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Meghji Vallabhdas Vs. Jadhowji Morarji - Court Judgment

LegalCrystal Citation
Decided On
Case Number O.C.J. Suit No. 660 of 1910
Reported in(1910)12BOMLR1062
AppellantMeghji Vallabhdas
RespondentJadhowji Morarji
DispositionAppeal allowed
.....and most relied upon grounds of inference as to the true character of a transaction and the real intention of the parties has always been a comparison between the magnitude of the transaction and the capacity of the person who seeks to have it declared a wager. the plaintiff, who had large dealings in the buying and selling of linseed, entered into forward contracts with the defendant for the purchase of 7,000 cwts. of linseed to be delivered on the 10th may 1910. the defendant was carrying on considerable business in seeds, had frequently given and taken delivery; and was a member of partnership which had godowna. out of the total 7,000 cwts. 2,000 cwts. were settled by re-sale somewhere in march 1910. there having been a default in fulfilling the contract on the due date, the..........j. in the case of exhoor doss v. venkatasubbd rau ilr (1894) mad. 480 to the effect that if one party to a contract intends only to gamble, while the other party intends and believes that he is doing genuine business the minds of the contracting parties are not ad idem upon a material factor of the contract and therefore, within the meaning of section 30 of the contract act, there is no contract to be enforced in law.3. now, i think we may accept the defendant's evidence so far as to presume that he at any rate neither intended to give nor take delivery but merely to pay differences. so that while on the other hand it appears to be conclusively proved that the plaintiff intended to do and believed that he was doing genuine business with the defendant, we have the requisite facts to.....

Beaman, J.

1. This is a suit to recover damages for non delivery of 7000 cwts. of linseed, the due date being the 10th May 1910. Out of the total 7000 cwts. 2000 cwts. were settled by resale somewhere in March at Rs. 10-4-0; but as the defendant has not paid the amount due upon that cross-sale it is included in the plaintiff's claim in this suit.

2. The defence is that these contracts were wagering and the defendant has principally relied upon the case of Kong Yee Lone and Company v. Lowjee Nanjee (1901) 28 I.A. 239 : 3 Bom. L.R. 476 decided by their Lordships of the Privy Council, as exhibiting facts very similar to the facts in this case, which their Lordships there decided gave rise to a necessary inference that the transactions were by way of wagering; secondly, upon a dictum of Muttusami Ayyar J. in the case of Exhoor Doss v. Venkatasubbd Rau ILR (1894) Mad. 480 to the effect that if one party to a contract intends only to gamble, while the other party intends and believes that he is doing genuine business the minds of the contracting parties are not ad idem upon a material factor of the contract and therefore, within the meaning of Section 30 of the Contract Act, there is no contract to be enforced in law.

3. Now, I think we may accept the defendant's evidence so far as to presume that he at any rate neither intended to give nor take delivery but merely to pay differences. So that while on the other hand it appears to be conclusively proved that the plaintiff intended to do and believed that he was doing genuine business with the defendant, we have the requisite facts to which if Muttusami Ayyar J.'s view be correct his conclusion might aptly be applied, but that conclusion appears to me to involve very great confusion of thought. If it is to be literally applied without qualification it would effectually stop all trade and annul all contractual rights and obligations. Therefore carried to its logical conclusion it would reach this absurdity that any person might avoid a contract by merely declaring that it never was his intention to fulfil it should it not be to his disadvantage to do so. The other party to the contract would necessarily be obliged to say that it was his intention and belief that the terms agreed upon would be carried out without any such reservation; and it would therefore follow according to Muttusami Ayyar J.'s view that their minds had never been ad idem upon a very material point whether or not one of the parties meant to pay should it be to his disadvantage to be obliged to do so. Further, it appears to me that a very superficial consideration of the language of Section 30 of the Contract Act would suffice to show that that was not its intention quite apart from the utter havoc it would make in all commercial dealings. Nor indeed when we arrived at what its true meaning is would it be even applicable to contracts of the kind I have now to consider, for it is admitted on both sides that in all material respects, that is to say the goods to be bought and sold, the price to be paid for them, the date and place for delivery and so forth, the parties had consented upon the same matter in the same sense; and if we carried it one step forward and argued that either party had in mind the question of settlement in the event of a failure to carry out the contract literally, we should still find that their minds were ad idem to this length at least that failing the delivery of the goods the defaulting party meant to compensate the other party by paying the difference between the contract and the market rate, which is of course no more than saying in any genuine business he who failed to deliver the goods at the stipulated price must compensate his purchaser for the loss the purchaser incurs by being obliged to go and buy the same goods in the open market. There is nothing inherently illegal in a transaction of that kind, and it is only because the Courts have in rather general language treated what they call speculating in differences only as necessarily wagering that when one party alleges that it was no more than his intention to pay differences, while the other party alleges that it was his intention to give or take delivery that such a view as held by Muttusami Ayyar J. could become possible, namely that in this particular which is essential to the completion of the contract the minds of the parties are not ad idem. But this again displays what I respectfully think is a pretty obvious confusion of thought. Where the minds of the parties are really not ad idem in a contract of this kind is upon quite a different point, and that is that the defendant in the present case for example did not intend to pay differences or anything else; for assuming that the contract had been carried out to the extent to which it is admitted that the minds of both the contracting parties were ad idem, that is to say to the extent 0f the defendant paying the difference between his contract and the market rate, it plainly follows that the plaintiff would have had no grievance and there would have been no litigation. The defendant, therefore, cannot, I think, obtain any advantage from that legal technicality.

