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Rama Metal Works and ors. Vs. the National Small Industries Corporation Ltd. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKarnataka High Court
Decided On
Judge
Reported inAIR1977Kant24; 1976(1)KarLJ173
ActsIndian Contract Act, 1872 - Sections 10 and 25(3); Sale of Goods Act, 1930 - Sections 4
AppellantRama Metal Works and ors.
RespondentThe National Small Industries Corporation Ltd.
Appellant AdvocateB. Vedanta Iyengar, Adv.
Respondent AdvocateS.G. Sundaraswamy, Adv.
Excerpt:
.....the nature of lease and the income from such hotel building is business income - the terms of the hire purchase under the scheme formulated by the respondent were well known to the appellants as they, by then, had availed themselves of the benefit of the said hire purchase scheme under exhibits p-46 to p-50. on 15-6-1961, respondent issued delivery instructions, as per exhibit p-19, authorising m/s. and, (b) whether the respondent's suit was barred by limitation ? 8. we have earlier referred to the correspondence between the parties in some detail to show that there from the terms of the agreement entered into between the parties could clearly be spelled out. alexander, (1912) 1 ch 284, 285, 289. it appears to be well settled by the authorities that if the documents or letters relied on..........respondent under exhibit p-3 dated 2-4-1957 which was accepted by respondent, requesting supply on hire purchase certain machine tools which included what was known as a 'kirloskar lathe'. however, by letter exhibit p-4 dated 12-5-1959, the said appellant sought a change preferring a lathe manufactured by m/s hindustan machine tools ltd., bangalore, in place of the said 'kirloskar lathe'. by exhibit p-9 dated 16-5-1961, the first appellant requested the respondent to send the requisite agreement forms and also issue delivery instructions to the manufacturer, viz., m/s. hindustan machine tools ltd., to deliver the said lathe to appellants. by letter exhibit p-10 dated 20-5-1961 the first appellant represented to the respondent that it had ensured supply of the said h. m. t. lathe at the.....
Judgment:

Venkatachaliah, J.

1. In this appeal by the defendants, the correctness of the judgment and decree dated 21-9197 1 of the Civil Judge, Civil Station, Bangalore, in 0. S. No. 42 of 1971 on his file granting to the respondent a decree for Rs. 20,910.57 with costs and pendentelite and future interest is challenged.

2. The relevant and undisputed facts are the following:

The National Small Industries Corporation Ltd., the respondent, is a Government Company established for the purpose of assisting Small Scale Industries, inter alia, by arranging supply of machinery to industrial Entrepreneurs on hire purchase basis in terms of the scheme formulated by it. The first appellant, a firm of partners, of which the other appellants are partners applied to respondent under Exhibit P-3 dated 2-4-1957 which was accepted by respondent, requesting supply on hire purchase certain machine tools which included what was known as a 'Kirloskar Lathe'. However, by letter Exhibit P-4 dated 12-5-1959, the said appellant sought a change preferring a lathe manufactured by M/s Hindustan Machine Tools Ltd., Bangalore, in place of the said 'Kirloskar Lathe'. By Exhibit P-9 dated 16-5-1961, the first appellant requested the respondent to send the requisite agreement forms and also issue delivery instructions to the manufacturer, viz., M/s. Hindustan Machine Tools Ltd., to deliver the said lathe to appellants. By letter Exhibit P-10 dated 20-5-1961 the first appellant represented to the respondent that it had ensured supply of the said H. M. T. Lathe at the old rate of Rs. 16,000/- and that the prices had since gone up to Rupees 23,000/- and requested respondent to issue immediate delivery instructions to M/s. Hindustan Machine Tools Ltd., assuring respondent that the first appellant was prepared to sign any documents that were required to be executed in respect of this transaction. The terms of the hire purchase under the scheme formulated by the respondent were well known to the appellants as they, by then, had availed themselves of the benefit of the said Hire Purchase Scheme under Exhibits P-46 to P-50. On 15-6-1961, respondent issued delivery instructions, as per Exhibit P-19, authorising M/s. Hindustan Machine Tools Ltd., to deliver the concerned machine to the said appellant. This was followed by letter Exhibit P-20 dated 27-6-1961 to the said appellant forwarding agreement forms and the statement of account Exhibit P-20 (a) pertaining to the hire purchase transaction. Exhibit P-20 (a) particularised the total amount of the hire purchase price of Rs. 21,273-78; the amount of earnest money of Rs. 3,540/-; net amount due from the Hirer of Rs. 17,743.78; and the amount of the first and subsequent installments of hire. Ext. P-20 (a) also contained a note that a sum of Rs. 772.50 stood to the credit of the said appellant representing the money paid in excess of the earnest money. In Exhibit P-26 dated 7-7-1961 the said appellant acknowledged delivery of the machine and stated that the price therefore would be paid by the respondent. In reply to Exhibit P-21 dated 9-8-1961 by which respondent asked the said appellant to return the agreement forms duly executed, the said appellant by reply Exhibit P-23 dated 7-12-061 told respondent that agreement forms had been sent to the concerned department at Vidliana Sondha for the embossing of the stamp duty and that they would be sent duly executed after the forms were received back from Vidhana Soudha. Thereafter a long spell of silence followed attributable to certain administrative changes under which the control of transactions in the Mysore area, was transferred from the respondent's Bombay Office to its Branch Office at Madras, in the process of which, respondent appears to have misplaced the relevant papers and consequently lost touch with the matter. On 3-1-1966, respondent's Madras Office appears to have traced the papers and reverted to the matter by its letter Exhibit P-29. After some correspondence that ,followed, appellant wrote Exhibit P-33 dated 22-3-1966 promising to pay the sum of Rs. 15,077.78 towards the arrears of hire charges.

