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K.C.N. Gowda and Bros. Vs. Molakram Tekchand and Sons - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKarnataka High Court
Decided On
Case NumberSecond Appeal No. 534 of 1953
Judge
Reported inAIR1958Kant10; AIR1958Mys10; ILR1957KAR72; (1957)35MysLJ221
ActsCode of Civil Procedure (CPC), 1908 - Sections 100 and 101 - Order 6, Rule 2; Sale of Goods Act, 1930 - Sections 11, 13, 42 and 62; Indian Contract Act, 1872 - Sections 39, 65, 73 and 74; Common Law
AppellantK.C.N. Gowda and Bros.
RespondentMolakram Tekchand and Sons
Appellant AdvocateV. Krishnamurthy, Adv.
Respondent AdvocateS.K. Venkataranga Iyengar, Adv.
Excerpt:
.....parties. in my opinion, this contention of the learned advocate for the respondents must fail not only on its merits but also on the ground that no such plea was taken by the defendants in their written statement, there was also no issue raised at the hearing on this point. it cannot hold that the case comes within section 42 and there has been acceptance of the goods and that for that reason the plaintiffs must fail. the fact that a party to a contract is in default affords good reason why he should pay damages, but further exaction is not justified by his default. in other words, the said earnest money was held to be in the nature of a security given for the performance of the contract and on the failure of the party who gave such security to perform it, the same should be forfeited......delivery. the court of appeal held that the sale was a sale of goods by description and as the goods contracted to be sold were mixed with goods of a different description the buyers were entitled to reject the whole consignment. the principle of this decision would appear from the judgment of lord justice scrutton wherein his lordship observed as follows : 'the umpire finds that twenty-four tins to the case are as valuable commercially as thirty tins to the case. that may be so. yet a man who has bought under a contract thirty tins to the case may have sold under the same description, and may be placed in considerable difficulty by having goods tendered to him which do not comply with the description under which he bought, or under which he has resold.' in my opinion, the principle.....
Judgment:

Das Gupta, C.J.

1. The plaintiffs in the suit are the appellants before us. The appeal arises out of a suit instituted by the plaintiffs for the recovery of a sum of Rs. 3900/- being the advance paid and damages due on a contract for sale of 19 bales of yarn to the plaintiffs by the defendants. The facts, necessary to be stated for the purpose of this appeal, are as follows :

On 15th February 1951 the plaintiffs entered into a contract with the defendants whereby the defendants agreed to sell to the plaintiffs 19 bales of yarn of different Mills as mentioned in the contract, that is to say, 7 bales (Murugan) of 200 lbs. each, 7 bales (Kumaran) of 200 lbs. each, 4 bates (Karthakeya) of 200 lbs. each and 1 bale (Jayalakshmi) of 200 lbs.

It was stipulated in the said contract that the delivery was to be in the first week of March 1951. The other material term of the contract was that the rate at which the said goods were to be sold was Rs. 87-8-0 (Rupees Eighty-seven and annas eight only) per 10 lbs. nett F.O.R. Dodballapur. Under the said contract the plaintiffs were to pay Rs. 100/-per bale by way of advance. It is not disputed that the said advance of Rs. 1900/- was duly paid by the plaintiffs.

The plaintiff's case was that according to the commercial usage in respect of such a transaction and by the terms of the contract time was of the essence of the contract. The plaintiffs' further case was that the bales as a matter of fact never arrived at Dodballapur in the first week of March 1951 as agreed upon that on 11th March 1941, 14 bales of yarn arrived at Dodballapur, out of which 4 bales of 400 lbs. were of Cambodia Mills, 3 bales of 200 lbs. were of Murugan Mills, 5 bales of 200 lbs. were of Kumaran Mills, 1 bale of 200 lbs. was of S.R.V. Mills and 1 bale of 400 lbs. was of Karthakeya Mills.

According to the plaintiffs the goods sent were not of the description contracted for. The plaintiffs' case therefore was that the defendants had deliberately broken the contractand were liable to repay the advance amount of Rs. 1900/- together with Rs. 2000/- being the damages suffered by the plaintiffs in this behalf. The plaintiffs in the suit claimed a decree for the said sum of Rs. 3900/- together with costs and interests.

2. The defendants in their written statement inter alia stated that no particular date was specified for delivery in the contract and the fact that delivery was to be by the first week of March shows that time was not considered to be of the essence of the contract. The defendants' case as made in their written statement also was that the material term of the contract was that staple fibre yarn of 40 counts of one or the other of the Coimbatore Millis had to be despatched and that the description as to the particular Mills and the quantity contained in each bale was not considered to be material and that what was material was that the total quantity of yarn to be sent was fixed to be at 3800 lbs.

