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Kulsekarapatnam Hand Match Workers' Co-operative Cottage Industrial Society Ltd., Madras State Vs. Radhelal Lalloolal and Ors. (03.09.1970 - MPHC) - Court Judgment

LegalCrystal Citation
SubjectContract
CourtMadhya Pradesh High Court
Decided On
Case NumberFirst Appeal No. 38 of 1967
Judge
Reported inAIR1971MP191; 1971MPLJ552
ActsContract Act, 1872 - Sections 208, 226 and 229; Code of Civil Procedure (CPC) , 1908 - Order 7, Rule 7
AppellantKulsekarapatnam Hand Match Workers' Co-operative Cottage Industrial Society Ltd., Madras State
RespondentRadhelal Lalloolal and Ors.
Appellant AdvocateS.L. Jain, Adv.
Respondent AdvocateJ.S. Verma, Adv. for Respondent No. 1
DispositionAppeal dismissed
Cases Referred(See Janardhan v. Gangaram
Excerpt:
- - ronaasen & son, 1933 all er 646 (hl)). in such a contract, a substantial failure by the seller to deliver goods that correspond with the description--for instance, a delivery of peas instead of beans -means in effect that he has failed to perform his contract (see, chitty on contracts, p. that would have caused a good deal of liability to the defendant no. under the contract of agency, the agent occupied a dual capacity- he was a 'selling agent' on commission basis as well as a 'favoured buyer',for the regions specified. in the case of any wide geographical distribution there is a general understanding of the practices of allotting territories, of zoning, of providing some regional superintendence of dealers or distributing 'agents' as well as of the manufacturer, and sometimes of..........filed by the seller arises out of a suit by the buyer for the refund of the price in a case of breach of contract on the part of the seller. 2. the facts are not in controversy and may be shortly stated. the seller, who is the appellant, is a manufacturer of matches. he entered into a contract dated 9th june 1963, through his selling agent, to sell 600 bundles of 'jyoti' brand matches. in breach of that contract, the seller despatched by rail 301 bundles of 'jyoti' brand matches and included 299 bundles of 'light house' brand matches to make up the consignment of 600 bundles. as this was a contract for sale of goods by description, there was an implied condition that the goods must correspond with the description. the buyer accordingly exercised his option under section 37(3) of the.....
Judgment:

A.P. Sen, J.

1. This appeal filed by the seller arises out of a suit by the buyer for the refund of the price in a case of breach of contract on the part of the seller.

2. The facts are not in controversy and may be shortly stated. The seller, who is the appellant, is a manufacturer of matches. He entered into a contract dated 9th June 1963, through his selling agent, to sell 600 bundles of 'Jyoti' brand matches. In breach of that contract, the seller despatched by rail 301 bundles of 'Jyoti' brand matches and included 299 bundles of 'Light House' brand matches to make up the consignment of 600 bundles. As this was a contract for sale of goods by description, there was an implied condition that the goods must correspond with the description. The buyer accordingly exercised his option under Section 37(3) of the Sale of Goods Act and refused to take delivery. He was, however, prevailed upon by the agent to retire the Hundi for Rs. 18695.30 and take delivery of the goods, on the promise that the seller would take back 299 bundles of 'Light House' brand matches on payment of cash. Thereafter, the agent instructed the purchaser to despatch the goods at his own expense to Jabalpur for delivery to one Lokesh Sahni, the local dealer of the seller and represented that Rs. 11,545/- shall be paid by Lokesh Sahni in lieu of the price and the expenses incurred. Neither the agent nor the ultimate purchaser adhered tothis arrangement. The buyer was informed that the agent had recovered the entire price. With great difficulty, the buyer was able to recover Rs. 3045/-from the agent and the agent on 16th October 1964, promised to pay to the purchaser Rs. 10,000/- in full and final satisfaction of his claim.

