J.R. Mudholkar, J.
1. This appeal arises out of the suit instituted by the plaintiff, a partnership firm, for recovery of damages from the respondents for breach of contract to deliver 790 bales of jarila cotton on 14-9-1948. The undisputed facts are as follows:
2. Several individuals and firms doing the business of forward delivery transactions in cotton formed an association known as the Cotton Dealers Association of Khamgaon. All the members of the Association had subscribed to the Memorandum of Association which, among other things, provided that the parties to a forward delivery transaction will pay and receive clearing money in respect of that transaction. These clearing rates were to be fixed by the Appeal Committee of the Association consisting of five members. On several dates between 3-6-1948 and 27-8-1948 clearing rates were declared by this Committee in pursuance of which mutual adjustments between the parties to the appeal took place on 27-8-1948. As a result of these adjustments, the respondents were liable to sell 790 bales of the agreed variety of jarila cotton to the appellant at Rs. 630 per khandi. The date of the delivery of these goods was 14-9-1948. During the period between 3-6-1948 and 27-8-1948 the appellant had paid to the respondents by way of clearing money a total sum of Rs. 10,428/12/0.
3. The appellant's case in the Courts below was as follows: The rules of the Association did not govern the contracts in suit, that they Weremerely enabling rules, and that it depended upon the will of the party whether to abide by all or any of the rules or otherwise. Even clearings were effected not in pursuance of the rules but under agreements between the parties. The cotton agreed to be sold was a local variety of a superior type of jarila having 14 annas' staple. This, it was said, was superior to the standard jarila of the East India Cotton Association Limited. Bombay, by 25 per cent. This variety was agreed upon between the parties as per Rule 11 (1) of the Association and its sample was kept in the office of the Association.
4. Between 1-9-1948 and 14-9-1948 the rate of the agreed variety of cotton was rising in the Khamgaon market. The majority of the members of the Association were sellers and they would therefore have been adversely affected by reason of this circumstance. The Committee of the Association was. according to the appellant, partial to the sellers and despite the fact that the market was rising, they fixed a rate of Rs. 615 per khandi which was very much lower than the prevailing rate for the 14 annas variety at Khamgaon. That rate, according to the appellant, was Rs. 698 per khandi. The fixation of the rate by the Committee at Rs. 615 was characterised by the appellant as arbitrary and mala fide. Further, it was said that though the rule required that a decision should be of a majority, in the instant case there was no such majority decision. For all these reasons, the appellant contended that it was not bound to accept the rate of Rs. 615 per khandi which the Committee purported to fix on 14-9-1948. The respondents were, according to the appellant, bound to deliver cot-ton to it at the rate of Rs. 698 per khandi, and as they refused to do so, they were liable to pay the difference between this rate and the contract rate, that is. Rs. 68 per khandi. The total amount claimed by the plaintiff on this basis is Rs. 26,860.
5. It may be mentioned that on 1-9-1948 the Government, by a notification, banned forward delivery contracts in cotton which were transferable to a third party. But it is common ground that this notification is not retrospective. The appellant pleaded that if the contracts were said to be governed by the notification, the clearing rate had to be fixed according to that notification. The Local rate for the agreed variety being higher than the Bombay rate by Rs. 120 to Rs. 130 per khandi, the final clearing rate, if it had been fixed bona fide, would, accordingly to the appellant, have come to Rs. 698 per khandi. Alternatively, the appellant pleaded that the Court should fix the clearing rate as required by the notification and grant damages on the basis of the difference between this rate and the contract rate. Finally the appellant pleaded that if the contracts in suit were void, it is entitled, in the alternative, to Rs. 10,428/12/0 which it had paid to the respondents from time to time.
