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The Bazpur Co-operative Sugar Factory Limited Vs. Surendra Mohan Agarwal and anr. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAllahabad High Court
Decided On
Case NumberFirst Appeal No. 262 of 1975
Judge
Reported inAIR1984All174
ActsContract Act, 1872 - Sections 55, 73 and 74
AppellantThe Bazpur Co-operative Sugar Factory Limited
RespondentSurendra Mohan Agarwal and anr.
Advocates:G.N. Verma, Adv.
DispositionAppeal dismissed
Excerpt:
.....for breach of contract - damage can be assessed based on variation between market price and the contract price of the goods - where the plaintiff does not base his claim on the basis of the said differences - he cannot invoke sections 73 and 74. - - 1 failed to fulfil his part of contract. the plaintiff, however, failed to establish any claim for damages. 369:-the two principles on which damages in such cases are calculated are well settled. the first is that, as far as possible he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; it provides that the plaintiff reserved the right to impose penalty or recovery of loss for the failure of supply of..........learned counsel relied at theoutset upon section 73 of the contract act,which provides for any loss or damages caused to the plaintiff 'which naturally arose in the usual course of things' from the breach. section 73 is merely declaratory of the common law as to damages vide b. n. railway company ltd. v. ruttanji ramji . the settled principle is that if there is an available market for the goods at the date of breach the damages must be based on the difference between the market price and the contract price. this constitutes the measure to assess compensation for the loss or damages in the usual course of things due to the breach in the performance of the agreement. in erroll mackay v. maharajadhiraj kameshwar singh , the rule was thus stated:-- 'if there was an available market for.....
Judgment:

B.D. Agarwal, J.

1. This is plaintiff's appeal.

2. The plaintiff is a Co-operative Society registered under the Co-operative Societies Act, 1912. It runs a Sugar Factory in Bazpur district Nainital. The defendant No. 1 is the sole proprietor of the Firm arrayed as the defendant No. 2. On Sept. 18. 1969 the parties entered into a contract in writing whereby the defendant No. 1 agreed to supply to the plaintiff 1000 Brass Tubes. The price agreed was Rs. 30/- per kilo F.O.R., Bazpur and this was inclusive of sales tax, excise duty, transportation, packing and forwarding charges. Of the goods 50% was to be supplied latest by October 31, 1969 and the rest within Nov. 30, 1969. A sum of Rs. 67,215/- was paid to the defendant No. 1 by the plaintiff by cheque the same day as advance money. The Brass Tubes in question were to be those manufactured by M/s. Kamani Tubes Private Ltd. Bombay. Despite the plaintiff having agreed to take the supply beyond the stipulated period, the defendant No. 1 failed to fulfil his part of contract. In Oct. 1970 the plaintiff made purchases of 300 Brass Tubes from another concern, namely, M/s. Prem Engineering Works, Meerut. The price paid to them by the plaintiff was at the rate of Rs. 36/- per kilo besides incurring the expenses in packing, transportation and the payment of sales tax. In all a sum of Rs. 18,484/- was incurred by the plaintiff on this account. In respect of certain other contracts the plaintiff owed certain amount to the defendant No. 1. After giving credit to the same and keeping in view the loss suffered by the plaintiff, it is alleged, to the extent of Rs. 18,484/- as mentioned above, it brought the suit on May 17, 1972 giving rise to this appeal claiming a sum of Rs. 27,809.50 against the defendants.

3. The defendants have resisted the suit pleading that the supply of Brass Tubes to the plaintiff depended on the goods being obtained from the manufacturers. Since the defendant No. 1 did not get supply from M/s. Kamani Tubes Private Ltd. Bombay, it did not become possible for him to comply with the terms of the contract entered into with the plaintiff. It is refuted thus that there was breach on the part of the defendant No. 1 or that there is liability incurred for damages in favour of the plaintiff. The contention further is that a sum of Rs. 5176.10 is due to the defendant No. 1 himself against the plaintiff and it is not correct to say that the plaintiff is entitled to recovery of Rupees 9325.50 as claimed by it or any other sum for that matter.