3. This promise not having been fulfilled, this suit was filed on 3-1-1968 as 0. S. No. 3 of 1968 on the file of the Civil Judge, Bangalore City, an was later transferred to the Civil judge, Civil Station, Bangalore and therein renumbered as 0. S. 42 of 1971,

4. The appellants' defences were that the transaction respecting the machinery in question was a sale and not a hire-purchase; that the absence of a written hire-purchase-agreement precluded an enforceable contract between the parties; and that, at all events, the suit claim was statute barred. There was also some dispute as to the quantum of liability.

5. The Court below, on an assessment of evidence, both oral and documentary, accepted respondent's case, rejected the defence and entered a decree for respondent for the sum of Rupees 20,910.57 and interest and costs. It also directed that the sum of Rs. 772.50 remitted in excess of the earnest money be refunded to the said appellant with interest at 12 %.

6. Though a number of grounds are taken in the memorandum of appeal, Sri B. Vedanta Iyengar, learned counsel for the appellants, has urged two contentions in support of the appeal. His first contention was that the execution of a formal deed was a condition precedent to the enforceability of the contract and its absence precludes the enforceability of the suit claim based on contract. The second contention was that the-suit claim was barred by time, and, that Exhibit P-33 being in the nature of mere acknowledgement, coming into existence otter the expiry of the period of limitation, could not keep the claim alive,

7. The questions that arise for our determination in this appeal, therefore, are (a) whether the non-execution of a formal contract of hire-purchase precluded the enforceability of respondent's claim based on contract? and, (b) whether the respondent's suit was barred by limitation ?

8. We have earlier referred to the correspondence between the parties in some detail to show that there from the terms of the agreement entered into between the parties could clearly be spelled out. The terms and conditions of the hire-purchase were embodied in Exhibits P-20 and P-20 (a). In its reply dated 7-12-1961 as per Exhibit P-23, the first appellant refers to Exhibit P-20 and Exhibit P-20 (a) with reference to and in the context of the 'H. M. T. Lathe' in question and agrees to the terms in Exhibit P-20. The account-sheets as per Exhibit P20 (a) were examined and certain adjustments were pointed out. In Exhibit P-11 from M/s. Hindustan Machine Tools Ltd., to respondent, a copy of which was duly sent to the said -appellant, the latter is specifically referred to as the hirer. The combined effect of Exts. P-3, P-4, P-9, P-10, P-11, P-16. P-19, P-20, P-23 read with Exhibit P-33 renders the conclusion inescapable that the parties had reached a completed hire purchase agreement and that delivery of the said 'H. M. T. Lathe' was in pursuance of the said agreement. The contention however is that the parties did not intend to be bound till a formal document was executed.

9. In Chitty on Contracts (Twenty third Edition) it is stated:

'Stipulation for the execution I a formal document. The question whether the parties have reached a complete agreement most frequently arises where there has been an agreement in general terms but the parties have stipulated for the execution of some further formal document, or have said that the agreement which they have reached is 'subject to contract'. The problem then is whether the agreement is too general to be valid in itself and is dependent on the making of a formal contract, or whether the parties have in fact completed their agreement so that the making of a further formal contract, though desirable, is not essential. This is a question of construction for the court. In the words of Parker, J., in Von Hatzfeldt Wildenburg v. Alexander, (1912) 1 Ch 284, 285, 289. 'It appears to be well settled by the authorities that if the documents or letters relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a quest-IGn of construction whether the execution of the further contract is a condition or term of the bargain or whether ii is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored'.' (See Volume I para. 78).