4. As regards the case decided by their Lordships of the Privy Council, all that need be said is that every case of this kind must necessarily be decided upon its own facts; and while I pay the greatest attention to every word which their Lordships of the Privy Council have spoken on the somewhat general question of what may and what may not be grounds of sufficient inference, and while I should feel myself bound to obey their Lordships' ruling upon any question of law, or in the statement of any exact principle which must inevitably fit the facts of another case, it is equally plain that a too loose application of observations on the facts of one case to the facts of another might lead rather to the forming of a wrong than a right conclusion. I had recently had a large and wide experience, compared with the short time in which it has accumulated, of this class of cases, and in disposing of one after another of them I have had to examine all the leading authorities, English and Indian, on this much vexed and difficult question. I cannot help thinking that the reasoning of many of the most eminent Judges upon the particular facts before them sometimes overlooks what is really a very obvious fact namely that any party to a future contract of this kind who is in a portion to pay differences is also in a position to actually fulfil the contract. One of the commonest and most relied upon grounds of inference as to the true character of a transaction and the real intention of the parties has always been a comparision between the magnitude of the transaction and the capacity of the person who seeks to have it declared a wager. Thus supposing A deals in four lakhs worth of rice or linseed, while his capital is only, let us say, Rs. 50,000, it has often been treated as a reasonably strong ground of inference that the disproportion between the total value of the goods which are the subject of the transaction and the capital of the person entering into it warrants the Court in coming to the conclusion that it could not have been a bond fide mercantile transaction but must have been a pure gamble on the rise and fall of the market. But if the capital of Rs. 50,000 at, the disposal of, let us say, the vendor of four lakhs worth of rice would be much more than enough to cover the fluctuations of the market at due date of the delivery, although no doubt it might be more convenient, for the parties concerned to settle up the transactions by calculation of the differences between the rates at which the goods were sold and the selling rate of the day, it is equally clear that this is not necessary and the vendor at the expenditure no doubt of some more time and trouble could actually procure the goods in the market and deliver them to his vendee incurring no more loss than he actually incurs by settling up the transaction by the payment of differences.

5. Now, in the present case after hearing the evidence of the plaintiff for about an hour, it appeared to me that the defendant had not the least hope or chance of success and therefore I intimated the advisability of settling the case at that stage if possible. I had already been informed that negotiations had been going on between the parties and when I learnt that the settlement was hindered by the defendant's and not by the plaintiff's reluctance to accept the terms offered, it seemed to me more than ever expedient; in the defendant's own interest that he ought to be persuaded to accept what appeared to me to be the very fair and liberal offer made to him by the plaintiff. This was the state of the affairs before the the Court would have ordinarily risen on Saturday. Mr. Dastur, who represented the defendant, assured me that if the Court would allow his client the one and half hour or so which remained in which to discuss the matter with the plaintiff and the plaintiff's advisers, he had great hopes that he would be able to induce his client to accept their terms, and I too was very anxious that the case should end in that way, because while it is always desirable to settle a case on terms and so avoid possible further risk of an appeal, in this case it seemed to me that the defendant had everything to gain and nothing to loose by accepting the settlement. Unfortunately some further hitches appeared to have arisen and I of course do not know who is answerable for them. So that I must now decide the case upon the evidence recorded before me; and I may at once say that the plaintiff Meghji Vallabhdas appeared to me to be a singularly good witness, and of the scores of witnesses I have examined in cases of this kind coming from the local market he is really the only one of whom I can say he appeared to me to be thoroughly straight-forward, honest and truthful. I have not the least hesitation in believing every word of his evidence which has not been shaken in the slightest degree in any particular. And that evidence is virtually conclusive. On the other hand the defendant's evidence (while speaking of the defendant himself it may have been true to a certain extent), when we turn to his corroborative witnesses, I think it must be condemned and classed with the average evidence adduced by persons falling back upon the dishonest defence of wagering. His two witnesses impressed me most unfavourably except of course in minor and unimportant particulars which had no direct bearing upon the points substantially in issue here, where they possibly were able to speak the truth. But I do not certainly believe a word of Hansraj's evidence where it is directed to make the point which the defendant thought would tell strongly in his favour. I do not believe in the least his story of the kabalas of the 26th of May and as to the brokers who are supposed to have been informed by the defendant when he entered into this contract with the plaintiff that he did not intend to do anything more than pay the differences. That part of his story remains entirely vague and uncorroborated. So that we have nothing to go upon but the alleged fact that the defendant was at the time when he entered into these contracts a pure gambler without any business of his own and that the plaintiff must have or ought to have known the character of the man he was dealing with. On the other hand it is conclusively shown that the defendant had been carrying on a considerable business in seeds for some years in Bombay, that he had frequently given and taken delivery, and if in fact the partnership of which he had been a member was still , in existence, then we shall have to add to these considerations the indubitable fact that that partnership had godowns, which so far as appearances went, might well have been deemed to be sufficient to warrant the plaintiff entering into these forward contracts with him. As to whether it is in fact dissolved or not, we have only the word of the defendant, and if it is I do not see how the plaintiff was to have known that and could rightly be affected with constructive notice of it.