6. On behalf of the respondents, it was contended that the contracts in suit were governed by the rules of the Association and that it was not permissible to the members to accept some of those rules and reject some others. While accepting that the notification of the Government dated 1-9-1948 was not retrospective, they contended that the final clearing rate of Rs. 615 fixed by the Association was in conformity with the provisions of the notification. They also pointed out that the appellant had all along agreed to abide by the rules of the Association, and, in fact, had accepted the rates fixed from time totime by the Committee till 10-9-1948 and that, therefore, it is now estopped from denying the binding effect of the rules or from repudiating the decision of the Committee. They denied that the rate fixed by the Committee was arbitrary or that the Committee acted mala fide in fixing the rate at Rs. 615. They denied that the agreed variety was the highest quality of jarila having a staple of 14 annas. According to them, the contract related to the kind of jarila which is ordinarily brought for sale at the Khamgaon cotton market of which the staple is 12 annas. They denied that the market rate of the variety having a staple of 14 annas was Rs. 698 per khandi on 15-9-1948. They contended in the alternative that even if that was the rate for ready delivery, it was black-market rate and was not legal and binding. They contended that the legal rate at Khamgaon was not more than Rs. 615 per khandi and that the rules of the Association provided for 'on' and 'off' allowance and also provided that in fixing the rate of the Khamgaon market a sum of Rs. 25 per khandi was to be deducted from the rate prevailing at Bombay for the same staple of jarila cotton on account of freight and other charges. They denied that the local rate was higher than the Bombay rate by Rs. 120 to 130 per khandi.
7. They asserted that they were willing to give delivery of the 790 bales at the agreed rate of Rs. 615 per khandi. They stated that in respect of the contracts in question it was the appellant who was required to Pay clearing money and not the respondents and that the breach of contract was committed by the appellant itself. They denied that it had any right to recover the sum of Rs. 10,000 which was paid to them in respect of earlier transactions.
8. Upon these pleadings the Court below framed the relevant issues and decided most of them against the appellant and in view of its decision against the appellant on the crucial issues, it dismissed the suit.
9. The contention raised in the Court below that the Committee acted mala fide or acted arbitrarily in fixing the rate of cotton at Rs. 615 per khandi on 14-9-1948 is not reiterated before us. Instead, the argument advanced regarding the fixation of rate is only this that the Committee had no right to fix the rate for clearing of the contracts in suit on 14-9-1948 and that the Committee could do so only on the 7th of that month. It is also contended that the decision in question is not a majority decision and is therefore not in conformity with the rules. We might mention here that the trial Court had negatived the contention of the appellant as to the binding nature of the rules of the Association in view of the admissions made by Holkarmal (P.W. 22), who is a partner of the appellant-firm, to the effect that the contracts in suit were made on the basis of the rules of the Association. The contention, though initially pressed in argument, was, therefore, ultimately given up. According to the appellant, in the absence of a declaration of the clearing rate at the appropriate time, it is now open to him to ask the Court to fix the rate on the basis of the prevailing market rate on 15-9-1948. It is next contended on behalf of the appellant that the respondents having failed to give delivery on the due date even though the appellant was ready and willing to accept delivery and was in fact demanding it at Rs. 630 per khandi, had committed a breach of contract and were therefore liable to it in damages.
10. Thus we have in the first instance to determine only two points, the first being whether the Committee had power to fix the rate on 14-9-1948; and if so, whether the rate of Rs. 615 fixed could be said to have been fixed in conformity with the rules of the Association. If we find in favour of the appellant on either of these points, we shall have to consider whether the respondents have committed a breach of contract; and if we hold that they have, we shall have to assess the damages the appellant will be entitled to claim.
11. The relevant clause in the Articles of Association (which, it may be mentioned, have been loosely referred to in the pleadings and evidence as 'rules' and have, consequently, been referred to by us also as rules) is 10 (C). It runs thus:
'The Appeal Committee of the Association shall fix and declare on the 7th date at 6 p.m. of every month the rates for forward delivery contracts of the month for which there are contracts and the members shall have to pay the difference (clearing) at these rates till 10th date of that month, including contracts transacted on the 7th date. Similarly when due to heavy fluctuation in the market the rates are gone up or down (either before or after clearing), to the extent of Rs. 10/- per boja or Rs. 20/- per khandi of bales, the managing committee shall besides the clearing on the 7th day of each month, fix the rates of clearing for the forward delivery contracts of all months for the purpose of an extra clearing and the clearing for the said Sowdas must be made by paying amounts till 5 p. m. on the third day of fixing such rates. All the contracts for the day on which the rates for such extra clearing are fixed shall be included in and governed by this clearing'.