4. Learned Civil Judge, Nainital upon consideration of the evidence reached the finding that there was breaeh of the contract on the part of the defendant No. 1. The supply of the goods was not contingent upon the receipt thereof by the defendant No. 1 from the manufacturers. Time was of the essence of the contract. The plaintiff, however, failed to establish any claim for damages. It was not shown either that the purchase alleged to be made by the plaintiff of 300 Brass Tubes in Oct., 1970 was against the quantity for which the contract had been entered into with the defendant No. J. The defendant No. l was entitled to set off for the dues in respect of the other contracts after giving credit to the same. The Court below has decreed the suit in plaintiff's favour for the recovery of a sum of Rs. 9325.50 only out of the earnest money advanced by the plaintiff to the defendant No. 1. The suit was dismissed in respect of the claim for the sum of Rs. 18,484/-.

5. Aggrieved, the plaintiff has preferred this appeal claiming recovery of the sum of Rs. 18,484/-, by way of damages. No cross-appeal or cross-objection has been filed for the defendants,

6. Controversy does not exist with respect to the essential terms of the contract entered into between the parties dated Sept. 18, 1969. The defendant No. 1 submitted quotation in response to the invitation from the plaintiff. The plaintiff placed the order which the defendant No. 1 accepted in writing. The supply to be made was, as mentioned above, of 1,000 Brass Tubes, manufactured by M/s. Kamani Tubes Private Ltd, Bombay. The price stipulated was Rs. 30/- per kilo F.O.R. Bazpur inclusive of sales tax, excise duty, transportation, packing and forwarding charges. It was also provided that the fifty per cent of the material had to be supplied by Oct. 31, 1969 at the latest and the rest by Nov. 30, 1969. A sum of Rs. 67,215/- was advanced to the defendant No. 1 by the plaintiff by cheque the same day. The contract in original placed on the record is Ex. I. The defendant No. 1-respondent does not dispute the execution of this agreement in writing.

7. Sri G.N. Varma, learned counsel for the plaintiff-appellant urged and not without force that there was breach of contract on the part of the defendant No. 1. Admittedly the goods were not supplied by the defendant No. 1, within Nov. 30, 1969 or thereafter. It does not appear that time was of the essence of contract. In para 3 of the plaint it is averred that the order placed by the plaintiff was for the sugar cane crushing season 1969-70. No such indication is given in the contract entered into between the parties. The more important fact, moreover, is that despite the expiry of the period specified in the contract, the plaintiff continued to insist upon the supply being made in the quantity of 1,000 Brass Tubes as is manifest from the letters which wrote to the defendant No. 1. On Oct 27, 1970, the plaintiff wrote to the defendant No. 1 requiring the latter to fix a definite date for the delivery of the Brass Tubes, vide Ex. III. The defendant No. 1 stated in his reply dated Dec. 12, 1970 that the supply might materialise up to March, 1971 vide Ex. IV. The plaintiff again wrote to the defendant No. 1 on Feb. 2, 1971, vide Ex. A-8 saying that the defendant No. 1 had assured that he would complete the supply by March 31, 1971 and in this letter the plaintiff required the defendant No. 1 accordingly, to make the supply latest by March 31, 1971. Again on Feb. 19, 1971 vide Ex. 11, the plaintiff expressed willingness to honour the documents of the M/s. Kamani Tubes Private Ltd., Bombay directly and asked the defendant No. 1 to convey to the manufacturers that they should send a copy of their invoice to the plaintiff for the purpose of being checked and the document concerned being retired (sic) directly. All these are pointers strongly in the direction, in my view, that time was not the essence of the contract and the observation made by the trial Court to the contrary is without substantial basis. The material fact remains, however, that despite the extension given by the plaintiff for the performance of the contract to which the defendant No. 1 was alsoagreeable, there was no supply made by the latter. The defendant No. 1 took the plea instead that the goods were not received from the manufacturers and the contract being contingent upon the receipt of supply from them, he was not in a position to abide by the same. It is true that the supply to be made was of the goods manufactured by M/s. Kamani Tubes private Ltd., Bombay but the evidence does not bare out as the Court below also found, that the contract was contingent upon this event. In the contract itself there is no suggestion that the defendant No. 1 did not have the goods in stock or that the supply to be made by him was conditional upon the receiptof the goods afresh from the manufacturers. It is also not shown that these goods could not be available with any other suppliers in market, nor is it proved that the manufacturers did not make the supply to the defendant No. 1 (despite being asked for. D. W. R. K. Vaish examined for the defendant No. 1 was unable to support the theory that there was any such condition precedent attached to the fulfilment of the contract. The defendant No. 1 was, therefore, rightly found to have been in breach of the contract to make the requisite supply.

