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The Union of India (Uoi) Vs. Tarachand - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 9 of 1971
Judge
Reported inAIR1976MP101
ActsSale of Goods Act, 1930 - Sections 6(3) and 57
AppellantThe Union of India (Uoi)
RespondentTarachand
Appellant AdvocateB.C. Verma, Adv.
Respondent AdvocateP.S. Khirwadkar, Adv.
DispositionAppeal allowed
Excerpt:
.....was not to pass to the plaintiff until and unless they were picked or unpicked and stacked by the railway administration, and secondly, that despite the contract it had the overriding right to appropriate all or any part of the coal-ash; he has failed to appreciate that the contract embodied in the document dated 15-6-1968, ex. he has failed to mark the distinction between 'sale' and 'agreement to sell'.an agreement to sell, or as it is often called, an executory contract of sale, is a contract pure and simple; d-1, clearly envisages by clause 1 (a) that the contract entered into by the railway administration to sell the coal-ash was subject tothe reservations, terms and conditions contained therein and also subject to their being picked, unpicked and stacked by it. 15. even otherwise,..........of the contract by the defendants -was not binding on him and their wrongful refusal to sell the goods contracted for amounts to a breach of the contract, which entitles him to recover damages amounting to rs. 18,615 being the price of 250 brass of coal-ash at the rate of rs. 51 per brass, after deducting rs. 10 per brass towards expenses for collection. the plaintiff pleaded that the average deposit of coal-ash at the nand-gaon. pump-house was one brass i.e. 100 c. ft. per day, and the market value of the same was rs. 61 per brass and, therefore, the plaintiff was deprived of 365 brass of coal-ash during the contract period. it was further pleaded that under the terms of the contract, the plaintiff was entitled to remove and collect all the coal-ash that accumulated during the period.....
Judgment:

A.P. Sen, J.

1. The Union of India,representing the Central Railway, has filed this appeal, against the judgment of the Addl. District Judge, East Nimar, Khandwa at Burhenpur, dated 29th September 1970, decreeing the plaintiff's claim for damages for conversion of goods to the extent of Rs. 16,016.

2. The facts briefly stated are these. On 22-5-1968, the plaintiff's tender for purchase of coal-ash accumulated atthe Nandgwm. pump-house for a period of one year from the date of the execution of the contract for a sum of Rs. 2,135 by running contract on a lump sum basis was accepted. The estimated quantity of coal-ash was 3,500 c. ft., and the rate settled was Rs. 61 per brass, i.e., 100 c. ft. The plaintiff, accordingly, on 22-5-1968 deposited an amount of Rs. 2,135 being the price of coal-ash for a year in full, i.e., the period of contract, and also Rs. 213 as security deposit. Thereafter, the parties executed a formal contract dated 15-6-1968, Ex. D-1, for sale of coal-ash by running contract. The defendant-Railway administration, however, by its letter dated 20-6-1968, Ex. D-2, cancelled the contract.

3. The plaintiff's claim is that the unilateral cancellation of the contract by the defendants -WAS not binding on him and their wrongful refusal to sell the goods contracted for amounts to a breach of the contract, which entitles him to recover damages amounting to Rs. 18,615 being the price of 250 brass of coal-ash at the rate of Rs. 51 per brass, after deducting Rs. 10 per brass towards expenses for collection. The plaintiff pleaded that the average deposit of coal-ash at the Nand-gaon. pump-house was one brass i.e. 100 c. ft. per day, and the market value of the same was Rs. 61 per brass and, therefore, the plaintiff was deprived of 365 brass of coal-ash during the contract period. It was further pleaded that under the terms of the contract, the plaintiff was entitled to remove and collect all the coal-ash that accumulated during the period from 15-6-1968 to 14-6-1969, i.e., for A period of one year from the date of execution of the contract.

4. That claim of his was repudiated by the defendants. They specifically denied that there was any liability on their part to satisfy the plaintiffs claim as laid and pleaded instead that they were entitled under Clause 2 (d) of the agreement to cancel the contract, as the coal-ash was required by the defendants for their own use. It was, however, elicited during the trial by a cross-examination of Narayan Sarwate, P.W. 1, Central Railway, Manmad (D.W. 1), on the basis of the records of the Railway administration that during the period in question, out of the total outturn of coal-ash at the Nand-gaon pump-house the Railway administration had itself utilised 10,787 c. ft, and the remaining quantity comprising of 15,000 c. ft., and 15,737 c. ft. of coal-ash had been issued to two contractors on thebasis of certificates of the Block Development Officer, at the rate of Rs. 61 per brass.