According to the defendants' case the place of delivery was understood to be the defendants' ex godown and the rate fixed was F.O.R. Dodballapur meaning thereby that the goods' freight was to be paid by the defendants. The defendants also denied that they were in any manner responsible for the breach of the contract; their case was that the plaintiffs were guilty of the breach.

3. These were the respective cases of the parties as made in their pleadings. The trial Court held in favour of the plaintiffs and decreed the suit. The lower appellate Court, in appeal, reversed the said decision. The present appeal has been filed by the plaintiffs against the decision of ,the lower appellate Court.

4. Mr. Krishnamurthi Appearing on behalf of the appellants urged several grounds in support of this appeal. In the first place, he contended that, under the terms of the contract, the delivery was to be given by the first week of March and the said time was of the essence of the contract.

Mr. Krishnamurthi relied on Section 11 of the Sale of Goods Act which provides that, unless a different intention appears from the terms of the contract, stipulations as to time of payment are not deemed to be of the essence of a contract of sale, but whether any other stipulation as to time is of the essence of the contract depends on the terms of the contract. Mr. Krishnamurthi submitted before us that in this case the time of delivery having been specifically mentioned in the contract itself that time must be held to be of the essence of the contract.

5. This contention of the learned Advocate for the Appellants was met by Mr. Venkataranga Iyengar appearing on behalf of the respondents in various ways. He at first relied on the provisions of Section 13 of the Sale of Goods Act which inter alia provides that where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of the condition as a breach of warranty. He refer red to the conduct of the plaintiffs and contended that it must be held that the plain-tills waived these conditions.

6. The short answer to this contention of Mr. Venkataranga Iyengar seems to me to be that there was no plea of waiver taken in the written statement of the defendants and there was also no issue before the trial Court on that point. Waiver is a question of fact which has to be pleaded and has to be proved. In the circumstances, the respondents cannot be allowed to rely on the plea of waiver at this stage.

Mr. Venkataranga Iyengar then relied on Section 62 of the Sale of Goods Act and contended that the implication of law, viz. that time was of the essence of the contract may be negatived by the course of dealings between the parties. In this case, he contended, the course of dealings which has been found by the trial Court was sufficient to negative such implication. In my opinion, there is no substance in this contention also. Section 62 provides as follows :

'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.'

It is thus clear from the provisions of the said section itself that the right or liability which can be varied or negatived by express agreement or by the course of dealing is the right or obligation which, arises by implication of law. But the obligation to perform a contract within the time mentioned in the contract is an obligation which arises under the terms of the contract itself and not by virtue of any implication of law.

In other words, if the contract itself mentions the time within which it has to be performed, the parties are under a liability to perform the contract within that time because the contract mentions it and not because of any implication of law. I therefore hold that there is no substance in this contention of Mr. Venkataranga Iyengar. Besides, the course of dealing between the parties, on which Mr. Venkataranga Iyengar relies, must in my opinion, be the course of past dealings between the parties.

In other words, as observed by Pollock and Mulla in their Sale of Goods Act -- 'in each case, the question is as to the implication to be drawn from the past as applied to a new transaction'. The dealings or the conduct of the parties in this case, on which Mr. Venkataranga Iyengar relied do not relate to any past dealings between the parties but only refers to the dealings in connection with this contract, I therefore hold on both these grounds that no assistance can be had by the respondents from Section 62 of the Sale of Goods Act.

7. But the most important argument of Mr. Venkataranga Iyengar on this part of the appellant's contention was as follows : Under the contract the delivery of the goods was to be at the defendants' ex godown at Bombay. It has been found in this case that the goods were placed on rail and were in transit prior to March 1951.

If therefore, Mr. Venkataranga Iyengar contended, the delivery was to be at the defendant's ex godown at Bombay and if the goods had been placed on rail before the expiry of the first week of March 1951, then the goods had been delivered in time and the question as to whether or not time was of the essence of the contract becomes immaterial.

In other words, if we find that the delivery was to be at the ex godown at Bombay, then the question as to whether or not time was of the essence of the contract would not arise. On this point, the judgment of the lower appellate Court does not seem to be satisfactory. It has not dealt with this question. Although the said Court in its judgment referred to the fact that the goods had been despatched by passenger train on 27th February, it did not consider the question as to whether or not the delivery was to be at the ex godown of the defendants.

The said Court, however, proceeded to determine the question as to whether or not time was of the essence of the contract on the basis of the intention of the parties. In other words, it held that the intention of the parties was more to be considered than the term of the contract regarding the time factor and that in this case the time factor was not very specific.

