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Samuel Fitz and Company Limited Vs. the Standard Cotton and Silk Weaving Co. - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1945Mad291; (1945)2MLJ24
AppellantSamuel Fitz and Company Limited
RespondentThe Standard Cotton and Silk Weaving Co.
Cases ReferredMillett v. Van Heck
Excerpt:
- - it may be possible in certain exceptional cases to say that the basis of the dealings between the parties was dependent upon a contingency not mentioned in the contract itself. such an exceptional case was the subject of discussion in krell v. it was pointed out that the letting on hire was clearly for the purpose of permitting the defendant to view the coronation procession. it was found that the vendor had made every attempt to despatch the goods, but had failed. if the contract, as we are satisfied it was, was merely to send goods to madras, then that contract could be fulfilled; in the circumstances of the case, one could hardly be better than being arbitrary......they had ceased manufacture of the goods ordered, but claimed as damages 15 per cent, of the contract price, which they alleged were the profits they would have made had it not been for the breach of contract committed by the defendants.2. the two main questions to be considered are (1) whether the defendants can plead that they were unable to fulfil the contract and so escape all liability for damages and (2) if liable for damages, on what basis and to what extent are they liable. the learned subordinate judge held that the defendants could not plead the impossibility of re-selling the goods to their agents in australia as an answer to the plaintiff's claim. he accepted the basis put forward by the plaintiffs for estimating damages, namely, loss of profits. he did not, however,.....
Judgment:

Horwill, J.

1. The appellant is a Joint Stock Company havine its office at Calcutta. We know that it had dealings with a merchant in Australia to whom it sold cotton fabrics, described as tapestries, of the kind made by the plaintiff's limited comnanv resident in Calicut, which made silk and cotton piecegoods. In October, 1941, the parties entered into correspondence with regard to the making of tapestries by the plaintiff for the defendant, who made it clear that he intended to sell them in Australia. The defendant company stated its requirements to the plaintiff and asked the plaintiff to send samples. After some correspondence, terms were fixed and contracts entered into between the parties for the supply, to the specification given by the defendant, of certain qualities of goods. We are here concerned with two contracts, one evidenced by Exs. P-l and P-5 for the supply of 600 pieces, and the other for the supplv of 90 pieces, evidenced by Exs. P-3 and P-5 (a). The defendant had taken delivery of many pieces under previous orders and had apparently sold them in Melbourne, but the Australian Government passed an order prohibiting the import of such goods after 1st April, 1942, except under conditions with which we are hot now concerned. The result was that the market on which the defendants had relied for the sale of the goods purchased from the plaintiff under the contract was lost. The defendant wrote to the plaintiffs on 28th April, 1942. informing them of the circumstances and asking them to cancel their order. The plaintiffs replied that they were prepared to do' so provided that the defendants paid compensation. This reply was clarified in a later letter, Ex. P-13 of 29th July, 1942, in which the plaintiffs made it clear that as a result of the cancellation of the contract they had ceased manufacture of the goods ordered, but claimed as damages 15 per cent, of the contract price, which they alleged were the profits they would have made had it not been for the breach of contract committed by the defendants.

2. The two main questions to be considered are (1) whether the defendants can plead that they were unable to fulfil the contract and so escape all liability for damages and (2) if liable for damages, on what basis and to what extent are they liable. The learned Subordinate Judge held that the defendants could not plead the impossibility of re-selling the goods to their agents in Australia as an answer to the plaintiff's claim. He accepted the basis put forward by the plaintiffs for estimating damages, namely, loss of profits. He did not, however, allow the plaintiffs the full extent of their claim, but granted them ten per cent, of the contract price as compensation for loss of profits and not 15 per cent, as claimed. The defendants have appealed, contending that they are not liable for damages at all and even if they are, the lower Court's order was not reasonable in granting 10 per cent, of the contract price as damages. The plaintiffs have filed a memorandum of cross-objections in which they claim the full 15 per cent, of the contract price which they claimed in the trial Court.

3. The contract, Ex. P-l, specifies the quantity required and their description. The acceptance, Ex. P-5, specifies the goods and says that they will be sent F.O.R., Madras; shipment in June-August (which apparently means at some time between June and August) and price less a discount of 20 per cent. The contract evidenced by Exs. P-3 and P-5 (a) is of a similar nature. There, too, the goods were to be sent F.O.R., Madras. It is clear from these contracts that the terms specified the samples, the size of the goods, the prices, the time of delivery, and the destination, i.e., Madras F.O.R. The payment was to be against R.R. (Railway Receipt). There is thus no term of the contract that it should cease to be binding on the parties if for any reason the defendant should be unable to send the goods to their clients in Australia. The learned advocate for the appellants argues that in view of the general correspondence between the parties in which it is made clear that that was the purpose for which the defendants had purchased the goods, that it was an implied term of the contract that it should cease to be enforceable if for any reason that market was closed. The doctrine of the implied term was introduced into English law for the purpose of relieving plaintiffs from liability to supply goods where the supply became impossible; and Courts were prepared to read into a contract an implied term that the contract was riot to be performed if performance was impossible. It is unnecessary to invoke that doctrine with regard to Indian contracts; because it is embodied in Section 56 of the Contract Act. No case has been cited to us in which Courts have been'pre-pared to read into a contract an implied term that the enforceability of the contract is to be dependent upon the ability of the vendee to find customers for the goods.