6. Then, the defendant relies upon the character of the transactions themselves and the method of settlement. He says that the plaintiff by his course of dealings shows that he must have been aware that so far as these contracts with the defendant went they were mere speculations in differences. Otherwise, it is asked, how could he settle by re-sale 2000 cwts. in March if he really expected to obtain delivery of the full 7000 cwts. on the 24th May. But it is no uncommon feature of perfectly genuine business to deal in this manner with forward contracts by settling some of them by cross-sales and purchases according as the fluctuations of the market hit one or the other party to them. Then, on the 24th May, which was the due date, the plaintiff makes a formal demand through his attorneys for the remaining 5000 cwts., due to be delivered that day, and at the same time swears that he sent his man with the full price in cash to be tendered to the defendant. No delivery was made and on the 26th May, it is admitted, that negotiations were entered into between the parties for settlement. According to Hansraj there was a resale by the plaintiff to the defendant at Rs. 10-4-0 of the outstanding balance of 5000 cwts., and he has produced his kabala book to support his story. These kabalas, however, must be in triplicate, that is to say there must be bought and sold notes corresponding with the notes in the broker's books, and those bought and sold notes must be duly signed by the purchaser and vendor. Hansraj admits that the bought and sold notes were left unsigned with the plaintiff and nothing was done further about them. It is strenuously contended for the defendant that if the plaintiff thought that these were genuine transactions he could not have re-sold 5000 cwts. of linseed to the defendant for delivery on the 24th May two days after due date had passed. But it is not of course pretended by the plaintiff that this was in the nature of a genuine re-sale. It is only the ordinary way of settling by a nominal transaction of the kind, a formal book entry showing what the difference is between the rate at which one party would have to buy in the market owing to the failure of the other party to supply at the contract rate; and the reason why the plaintiff agreed to accept Rs. 10-4-0 instead of what was the true market rate of the day, something between Rs. 10-5-0 and Rs. 10-6-o was as he has sworn that the defendant agreed to pay him at that ate in cash; and the plaintiff has produced his own books showing that this arrangement was negotiated by another broker Atmaram who was obliged to cancel it when the defendant failed to fulfill his promise and pay ready money down. And I see nothing in this to affect, much less alter, my conclusion that so far as the plaintiff was concerned this was a perfectly genuine and bond fide dealing in futures. The plaintiff has large dealings with European firms. He is obliged to buy in the Indian and sell in the English Market, and he has sworn and satisfied the Court beyond any possibility of doubt that he had large shipments to make and did in fact make them on or about the due date. He has also satisfied me beyond all reasonable doubt that owing to the defendant's failure to supply him with the goods contracted for he was obliged to go in the open market and buy them at the market rate of the day.

7. These, then, being the facts, I am utterly unable to discover the very slightest ground for the defendant's case that he ought to be absolved from payment because it was never his intention to pay more than differences. It certainly appears to me to have been the plaintiff's intention to do bona fide business. It certainly appears to me also that he made reasonable inquiries, as he swears that he did, about the defendant's position and solvency before he entered into these contracts with him. If after taking all reasonable precautions and entering into perfectly genuine and bona fide forward dealings, one party is to be defeated, and I may say defrauded, of what is due to him merely because the other party says that he only meant to pay differences I really do not see how business on a large scale can be carried on in this market; Moreover, if the defendant had carried out what he now admits was his intention and paid what was due, there would be no quarrel and no litigation would be necessary, by which I mean it never does appear to me a sufficient defence where the parties are in other respects merchants reputed to be capable of fulfilling their contracts, where they have been in the habit of dealing in the particular class of goods and where it is quite impossible for the one to search out the intention in the other's mind, I say if? such , circumstances it never has seemed to me to be enough that one of these parties should be allowed to repudiate liability merely upon his bare allegation that he never meant either to give or take delivery.

8. These being my views upon such law as the defendant has relied upon, and upon the facts of the case resulting from a careful appreciation of the evidence laid before me, I must? find that the defence is as flimsy as it is inherently dishonest, and utterly breaks down.

9. In the present suit the plaintiff has claimed in respect of 5000 cwts. of linseed at Rs. 10-6-0 per cwt. which is a trifle above the market rate of the day. That is shown by the defendant's own witness Hansraj to have been somewhere between Rs. 10-5-0 and Rs. 10-6-0; but the plaintiff has explained that the difference is due to the expenses he was obliged to incur for brokerage. That explanation appears to me to be reasonable and sufficient.

10. I must, therefore, now decree the plaintiff's claim in full with all costs.

11. Interest on judgment at 6 per cent, till satisfaction.

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