5. On these facts, the learned trial Judge has decreed the plaintiff's claim, holding that under Clause 1 (a) of the agreement, all the coal-ashes at the Nand-gaon pump-house that might nave accumulated w. e. f. 15-6-1968 to 14-6-1969, had been sold to the plaintiff for a lump sum payment of Rs. 2,135. That decision of his proceeds on the hypothesis that Clause 2 (d) of the agreement was not attracted in the instant case. He, therefore, holds that the defendants had no right to sell 30,737 c. ft. of coal-ash to the contractors. Upon that basis, the has held that the plaintiff was entitled to recover Rupees 15,625.87 p. being the price of 30,737 c. ft of coal-ash, which was given to the contractors, at the rate of Rs. 51 per brass, and Rs. 338.31 p. towards proportionate refund, being 61% of the price of Rupees 10,787 c. ft., utilised by the Railway administration, thus in all, Rs. 16,014.18 p. He has also allowed Rs, 1.82 p. towards notice expenses.

6. The three questions to which the argument in support of this appeal was directed were : first, whether the plaintiff was entitled to claim damages for conversion of the goods, as the learned Addl. District Judge thought that he was; secondly, whether the agreement of 15-6-1968 was sale, or, it only amounted to an agreement to sell, within the meaning of Sub-section (3) of Section 6 and, therefore, the plaintiffs remedy, if any, lay by way of damages under Section 57 of the Sale of Goods Act, and not by a suit for damages for conversion; and, lastly, whether the stipulations of the restrictive covenant in the agreement of 15-6-1968 clearly envisaged that, firstly, the property in the coal-ash produced at the Nandgaon pump-house was not to pass to the plaintiff until and unless they were picked or unpicked and stacked by the Railway administration, and secondly, that despite the contract it had the overriding right to appropriate all or any part of the coal-ash; and, the plaintiff was only entitled to the remainder of such coal-ash if any,

7. Sub-section (3) of Section 6 of the Sale of Goods Act, enacts :

'(3) Where by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods.'

8. In our opinion, the learned Addl. District Judge was in error in decreeing the plaintiff's claim, on a wrongful assumption that the property in the goods contracted for had passed to the plaintiff. He has failed to appreciate that the contract embodied in the document dated 15-6-1968, Ex. D-1, was a contract for sale of future goods, ie., of coal-ash which might accumulate at the Nandgaon pump-house in the contract period of 15-6-1968 to 14-6-1969. It was a contract in the printed form, i.e., the standard agreement form, for sale of coal-ash was by running contract. That being so, the contract only operated as an agreement to sell the goods under Sub-section (3) of Section 6 of the Sale of Goods Act. The effect of Sub-section (3) is to provide that property in future goods will pass to the buyer, as and when they are produced or manufactured without any further act of appropriation. Here, before the coal-ash was, in fact, produced, the Railway administration had cancelled the contract.

9. The learned Addl, District Judge wrongly assumes this to be a contract for the sale of specific goods. He has failed to mark the distinction between 'sale' and 'agreement to sell'. An agreement to sell, or as it is often called, an executory contract of sale, is a contract pure and simple; whereas a sale, or, as it is called for distinction, an executed contract of sale, is a contract plus a conveyance. Where goods have been sold, even though not delivered, and the seller breaks his engagement to deliver the goods, the buyer has not only a personal remedy against the seller, but also remedies in respect of the goods themselves, such as the actions for conversion and detention. In many cases, he may follow the goods into the hands of third parties. But, if an agreement to sell be broken by the seller, the buyer has only a personal remedy against the seller. The goods are still the property of the seller, and he can dispose them of as he likes.

10. On a plain construction, the document, Ex. D-1, is only a contract for sale of future goods, subject to certain restrictive covenants. The terms thereof appear to be somewhat unusual. But there is nothing in law to prevent the parties from making any bargain they please. The terms of the agreement are clear enough. The document, Ex. D-1, clearly envisages by Clause 1 (a) that the contract entered into by the Railway administration to sell the coal-ash was subject tothe reservations, terms and conditions contained therein and also subject to their being picked, unpicked and stacked by it. The plaintiff, therefore, could not acquire the right to collect and remove all the coal-ash that might have been produced at the Nandgaon pump-house. This is also clear from Clause 1 (b) which runs thus :--'(b) No coal-ashes shall be regarded as having been agreed to be sold to the contractor either under this agreement or otherwise whatsoever and shall not be subject to the terms and conditions of this agreement until and unless they have been picked or unpicked and stacked on behalf of the Central Railway Administration.'