4. The learned advocate for the appellants argues alternatively that the very basis of the contract was the re-sale of the goods to Australia. We are unable to find any support for this argument in the correspondence. Nothing more appears from the documents exhibited or even from the oral evidence than that the plaintiffs were aware that the defendants proposed to sell the goods to their clients in Australia. It seems to us most unlikely that the plaintiffs' small company in Calicut entered into this contract on the basis that it would only be enforceable if the defendants in their turn were able to sell the goods in Australia. It may be possible in certain exceptional cases to say that the basis of the dealings between the parties was dependent upon a contingency not mentioned in the contract itself. Such an exceptional case was the subject of discussion in Krell v. Henry (1003) 2K.B. 740 relied on by the applllants. That was a case in which the plaintiffs, who owned a flat in Pall Mall, which was on the line of route of the coronation procession of King Edward VII, agreed to let out his flat for two days to the defendant. The coronation could not take place on account of the illness of the King, and the question was whether the contract could be enforced against the defendant. It was pointed out that the letting on hire was clearly for the purpose of permitting the defendant to view the coronation procession. The consideration of 75 was extremely high and out of all proportion to the rental value of the flat for two days for any ordinary purpose. It was proved that windows to view the Royal coronation procession were to be let and there was an announcement in the window of this flat so that the defendant was induced by that announcement to apply to the house-keeper and to enter into the contract. The learned Judges, while pointing out that the general rule is that the Court will not imply any condition in a contract except in cases of absolute necessity, and that a buyer under a contract took the risk of a performance of the contract being rendered impossible in unforeseen circumstances, went on to say,

that the taking place of the processions on the days originally fixed along the proclaimed route was regarded by both contracting parties as the foundation of the contract; that the words imposing on the defendant the obligation to accept and pay for the use of the flat for the days named, though general and unconditional, were not used with reference to the possibility of the particular contingency which afterwards happened.

5. They therefore held in the peculiar circumstances of that case that since it was impossible to view the coronation procession the contract was unenforceable. The learned Judges referred to and distinguished a case in which a cab had been hired to take a person to the Derby. The races did not take place; but it was nevertheless held that the contract was enforceable. We are unable to say in this case that the foundation of the contract was that these goods should be re-sold by the defendants to their clients in Australia. The learned advocate for the appellants has referred to Sannidhi Gundayya v. Subbayya : (1926)51MLJ663 and to Kunjilal Monohardas v. Durga Prosad Debi Prosad 24 C.W.N. 703, in which a person who undertook to send rice by rail found performance impossible because of restrictions placed by the Government during the last war on the sending of goods by rail. It was found that the vendor had made every attempt to despatch the goods, but had failed. Those cases have no application at all to the case now under consideration; because the contracts were there impossible of performance and Section 56 of the Contract Act would therefore directly apply. If the contract, as we are satisfied it was, was merely to send goods to Madras, then that contract could be fulfilled; and the plaintiffs were at all times ready and willing and able to send the goods there.

6. The plaintiff claims damages because the cancellation of the contract made it impossible for him to earn the profits he had reason to expect by the execution of the contract. It would have been foolish for the plaintiffs to have continued with the contract, manufactured the goods, and then to have attempted to sell them in the open market; for the goods were made to order to the specifications furnished by the defendants, and there was no guarantee that the plaintiffs would be able to realise even the cost price of manufacture had they made them and attempted to sell them. It is argued that damages must nevertheless be estimated on the difference between the contract price and the market prices prevailing for such goods on the date when they should have been delivered. Millett v. Van Heck & Co. (1921) 2 K.B. 369 has been quoted in support of this contention. The contract there under consideration was one for the sale of cotton waste, the marketability of which was never in question. The only question before the learned Judges was whether damages were to be based on the difference between the contract price and the market rate on the date of breach, or on the difference between the contract price and the market price on the date of delivery. The question whether damages could be claimed on the basis of anticipated profits was not considered. A case much nearer to that which we are now considering is Vic Mill, In re (1913) 1 Ch.D. 183, where certain articles of machinery were ordered and subsequently cancelled. It was there held that,

where there is a contract for the sale of goods to be made to order by the vendor and a breach of contract by the purchaser's refusal or inability to accept the goods, the measure of damages is the profit which the vendor would have made if the contract had been carried out.

7. It seems to us that it is impossible to calculate the damages by any means other than that suggested by the plaintiffs. There was no fixed date of delivery. The evidence shows that the goods were to be sent in consignments from time to time at the discretion of the plaintiffs on any dates between June and August. We do not know whether goods made to suit the tastes of clients in Australia would have had any marketable value in India; and if so, what prices the goods were likely to have fetched. The above decision was affirmed in appeal in Vic Mill, Ltd., In re (1913) 1 Ch.D. 465.

8. If we are to estimate the damages by the loss of profits, then the further question is the percentage of the contract price which should be awarded. The plaintiffs, as we have said, claim 15 per cent. regarding which the learned Subordinate Judge said:

In the circumstances of the case, one could hardly be better than being arbitrary. But it appears to me reasonable to hold that, to award ten per cent. on the nett value of the goods (had they been manufactured) would be just compensation to the seller.

9. If we are going to put an arbitrary valuation on the probable profits, then we think 10 per cent. is too high. The prices charged by the plaintiffs were 20 per cent. less than the retail price, which would mean that they were estimating a difference of 35 per cent. between the cost price and the retail price. That is certainly much too big a difference. We feel that it is most unlikely that the plaintiffs would have sought to make a larger profit than 7 1/2 per cent. on this contract. The appeal is allowed to that extent.

10. The memorandum of cross-objections by which the respondent seeks to have the rate of profits raised from 10 per cent. to 15 per cent. is dismissed with costs.

11. The plaintiffs will be given their proportionate costs in both the Courts.


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