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Divakaruni Sambasiva Rao and Brothers and ors. Vs. Kurnala Venkatarao, Tobacco Seed Oil Firm - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 234 of 1951
Judge
Reported inAIR1955AP148
ActsSale of Goods Act, 1930 - Sections 34; Indian Contract Act, 1872 - Sections 73
AppellantDivakaruni Sambasiva Rao and Brothers and ors.
RespondentKurnala Venkatarao, Tobacco Seed Oil Firm
Appellant AdvocateT. Lakshmiah, ;K. Srinivasamurthy and ;B.V. Rama Rao, Advs.
Respondent AdvocateKasturi Seshagiri Rao, ;K. Sivaprasada Rao and ;D. Hanumantha Rao, Advs.
Excerpt:
contract - breach of contract - section 34 of sale of goods act, 1930 and section 73 of indian contract act, 1872 - appeal by defendants against decree and judgment of court of subordinate judge in suit for recovery of damages for breach of contract - damages to be calculated for breach according to principle laid in section 73 - principle behind this section is that in giving damages for breach of contract party complaining should be placed in same position as would have been if contract had been performed - decided cases have evolved a ''rule of market-rate'' on grounds that it represents true value of goods to purchaser - in present case defendants had no knowledge that plaintiffs were purchasing goods for sub sale to third parties - held, defendants are liable to give damages arising..........at or about the time of breach, the damages are not be taken at the value of the article at the timeof breach. but the mode of estimating the value is different, for there is no market price which can be quoted. hence cases of this sort appear to be complicated by varying elements which are really only different tests for answering the question, what was the articles worth at the time?'at page 174, the learned author illustrates the rule in the context of a re-sale by a purchaser previous to the breach of contract. it is stated:'where there has been failure to deliver goods which arenot procurable in the market, and they have been resold by the purchaser previous to breach of contract, it often seems as if the question of liability to pay for profits, which has already been discussed,.....
Judgment:

Subba Rao, C.J.

(1) This is an appeal by the defendants against the decree and judgment of the Court of the Subordinate Judge of Guntur, in a suit for recovery of Rs. 12,354--10--0 as damages for breach of a contract dated 4.4.1948.

(2) The plaintiffs are a tobacco seed oil firm represented by their Managing Partener. On 4.4.1948, the plaintiff entered into a contract with the defendants to purchase 25 tons of tobacco seed oil at Rs. 10 per maund deliverable at any mill, Vijiawada, before the end of June, 1948. On 7.4.1948, a sum of Rs. 1,500/- was paid to the 2nd defendant and the plaintiffs delivered 25 empty barrels to the defendants. The plaintiffs also paid two other sums of Rs. 1,500/- and Rs. 500/-. Notwithstanding the payments, the defendants did not deliver the 25 barrels of oil as stipulated in the contract. On 25.6.1948 the plaintiff, gave a registered notice to the defendants demanding compliance with the terms of the contract and informing them that they would hold them liable for damages if they made any default.

The defendants did not send the oil but repliced by letter, dated 1.7.1948, to the effect that the plaintiffs had committed default. With those allegations, the plaintiffs filed a suit for recovery of damages. They claimed damages on the ground that they entered into a contract with the defendants in order to supply the said oil at the rate of Rs. 14/- per maund to Messrs. Jenson & Nicholson (India) Ltd., with whom they entered into a contract to that effect. The plaintiff alleging that they suffered loss at the rate of Rs. 4/- per maund and deducting therefrom the transport charges from Vijiawada to Guntur, claimed the difference as damages from the defendants.

(3) The defendants, in their written statement, denied that they committed breach of the contract. They alleged that they got ready sufficient oil to delivery to the plaintiffs at their own factory towards the first consignment of 25 barrels long before the due date for performance and requested the plaintiff to supply empty barrels, but they supplied only 25 leaky empty barrels, at defendants' Nandivelugu Oil Mill and that the plaintiffs defaulted in accepting delivery in spite of defendants' repeated requests. In short, their defence was that plaintiffs made default in carrying out the terms of the contract. They also denied that they had any knowledge of the agreement entered into by the plaintiffs with Jenson & Nicholson (India) Ltd. for the supply of tobacco seed oil at Rs. 14/- per maund. In any view, they pleaded that the claim for recovery of Rs. 3-12-0 per maund on the basis of a possible profit was not maintainable as being very remote.