8. The chief question raised in the appeal is with respect to the measure of damages. Learned counsel relied at theoutset upon Section 73 of the Contract Act,which provides for any loss or damages caused to the plaintiff 'which naturally arose in the usual course of things' from the breach. Section 73 is merely declaratory of the common law as to damages vide B. N. Railway Company Ltd. v. Ruttanji Ramji . The settled principle is that if there is an available market for the goods at the date of breach the damages must be based on the difference between the market price and the contract price. This constitutes the measure to assess compensation for the loss or damages in the usual course of things due to the breach in the performance of the agreement. In Erroll Mackay v. Maharajadhiraj Kameshwar Singh , the rule was thus stated:--

'If there was an available market for the goods at the date of breach the damages must, be based on the difference between that market price and the contractprice; a contract of resale becomes immaterial, because if there was a market the law presumes that the buyer can minimize his damages by procuring substituted goods in the market, so that he is thus in the same position apart from the difference in price as if the seller had not made default. Hence the difference of price, if the market price exceeds the contract price, is the sole damage in general recoverable.'

9. The loss to be ascertained is the loss at the date of the breach. The market value at the date of the breach is the decisive element (See A. K. A. S. Jamal v. Moola Dawood Sons and Company (AIR 1915 PC 48). In Murlidhar Chironjilal v. Harishchandra Dwarkadas : [1962]1SCR653 dealing with this aspect of the matter the Supreme Court observed at p. 369:--

'The two principles on which damages in such cases are calculated are well settled. The first is that, as far as possible he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps; (British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Ry. Co. of London (1912) AC 673 at page 689). These two principles also follow from the law as laid down in Section 73 read with the Explanation thereof. If therefore, the contract was to be performed at Kanpur it was the respondent's duty to buy the goods in Kanpur and rail them to Calcutta on the date of the breach and if it suffered any damage thereby because of the rise in price on the date of the breach, as compared to the contract price, it would be entitled to be reimbursed for the loss. Even if the respondent did not actually buy them in the market at Kanpur on the date of the breach it would be entitled to damages on proof of the rate for similar canvass prevalent in Kanpur on the date of breach, if that rate was above the contracted rate resulting in loss to it. But the respondent did not make any attempt to prove the rate for similar canvas prevalent in Kanpur on the date of breach. Therefore, it would obviously be not entitled to any damages at all, for on his state of the evidence it could not be said that any damage naturally arose in the usual course of things.'

10. In Manager, Hardware and Tools Ltd. v. Saru Smelting Pvt. Ltd. (AIR 1983 All 329) a Division Bench of this Court also took the view that the actual sum, to be awarded to the party which has suffered on account of the breach of the contract by way of damages depends upon the difference between the market and the contract price on the date the breach look place. In the instant case, there is no foundation laid, it is significant, for the claim of damages urged in the course of the arguments before this Court on the basis of Section 73 of the Contract Act. The plaint shows that the plaintiff has not at all based its claim on the difference between the market price prevailing on the date of the breach and the contract price. There is no averment indeed to the effect that on the relevant date, namely, that on breach of contract, the market price for the Brass Tubes was higher than the contract price nor is there mention of the said market price, also there is not an iota of evidence oral or documentary to establish the differential. Section 73, consequently, is of no avail to the plaintiff.

11. Faced with this the learned counsel for the appellant relies on Section 74 of the Contract Act which in so far asmaterial provides:--

'74. Compensation for breach of contract where penalty stipulated for:-- When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or, if, the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named, or, as the case may be, the penalty stipulated for.'

12. The submission is that it is established in this case that the contract has been broken. In the contract there is no sum named as the amount to be paid in case of breach thereof but it is urgedthe contract contains stipulation by way of a penalty in another form. It provides that the plaintiff reserved the right to impose penalty or recovery of loss for the failure of supply of materials in the manner agreed upon as the plaintiff deemed proper under the circumstances of the case. The argument advanced further is that for the purpose of Section 74 it is of no consequence whether or not the actual damage or loss is proved to have been caused by the breach. The contention is that due to these features peculiar to this provision, the plaintiff is entitled to reasonable compensation despite incomplete (sic) or failure to prove the actual damages or loss. The submission in my view lacks merit. In this connection the conspicuous facts worth notice are:--