3. The learned trial Judge has held that the seller was in breach of the contract. That finding has not been assailed before us. In the case of sale of goods by description, the rule is that the goods must correspond with the description (Section 15 of the Sale of Goods Act). Once it is established that a given contract of sale is a sale by description, the test applied by the Court to determine whether or not the goods correspond with the description is a strict one (See, Arcos, Ltd. v. E. A. Ronaasen & Son, 1933 All ER 646 (HL)). In such a contract, a substantial failure by the seller to deliver goods that correspond with the description--for instance, a delivery of peas instead of beans -- means in effect that he has failed to perform his contract (See, Chitty on Contracts, p. 1516).

4. There is no warrant for the submission that the seller was absolved of all liability because the purchaser did not intimate him that he had rejected that part of the consignment which did not conform to the contract. There is overwhelming evidence on record to establish the fact that the buyer had duly intimated the agent that he refused to take delivery of 299 bundles of 'Light House' brand matches, which were goods of a different description not included in the contract. The correspondence shows that the agent had intimated the fact of rejection to the principal. The intimation of the fact of rejection to the agent was due intimation to the principal (Section 229 of the Contract Act).

5. Equally futile is the contention that the agent acted without authority in taking back the unwanted goods. The learned Judge in rejecting the contention rightly observes that the act done by the agent was 'in every respect in the interest of his principal'. He States as follows:--

'If the defendant No. 1 had not succeeded in persuading the plaintiff to take delivery of goods and to retire the Hundi, one likely consequence was that the consignment would have remained with the railways. That would have caused a good deal of liability to the defendant No. 2 by way of demurrage etc. The act of the defendant No. 1 had resulted in removing that likelihood and in ensuring an early payment to the defendant No. 2. This act of the defend-ant No. 1, therefore, cannot be said to be in excess of his authority. This act of the defendant No. 1 cannot exonerate the defendant No. 2 from his liability to compensate the plaintiff. It may be that the goods which were removed at the instance of defendant No. 1 were appropriated by him. It may also be that the defendant No. 1 may not have been able to realise its price from the defendant No. 3 but that does not in any way affect the right of the plaintiff to get compensation for breach of contract.'

6. It was urged that the agent, who was a selling agent, was not in reality an agent but a favoured buyer. The contention cannot be accepted. Under the contract of agency, the agent occupied a dual capacity- He was a 'selling agent' on commission basis as well as a 'favoured buyer', for the regions specified. By this particular transaction, however, the selling agent acted as an agent in its normal legal meaning, i. e. one who has the authority or capacity to create legal relations between a person occupying the position of a principal and third parties.

7. The extent to which in the course of modern commerce proprietary articles are sold to the ultimate consumer by distributors variously designated as 'agents', 'distributing agents' or 'selling agents' of the manufacturer makes it a matter of great importance to know whether in every such case the consumer upon buying the article is brought into contractual relations with the manufacturer. If the word 'agent' in this context has its normal legal meaning then, subject of course to contractual terms to the contrary, that would be the result.

8. There is an illuminating discussion on the subject in the judgment of Sir Owen Dixon. C. J. in International Harvester Co. of Australia v. Carrigan's Hazeldene Pastoral Co., (1958-59) 32 Aus LJ 160. The relevant part of the judgment reads as follows:--

'For almost a century cases have appeared from time to time in the law reports illustrating the fact that the word 'agent' is often used in business as meaning one who has no principal but who on his own account offers for sale some particular article having a special name: See for example Wheeler and Wilson v. Shakespear, (1869) 39 LJ Ch 36.