(4) The learned Subordinate Judge held on the evidence that the plaintiffs were ready and willing to perform their part of the contract, that they sent 25 emptybarrels to the defendants that the defendant filed only l15 barrels with oil, but utilised them to meet pressing demands from others and that they were at the crucial time not in possession of sufficient oil to keep up their contract with the plaintiffs. In short, the learned Subordinate Judge held that the defendants committed breach of contract and therefore they were liable to pay damages tothe plaintffs. As regards the measure damages, in view of his finding that there was no market at the time of the breach of the contract, the learned Subordinate Judge gave as damages the difference between the contract rate and the rate at which plaintiffs agreed to sell the same to Messrs. Jenson and Nicholson (Indian) Ltd. deducting therefrom 8 annas per maund towards transport charge. In the result, be gave a decree for the recovery of a sum of Rs.11,371-2-0 with interest, and also a sum of Rs.400/- in case of 25 empty barrels were not delivered within the time allowed. The defendants have preferred the above appeal.

(5) Mr. Lakshmiah, the learned Counsel for the appellants, contended that the contract contered into between the parties was an instalment contract, that the defendants did not commit any breach even in regard to the 1st instalment, that even if there was such a breach in respect of the 1st instalm,ent, the plaintiffs were not exonerated from carrying out their part of the contract in regard to the subsequent instalments and that on the evidence it was clear that the plaintiffs did not carry out their part by sending the barrels, paying the amounts and taking delivery of the goods at Vijawada.

(6) To appreciate his argument, it is necessary to notice the terms of the agreement Exhibit A-2, dated 4th April 1948 Exhibit A-2, the defendants agreed to supply tobacco seed oil at Rs.10/- per maund of 25 Ibs., at Bezwada in the drums supplied by the plasintiffs. The condition relied upon reads:

'You shall take delivery of the said oil, 25 drums at a time, pay to us 75 per cent of the value then arrived at, and pay the balance as soon as each waggon is loaded and pass is given. ...................... As soon as your drums are received we shall have the oil filled therein. You hall take delivery of thesaid goods before the end of June.'

The contention is that the 25 tons of oil were agreed to be delivered in instalments of 25 drums at a time on payment of 75 per cent of the value of the oil supplied and therefore the contract was one to supply in separate instalments and therefore a breach of contract in respect of a particular instalment would not exonerate the plaintiffs from complying strictly with the terms of the contract in regard to the other instalments. This defence was not raised in the pleadings; nor was it argued before the learned Subordiante Judge. Apart from that we cannot also agree with the construction put upon the contract by the learned counsel. It is not necessary to consider in detail the decisions cited on this aspect of the case. It will be enough if the clear and concise statement of law given in Halsbury's Laws of England, Vol. 8, 3rd Edition by Lord Simonds at page 204 is extracted:

'Thus, in the case of a contract for the sale of goods to be delivered by stated instalments which are to be separately paid for, if the seller makes defective deliveries in respect of one or more instalments or the buyer neglects or refuses to take delivery of or to pay one or more instalments, it is a question in each case, depending on the terms of the contract and the circumstances of the case, whether the breach of contract is a repudiation of the whole contract or a severable breach giving rise to a claim for compensation, but not to a right to treat the whole contract as repudiated.'

But we cannot say on the terms of the contract Exhibit A-2 that the parties intended that the oil should be delivered in stated instalments to be sepasrately paid for. The entire 25 tons of oil, the subject-matter of the contract, was agreed to be supplied at a uniform rate of Rs.10/- per maund before the end of June. The contract 'ex facie' did not divide the 25 tons into specific units with proportionate price. The contract does not fix any time for the delivery of the instalments. But for convenience of despatch and delivery 25 drums were agreed to be delivered at a time. But that in itself will not make the contract a severable one which can be enforced separately. We, therefore, cannot hold that Exhibit A-2 embodied a severable conract enforceable in different instalments. In this view, the consequential argument of the learned Counsel, namely that the brreach of the first instalment would not exonerate the plaintiff to carry out the other terms of the contract, does not arises for consideration.