Had it been necessary therefore to have this point determined for the purpose of disposing of this appeal, we would have sent the case back to the lower appellate Court for the determination of this question; but this appeal can be disposed of on other grounds to which I shall presently refer.

8. Mr. Krishnamurthi then contended before us that the defendants on the admitted facts of this case have committed breach of the contract, inasmuch as the goods of the description mentioned in the contract have not been delivered. He pointed out that the contract was for the supply of 19 bales but what was delivered was only 14 bales and even then the said 14 bales were not sent in the manner indicated in the contract.

For instance, he pointed out that under the contract 7 bales of Murugan of 200 lbs. had to be supplied but instead of that 3 bales of 200 lbs. of Murugan were delivered and whereas under the contract 7 bales of Kumaran of 200 lbs. had to be supplied what was supplied was 5 bales of 200 lbs. of Kumaran. He also pointed out that although under the contract one bale of Jayalakshmi had to be supplied, no such supply was in fact made.

In the circumstances, Mr. Krishnamurthi contended before us that the defendants hadnot performed the contract. In support of that contention he relied on a decision of an English Court in In re Moore and Co. Ltd., and Landauer and Co., (1921) 2 KB 519 (A) and also on the case of B. Gurushantappa v. Abdul Husen Yusaf Baya Bandukvala Company, 22 Mys LJ 53 (B).

In the case of (1921) 2 KB 519 (A), which was one of the cases on which Mr. Krishnamurthi relied, there was a contract for the sale of a quantity of Australian canned fruits and the goods were stated as being in cases containing thirty tins each payment to be per dozen tins. The sellers tendered the whole quantity ordered, but about one-half of the cases contained twenty-four tins only; the remainder contained thirty tins.

The buyers refused on this ground to take delivery and the dispute was referred to arbitration. The umpire found that there was no difference in the market-value of the goods whether packed twenty-four or thirty tins in a case, and that the goods tendered were a good delivery. The Court of Appeal held that the sale was a sale of goods by description and as the goods contracted to be sold were mixed with goods of a different description the buyers were entitled to reject the whole consignment. The principle of this decision would appear from the judgment of Lord Justice Scrutton wherein His Lordship observed as follows :

'The umpire finds that twenty-four tins to the case are as valuable commercially as thirty tins to the case. That may be so. Yet a man who has bought under a contract thirty tins to the case may have sold under the same description, and may be placed in considerable difficulty by having goods tendered to him which do not comply with the description under which he bought, or under which he has resold.'

In my opinion, the principle on which the said case was decided applies with all force to the case which we are now called upon to consider. The High Court of Mysore in the said case of 22 Mys LJ 53 (B), accepted the view which was taken by the English Court in the said case.

9. Mr. Venkataranga Iyengar did not seriously dispute the proposition of law as laid down in those cases and on which Mr. Krishnamurthi relied. But he contended that the facts of this case do not justify the application of those principles. He contended that the conduct of the Plaintiffs showed quite clearly that they accepted the goods and for that purpose he relied on certain letters which passed between the parties.

In particular, he referred to the letter, dated 15th February 1951, written by the defendants to the plaintiffs wherein it was stated that the goods in question had been despatched as per passenger train on 27th instant and asking the plaintiffs to retire immediately the document after paying the above sum plus the bank's commission on presentation. He drew our attention to the fact that in that letter the total number of bales and the particulars thereof were mentioned.

He then referred us to the letter written by the plaintiffs to the defendants on 3rd March 1951 wherein it was inter alia stated that the plaintiffs could only be able to retire the draft within 8 or 10 days and that they were unable to pay overdue interest. He also relied on the letter dated 15th March 1951 written by the plaintiffs wherein they asked the defendants to deduct Rs. 171-2-0 to enable the plaintiffs to retire the draft and stated that the plaintiffs would not be responsible for any demurrage that may accrue in that behalf and that if there be some delay to retire the draft, no overdraft will be paid by the plaintiffs.

On the strength of these letters, which passed between the parties, Mr. Venkataranga Iyengar contended before us that the buyer must be deemed to have accepted the goods. He referred us to Section 42 of the Sale of Goods Act. The asid section inter alia provides that the buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him he does any act in relation to them which is inconsistent with the ownership of the seller.

In my opinion, this contention of the learned Advocate for the respondents must fail not only on its merits but also on the ground that no such plea was taken by the defendants in their written statement, There was also no issue raised at the hearing on this point. Coming to the merits of this contention, it seems to me to be quite clear that Section 42 has no application to the present case.

