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First Appeal No. 70 of 1959, decided on 23rd February 1962.
Breach of contract‑Dama ges‑Aggrieved party cannot recover, simpliciter, amount mentioned in agreement as penalty or liquidated damages but must prove actual damage suffered.
Bhai Panna Singh v. Bhai Arjan Singh and others 33 C W N 949 ref.
Wahid Faruqui for Appellant.
Ibadatyar Khan for Respondent.
Dates of hearing: 22nd and 23rd February 1962.
The appellants, Messrs Kaysons, entered into an agreement on the 5th March 1952, for the construction of a factory with a half shell type' roof with the respondents, Messrs Ahmad Juvenile Industries. The terms of the agreement (Exh. P. 1) were reduced to writing. One of the terms was that the construction would be completed within a period of three months, but as the factory building was not completed by the 19th January 1953, on that date the respondents gave the following undertaking (Exh. P. 2) in writing to the appellants:‑
"We promise that we will complete the factory building of Messrs Kaysons by 31st January 1953 and offices by the fifteenth February 1953 at the latest. If the work is not com pleted as mentioned above, we will pay damages at the rate of two hundred Rupees per day, subject to the payments being made in time as per agreement."
2. Although the respondents continued the work on the factory until the month of August 1953, the work could not be completed by them. The appellant took over possession of the incomplete factory in the month of August 1953 and appear to have completed the constructions themselves. On the 10th August 1953, they filed a suit for recovery of Rs. 19,600 on account of damages at the rate of Rs. 200 per day, from the 1st February 1953 to the 28th June 1953. That suit having been dismissed, they have now come up, in appeal, to this Court.
The relevant paragraphs of the plaint, containing the grounds on which damages were claimed by the appellants, were in the following words:‑
On 19‑1‑1953 time was finally given to the defendant to complete the factory building by 31st January 1953 and the offices by the 15th February 1953 at the latest. The defendants agreed to pay Rs. 200 per day as damages for all such days that the work remained incomplete after the above dates . . . . .
The defendants failed to complete the work on 31‑1‑1953 and 15‑2‑1953 respectively as stated above, and thus the defendants are liable to pay liquidated damages of Rs. 19,600 at the rate of Rs. 200 per day from 1‑2‑53 to 28‑6‑53 . . . ."
The respondents admitted having entered into the agreement for the construction of a factory. They also admitted that, on the 15th February 1953, they gave an undertaking to the appellants that the factory would be completed by the 31st January 1953 and the offices by the 15th February 1953, but they denied that they were, in any way, responsible for the delay in the completion of the factory and the offices by the due dates. The reasons for this delay were explained by the respondents, in their written state ment, in the following words
"The real facts are that after the defendants had started work, the plaintiffs desired that the defendants should also cons truct the office premises and other constructions necessary for the factory. Defendants agreed to take up this work also at the revised rates of Rs. 10 per square foot. When the defend ants had completed the entire work of the factory and only finishing touches remained to be done, the plaintiffs discovered that due to their faulty design the construction required change in design. Thereafter under the instructions of the plaintiffs, the defendants had to take away the roof from the factory shed and rebuilt it with eight additional pillars and additional trusses. The plaintiffs never co‑operated with the defendants. On occasions they would demolish constructions under one pretext or the other, and the defendants in order to avoid any unpleasantness and for the sake of maintaining a good name in the construction work went on yielding to the demands of the plaintiffs till the plaintiffs took, illegal and forcible possession of the mill, seized all the unused material lying there."
The trial Court framed a number of issues; the main issues being as to whether the construction of the factory and the offices was completed in accordance with the letter dated 19th January 1953 ; whether the delay was due to the appellant's fault and whether they were entitled to the damages asked for. The trial Court, while holding that the work was not completed in time in accordance with the undertaking given by the respondents on the 19th January 1953 came to the conclusion that the appellants were creating hitches and were obstructing the respondents on the construction work of the roof, almost at every stage, after the execution of the agreement, and that they were responsible for the delay in the completion and, therefore, the respondents could not possibly carry out the entire work and complete it within the stipulated period. As a result of these findings the appellant's suit was dismissed.
