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De-smet (India) Private Ltd. Vs. B.P. Industrial Corporation (P.) Ltd. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtAllahabad High Court
Decided On
Case NumberFirst Appeal No. 250 of 1975
Judge
Reported inAIR1980All253
ActsContract Act, 1872 - Sections 65 to 70, 73 and 74; ;Sale of Goods Act, 1930 - Sections 4 and 55; Evidence Act, 1872 - Sections 101 to 104
AppellantDe-smet (India) Private Ltd.
RespondentB.P. Industrial Corporation (P.) Ltd.
Appellant AdvocateV. Swarup and ;J. Swarup, Advs.
Respondent AdvocateSwami Dayal, Adv.
DispositionAppeal dismissed
Excerpt:
contract - refund of money on breach of contract - sections 70, 73 and 74 of contract act, 1872 - advance payment made by purchaser - not as guarantee for fulfillment of contract - transaction fails - purchaser is entitled for refund even though he made the breach - no agreement relating to damages so it cannot be claimed - no proof of unjust enrichment so nothing can be deducted while refunding. - - 1964. although there was no obligation on the plaintiff to pay any further amount by way of advance, still in order to maintain good relations between the parties, it paid a further sum of rs. 50,000 to the defendant as, further advance by a cheque dated 2-1-1965. the defendant was still not satisfied and it submitted three hundis worth rupees 1,50,000 which the plaintiff did not honour...........urged that according to this decision a party which commits breach of contract cannot retain the money paid to it. we are unable to accept this submission. a careful reading of the judgment shows that the learned judge first of all discussed the nature and incidents of earnest money deposited by an intending purchaser with the seller, and held that in case the purchaser commits breach of contract the earnest money is liable to be forfeited. while making the observations relied upon by the learned counsel for the appellant the learned judge merely ruled that where a liability for forfeiture of the earnest money has been incurred the purchaser is not relieved of it merely because he accepts delivery of part of the goods contracted to be purchased by him. these observations have nothing.....
Judgment:

H.N. Seth, J.

1. This first appeal by De-Smet (India) Private Ltd. defendant is directed against the judgment and decree of second Additional Civil Judge, Agra dated 2-6-1975, decreeing the suit filed by B. P. Industrial Corporation (P.) Ltd. for recovery of Rs. 100,000 with proportionate costs. There is also before us a cross-objection by the plaintiff praying that the decree passed by the trial court should be modified so as to decree its entire claim for a sum of Rupees 116,000.

2. B. P. Industrial Corporation (P.) Ltd. filed Suit No. 51 of 1966 in the court of the second Additional Civil Judge, Agra for recovery of Rs. 116,000 from the defendant De-Smet (India) Private Ltd. Briefly stated the case set up in the plaint was that the plaintiff wanted to set up a continuous solvent extraction plant, and with that end in view, it in the month of June 1964, invited quotation from the defendant. The defendant vide its quotation dated 18th June 1964 offered to supply to the plaintiff De-Smet continuous and fully automatic solvent extraction plant for a sum of Rupees 13,92,690. In order to secure the order the defendant agreed to waive the condition in the quotation that the plaintiff should pay one third price of the plant as advance along with its order and that the plaintiff had in unequivocal terms intimated the defendant that it shall pay a sum of Rs. 50,000 only as advance and eventually by a letter dated 3rd August 1964 it accepted the offer made by the defendant. The plaintiff also sent a chaque of Rs. 50,000 as advance for the supply of the plant. On receipt of the letter of acceptance and the cheque for Rs. 50,000 the defendant intimated the plaintiff that the order placed by it had been registered and that it was going ahead with it. Even though the contract was complete and the plaintiff was not liable to pay anything further towards advance payment for the plant, the defendant started pestering the plaintiff for further advance. Subsequently the plaintiff asked the defendant to amend the order so as to include in it the order for the rice bran processing equipment also thereby increasing the price of the plant to be supplied by the defendant to Rs. 15,56,099. The defendant confirmed the amendment of the order through a letter dated 23rd Sept. 1964. Although there was no obligation on the plaintiff to pay any further amount by way of advance, still in order to maintain good relations between the parties, it paid a further sum of Rs. 50,000 to the defendant as, further advance by a cheque dated 2-1-1965. The defendant was still not satisfied and it submitted three Hundis worth Rupees 1,50,000 which the plaintiff did not honour. Thereupon the defendant refused to supply the plant and committed breach of contract. The plaintiff accordingly claimed that it was entitled to the refund of Rs. 100,000 together with interest thereon amounting to Rs. 6,000 as also a sum of Rs. 10,000 as damages, total Rs. 1,16,000.