(7) The next question is who committed breach of the contract? The main terms of the contract as aforesaid are: the defendants shall deliver the oil at Bezwada in the drums supplied by the plaintiffs. At the time of delivery, the plaintiffs shall pay 75 per cent of the value against 25 drums delivered at a time and pay the balance as soon as each wagoon was loaded and pass was given. (His Lordship discussed the evidence, both oral and documentary, on the point and proceeded:)

(8-14) The result of the aforesaid findings is this. The plaintiffs were in a position to pay amounts against the cotract; they paid Rs.3,500/- towards the contract; they sent 25 barrels which were in a sound condition to the defendants on 23rd May1948; though 15 barrels were filled up to meet the urgent demands, the said oil was sold to Sree Lakshmi Prasanna Rice and Oil Mills and though during the contract period the defendants had a stock of 4000 bags of tobacco seeds, most of it was pledged to others and therefore, they were not in a position to utilise the stock for manufacturing oil. From the aforesaid facts, it is manifest that the plaintiffs performed their part of the cotract but the defendants not only did not send the 25 barrels but they were not in a position to perform any part of their contract and thereby committed breach of contract. Even if it was to be treated as a severable cotract, we hold, in the circumsances of this case, that the defendants committed breach of the entire contract.

(15) The next question is, what is the measure of damages? The learned Subordinate Judge held on the evidence that the defendants had no knowledge of the fact that the plaintiffs had entered into a contract to supply seed oil to Messrs. Jenson & Nickolson (India) Limited at Rs. 14/- per maund and yet awarded damages representing the difference between the contract rate and the rate at which they agreed to sell to the said company deducting 8 annas per maund towards transport charges. Mr. Lakshmiah, learned counsel for the appellants, contended that the learned Subordinate Judge having held that the defendants had no knowledge of the plaintiffs' contract with Messrs. Jenson & Nicholson (India) Ltd. erred in ginving as damages difference between the two rates, whereas Mr. Hanumantha Rao, learned Counsel for the respondents, argued that even if the defendants had no knowledge of the particular contract they had knowledge of the fact that the oil purchased was required by the plaintiffs for foreign export and therefore, the correct measure was the difference between the two rates. Section 73 of the Contract Act lays down the measure of damages tobe awarded when there is a breach of contract, Section 73 says:

'When a contract has been broken the party who suffers by such breach is entilted to receive, from the party whohas broken the contract, compensation for any loss or damages caused to him thereby, which naturally arose in the usual couse of things from such breachor which the parties knew when they made the contract to be likely to result from the breach of it.

Such compensation is not to be given for anyremote and indirect loss or damage sustained by reason of the breach.

Explanation: In estimating the loss or damages arising from a breach of contract, the means which existed of remedying the inconveniences caused by the non-performance of the contract must be taken into account.'

(16) The principle behind the section is that in giving the damages for breach of contract the party complaining should, so far as it is possible, be placed in the same position as he would have been in if the contract had been performed. Decided cases have evolved a 'rule of market-rate' on the ground that it represents the true value of the goods to the purchaser. But when there was no actual market, Courts found difficultyin applying the 'rule of market rate.' To meet that contingency another supplemental rule has been evolved which was summarised in Halsbury's Laws of England, 2nd Edition, Volume 10, (Lord Hailsham) at page 123, as follows:

'When the seller fails to deliver and there is no market, the buyer is entitled to be awarded as amount which represents he value of the goods to him at the date when delivery should have beenmade and a contract of sub-sale which he had entered into is evidence of such value, though the seller had no notice of such contract.'

In Mayne's Treatise on Damages, 10 Edition, by F. Gahan, the same rule is stated in different words at page 172 as follows:

'When the subject-matter of the contract is not procurable at all in the market, or not at or about the time of breach, the damages are not be taken at the value of the article at the timeof breach. But the mode of estimating the value is different, for there is no market price which can be quoted. Hence cases of this sort appear to be complicated by varying elements which are really only different tests for answering the question, what was the articles worth at the time?'

