Mahadeoprasad v. Siemens (India) Ltd.

Ameer Ali, J.:— (After stating facts and holding that there was a breach of guarantee His Lordship discussed the question of damages.) The question involves a point of law, namely, the effect of Section 74 of the Contract Act. Speaking for myself, I have never understood S. 74. I am always convinced of the difficulty of a particular point when both sides say it is perfectly simple. I will deal first with the point of law involved and then with the main question of fact which underlies every issue as to damages, including the question of mitigation. What is the effect in Indian law of ‘naming a figure?’ I should perhaps say now that I have no doubt that these parties at the time of the compromise fully considered their position. The figures named are undoubtedly large, but I have no doubt that they were arrived at after consideration, and I think the harshness of the contract (if you can call it that) is not so much the fixing of these particular figures as the unconditional undertaking to fulfil a very stringent guarantee under what must have been almost unknown circumstances.

2. However, the point is a point of law and has been argued as such on behalf of the defendant company, and quite rightly and very ably argued. What is the effect of naming a sum, having regard to S. 74? Mr. Page says it has not any effect except as a maximum: In other words, that you have got to read the contract as meaning ‘damages not exceeding Rs. 40,000.’ That follows from the last clause of the section. The plaintiff has got to prove his damages, irrespective and regardless of the sum fixed. He must have to begin at the bottom, and prove damage item by item. Is that right? Mr. Page relies upon a ruling of the Privy Council in Panna Singh v. Firm Bhai Arjan Singh,1, at p. 951 of 33 C.W.N), and if I took it down correctly the relevant passage is as follows:

The effect of the Contract Act, S. 74, is to disentitle the plaintiffs to recover simpliciter the sum of Rs. 10,000, whether as penalty or liquidated damages. The plaintiffs must prove the damages they have suffered.

3. Now, in that case, which was a case of sale of land, the figure mentioned was Rs. 10,000. It was proved that there had been a resale with an actual loss only of Rs. 1,000. The plaintiffs had been granted damages to the extent of Rs. 10,000. The Board reversed that finding and gave expression to the proposition that I have quoted. Mr. Page says that proposition lays down what he has contended for. The question is, having regard to the facts of that case, what does ‘simpliciter’ mean? In the first place, does ‘simpliciter’ refer to ‘recover’ or to the sum which is to be recovered? Does it mean simply to recover, or does it mean ‘simply the sum?’ I am not clear. Further, having regard to the facts of the case, I think it might well have meant ‘notwithstanding that it has been proved that the actual damage was Rs. 1,000 and not Rs. 10,000.’ But, taking the word ‘simpliciter, in its ordinary meaning (I looked it up in the dictionary), ‘absolutely, ‘unconditionally,’ ‘without any condition or ‘consideration.’ Does it mean that the sum named is to be of no effect at all? The Judicial Committee do not say so. It is true that they say the plaintiff ‘must prove his damages.’ But is not the figure named some proof? It is not to be conclusive proof, but is it not some proof? Is not the estimate made by the parties with full consideration some evidence? I think it is. Before I state what I consider to be the law in the form of propositions, I desire to say something about the section, itself. In the first place, by reason of the fact that there has been amendment it does not make sense at all Cl. 2 of the section contains the phrase ‘any other stipulation by ‘way of penalty’ which has been added. In contradistinction to ‘other’ is ‘a sum named in the contract as the amount to be paid, etc.’ According to English law and phraseology, such a sum would not be a penalty at all. For the purposes of this case I disregard the clause in question referring to a ‘penalty.’ It is then clear that the Indian law professes simply to be oblivious to the fact that in England sums named in the contract have been divided into distinct species: (a) liquidated damages, (b) penalties. The Indian law has not heard of them. In all cases, when a sum is named, certain consequences shall follow. What are those consequences? The plaintiff is entitled ‘whether or not actual damage or loss is proved to has been caused, to receive reasonable compensation not exceeding the ‘amount, etc. It should be noted here that, by reason of the last clause, we again get away from penalty, because in English law the sum named, if a penalty, ceases, to have any effect at all either as a lower or upper, limit. In Indian law it remains an upper limit or maximum. The other point to be noticed is ‘whether or not ‘actual damage or loss is proved.’ Now, what is the sense of that, if you have to disregard the figure named entirely? If it is simply a maximum, what is the sense of it? It may have little sense upon any reading, but none at all if one has to disregard the sum named entirely, i.e, for all purposes except as a maximum. Now, there are cases in Calcutta which I have not had time to look into, but there is one, The Brahmaputra Tea Co., Ltd. v. Soarth . 1885 11 Cal 545., at pp. 550 and 551, where this section is discussed:

“It is clear that the Court might have awarded the full sum stipulated without any proof of damages or loss.”