3. The defendant contested the suit. It alleged that while submitting the quotation it had made it absolutely clear to the plaintiff that all orders placed by it would be subject to payment of one third of the value of the order as advance payable along with the order itself and the remaining two-third amount was to be paid against despatch documents. However, at the special request of Sri V. N. Bhagat, Managing Director of the plaintiff Company it agreed to accept only 25% of the value of the order as advance and made this position clear vide its letter dated 3rd August 1964. During the meeting between Shri Ram Sharma of the defendant company and Sri V. N. Bhagat of the plaintiff company which took place at Calcutta, Sri Bhagat pleaded that the plaintiff was not in a position to pay the entire advance at once and that it would pay Rs. 50,000 initially and would pay the balance in about two months' time. The defendant accepted the order placed by the plaintiff in the belief that the plaintiff would carry out the said undertaking. After accepting the order the defendant started manufacturing parts of the equipment and also placed orders on third parties for the material required. It also prepared the layout, drawings etc. and rendered technical service to the plain-tiff from time to time. Despite several reminders the plaintiff did not carry out its promise to pay the balance of the advance money and was itself responsible for committing breach of contract As a result of the breach committed by the plaintiff the defendant had been put to following losses:--

(1)

Rs. 1,26,380.30 :

Value ofthe equipment manufactured.

(2)

Rs. 59,760.905 :

Valuefor which orders were placed with outside parties.

(3)

Rs. 65,000.00 :

Engineering charges, preparation of layout drawings,etc.

(4)

Rs. 1,55,670.00 :

Loss ofprofit.

Rs. 4,06,811.20

4. According to the defendant the plaintiff was bound to make good the aforesaid loss suffered by it and that after adjusting the sum of Rs. 1,00,000 paid by it as advance it was liable to pay a sum of Rs. 3,06,811.20 to the defendant. However, the defendant was, on this account confining its claim for a sum of Rs. 1,00,000 only, The defendant also raised a number of other pleas but in view of the submission made by learned counsel for the parties before us, it is not necessary to refer to them at this stage.

5. It may be mentioned that the defendant had in the written statement filed by it, made a claim that it had on account of breach of contract committed by the plaintiff suffered a loss of Rupees 4,06,811.20 which it was entitled to recover from the plaintiff. It claimed that it was after adjusting the sum of Rupees 100,000 already received by it as advance confining its claim on this account for a further sum of Rs. 100,000 only. It is thus apparent that the defendant had made a counter claim for a sum of Rupees 2,00,000. As however, it paid court-fee only on a sum of Rs. 100,000 the trial court rejected the counter claim made by it as deficiently stamped.

6. After going through the evidence produced by the parties the trial court under issue No. 4 held that the plaintiff did not accept the proposal of the defendant with regard to payment of advance money and the defendant did not in that connection accept the counter proposal made by the plaintiff. Whereas the plaintiff was under the impression that it had to pay a sum of Rs. 50,000 as advance the defendant thought that the plaintiff was to pay 25% of the value of the order as advance. There was thus no meeting of mind as between the plaintiff and the defendant and no completed contract between the parties came into existence. It, therefore, held that the plaintiff was entitled to claim a refund of Rs. 100,000 on this very ground. However under issues Nos. 2 and 3 it held that only a sum of Rs. 50,000 had to be paid by the plaintiff as advance and the plaintiff never agreed to pay 25% of the value of the orders as advance to the defendant. It also held under issues Nos. 6 and 8 that breach of contract in this case was committed by the defendant but then the plaintiff was not entitled to recover any interest (Rs. 6,000) or the loss suffered by it Rs. 10,000 from the plaintiff. In the result it decreed the plaintiffs suit for recovery of Rs. 100,000 with proportionate costs.