At page 174, the learned author illustrates the rule in the context of a re-sale by a purchaser previous to the breach of contract. It is stated:

'Where there has been failure to deliver goods which arenot procurable in the market, and they have been resold by the purchaser previous to breach of contract, it often seems as if the question of liability to pay for profits, which has already been discussed, would arise for decision. In reality, however, the re-sale is an immaterial circumstance, except so far as it may go to prove what the real value was at the time of breach. Where the resale took place in the ordinary course of commerce,it would be reasonable to accept it as a test of the then value of the article. But where it was a special transaction, in which a special price was given, in consequence of the peculiar exigencies of the purchaser, no such inference could be drawn. Therefore, notice of the resale would in the former case be unnecessary, in the latter probably be useless.'

In Benjamin on Sale, 7th Edition, the law on the subject has been elaborately considered having regard to the pricniples in decided cases and the result is stated at page 1019 in the form of propositions.

'Where the goods, at the time when the contract is made, have been sub-sold or brought for subsale the following rules apply:

A: Where there is a market: (1) When there is a sub-sale (whether the seller when he made the contract did or did not know of it, or of the buyer's intention to resell) the buyer must as between himself and the seller, buy the goods in the market to supply the sub-buyer and th seller is liable (in the absence of special damage) only for the difference in price, as general damages.

B. When there is no market: Where the seller at the time when he made the contract knew that the goods had been sub-sold or were brought for sub-sale, or would plrobably be sub-sold. (a) The buyer may buy the best substitute procurable for the goods and if the sub-buyer accept them, charge the seller the difference in price as general damages or (b) may recover as special damages the loss of his acutal or anticipated profits, btogether with a reasonable indemnity against the buyer's liasbility to the sub-buyer, and costs reasonably incurred.

(1) Samble that exceptional profits of a sub-sale are not recoverable, unless the seller, when he made the contract, knew of their amount and accepted the contract with his special responsiibility attached.

(2) When the seller at the time when he made the contract did not know that the goods had been sub-sold or brought for sub-sale or would proablybe sub-sold-

(a) The buyer may buiy the best substitute procurable and charge the seller the difference in price as general damages, as under R. B(1)(a), or

(b) may charge the seller the difference between the contract price and the value of the goods as general damages. Some evidence of such value is afforded by the sub-sale price or the price of the goods at the market nearest to the place of delivery or at a distant market added to the expense of transportation to the place of delivery, their price at the market in the place of delivery at a time other than that fided by the contract for delivery.'

(17) Theabovesaid statement of law appears to meet the various situations that may arise in the assessment of damages. In -- 'Jugmohandas v. Nasserwanji', 26 Bom 744 (A), as the defendant failed to deliver coal to the plaintiff oin the prescribed date, the suit was filed for damages for breach of contract. On the date of the breach, there was practically no coal in the place of delivery of the description contracted for at the date at which delivery should have been given and consequently no market rate could be proved. At the hearing the plaintiffs produced a statement showing the rates at which he had during the contract period settled certain contracts for Powel Duffryn coal which he had with the Bombay Company Limited, Jankins C. J. and Chandavarkar J., held that under the special circumstance as to a market rate, the figures given in this statement might properly be receivedin evidence for the purpose of fixing the actual value of the coal at the dates of breach, thus affording a measure of the damages suffered.

Though the settlement made by the plaintiff with the Bombay company limited was not a resal they accepted that statement on the ground that it bore some analogy to the re-purchase and they held under the sdpecial circumstances of that case that the statement might be received in evidence for the purpose of enabling them to fix the actual value. It will be seen from the aforesaid judgment that it does not lay down any inflexible rule of law but only says that, having regard to the poverty of the materials the measure afforded by the repurchase might tb taken inti consideration in fixing the actual be taken into consideration in fixing the actual value of the coal on the date of the breach.

(18) In -- 'Cooverjee Bjoja v. Rajendra Nath', 36 Cal 617 (B) Malclean J., pointed out that as there was no market rate for the commodity in Calcutta at the date of the breaches, the damages for those breaches was the value of the plaintiffs of the portioins that ought to have been delivered on those dates at the price procurable in England less the cost of getting them there. At page 624, the learned Chief Justice restated the principle in a pithy setntence as follows:

'But if there is no market rate, the mode of estimating this value is different but comes back to the elementary principle what were the goods worth at the time?'