Accordingly, with respect to the contracts in suit which had to be cleared on 15-9-1948, the rate had to be fixed on the 7th of September. On that date, the Appeal Committee met and passed the following resolution: (Ex. P-2):
'For the last some days, saudas (contracts) of bales of jarila of September 1948 of forward delivery and of ready delivery do not appear to have taken place in the market. The sides of purchasing and selling parties of both of them appear to have gone down. The Government have notified fixation of top and bottom rates of ginned cotton. It applies to jarila goods. In such circumstances, this committee is in a tangle regarding fixation of the rate of clearing of the bales of September 1948. Hence it cannot come to a decision this day as to which rate should be fixed. Therefore, the parties Issuing orders can issue delivery orders at the rate of the last extra clearing date 27-8-1948.'
It may be noted that the rate of the last clearing which was effected on 27-8-1948 was Rs. 630. On 9-9-1948 the Committee met again and passed another resolution (Ex. P-5) which runs thus:
'The telegram received at 5.30 o'clock in the evening yesterday from five members (1) Seth Sitaram Bindraban, (2) Seth Hanwatmal Motilal (3) Kapoorchand Tejmal, (4) Mohanlal Bhattad and (5) Dhannalal Motilal, was read in the meeting today. On date 7-9-1948 the rate of clearing was Rs. 630/-. The subsequent clearing was Rs. 630. The subsequent clearing is illegal and not binding. This is being understood to be the meaning of the telegram. This subject was considered.
For the reasons stated in the resolutions passed in the meetings of the Managing Committee of dates 7-9-1948 and 8-9-1948, the rate of clearing was not fixed. Therefore, this Committee cannot accept (the proposition) that the rate of clearing fixed by the Committee in the meeting of date 9-9-1948 was illegal. The same is accepted to be legal, and it is necessary and binding that all the members of the Association make the clearing as stated in the resolution of that day. This committee unanimously resolves as above. The parties be informed of the above and a copy of this (resolution) be affixed on the notice board.'
12. It is contended on behalf of the appellant that the statement in the second resolution that no rate was fixed on 7-9-1948 according to rules is wrong inasmuch as the previous resolution by permitting the issue of delivery orders at the rate fixed on 27-8-1949 must be deemed to have fixed the rate for the contracts in question at Rs. 630 per khandi. It seems to us that the appellant's contention in this regard is borne out by the language of the resolution dated 7-9-1948 and is therefore correct. It would follow from this that the Committee had no power to pass a resolution on 9-9-1948 fixing the rate at Rs. 815 per khandi. No doubt, Rule 10 (C) permits the fixation of clearing rates for the purpose of extra clearing where there have been heavy fluctuations in the market, in the instant case, it is not even alleged that there were heavy fluctuations in the market at about that time, nor has the Committee purported to fix the rate of Rs. 615 on 9-9-1948 for the purpose of extra clearing.
13. It was, however, contended on behalf of the respondents that the rate which was fixed by the Committee on 9-9-1943 was ratified by the Association by its resolution dated 6-2-1949 and that therefore it is no longer open to the appellant to challenge it. In this connection, reliance is placed upon rule 8 which runs thus:
'Binding of resolutions of General Meeting: The President of his own initiation or on requisition of two members of the Association shall convene a General Meeting of the Association and the resolutions of any such meeting shall remain binding on all the members.'
The resolution referred to is Ex. D-24. A bare look at this document would show that the resolution was passed not by the General Body but by the Managing Committee. Secondly, this resolution was passed during the pendency of the litigation. For these reasons, we hold that rule 8 framed by the Association does not have application here.
14. We will next examine the contention of the appellant that the rate fixed on 9-9-1948 was not fixed by a majority of the members of the Committee. As already stated, the Committee consisted of five members. On 9-9-1948, however, only four were present. Out of these four persons, Raichand and Chapsi proposed the rate of Rs. 615 while a third member Ramkuwar proposed the rate of Rs. 625. Jaidew, the fourth member, proposed the rate of Rs. 585. It is argued that since only two out of the four members had approved of Rs. 615 as the rate while two others did not approve of it, there was an equality of votes and the decision cannot be said to be a decision of the majority. It would, however, appear from a perusal of other resolutions of the Committee that the practice was to accept that rate for which there was the greatest common measure of agreement. Looking at the matterthat way, it would seem to us that since only one member proposed a lower rate and another a higher rate, while two members approved of Rs. 615 as the appropriate rate, this rate, having a greater measure of support than any other rate, can be accepted as a rate properly fixed by the Committee. There is no express rule which says that the rate to be fixed should have the approval of the majority of the members present. Under the circumstances, therefore, we would be justified in holding that the rate which had the maximum support in the Committee was the rate which could be regarded as the rate fixed by the Committee. However, upon the view we take on the point discussed earlier this matter loses its importance.