7. Sri Jagdish Swarup, learned counsel for the appellant assailed the trial court's findings that in this case no completed contract came into existence and that in any case it was the defendant who was guilty of committing breach of contract and was thus liable to return the sum of Rs. 100,000 received by it from the plaintiff. He contended that there was a clear understanding between the parties that the plaintiff would at the time of booking of the order, pay a sum of Rs. 50,000 and thereafter it would make up the balance of 25% of the value of the order to be paid by it as advance within a further period of about two months. The plaintiff did not honour its commitments and committed breach of contract. As the plaintiff itself was guilty of committing breach of contract, it was not entitled to claim refund of the amount deposited by it in pursuance of its obligation under the contract. Moreover, the plaintiff could if at all recover only that much of the advance paid by it which exceeded the loss suffered by the defendant on account of such breach.

8. Sri Rajeshwari Prasad, learned counsel for the plaintiff respondent supported the findnings recorded by the trial court and contended that the plaintiff had paid Rs. 100,000 to the defendant as part payment for the plant which was to be supplied by the defendant in advance. It was not paid as earnest money and was not liable to be forfeited. Accordingly, when the contract was not being performed the defendant was not entitled, even if there was breach of contract on plaintiff's part to retain the amount paid to it as advance.

9. In this case it is not disputed that the plaintiff had paid a sum of Rupees 100,000 to the defendant as part payment of the price of the plant agreed to be supplied by the defendant in advance and that it was not paid as earnest money. In the case of Chiranjit Singh v. Har Swarup AIR 1926 PC 1 the purchaser had paid Rs. 20,000 as earnest money and he also paid a further sum of Rs. 1,45,000 towards part payment of the purchase price. Thereafter he failed to meet his commitment of paying the balance of purchase price. It was held that as the purchaser was guilty of committing breach of contract, the earnest money amounting to Rs. 20,000 paid by him was liable to be forfeited, but, notwithstanding the breach committed by him the purchaser was entitled to repayment of Rs. 1,45,000.

10. The decision in the cases of Ballabhdas v. Paikaji AIR 1916 Nag 104. Abas Ali v. Kodhu Sao, . Krishna Chandra v. Khan Mahmud Bepari : AIR1936Cal51 . Madan Mohan v. Jawala Prasad AIR 1950 East Punj 278. Mohd. Jafar v. Ha-mida Khatoon : AIR1945All70 . J. Metal Industries Ltd. v. V. Oil Industries 0043/1959 : AIR1959Pat176 . Dasu Rattamma v. Kri-shnamurthi AIR 1928 Mad 326, show that the view taken by various High Courts in this country is that where the advance payment is not made by the purchaser as guarantee for fulfilment of the contract but is made merely as part payment of the purchase price agreed upon between the parties, it has to be, when the transaction falls through, refunded to the purchaser even though the purchaser himself may be responsible for committing breach of contract.

11. In the instant case, as the contract between the parties has admittedly fallen through and the defendant did not receive the sum of Rs. 100,000 as earnest money, the defendant is, notwithstanding the fact that the breach of contract might have been committed by the plaintiff, is liable to refund the money received by him.

