Chinnaswami Chettiar vs Cheru

M.S. Menon, J.—The only question that arises in this appeal is whether the recovery of any sum beyond Rs. 4,000/- and interest on the defaulted instalments in pursuance of the compromise decree in O.S. No. 75 of 1125 of the District Court of Trichur is unenforceable by virtue of the provisions of Section 74, Contract Act, 1872. u/s 74:

When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual'' damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated for.

In other words, the section stipulates that "reasonable compensation" shall be the measure-of the recovery and that the penalty or liquidated damages indicated in the contract, its; outside limit.

As pointed out by Pollock and Mulla(SIC)in their Commentary to the Indian Contract Act, 1872 it is a bold section which "cuts the must troubled some knot in the Common Law doctrine of damages" and carries "the tendency of the English authorities to its full consequences."

The English Common Law has never admitted that a greater sum of money can ever be due for the breach of an obligation to pay a (SIC)haller one and it can be taken as established that if the obligation of the promisor is to pay a curtain sum of money and it is agreed that if he fails to do so, he Shall pay a larger sum that larger Sum will not normally be a "reasonable compensation". It follows that what has to be done in cases like this is to find out what is he primary contract between the parties and to enforce that primary contract arid nothing beyond it-subject to any concession granted in the agreement and surviving at the time of enforcement.

The fact that the agreement between the parties has been embodied in a compromise, decree does not affect the application of Section 74 Contract Act, 1872, and the right of an executing Court to apply the principle of that section and afford relief to one of the parties to a decree has not been rightly questioned before us. A full discussion of the subject is available in- Shyam Sundar Padhi and Others Vs. Indramoni Das and Another, .

The suit which ended in the compromise was for a sum of Rs. 10,000 made up as follows: (After stating how the amount was made up and after quoting the relevant portion of the petition as it appeared in the compromise decree, his Lordship proceeded). A number of decisions were cited before us and-21 Cochin 153 (B); -23 Cochin 880 (C); -25 Cochin 552 (D); -33 Cochin 569 (E); -51 Trav. L.R. 188 (F) are some of the more important of them. We have carefully perused those decisions but have come to the conclusion that it is quite unnecessary to discuss them as the question as to what can or cannot be recovered under an agreement will always be a pure question of construction dependent upon the terms and inherent circumstances of the particular contract that comes up for review.

In the present case we are of the opinion that the primary contract was only for the payment of Rs. 4000/- with interest on the defaulted instalments as stipulated therein that any recovery beyond it will be hit by Section 74(SIC) Contract Act, 1872, and that the payment of the full amount sued for and costs on default of three successive instalments was stipulated as in terrorem of the offending party. In this view the appeal has to be allowed and we do so with costs here and in the Court below.