15. Before, however, the appellant could succeed, it is for it to establish, firstly, that there was a breach by the respondents, and, secondly, that it has sustained damages. In so far as the first of these two aspects are concerned, we are satisfied that a breach was committed by the respondents. A reference may be made to two telegrams sent by the appellant, among others, to the other respondents in this case. The first telegram was Ex. P-16 dated 14-9-1948. In this telegram, the appellant asked the respondents to give delivery of ready cotton September Wayada as per the contracts between the parties by the evening of 14-9-1848 which was the last day for giving delivery. As no delivery was given on, that date, he sent another telegram (Ex. P-17) on the next day, that is 15-9-1948 which reads thus:
'No delivery offered of September Wayada. Please note you liable for all consequences.'
The appellant had rightly taken the stand that as the rate had been fixed at Rs. 630 on 7-9-1948 it was not open to the Association to alter it. This is supported by two telegrams filed by the respondents themselves. First of them is Ex. D-4, dated 10-9-1948, addressed by the appellant to the President of the Association, it reads thus :
'Clearing on 7th instant was 630 alteration in clearing after that illegal and not binding.'
Again, on the 15th he sent another telegram to the President of the Association which reads:
'Your decision of 14th instant about rates regarding September Wayada absolutely illegal and void.'
Tile resolution of the 14th September, 1948, to which reference is made in this telegram does not appear to be in the paper-book, nor was it referred to in arguments. Presumably, what was intended to refer to was the resolution of the 15th September, which is to the effect that the rate fixed by the Committee on the 9th is perfectly valid and is binding. Now, the respondents have never said that they were willing to give delivery on the basis Of the rate of Rs. 630 per khandi, but had offered to give delivery on the-basis of Rs. 615 per khandi. Indeed, from their replies it is clear that they referred to give delivery at the rate of Rs. 630 per khandi. According, to the rules of the Association, clearing had to be effected on the basis of the rate fixed by the Association and the rate fixed was Rs. 630. It was therefore the duty of the respondents to offer, and when demanded, to give, delivery orders to the appellant on the basis of that rate. Having failed to do so, they have clearly committed a breach of contract.
16. The next question is what would be the measure of damages in a case of this kind. According to the appellant, the measure or damages would be the difference between the contract price and the price prevailing in the market on the date of the breach. As already stated, the appellant's case is that the price then prevailing was Rs. 698 per khandi. We will assume for the purpose of this appeal that the appellant has established that that was the prevailing rate at Khamgaon at the relevant time. Even so, could it be said that in the face of Rule 13 (D) the appellant is entitled to claim damages on the basis set out by it? It is no doubt true that ordinarily the measure of damages upon a breach of contract for sale of goods is the difference between the contract price and the market price on the date of breach. It is, however, open to the parties, to lay down a different rule. This would follow from the decision in Lancaster v. J.P. Turner & Co. (1924) 2 K.B. 222 on the basis of which it is stated in Aggarwala's Indian Sale of Goods Act, fourth edition, at p. 580 :
'The rule as to the market price is also inapplicable when the contract provides that the damages are to be ascertained with reference to a price to be settled by a certain association.'
In that case, there was a clause in the contract which in its operation entitled a party in breach to recover from the other party to the contract the difference in a falling market between the agreed rate and the rate prevailing on the dateof the breach. The relevant clause read :
'If the seller defaults in shipping or declaring shipment the contract shall be closed by invoicing back the goods contracted for at such price, whether higher or lower than the contract price, as the London Corn Trade Association or persons appointed from time to time by them shall determine, such price to be accepted as final and binding by all parties. The Association shall if requested by either party declare the closing price, and settlement shall be made in accordance with and on the basis of that price by net cash payment not later than 30 days thereafter.'