12. Learned counsel for the appellant relied upon the following observations made by N. U. Beg, J. in the case of Kanpur Iron Brass Works and Floor Mills v. Banarsi Das : AIR1959All755 :

'The contract was that the plaintiff would accept the entire total of 20 Kolhus. If the plaintiff did not accept all the 20 Kolhus he must be held to have committed a breach of contract. Mere acceptance of eight Kolhus cannot therefore in my opinion relieve him from the legal liability of forfeiture which is incurred by the buyer once he is found to be guilty of breach of contract.'

and urged that according to this decision a party which commits breach of contract cannot retain the money paid to it. We are unable to accept this submission. A careful reading of the judgment shows that the learned Judge first of all discussed the nature and incidents of earnest money deposited by an intending purchaser with the seller, and held that in case the purchaser commits breach of contract the earnest money is liable to be forfeited. While making the observations relied upon by the learned counsel for the appellant the learned Judge merely ruled that where a liability for forfeiture of the earnest money has been incurred the purchaser is not relieved of it merely because he accepts delivery of part of the goods contracted to be purchased by him. These observations have nothing to do with the money paid to the seller in advance which payment is not by way of earnest or as a guarantee for the performance of the contract.

13. As in this case there is nothing on the record to indicate that the plaintiff had paid Rs. 1,00,000 to the defendant by way of earnest money or as a guarantee for due performance of the contract and as admittedly the contract is not to be performed by the parties any further the plaintiff is entitled to its refund.

14. Sri Jagdish Swarup learned counsel for the appellant then contended that closely analysed the principle on which the claim for refund of such money is to be allowed is that law does not countenance unjust enrichment. Accordingly a person who has been unjustly enriched at the expense of another is required to make restitution to the other. According to him, courts in America have accepted and acted upon this doctrine. He invited our attention to 'Restatement of the Law of Contracts' as adopted and promulgated by the American Law Institute Vol. II para 357 at p. 623 and specially to Clause (g) at page 627 which runs thus:--

'The plaintiff's right to restitution is merely to the excess of benefit received over the harm suffered. It is necessary for the plaintiff to show with reasonable degree of certainty that there is such an excess and its amount in order to get judgment.....'

He also invited our attention to the following passage occurring in para 1484 of Willistom on contract:--

'Since the plaintiff's right to restitution is merely to the excess of benefit received over the harm suffered by the defendant, it is necessary for the plaintiff to show with a reasonable degree of certainty that there is such an excess and its amount in order to get a judgment.''

and contended that the burden of proving that the benefit received by the defendant was in excess of the harm suffered by him, and the extent of such an excess, was on the plaintiff and he could claim the refund of only so much of the advance money paid by him as exceeded the harm suffered by the defendant on account of the breach of contract committed by the plaintiff. According to him the evidence produced on behalf of the defendant indicated that the defendant had after booking the contract taken steps to fabricate certain parts of the plant and had also prepared certain drawings etc. for setting up the plant, The defendants undoubtedly had suffered some loss. In case it is found that it was the plaintiff who was responsible for the breach of contract, it could not recover the entire sum of Rs. 1,00,000 paid by it to the defendant. Since the plaintiff has failed to adduce any evidence either about the extent of loss suffered by the defendant or the excess of benefit over the harm suffered by the defendant it is not entitled to claim any refund from the defendant.

15. It is true that the doctrine that a person who has been unjustly enriched at the expense of another is required to make restitution to the other has been accepted in this country and has also found statutory recognition in Sections 65 to 70 of the Indian Contract Act. We may for purposes of discussion take it that the passages cited by the learned counsel represent the correct legal position with regard to the extent to which the restitution is to be made by a party which is unjustly enriched and that the party is only bound to refund the difference between such benefit gained by him and the harm suffered by it on account of the default of the plaintiff, However, the observation that it is ne-cessary for the plaintiff to show with reasonable degree of certainty that there is such an excess and its amount in order to get the judgment does not mean that it is for the plaintiff to establish by positive evidence a fact which is in the special knowledge of the defendant, namely the precise damage which has been suffered by him. In such cases the plaintiff discharges the burden by proving the benefit conferred by him on the defendant and stating that to his knowledge the defendant has not suffered any harm. If he does so he succeeds in showing with a reasonable degree of certainty that there is an excess of benefit received over the harm suffered by the defendant and also its extent. However if the defendant succeeds in showing that the extent of the harm suffered by him was more than what had been admitted by the plaintiff he would be able to contest the plaintiff's case for such restitution to the extent it is not in excess of the benefit over the harm suffered by him. It cannot be accepted as a proposition of law that the plaintiff has to prove by positive evidence a fact which cannot be in its knowledge and which is in the special knowledge of the defendant,