Agency Is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties. But in the business world its significance is byno means thus restricted. In L. T. Lamb and Sons v. Goring Brick Co. Ltd., 1932-1 KB 710 at pp. 717 and 720 the agreement under the consideration of the Court of Appeal was described by Scrutton, L. J., thus 'By this particular agreement the respondents, therein called the 'manufacturers', the makers of the bricks, appoint the 'merchants', the buyers of the bricks from them and sellers of the bricks, to builders and contractors, 'sole selling agents of all bricks and other materials manufactured at their works', 1932-1 KB 710. Greer, L. J. was led by this language to say 'It is somewhat remarkable that, notwithstanding the numerous cases in which the difference between a buyer and an agent has been pointed out, there are still innumerable persons engaged in business who do not understand the simple and logical distinction between a buyer and an agent for sale, but are content to treat the two words as synonymous. However, I can only read this contract as meaning that the manufacturers undertake, as they say in par. 3, to supply goods to the persons whom they call 'selling agents' in return for the price mentioned in par. 2' 1932-1 KB 710. But as Lord Herschell said in a much quoted observation. 'No word is more commonly and constantly abused than the word 'agent'. A person may be spoken of as an 'agent', and no doubt in the popular sense of the word may properly be said to be an 'agent although when it is attempted to suggest that he is an 'agent' under such circumstances as create the legal obligations attaching to agency that use of the word is only misleading'. Kennedy v. De Trafford, 1897 AC 180 at p. 188. No one supposes that the 'distributing agent' or 'exclusive agent' in a particular 'territory' for a proprietary commodity or specific kind of article or machine is there to put a 'consumer' into contractual relations with the manufacturer. In the case of any wide geographical distribution there is a general understanding of the practices of allotting territories, of zoning, of providing some regional superintendence of dealers or distributing 'agents' as well as of the manufacturer, and sometimes of the proper use, of the machine or article. None of this implies that the manufacturer of ultimate supplier contracts with the ultimate buyer or 'consumer' as vendor.'

We need, however, pursue matter as we have already stated that in this particular transaction the selling agent acted as an 'agent' in its normal legal meaning and not as a principal dealing on his own account.

9. It is then urged that the agent was not empowered to deal with thegoods despatched in fulfilment of a contract to the buyer. The absence of such a term in the agency agreement does not necessarily imply that the agent had no authority to deal with the goods which were not in furtherance of the contract. From the conduct of the parties and the circumstances of the case, the learned trial Judge rightly inferred that the agent had implied authority to take back the goods not contracted for. The correspondence shows that the principal was duly apprised of the fact that the plaintiff had rejected 299 bundles of 'Light House' brand matches and thereafter the agent throughout dealt with the rejected goods. Such conduct on the part of the principal shows that there was 'holding out' by him of the implied authority of the agent to deal with the goods. Where there is such 'holding out', the principal is clearly liable on the basis of apparent authority. In Firm Rai Bahadur Bansilal Abirchand v. Kabulchand, ILR (1945) Nag 204 = (AIR 1945 Nag 121), it was observed as follows:--

'If an agent acts in excess of his authority the liability of the principal remains if the third party enters into a contract with the agent under an honest belief in the existence of the authority to the extent apparent to him.'

That principle also emerges from the decision of their Lordships of the Privy Council in Ram Partap v. Marshall (1898) ILR 26 Cal 701 (PC). A third party is normally protected and is entitled to hold the principal liable if the act done by the agent is within his implied or apparent authority. Here, the act of taking back 299 bundles of 'Light House' brand matches by the agent, as rightly found by the learned trial Judge, was an act done for the benefit of the principal.

10. If an agent enters into a contract with a third party, within the scope of his actual authority, the result of which is to create contractual obligation between the principal and the third party, the agent has the power to perform all acts incidental to the performance or breach of such contract (Cheshire and Fifoot's Law of Contract, 7th edition, pp. 447-8; Freeman and Lockyer v. Buckhurst Park Properties, 1964-1 All ER 630 and Hely Hutchinson v. Brayhead, Ltd., 1967-3 All ER 98. The decision in Bryant, Powis and Bryant. Ltd. v. La Banque Du Peuple, (1891-4) All ER 1253 (PC) relied upon by learned counsel for the seller goes against him. Their Lordships observed as follows:--

'The law appears to their Lordships to be very well stated in the Court of Appeal of the State of New York, InPresident, etc., of Westfield Bank v. Cornen 37 NYR (Tiff) 322 cited by And-rews, J., in his judgment in another case brought by the Quebec Bank against the company. The passage referred to is as follows'.