(i) The purchase of 300 Brass Tubes by the plaintiff which referred to by the appellant's learned counsel is not alleged or shown to have been against the quantity for which the order had been placed ' with the defendant No. 1. Throughout the correspondence the plaintiff nowhere indicated that it had gone in to purchase 300 Brass Tubes out of 1,000 asked for from the defendant No. 1. On the contrary the plaintiff continued to press the defendant No. 1 to supply 1,000 Brass Tubes and this is revealed consistently from the letters written by the plaintiff dated Oct. 27, 1970. Jan. 1, 1971, Feb. 2, 1971 and Feb. 19, 1971. Even in the letter dated May 29, 1971 whereby the contract was cancelled by the plaintiff vide Ex. 12 the supply insisted was of 1,000 Brass Tubes without a reference to the purchase made of 300 Tubes during the intervening period from another concern. Obviously, the defendant No. 1 cannot be saddled with the liability for the price that may have been made by the plaintiff to some other concern for the sake of purchase made by it over and above or besides the goods for which the contract with the defendant No. 1 had been entered into.

(ii) The purchase alleged was on Oct. 25/27, 1970. As I said above there is absolutely no evidence regarding the prevailing market rate in or about Oct./Nov.1969 or in or about March, 1971. This is material. The period agreed for supply in the contract was Oct./Nov., 19G9. This was extended up to March 31, 1971. We are not aware of the rates prevailing ator about any of these dates. There is no presumption that the rates on these dates will have been the same as obtaining in Oct. 1970. PW K. B. Singh, Supervisor was specifically questioned in this regard during cross-examination and he expressed inability altogether to give the rates prevailing in the relevant period. On the other hand, D. W. R.K. Vaish deposed that the rates then prevailing in the market were Rs. 25/-, Rs. 26/- per kilo. It was up to the plaintiff to have placed the dates before the Court on the footing of which reasonable compensation awardable under Section 74 could be ascertained.

13. In Fateh Chand v. Balkishan Das : [1964]1SCR515 the Supreme Court has explained the implications of Section 74 observing:--

'The measure of damages in the case of breach of a stipulation by way of penalty is by Section 74 reasonable compensation not exceeding the penalty stipulated for. In assessing damages the Court has, subject to the limit of the penalty stipulated, jurisdiction to award such compensation as it deems reasonable having regard to all the circumstances of the case. Jurisdiction of the Court to award compensation in case of breach of contract is unqualified except as to the maximum stipulated; but compensation has to be reasonable, and that imposes upon the Court duty to award compensation according to settled principles. The section undoubtedly says that the aggrieved party is entitled to receive compensation from the party who has broken the contract whether or not actual damage or loss is proved to have been caused by the breach. Thereby it merely dispenses with proof of 'actual loss or damage'; it does not justify the award of compensation when in consequence of the breach no legal injury at all has resulted because compensation for breach of contract can be awarded to make good loss or damage which naturally arose in the usual course of things, or which the parties knew when they made the contract, to be likely to result from the breach.'

(Emphasis is mine) At p. 1412 it is also observed:--

'The Court has to as judge in every case reasonable compensation to which the plaintiff is entitled from the defendant on breach of the contract. Such compensation has to be ascertained having regard to the conditions existing on the date of the breach.'

14. This was also the view expressed in Maula Bux v. Union of India : [1970]1SCR928

'It is true that in every case of breach of contract the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree and the Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequence of the breach of contract. But the expression 'whether or not actual damage or loss is proved to have been caused thereby' is intended to cover different classes of contracts which come before the Courts. In case of breach of some contracts it may be possible for the Court to assess compensation arising from breach, while in other cases compensation can be calculated in accordance with established rules. Where the Court is unable to assess the compensation, the sum named by the parties if it be regarded as a genuine pre-estimate may be taken into consideration as the measure of reasonable compensation, but not if the sum named is in the nature of a penalty. Where loss in terms of money can be determined, the party claiming compensation must prove the loss suffered by him.'

15. In the absence of any material relevant for the purpose being placed on the record for the plaintiff and this being not a case where loss in terms of money cannot be determined, the Court is not in a position evidently to assess reasonable compensation within the meaning of Section 74 of the Contract Act. The plaintiff has failed indeed to make out that there was legal injury resulting to it due to the breach attributed to the defendant No. 1. In the absence of proof that the rates ordinarily prevailing in the market for these goods on the relevant dates of breach of the agreement were higher, the plaintiff does not get benefit of this provision.

16. In consequence, the appeal fails and is dismissed accordingly. In the circumstances, however, the costs in this Court shall be borne by the parties.


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