We were taken through the various documents placed on the record by the parties, and after having carefully read those docu ments and the evidence placed on the record, for reasons which we are about to state, have come to the conclusion that the view of the matter taken by the trial Court was, substantially, correct.
Karamatullah, proprietor of the appellant's firm who was the principal witnesses examined on their behalf, admitted that although the construction work was carried on by the respondents until the month of August 1953, it was not completed and, there fore, they took over the work and got it completed by other contractors at their own cost. The witness admitted that they had agreed to have the roof of asbestos sheets instead of "half shell type" which was mentioned in the agreement (Exh. P‑1), while denying that the respondents had put the roof over the factory and that the same was demolished by them. He admitted that they did not allow the respondents to put on a roof which they thought was defective, and had not been approved by the Sind Industrial Trading Estate (hereinafter referred to as the S. I. T. E.). The last mentioned statement made by this witness is obviously false, because a reference to the letter dated the 11th April 1953, (Exh. N‑16) would show that the appellants themselves had pointed out that the roof structure was defective, and it was, at their instance, that the S. I. T. E. asked the respondents to stop further constructions by means of their letter dated the 27th April 1953 (Exh. N‑12). A perusal of both these letters, which are repro duced below, would make the position absolutely clear
"Exh.‑12.
Telephones
Karachi (Mg. Director: 7895). Telegram
Secy. "Tradestate"
Engineer's Office: 7273
Exh. N‑12. Our Ref. No. SITE/E‑382/2299.
Karachi Apr. 27, 1953.
Messrs Kaysons, Importers & Exporters, Fort Mansion,
Frere Road, Karachi.
(Attention Mr. Karamatullah, Manager).
Dear Sirs,
Reference your letter dated 11th April 1953, addressed to Messrs Ahmad Juvenile Industries and copy endorsed to the undersigned.
Your factory premises have been inspected and it has been observed that a 50 ft. span steel truss has been provided in the centre of the Machine Hall and 40 ft. long built up purlins have been made to rest on the truss at one end and on the gable walls at the other. There is considerable torsion and sag in the purlins. This is very faulty construction and should be stopped forthwith.
On reference to the approved set of building drawings of your factory, it has been that steel trusses at 10 ft. centres were specified in the drawings, against which only one central truss has been provided, with 40 ft. long built up purlins.
In view of the above, it is desired that trusses must be provid ed at 10 ft. centres as per the approved drawings and proper purlins should replace the 40 ft. long built up purlins.
Yours faithfully,
For Sind Industrial Trading Estates Limited,
(Sd.) (Illegible),
for Estate Engineer."
Exh. N. 16. Dated 11‑4‑1953.
"Messrs Ahmad Juvenile Industries, Karachi.
Dear Sirs,
Your Mr. Mahmud told us that your architect after inspection has rejected the purlins and has declared these unfit for 40 ft. span and that you would be reducing the span by using more trusses. On inspecting the sets today we have however found that you are still using the purlins or the original 40 ft. span in spite of the fact that the purlins have twisted and sagged to dangerous extent. Please note that if suitable action to rectify this defect is not taken immediately we will be compelled to report the case to the Chief Engineer, Municipal. Corporation
Yours faithfully, for Kaysons.
(Sd.) Muhammad Ishaq,
Manager. Copy to :‑
Engineer‑in‑charge, Sind Industrial Estate, with the request that the site be visited and necessary action be taken to stop construction if it is found to be faulty."