16. In the instant case we find that although the defendant alleged that it had fabricated equipments amounting to Rs. 1,20,380.30 but it did not adduce any evidence whatsoever to show as to what happened to that equipment thereafter. Whether it retained the same or it disposed it of to a third party and if so what was the amount realised by it on that account. Merely because the defendant manufactured equipment amounting to Rupees 1,26,360.30 as claimed by it it does not mean that the defendant was entitled to recover that amount as also to retain the equipment. The defendant could on this account only recover the difference between the money spent by it on the manufacturing of those equipments and the price which those equipments would fetch If they were disposed of in the market in the ordinary course. There being nothing on the record to show either that such equipments were not disposable or as to what happened to them, it cannot be said that the defendant has succeeded in proving that it suffered any loss much less a loss to the extent of Rs. 1.26,380 by manufacturing those equipments, Similarly the plaintiff's claim for recovering a sum of Rs. 59,760.90 on account of the value of the material for which orders were placed on outside parties cannot be countenanced as there is no evidence on the record to show that the defendant paid this amount to the outside parties and did not receive the goods of that value from them. What happened to those goods, and whether the defendant suffered any loss on that account and if so, its extent is also known. The defendant claimed in the written statement a sum of Rs. 65,000 on account of engineering charges and preparation of lay-out drawings etc., to prove what amount was spent by it under this head. (sic) It is true that the defendant filed a number of documents showing that certain lay-out drawings etc. had been prepared by it but it did not adduce any evidence to show the extent of money spent by it aver those drawings or that those drawings had become valueless for its purpose. In such circumstance the plaintiff's claim for the said sum of Rs. 65,000 can also not be countenanced. In short, there is no evidence to show that the defendant suffered any loss because of the breach of contract alleged to have been committed! by the plaintiff and on the material on record it cannot be said that the excess of benefit received by the defendant over the harm suffered by it is less than the total benefit of Rs. 1,00,000 received by it. The defendant is, therefore not entitled to deduct anything from the amount of Rs. 1,00,000 which is refundable by it.

17. In this view of the matter it is not necessary for us to go into the question as to which of the two parties was guilty of committing breach of the contract in this case. As the sum of Rs. 1,00,000 paid by the plaintiff to the defendant was not; earnest money, and as admittedly the transaction between the parties had fal--len through the defendant has been rightly held to be liable to refund the said amount to the plaintiff.

18. In the cross-objection the claim of the plaintiff is that the trial court erred in rejecting the claim for interest on the sum of Rs. 1,00,000 which is refundable to it (Rs. 6,000) as also the loss of profit amounting to Rs. 1,00,000 suffered by it. (The question of claiming any amount under these two heads could arise only if it was found that it was the defendant who was guilty of committing breach of contract a question in which we have not gone into). The trial court rightly pointed out that the plaintiff had claimed interest amounting to Rs. 6,000 in the form of damage suffered by it and has at the same time claimed Rs. 10,000 also as damages. This showed that the plaintiff was not itself clear about such a claim. Apart from asserting its claim for damages the plaintiff did not adduce any evidence to prove the extent thereof. Moreover, there was no agreement between the parties for payment of interest on the deposits made by the plaintiff. In the circumstances plaintiffs claim for Rs. 16,000 was liable to be rejected. Learned counsel for the respondent could not invite our attention to any evidence on the record on the basis of which the damages suffered by the plaintiff could be quantified. In our opinion, the trial court was quite justified in rejecting this part of the plaintiff's claim and the cross-objection filed by it deserved to be rejected.

19. In the result, we find no merit either in the appeal or in the cross-objection. Both the appeal and the cross-objection therefore fail and are dismissed. However, in the circumstances we direct the parties to bear their own costs.


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