'Whenever the very act of the agent is authorised by the terms of the power, that is, whenever by comparing the act done by the agent with the words of the power, the act is in itself warranted by the terms used, such act is binding on the constitutent. as to all persons dealing in good faith with the agent; such persons are not bound to inquire into facts aliunde. The apparent authority is the real authority.'

See also, Pickering v. Busk (1803-13) All ER 657 and Cole and Ors. v. North Western Bank (1874-80) All EH Ex Ch 486.

11. Next, it was urged that the suit, as framed, was not based on the original contract and its breach but on the alleged agreement of 16th October 1964 and as on that date, the contract of agency had ceased to be in force, the act of the erstwhile agent in entering into such agreement was not an act binding on the principal. So far as the frame of the suit is concerned, learned counsel for the seller is right. The suit, as framed, is for the enforcement of the agreement dated 16th October 1964. If the plaint were to be literally construed, the suit must fail for the reason that the buyer in his notice dated 23rd December 1964 made a demand for payment of Rs. 12,000/- as damages for breach of contract. After narrating the events leading to the breach, he stated that there was a settlement of his claim by agreement of 16th October 1964, but as the defendants had failed to adhere to that agreement, the agreement of 16th October 1964 'stands cancelled'. That being so, the suit as framed may not be maintainable. But we are inclined to think that the buyer would nevertheless be entitled to a relief on an alternative basis for damages for breach of the original contract as the right to such relief flows out of the pleadings of the parties. The fact of breach was put in issue as also the quantum of damages. The parties, therefore, knew what they were litigating for.

12. As regards the liability of the principal on the agreement of 16th October 1964, there is no manner of doubt that the contract of agency terminated w. e. f. 30th September 1964, but we are of the view that such termination would not affect the buyer. So far as third parties are concerned, the law is that the termination of a contract of agency takes effect only from the time the third party obtains knowledge of it. This isclear from Section 208 of the Contract Act. The principle is also now well settled that a third party is not affected unless he has knoweidge of such termination (See Janardhan v. Gangaram, ILR (1951) Nag 90 = (AIR 1951 Nag 313)). The settlement of 16th October 1964 was prima facie effected by the erstwhile agent in the ordinary course of business as if he were still the agent, The principal allowed him to make that representation and he stood by while the agent agreed to pay Rs. 10,000/- in full and final settlement of the buyer's claim. We do not think it necessary to go into that vexed question as the decision of ours rests on the original contract and its breach.

13. For all these reasons, the judgment under appeal must be upheld. The quantum of damages at Rs. 7270.28 has been rightly arrived and needs no Interference. The amount of damages recoverable would be the difference between the price paid by the buyer for the consignment and the price of the rejected goods. The value of 299 bundles of 'Light House' brand matches admittedly was Rs. 10,315.28. Out of this, the buyer has received Rs. 3045/- from the agent and that amount has to be deducted from the amount of damages. The resultant sura is Rs. 7270.28 as determined by the learned trial Judge. The cross-objection must, therefore, fail, We would, however, alter the date from which interest is payable without changing the rate of interest. The plaintiff shall be entitled to interest @ 12 per cent, per annum from 10th of August 1963 till the date of suit and 6 per cent. per annum thereafter till realisation. Normally, the interest should have run from the date of payment but that date Is not known and we have, therefore, taken the date of removal of 299 bundles of 'Light House' brand matches as the date from which interest shall run.

14. Subject to this variation in the date of interest, the appeal and the cross-objection fail and are dismissed. The costs in this Court shall be borne as incurred and that in the Court below as directed.


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