Karamatullah witness has denied. that in the original plan there were only four pillars, and that they had asked the respondents to construct eight instead. The respondent's case, as would appear from the statement of Maqbool Ahmad, (D. W. 1) was that the agreement (Exh. P‑1) provided for the construction of a "shell type roof" and that the factory was to have only nine pillars, but afterwards a fresh plan was prepared by the Associated Archi tects, and the building was constructed in accordance with that plan which was approved by the S. I. T. E. The plan approved by the S. I. T. E. was not placed on the record, although according to Muhammad Hassan Khan (D. W. 3), Head Draughtsman of that concern, that plan was submitted by the appellants, through the Associated Architects and had been approved by the S. I. T. E. The plan (Exh. P‑9), which is the only plan on the record, was not that which had been approved by this concern, and hence it is of no help to the appellants From a perusal of the statements of Karamatullah, Maqbool Ahmad and Muhammad Hassan Khan, it is, in our opinion, established beyond doubt that after the building was almost complete the appellants discovered some defects in the design and, therefore, wanted the respondents to stop further construction work, and to make alterations in accord ance with the plan (Exh. P‑9) which had been approved earlier than the plan submitted to the S. I. T. E. on the 21st August 1952. But for this change in the design and plan, the respondents, in our opinion, would have been able to fulfil the undertaking which they gave in their letter dated the 19th January 1953, and as the S. I. T. E. had by means of their letter dated the 27th April 1953 (Exh. N‑12) stopped the respondents from proceeding on with the construction work, delay in the completion of the factory building was bound to be caused. The respondents, therefore, could not, in any way, be held liable for this delay. In their letter dated the 27th April tS53 (Exh. N‑17), the respondents protested against this attitude of the appellants, but promised to carry on the cons tructions work. This is what they said in this letter :‑
"We regret for the attitude taken by you lately. You are trying to find fault with the work early agrees by you The original designs and plans have been faithfully carried out by us and if you now discover that they are not as they should have been, we fail to understand, how we are to be blamed for it.
We have, however, dismantled the entire work and are now doing it as per your latest instruction. We hope you will kindly favour us with the payment of our oustanding bills."
In another letter addressed by the respondents to the appel lants, on the same date, they asked for payment of a further sun: of Rs. 8,000, on account of additional expense. This is how the second letter (Exh. N‑13) was worded
"The allegations contained in your letter under reply are denied by us. The work carried out by us is according to the plans and designs by you and proportional to the rates agreed between us. You, however, desire to further strengthen the roof by putting more trusses and columns and thus reducing the overall span from 40 feet to 20 feet. We have to undo all the work and carry out your instruction at an additional expenses of Rs. 8,000 (rupees eight thousand only) besides coming delay.
Kindly favour us with a cheque in the aforesaid amount."
The surprising part of the case is that, in spite of the fact that the respondents had not completed the construction, in accordance with the undertaking given by them to the appellants letter in their letter dated the 19th January 1953, they were allowed to proceed on with the construction work without any let and hinderance, and, even according to the statement of Karamatullah, the work remain ed in progress until the month of August 1953. It is, therefore, not understood how the appellants could claim damages at the rate of Rs. 200 per day, from the respondents for the period prior to the month of August 1953. The suit should have been dismissed on the short ground that they had acquiesced in the alleged breach of the undertaking given by the respondents. Moreover, as stated above, there was abundant proof on the record to show that the appellants themselves were responsible for this delay, because they had altered the designs more than once, and had also interfered with the progress of the constructions. If the appellants had not altered the designs and plans so often, and if they had not interfered with the construction of the factory, the respondents might have been able to fulfil the undertaking given by them, and finish the work in time. As the responsibility for the delay rested on the shoulders of the appellants, they cannot claim any damages from the opposite‑party.
Lastly, no evidence was led by the appellants to prove the actual damages which they had suffered, on account of the alleged breach of the undertaking on the part of the respondents. Accord ing to section 74 of the Contract Act, when a contract has been broken, if a sum is named in the contract as the amount to be A paid in case of such breach, the party complaining of the breach is entitled to receive from the party who has broken the contract reasonable compensation, not exceeding the amount so named, or the penalty provided for, Their Lordships of the Privy Council, held in Bhai Punna Singh v. Bhat Aran Singh and others (33 C W N 949) that where an agreement for sale provides for damages for breach of contract, the aggrieved party cannot recover simpliciter that sum whether as penalty or liquidated damage, but must prove the actual damages they have suffered. It was, therefore, obligatory for the appellants to show how much loss, if any, had been caused to them, on account of the failure on the part of the respondents to complete the work in time, and it was then only that the Court could have awarded them reasonable compensation for the damages suffered. As no such evidence was given, on this further ground, the appellant's suit was liable to be dismissed.
For the reasons given above, we hold that no interference is called for in the matter. We, therefore, dismiss this appeal with costs.
K.B. A./A. H.
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