The law relevant to the question may be stated thus: The general principles which is embodied in S. 73 of the Contract Act is that when there is a breach of contract, the party who sufers by the breach is entitled to recover compensation from the other party for the loss caused tohim by the said breach. He would be entilted to recover only such damages as would naturally arise in the usual course of things from the said breach of which the parties knew when they made the contract to be likely to result from the breach of it. Under the circumstances will a party be entilted to recover compensation for any remotes and indirect loss or damage sustained by the breach?

Where the parties knew that the agreement to purchase goods was entered into to supply to a third party under a sub-sale it is clear case where under the terms of s. 73 itself, the party committng the breach would be liable to pay the difference between the contract rate and the sub-sale rate if the parties knew, at the time of the contract, that a breach thereof would result in damage. But where there was no such knowledge, the only measure is the damage which naturally arose in the usual course of things from such breach. If there was a market at the time of the breach the measure of damages upon a breach by the buyer is the difference between the contract price and the market price on the date of the breach. But when there was no market at the time of the breach, Courts have found difficulty in assessing the damages.

(19) Bearing in mind the general principle that the real value to the purchaser at the time of the breach should be the criterion for assessing the damages Courts have evolved some rules for guidance for assessing the real value. Whatever rule was adopted and followed, it was only to ascertain the worth of the goods at the time of the breach. Where the seller at the time when he made the contract knew that the goods had been sub-sold or were brought for sub-sale or would probably be sub-sold it was held that the buyer should buy in the market thebest subsitute procurable for the goods and if the sub-buyer accepted them charge the seller the difference in price. Alternatively, he might recover as special damages the loss of his actual or anticipated profits but excluding the exceptional profits of the sub-sale.

But when at the time he made the contract the seller did not know that the goods had been subsold or were brought for sub-sale or probably would be sub-sold the buyer might claim damages representing the difference between the contract price and the value of the goods as general damages. But to ascertain the price afforded by the sub-sale or the price of the goods at a place nearest to the place of delivery, or, the price at the market in the place of delivery at a time other than thatfixed in the contract for delivery and similar cases, the appropriate price may be relied upon with necessary subtractions or additions for assertaining the real value at the time of the breach. These are not inflexible rules of law but are only guides to ascertain the real value at the time of the breach. In the ultimate analysis, as laid down by S. 73, in the absence of specific knowledge mentioned therein, the real value can be ascertained by finding out the damage that naturally arise in the usual course of things from the breach.

(20) Can it be said in the instant case that the learned Subordinate Judge had applied the correct measure in assessing the damages? The learned Subordinate Judge found on the evidence that the defendants were not awasre that the suit firm entered into Exhibit A-2, in order to fulfil their obligations to Messrs. Jenson & Nicholson (India) Ltd. The learned counsel for the appellants didnot canvass the correctness of that finding. Indeed there is no evidence on record to prove tht they had such knowledge. But it was contended that the defendants must have had knowledge of the fact that the plaintiffs purchased the goods to export them to other states. Reliance is placed upon the following statement in Exhibit A-2:

'We shall deliver the said oil to you, clean, free of mud, and free of adulteration and to stand the testing by the Public Analyst.'

The fact that certain specifications are made is not decisive on the question whether the defendants had knwoeldge that the plaintiffs intended to sub-sell the same. We cannot, therefore, hold that it has been established in this case that the defendants entered into a contract with the plasintiffs with the knowledge that the goods were requiured for supply under a specific contract or that they were intended tobe sold to third parties.

(21) If so, the only question is whether there was a market for the oil at the time of the breach and if so how to ascertain the real value of the oil to the purchaser. (His Lordship considered the evidence on the point and concluded:) Having regard to the aforesaid circumsances. we fix the real value of the oil at the date of the breach at Rs.11-8-0 per maund. If so, the plaintiffs could be entitled only to recover damages on 2250 maunds at Rs.1-8-0 per maund, viz., Rs.3375/-. The plaintiffs would, of course,be entitled to recover a sum of Rs.3517-2-0 being the money paid by them from time to time to that defendants. They would also be entiltled in addition to recover a sum of Rs.400/- in case the 25 empty barrels are not delivered within one month from today.

(22) In the result, the decree of the lower court is accordingly modified. The parties will pay and receive proportionate costs here and in the court below.

(23) In other respects the decree of the lower court will stand.

(24) Decree modified.


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