In Halsbury's Laws of England (IV Edn.) Volume 9 at para. 262 it is stated:

'262. Contracts by correspondence. If a contract depends on a series of letters or other documents, and it appears from them that the drawing up of a formal instrument is contemplated, it is a question of construction whether the letters or other documents constitute a binding agreement or whether there is no binding agreement, until the instrument has been drawn up. The whole of the correspondence or documents must be considered ..........................

At para. 263 it is stated:

'Provisional agreements: Where there is an informal agreement which expressly requires or envisages the subsequent execution of a formal contract, the legal effect of that prior informal agreement depends on the intention of the parties; they may have entered into a binding provisional agreement, whilst envisaging its subsequent replacement by a more formal one; or they may evince an intention only to be bound on the execution of the formal contract, the prior informal agreement being of no legal effect.

* * * * * * * *If the envisaged formal contract does materialise, it may exactly reflect the terms of the prior provisional agreement, in which case it may have little more than as evidential value. Alternatively, it may differ materially from the provisional agreement so that it may be material to decide whether 'it has replaced that provisional agreement.'

At para. 270 it is stated:

'Partially executed agreements: Where an 'agreement' remains executory on one side, but has been wholly or partially executed on the other, the very fact of execution may itself tend to lead to the conclusion that the 'agreement' is binding; ............... ...... ...... ...... ...... ...... ......

In 'The Law of Contract' by Cheshire and Fifoot (Seventh Edition), the proposition is stated thus:

'........ It must therefore be in each case a question of construction whether the parties intended to undertake immediate, if temporary, obligations, or whether they were suspending all liability until the conclusion of formalities.Have they in other words, made the operation of their contract conditional upon the execution of a further document, in which case their obligations will be suspended, or have they made an immediately binding agreement, though one which is later to be merged into a more formal contract ?'

'.............. The task of the courts is to extract the intention of the parties both from the terms of their correspondence and from the circumstances which surround and follow it, and the question of interpretation may thus be stated. Is the preparation of a further document a condition precedent to the creation of a contract or is it an incident in the performance of an already binding obligation? As in all questions of construction the comparison of decided cases is apt to confuse rather than to illuminate.'

'............. The problem for a court of construction', said Lord Tomlin, 'must always be so to balance matters that without the violation of essential principle, the dealings of men may as far as possible be treated as effective,and that the law may not incur the reproach of being the destroyer of bargains,' It is therefore a question of construction whether the execution of the further for mal agreement in the prescribed form in the present case is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will, in fact, go through; or whether it is a condition or term of the bargain. In the latter case, it may be that either there wag never a contract between the parties because they did not intend to be bound except upon the drawing up of a formal agreement in writing or that there was a contract one term of which was that the parties should join in executing a written instrument embodying its terms and that only when such an instrument has been executed, the contract should be enforceable. From a perusal of Exhibit-P. 10, it is plain and beyond doubt that the said appellant sought the performance of the agreement already entered into by asking respondent to issue instructions to M/s. Hindustan Machine Tools Ltd., to deliver the machine in question. The clear implication of this is that the signing of the agreement in due course though desirable was not essential. The effect of the correspondence and the conduct the parties are not such as to lead to the inference that the parties intended to be bound only when a formal agreement was executed. On the contrary, there is ample evidence to show that both the parties intended to make and believed that they had made a binding agreement. The view of the Court below that in this case the intention to put the agreement into formal shape did not affect its validity is both good sense and good law. The first contention of Sri B. Vendanta Iyengar, therefore, fails.

10. The second contention turns upon the effect of Exhibit P-33. Question is whether the writing in Exhibit P-33 relating to the debt in question amounts to a mere acknowledgment or contains an express promise. In deciding it, the language of Exhibit P-33 is to be considered. In Exhibit P-33, the appellant, inter alia, says:

'In order to avoid any kind of unpleasantness and also in the interest of running our industry smoothly and to get the additional help for the present by way of getting the Air Compressor, I am arranging to pay the amount of about Rs. 15,077.78 as below:

Rs. 2,500/- by cash on 22-3-1966, The rest of the amounts, I will arrange to send a Bank Guarantee.'

The Court below has held that Exhibit P-33 contained a promise to pay a debt which, but for the law of limitation, was enforceable at law by respondent. This conclusion, in our opinion, is proper and correct. Expressions similar to those obtainable in Exhibit P-33 are construed to amount to a promise to pay within the meaning of Section 25(3) of the Contract Act (See: B. Ranganna v. Malikarjuna Co-operative Society Ltd., 1964 Mys LJ Suppl. 290). Therefore, the second contention of Sri B. Vendantha 1yengar also fails.

11. This appeal, therefore, fails and is dismissed with costs.

12. Appeal dismissed.


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