11. By Clause 1 (c), the Railway administration reserved to itself the right to take all the coal-ash, or such part or parts, as it may from time to time require, for any purpose whatsoever connected with the working of the Central Railway, and it further had the right to set apart up to 50% of the accumulated coal-ash left after the quantity so required and to sell the same to the Government, Semi-Government bodies and institutions, Government companies, Co-operative Societies etc. or to such other persons, firms or body corporate etc. as the Railway administration thought fit. It further stipulated that in the event of the Railway Administration exercising such rights, it shall not be liable to the plaintiff for payment of any damages or for any payment or any account whatsoever except for refund in terms of Clause 5.

12. Clause 2 (a) then stipulates that the quantity of 3,500 c. ft. was only the presumed quantity for purposes of calculating the 10% deposit by way of security deposit and provides :

'The 10% deposit will be calculated on the cost of the presumed quantity of coal-ashes that would be sold to the contractor during the period of this agreement. Such presumed quantity of coal-ashes is only an approximate estimate for ascertaining the amount of the security deposit and does not bind the Central Railway Administration to sell such quantity to the contractor.'

Clause 2 (b) provides that the quantity mentioned was only approximate and not a guaranteed quantity, and it reads :

'Subject to the provision of Clause 2 (a) above, the Contractor shall pay towards price of the coal-ashes a sum of Rs. 2,135 (in words) Rupees Two Thou-sand One Hundred Thirty Five only, in advance. (Note:-- This amount is to be based on the average approximate cost of coal-ashes to be delivered in year. For the purpose of this agreement the quantity of coal-ashes assessed is 3,500 c. ft, for the entire period of currency. This quantity is approximate and the Railway Administration will not be liable for any variation in this assessed quantity).'

13. Now Clause 2 (d) of the agreement is the most material clause, on which the defendants rely, and it is as follows :

'The Railway reserves the right to use part or whole of the accumulation during any period for its own requirements and for issues to small consumers, potters, lime manufacturers, Govt. and Semi Govt. works engaged in nation building activities. The Railway should keep a proper record of such use. The contractor shall not have any claim for compensation other than the proportionate reduction herein mentioned in the lump sum sale price. The contractor shall be refunded the price of coal-ashes utilised by the Railway, at the rate of Rupees 61 per 100 c. ft. calculated on the following basis.'

14. The rule of construction applicable in general to all written contracts is, that they are to be construed according to the real intention of the parties, to be collected from the Language they have used. From the various terms set out, it is quite clear that unlike other contracts for sale of future goods, the present contract stipulated by Clause 1 (a) that property would not pass merely on the coal-ash being produced at the Nandgaon pump-house, but the plaintiff would acquire the right to take such coal-ash as was picked or unpicked and stacked by the Railway administration. It further provides that the agreement to sell was subject to such reservation, terms and conditions as contained therein. Clause 1 (b) then enjoins that no coal-ashes shall be regarded as having been agreed to be sold to the plaintiff either under the contract or otherwise whatsoever, and shall not be subject to the terms and conditions of the contract, until and unless they have been picked or unpicked and stacked on behalf of the Railway administration. In the present case, there is nothing to show that the coal-ash for which the claim is made by the plaintiff, had been picked or unpicked and stacked for delivery to him by the Railway administra-tion. The plaintiff's claim for damages for conversion is, therefore, wholly misconceived.

15. Even otherwise, the plaintiff's claim must also fail for the reason that under Clause 2 (d) of the contract the Railway administration reserved to itself the right to use the whole or any part of the coal-ash which might accumulate at the Nandgaon pump-house, during the contract period, for its own requirements and for issues to Government and Semi-Government works. The testimony of Narayan Sarwate (D.W. 1) clearly shows that during the contract period, out of the total coal-ash accumulated at the Nandgaon pump-house, the Railway administration had utilised 10,787 c. ft. and the remaining quantity comprising of 15,000 c. ft. and 15,737 c. ft. of coal-ashes were issued to two contractors on the basis of certificates of the Block Development Officer. The Block Development Officers appointed under the Community Development Project and National Extension Service Scheme, are undoubtedly engaged in nation building activities, which are undertaken with the Government's contribution in the form of grant-in-aids. The case is, therefore, squarely covered by Clause 2 (d), and the Railway administration could not be held liable for conversion of the goods.