4. That you get from the section itself; Then:

“No doubt the Court has a discretion to fix what it considers reasonable compensation; but when the parties have already agreed among themselves as to what the penalty should be, we think the Court should not, in fixing the compensation, wholly ignore the amount agreed on, unless this is, on its face, wholly unreasonable with reference to the position of the parties and the breach provided against,”

which does not get you, very far. To my mind, the following is the intention of the legislature: (1) The plaintiff must prove his damage in a general sense; (2) the contract made by the parties estimating their damages is in itself evidence; (3) if there is no other evidence of damage, I can, conceive of certain cases where this evidence alone will be considered sufficient, nor do I think that the Judicial Committee in tended by anything said in Panna Singh v. Firm Bhai Arjan Singh to exclude such a possibility; (4) the sum named however is not conclusive evidence, that is to say, if there is other evidence or 1 circumstances showing that it was excessive, the Court will not consider itself bound by it; (5) if, on the other hand, the other evidence and circumstances indicate that the damage equals or may equal, or is likely to exceed the amount named, the Court will abide by it, and lastly, (6) in case (4), that is to say, where the other evidence shows that it is unreasonable, the plaintiff will have to prove his damages irrespective of the figure.

5. Now, before I deal with the other evidence in this case, I desire to say that, as far as I am concerned, I find great difficulty in believing that the law will, not allow commercial people by contract, to fix the amount of their damages. Commercial transactions in these days are not confined to sales of bags of sugar or marketable commodities, and particularly, in the case of the sale of specialized machinery and where the investigation as to damages must be very complex, very expensive and very uncertain, it seems to me to be entirely unreasonable that the parties should not be allowed to make a pre-estimate; subject, to this, for which the section-provides, that it is clearly shown that the amount, is unreasonable, then the Court may, in its discretion, depart from it. In England, the difficulty is obviated in a case such as I have described by classing the “figure named” as “liquidated damages:” see Widnes Foundry (1925), Ltd. v. Cellulose Acetate Silk Co. . 1931 2 KB 393, where the mattet is explained.

6. Counsel for the defendants has quite rightly pointed out to me that, if I am to proceed quantitatively, the evidence of damage is not sufficient for me to arrive at a figure. I agree. I should, have to send the parties to a reference. There is evidence however of a general nature, an estimate of his damage. There is some evidence of the amount of oil lost and of the market rate. That, although it is not evidence of a kind upon which I could base a finding as to figures, is evidence from which I am entitled on my view of the law to infer that the sum named was not excessive or unreasonable and to decide that I should not depart from what was, I think, a genuine pre-estimate of damage. In those circumstances, I think it my duty to award the sum named to the plaintiff.

7. In some ways I regret it. I think it has been a very unfortunate commercial transaction in which neither party is really to blame, and I regret it more because of the expense of arriving at a finding has been very considerable. There was one question which did occur to me in this connexion, and it was for that reason that I asked certain questions at the end of the case, the purport of which was, I think, the subject of misapprehension by the defendant's counsel. It is this. As far as I remember, the plaintiff ceased working the mill in 1930. I desired to consider whether, when claiming the figure named, on the basis that the plant was totally worthless, the plaintiff should not have minimized the damage by attempting to find a buyer for the plant or put it to some use. That is why I asked these questions. I do not know that it follows logically.

8. This however was not a point taken by counsel for the defendant, whose contention as regards “mitigation” was that the plaintiff should have taken further steps to bring the plant up to guarantee. On the facts of this case I cannot see that the plaintiff was called upon further to tinker with the machinery. The defendant company for some years had been making strenuous efforts to fulfil the guarantee, but, for some reasons (which I shall shortly summarise), had failed. I think it would have been not reasonable but unreasonable for the plaintiff's people to attempt what the defandants themselves could not do. The reasons referred to were I think as follows: Mr. Page attributed the whole failure of the plant to the fact that it was a plant which could not get the attention that was required, the skilled attention it was so to speak used to. There is no doubt something in this. But it is not all. The seed was a seed new to the plant. The solvent was a solvent new to the plant; not its appropriate solvent. This required adjustments and alterations in the plant. Once you begin to try and adjust a plant of this nature, you are going to have a very difficult task; you are very likely to put the whole thing out of balance. On the technical evidence as to the plant being a good plant or not or fit for the work, I have no doubt that it was an excellent one, but not for the work it had to do here. I accept the evidence of the experts called by the plaintiff whose evidence was more than normally clear and intelligent. I do not think the rollers were quite the right type of rollers. I do not think the stirring apparatus (that is, on the evidence of the defendants' own documents) could do the work expected of them. These were I think the main factors which in combination prevented the performance of tbs contract by the defendant company. There will therefore be a decree for the sum of Rs. 40,000 with costs.

R.K

9. Suit decreed.