It cannot be said even on the basis of the materials on which Mr. Venkataranga Iyengar relied that the plaintiffs must be deemed to have accepted the goods. The plaintiffs never intimated to the seller that they had accepted the goods. In the letters on which Mr. Venkataranga Iyengar relied there is, in my opinion, no such intimation.

It cannot hold that the case comes within Section 42 and there has been acceptance of the goods and that for that reason the plaintiffs must fail. In my opinion, the contention of the learned Advocate for the appellants on this point is sound and should be accepted. On this ground therefore the appeal should succeed and the decree of the lower appellate Court should be set aside.

10. Having come to the aforesaid conclusion, it becomes unnecessary for us to determine the last ground raised by Mr. Krishnamurthi in support of this appeal. In view, however, of the fact that considerable arguments were advanced on this point by the learned Advocates for the respective parties, I will only state the position in the matter and indicate my views thereon.

11. Mr. Krishnamurthi contended that in any event he is entitled to the return of the sum of Rs. 1900/- which his clients had paid by way of advance in respect of the contract in suit. He further pointed out that the only right of the defendants, even if it be assumed that the plaintiffs have been guilty of breach of the contract, was to file a suit for damages, and the defendants could not, in any view of the matter, retain the sum of Rs. 1900/- which had been paid by way of advance.

Mr. Krishnamurthi relied on a decision of the Privy Council in Muralidar Chatterjee v. International Film Co., Ltd. , in support of the aforesaid contention, and in particular on the observations of Sir George Rankin made in that case which were to the following effect:

'The fact that a party to a contract is in default affords good reason why he should pay damages, but further exaction is not justified by his default. Where a payment has been made under a contract which has -- for whatever reason -- become void the duty of restitution would seem to emerge. A cross claim for damages stands upon an independent footing, though it arises out of the same contract and can be set off.'

These observations, so far as they go, no doubt support the contention of Mr. Krishnamurthi. But the question still remains as to whether the payment in question was a payment by way of earnest or in part payment of the obligation under the contract.

12. There are numerous decisions of different High Courts which have laid down that an earnest money can be forfeited it the party who had paid the same was in default. In other words, the said earnest money was held to be in the nature of a security given for the performance of the contract and on the failure of the party who gave such security to perform it, the same should be forfeited.

All those cases have been reviewed by Mr. Justice Mookerjee in Naresh Chandra Guha v. Ram Chandra, : AIR1952Cal93 (D) Mr. Justice Mookerjee, however, pointed out -- and I agree with that view -- that between 'earnest money' and 'part payment of price' there is a fundamental distinction or difference in this respect and the rule of forfeiture has no application to money received as such part payment.

'This difficulty' according to His Lordship 'has always been resolved by Judges by applying what may appositely be described as 'golden rule of intention'.'

In a Madras decision, Rattamma v. Kakaraparthi Krishnamurthi : AIR1928Mad320 , it was held that in mercantile contracts for sale of goods, when a seller accepts an advance from the purchaser, he cannot be held to take the amount, in the absence of evidence to the contrary, as a deposit with all its implications under the Common Law, so as to entitle him to retain the money in case of default by the purchaser in the performance of the contract.

In my opinion it has to be decided in each case whether or not a payment was made by way of earnest or by way of advance, i.e. part payment of the price -- the nomenclature, whether 'earnest' or 'advance' does not matter. In this case, therefore, it has to be ascer- tained whether or not the payment in question was made by way of part payment or as earnest.

13. This point was not raised in either of the Courts below and, in my opinion, the appellant should not be allowed to raise the same for the first time in support of this appeal. It appears to me that although in the plaint filed in this suit the plaintiffs said that the defendant had deliberately broken the contract and are liable to repay the advance amount of Rs. 1900/- together with Rs. 2000/- being the damages suffered by the plaintiffs in this behalf, it was not stated that, even if it be held that the plaintiffs had broken the contract, they were liable to get refund of the sum of Rs. 1900/- which was paid by way of advance.

No issue appears to have been raised before the trial Court on this point and the learned Judges of the Courts below have not considered this case from this point of view. That being so, I am of the opinion that the learned Advocate for the Appellants should not be allowed to raise this point for the first time in this appeal. In any event, having regard to the fact that this appeal is disposed of on the other ground mentioned, I do not think it is necessary for Mr. Krishnamurthi either, to rely on this ground in the appeal.

14. The result, therefore (is that) the appeal succeeds; the decree of the lower appellate Court is set aside and the decree of the trial Court is restored. The Appellants will be entitled to costs of all the Courts, including the cost of this appeal.

15. Sreenivasa Rau J.

I concur.

16. Appeal allowed.


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