The contract was for the purchase and sale of fifty tons of hand-picked Japanese green peas to be shipped in Japan, and bill or bills of lading to be dated September, October or November 1922, at the price of 33, 5s. per 2240 lbs. including freight and insurance to Liverpool. On 27-1-1923, the sellers intimated to the buyers that as their sellers had defaulted they could not fulfil their contract and intended to apply to the London Com Trade Association under the invoicing-back clause to fix a settling price under the terms of the contract. An application was made and the Association was asked to fix the settling price as on 30-12-1922. The price was fixed by the Association at 26. 17s. 6d. a ton and on February 9, the sellers sent to the buyers an Invoice in the following terms :
'Messrs. J.F. Turner & Co. Ltd., Liverpool, bought of Lancaster & Jones. Terms : Nett cash. To 50 tons Japanese peas 33s. 3d. per cwt. 1662. 10s. By 50 tons Japanese 26s. 10 1/2d. per cwt. 1343. 15s. 318. 15s. -- Default price fixed by the London Corn Trade Association Ltd.'
Thus, they claimed 318. 15s. It was contendedon behalf of the buyers that the rule was so unreasonable as to be contrary to natural justice. This contention was negatived by the learned Judges. Bankes L.J., who was one of the Judges who constituted the Bench observed :
'If it is intelligible, and the parties have made it a term of their contract, the Court cannot relieve either party from the operation of therule because it may not consider it reasonable. Speaking for myself I have already in one of the decided cases expressed a view that I did not share in the general condemnation of the rule,' Then the learned Lord Justice stated why the commercial community thought it desirable to adopt a rule of this kind. Sargant L.J., who agreed with Bankes L.J., observed that the construction
'is one that at first sight is somewhat improbable if not startling to the legal mind, which is wholly unaccustomed to a claim arising out of contract in favour of the party that has broken the contract. But there may be reasons of business convenience in favour of recognizing such claims, particularly in cases like the present, where there may be a whole series of successive and practically' interdependent contracts, and default in one of these contracts may involve wholly blameless defaults in others of the series.' The same view has been taken in an earlier un-reported decision by Bankes L.J. In this case Bankes and Sargant LL. JJ. approved of the view taken by Bankes L.J. in Lang v. Crude Rubber Washing Co., which is unreported. The decision in Lang v. Crude Rubber Washing Co. came up for consideration before the Court of Appeal in two Other cases : Roth, Schmidt and Co., v. Nagase and Co., (1920) 2 LI. L. 36 and In re Bourgeois and Wilson and Co. (1920) 25 ComP Cas 260: It was held by Bankes L.J., who was a member of the Bench in both these case that upon the particular facts of the case the rule did not apply. In Crude Rubber Washing Co.'s case, Bankes L.J. had expressed himself thus : 'In my opinion, it is quite possible for business people to come to an agreement that in the event of a seller failing to complete his contract, and giving the notice referred to in Rule 9 (f), the buyer shall not 'be entitled to an ordinary remedy at law, but in lieu thereof he shall, subject to certain allowances referred to in the rule, be entitled to retain only a sufficient portion of the purchase money to enable him to obtain elsewhere the commodity, the subject matter of the contract, and that he must pay over any balance of the purchase price to the vendor.' 25 ComP Cas. 260.
17. These decisions in our opinion, are an authority for the proposition that parties may exclude any of the terms or conditions which the law attaches to the contracts of sale and create for themselves any special rights and obligations that they please, such as, providing their own measure of damages in case of breach of contract; and, indeed, the terms of Section 62 of the Indian Sale of Goods Act, recognise the right of parties to vary the ordinary incidence of a contract by express terms of the contract of sale of goods between them. Section 62, runs thus :
'Where any right, duty or liability would arise under a contract of sale by Implication of law, it may be negatived or varied by express agreement or by the course of dealing between the parties, or by usage, if the usage is such as to bind both parties to the contract.' Now, the rule framed by the Association which we have quoted above is clearly a term of the contract between the parties and, therefore, the rights of the parties can be adjusted by reference to that term. This term completely covers the question of the measure of damages and therefore excludes the operation of Section 73 of the Indian Contract Act, though that section applies to contractsfor sale of goods, generally. Therefore, the damages which the appellant would be entitled to get in this case would be the difference between the contract rate and the clearing rate plus Rs. 2 per boza or bale. In the Instant case, the contract rate and the clearing rate fixed on 27-8-1948 are the same and therefore the appellant is not entitled to anything under that head. He is, however, entitled to a penalty of Rs. 2 per bale. The contract being for 790 bales, the appellant is entitled to damages to the extent of Rs. 790/-.
18. Upon this view, we set aside the decree of the Lower Court and instead pass a decree in favour of the appellant for Rs. 790/- with proportionate costs in both the Courts.
19. Appeal allowed.