1. The learned advocate for the plaintiff has conducted the case of his client with great ability and has said everything that could possibly be said in circumstances which, as I have already said in Appln. No. 2346 of 1943, were made extremely difficult for him by the way in which the defence was altered from time to time. I am afraid, however, that I have no alternative but to accept the submission of the defendants a submission of which little more than a hint was given to the plaintiff up to within a week of the trial. The point taken is that the contract on which the plaintiff sues was illegal ab initio, that therefore the -plaintiff cannot succeed and that his suit must be dismissed with costs. The words of Lord Mansfield in Holman v. Johnson (1775) 1 Cowp. 343, cited at p. 602 in Harry Parker Ltd. v. Mason (1940)2 K.B. 590, apply to this case:
The objection that a contract is immoral or illegal as between plaintiff and defendant sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded on general principles of policy, which the defendant has the advantage of contrary to the real justice, as between him and the plaintm, by accident, it 1 may say so. The principle of public policy is this: ex dolo malo non oritur actio. No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa or the transgression of a positive law of this country, there the Court says he has no right to be assisted. It is upon that ground the Court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis.
2. In In Re: Mahmoud (1921) 2 K. B. 716 Scrutton L.J. says:
In my view the Court is bound, once it knows that the contract is illegal, to take the objection and refuse to enforce the contract, whether its knowledge comes from the statement of the party who was/guilty of the illegality, or whether its knowledge comes from outside sources. The Court does not sit to enforce illegal contracts. There is no question of estoppel; it is for the protection of the public that the Court refuses to enforce such a contract.
3. In the present case, on 19th September 1942, by a contract in writing the plaintiff agreed to buy, and the defendants agreed to sell certain bales of yarn at an agreed price, delivery to be as soon as possible. The defendants found difficulty in giving delivery, and in a long series of letters the plaintiff continually pressed for and the defendants agreed to give delivery as soon as yarn was available. Later, the defendants offered another and different yarn, but the plaintiff did not accept this because of various difficulties as to price. Finally, the plaintiff set a limit of time for delivery, namely, 31st March 1943, and the defendants were not able to deliver. Ordinarily, therefore, the plaintiff would have a clear action for breach of contract and he would be able to recover the difference between the contract price and the market price on the date of the breach. The contract was made in Madras where the defendants have an office. As I have said in Appln. No. 2346 of 1943, the defendants in their written statement raise two defences, (a) no contract, and (b) novation. Not until the case was opened practically did they raise the point that under rules made under the Defence of India. Act, 1939, the contract was illegal from its inception because the defendants had no right to sell yarn in Madras. Under Section 2 (1) (a), Defence of India Act, the Government is empowered to make rules. Under Rule 81 (2) the Yarn Control Order was made on 1st August 1942. This order prohibited the sale of yarn by persons other than the persons acting on behalf of a cotton spinning mill or persons having a licence in a form known as Form B. Evidently the Government desired to control the sale and distribution of yarn and restricted sales to persons who were duly licensed. On 6th September 1942, the defendants got a licence in Form B. That licence showed them as having an address in Madras, but the description of the premises where the business was to be conducted was given as Kamalapuram, Cuddapah District. The licence was to be for three months and was for a wholesale business. The licensees had to comply with numerous conditions. They had to maintain daily accounts showing the quantities of cotton yarn in hand and sold during each day, the quantities received and the quantities . disposed of and the closing balance at the end of each day. They could be called upon to submit further returns. They had to issue to every customer correct receipts. Where a licensee was licensed to sell by retail, the quantities to be sold were to be not more than those authorised by the Provincial Yarn Commissioner. A wholesale licensee, such as the defendants, could only sell to a licensee. A correct list of cotton prices was to be displayed in the business premises. The agents of the Yarn. Commissioner and the District Collector were empowered to enter upon premises where cotton was kept or stored or exposed for sale. Licensees were forbidden to have in their possession yarn in excess of the quantities revealed by their accounts and any such excess might be confiscated.
4. The defendants' licence expired on 6th December and the defendants were informed previously that it would not be renewed. I am told that the reasons for this were that the defendants had not been long enough in the yarn trade and that the Government encouraged only yarn merchants of long standing and experience. On 16th February 1943, a further order was passed revoking the previous order, known as the Madras Yarn (Dealers) Control Order, 1943. It repeats a good deal of what was in the earlier Order, especially with regard to the definition of a dealer, namely 'a person who sells, stores for sale or carries on any business in cotton yarn,' and the order provides, as did the earlier one, that no person should carry on business as a dealer in this Province without a licence issued under this Order. The defendants had a licence for three [months during which time they made this contract. Had they made the contract to sell the goods which were in their possession in Kamalapuram, no doubt the contract would have been a good one. But this contract was made in Madras and was to sell goods;which were certainly not in Kamalapuram. The defendants, therefore, were purporting to make a sale in a place where they had no licence and it will be noted that in the application form for a licence, Form A in the schedule to the order, the exact description of the premises where the applicant will sell, store for sale or conduct business in cotton yarn has to be given, and in the defendants' case, this was given as Kamalapuram. There can be no doubt that this contract was an attempted evasion of the Order and was therefore (illegal in that the defendants had no right and were forbidden to enter into it. In the circumstances, the authorities to which I have just referred apply and the plaintiff's case must fail. It was further urged by the defendants that the plaintiff himself was in fault in that he had no licence. This was said to me during the hearing as a further argument on the defendants' side. Had it been true, the defendants would have been doubly in error because one of the conditions of the order is that a wholesale licensee, which the defendants were, shall sell only to a licensee. But the plaintiff was able to prove at once that not only had he got a licence but that he had one before the defendants had acquired theirs and that he has retained it even today because he is a merchant of substance and long standing. There was nothing, therefore, in that point put forward by the defendants. The plaintiff's counsel has urged with great plausibility that Section 56, Contract Act, applies in this case and that the plaintiff is not bereft of relief. The second part of the section says:
Where, one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.
5. Counsel for the plaintiff urges that the plaintiff here could not possibly know, and it was not reasonable to expect him to ask whether the defendants had a licence to sell yarn in Madras. The plaintiff might be entirely innocent, but it is difficult to believe that a yarn merchant of his experience would not have made some inquiry, familiar as he himself must have been with all the rules and conditions which since August 1942 have applied to the yarn trade. Had it been possible for me to come to the conclusion that he could not be put on inquiry I would certainly have allowed the plaintiff to amend his plaint by adding a claim under the second part of the section. I have seen the plaintiff in the witness-box and I have read the rules and conditions, and I think that any prudent businessman in this trade would have required the defendants to show that they were fully entitled to deal in yarn and to fulfil the contract. The absence of any knowledge on the plaintiff's part that the defendants had no licence and on the defendants' part that the plaintiff had a licence inclines one to think that the contract was one of those which the rules were intended to prevent, namely a transaction in yarn at a place where no licence was issued and where no control therefore could be exercised. In the result, I find that as the contract was illegal ab initio the plaintiff's case must fail in that the Court can do nothing to assist him, and it must be dismissed with no order as to costs in the suit. The plaintiff will have all the other costs which have been ordered up-to-date.