law v. Local Board of Redditch 4 ; Elphinstone v. Markland Co. (supra); Clydebank Engineering Co. v. Castaneda 5; Pless Poll v. Soysa. 6 )

Tisseverasinghe, for plaintiff, respondent.-The words used are " penalty " and " fine ". Defendant himself in his letter refers to it as " the punishment". The onus, therefore, lies on him to show it is not a " penalty ". He has not disproved the presumption. (10 Halsbury, p. 329, section 605, rule (1).)

The Roman-Dutch law does not allow the enforcement of agreements where the sum stipulated is ingens or immanis. If there is an adequate means of ascertaining the precise damage, only the actual damage suffered (of which here there is no proof) is awarded. (10 Halsbury, p. 331, section 605, proviso to rule (6).)

The defendant elected to prove the actual damages sustained by him, and the finding of the Court below is that he had failed. The question whether the amount is a penalty or liquidated damages therefore does not arise.

A comparison of the two contracts, one for damages at Rs. 10 a day and the other for a lump sum of Rs. 800, irrespective of the period of delay, shows that the latter is a penalty.

Foot notes

1 21 N.L.R. 161.
2 6 C. W. R. 57.
3 28 N. L. R. 430.
4 (1892) 1 Q.B. 127.
5 (1905) A. C. 6.
6 15 N. I. R. 57.

Rajapakse, in reply.-The Roman-Dutch law is in our favour ; in any case the English law is applicable in Ceylon [1 28 N. L. R. 430. ]. If the sum is held to be " liqui