16. Much stress was, however, laid on the fact that the defendants have nowhere pleaded that the remaining quantity of the coal-ash had been issued either to Government or Semi-Government works. No doubt, the defendants have in their written statement rested their case on Clause 2 (d) and pleaded that they had the right to cancel the contract under that clause, as they required, the coal-ash for their own use. The record, however, reveals that only 10,787 c. ft., had been utilised by the Railway administration itself, while the remaining quantity of 30,737 c. ft of coal-ash was issued to two contractors on certificates granted by the Block Development Officer. It is, therefore, clear that the remaining quantity had not been utilised by the Railway administration. That does not imply that the plaintiff was entitled to the remaining quantity. The remaining quantity, as it appears clear, had not been picked or unpicked and stacked by the Railway administration for delivery to the plaintiff; but, on the contrary it had been issued by the Railway administration to the two contractors. It is evidentthat the remaining quantity of 30,737 c. ft. of coal-ash, had been issued to these contractors on the certificate of the Block Development Officer. The failure of the defendants to plead this fact is no doubt a lacuna, tout the defect can be removed by an amendment.

17. Under Section 6(3) of the Act, even if the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. The act, however, says nothing as to the time when the property is to pass; this, as in all cases, depends on the intention; and there seems to be nothing in Section 6(3) to alter any pre-existing rule with regard to the passing of the property in any class of future goods. (See, Benjamin on Sale, 8th Edn., pp. 141, 142). The effect of Sub-section (3) is to provide that the property in future goods, as and when they are produced or manufactured, will pass to the buyer without any further act of appropriation. The time of passing of the property, however, depends on the intention of the parties, and there is nothing to prevent them to defer the passing of property on the happening of an event, as here, on appropriation of the goods.

18. Sub-section (3) renders it now no longer doubtful that all present sales of future goods are agreements to sell. The expression 'future goods' as denned in Section 2(6) of the Act, means 'goods to be manufactured or produced or acquired by the seller, .after the making of the contract of sale'. They are not the same as 'unascertained goods'. The rule as to the passing of property in a contract for all goods, not in existence, was contained in Section 87 of the Contract Act, one of the groups of sections comprising of Sections 76 to 123, which stand repealed by the Sale of Goods Act, was as follows :--

'87. Where there is a contract for the sale of goods not yet in existence, the ownership of the goods may be transferred by acts done after the goods are produced in pursuance of the contract, by the seller, or by the buyer with the seller's assent.'

19. There does not seem to be any material alteration in the law, though in Section 87 the word 'act' was used instead of appropriation and assent. The Illustrations to Section 87 will, therefore, hold good under the present law. The present case is covered by Illustration (a), namely---

'(a) A contract to sell to B, for a stated price, all the indigo which shall be produced at A's factory during the ensuing years. A, when the indigo has been manufactured, gives B an acknowledgment that he holds the indigo at his disposal. The ownership of the indigo vests in B from the date of the acknowledgment.'

It is thus clear that the practical effect of the Illustrations, is that the property in the future natural product of existing goods, will pass to the buyer, and when it is identified by coming into existence, without any further act of appropriation. (See Mulla's Sale of Goods and Partnership Acts, 3rd Edn., p. 38). This, of course, is subject to any contract between the parties.

20. In the instant case, the parties by contract provided that the property in them would pass to the plaintiff when the goods are picked or unpicked and stacked by the Railway administration. Here, the contract was the standard agreement for sale of .coal-ash by running contract, and was a special type contract. Under the terms of the contract, the plaintiff had no right to appropriate all the coal-ash produced at the Nandgaon pump-house unless the same was picked or unpicked and stacked by the Railway administration for delivery, he was only entitled to the residue of such coal-ash, if any. There is nothing to show that any part of the coal-ash contracted for had been stacked for delivery. That being so, the property in the goods had not passed to the plaintiff and, therefore, his claim for conversion did not lie.

21. If the seller breaks the contract to deliver any goods in a contract for sale of future goods, one or more of the following remedies may be open to the buyer namely :--

(i) he may sue for damages for nondelivery under Section 57 of the Act;

(ii) if the price has been paid by him, he may recover it in a suit for money had and received for a consideration which has totally failed

22. In a suit for damages lor nondelivery, the loss to be ascertained is the loss at the date of the breach The measure of damages would, therefore, be the difference between the contract price and the market price on the date of the breach. There is no evidence of the market price on such date. Tarachand (P.W. 4) vaguely asserts that the price prevailing in the market, nearabout the date of the breach,was between Rs. 61 and Rs. 65 per brass. If in a suit for non-delivery, no difference between the contract price and the market price is shown, the plaintiff in general is only entitled to nominal damages for the breach, if any.

23. For the foregoing reisers, the appeal must succeed and is allowed with costs. The judgment and decree of the Addl. District Judge decreeing the plaintiff's claim for damages for conversion to the extent of Rs. 16,016 are set aside and instead the plaintiffs suit is decreed to the extent of Rs. 2,348 on account of refund of the amount of Rs. 2,135 deposited fay him towards the price and Rs. 213 as earnest money, with interest there at 6% per annum w.e.f. 22-5-1963 till realisation. Hearing fee as per schedule.


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