1. This appeal is filed assailing the judgment and decree dated 2.9.1998 passed in O.S. No. 737/1984 on the file of the I Additional City Civil Judge, Bangalore, in dismissing the suit of the appellant/plaintiff, which was filed for recovery of damages of Rs. 10,74,474-66 paise with interest.
2. Parties will be hereinafter referred to as per their original status before the trial court.
3. The case of the plaintiff before the trial court was, it is a Private Limited Company registered under the Companies Act, 1956, having one of its branch at Bangalore. It is engaged in the business of trade/distribution of cotton, undertakes purchase and sale and transportation of cotton, etc. First defendant/Company entered into a contract with the plaintiff for the purpose of purchase of 500 bales of Suyodhar Cotton at Rs. 5,050/- per candy vide contract agreement No. 14/175 dated 31.8.1981. The defendant communicated their acceptance and approval vide letter dated 4.9.1981 and 7.9.1991. An agreement in writing came to be executed called as contract document. The contract is subject to terms and conditions embodied in the contract document. Despite several reminders by way of telex message, phone message and postal communication, the defendants did not respond. The defendants were appraised of their liability under the contract to make good losses suffered by the plaintiff on account of non-fulfillment of the contractual obligation. A legal notice is also served on the defendants. The plaintiff has suffered loss to the tune of Rs. 10,74,474.66 paise, which is calculated on the basis of the difference between the contract rate and market rate at the time the goods were re-sold. Hence, the suit.
4. The defendants contested the suit, admitted the suit document/contract agreement dated 31.8.1981. Their defence was since defendants-2 and 3 have not executed the contract, they are not necessary party to the contract. Therefore, they are not necessary parties to the suit. As per the contract document, payment and delivery must be completed within 11 days from the date of the contract; if buyer fails to do so, the contract shall be treated as cancelled and revoked. Accordingly, the contract automatically stood cancelled on the 11th day from 31.8.1981 and the parties were discharged from their mutual obligation under the contract. They had not specifically prayed for extension of time for performance of the obligations after 31.8.1981. Time was the essence of the contract, it was not subsisting after the expiry of 11th day from 31.8.1981. The reasons for keeping the contract alive without request from the defendants is not disclosed. The suit is liable to be dismissed for not furnishing the details how the amount pertaining to carrying charges, damages and interest was arrived. Plaintiff cannot claim both damages and carrying charges together. It has not taken the steps to dispose the goods after expiry of the period of 11 days from 31.8.1981. Since there is no specific averment about actual damages suffered, plaintiff is not entitled for any amount in this regard. Since the contract does not provide for interest, plaintiff is not entitled for the interest. In view of Clause (i) of Section 2 of the Forward Contracts (Regulation) Act, 1952, the suit contract is a "ready delivery contract" and the parties to the contract are barred in law from extending any period beyond such contract period of 11 days after the date of contract, by mutual consent or otherwise. The third defendant is only a service provider to the plaintiff/Corporation and used to get nominal commission from the plaintiff/Corporation only in the event the contract is performed. There is no privity of contract between plaintiff and third defendant. The suit is barred by limitation.
5. On the above pleadings, issues were framed; after recording evidence and giving audience to both, findings returned are as follows:
1. Whether defendants committed breach of contract?
.....Affirmative
2. Whether defendants are liable to carrying charges claimed in the suit?
.. Negative
3. Whether defendants are liable to interest claimed in the suit? If not, to what amount they are liable?
... Negative
4. Whether defendants are liable to damages claimed? If not, to what amount they are liable?
....Negative
5. To what decree?
Additional issues:
1. Whether defendants are neither necessary nor proper parties to the proceedings?
.....Affirmative
2. Whether the liability of defendants-2 and 3 is joint along with first defendant?
......Negative.
6. During the trial, the Branch Manager of the plaintiff was examined as PW-1 and documents Exs. P1 to P20 were marked. For the defendants, second defendant was examined as D.W.-1. The learned Trial Judge though found that the defendants committed breach of contract, non-suited the plaintiff on the reasoning that, no evidence was adduced by the plaintiff as to what was the prevailing rate of the goods immediately after 11th day of the contract to claim the difference in the said rates and there was no evidence as to what was the market value of the goods immediately after the 11th day of the contract. As per Clause (6) of the contract, they become entitled to dispose of the goods immediately after the 11th day of the contract.
7. Sri. Ganapathi S. Shastri, learned Counsel for the appellant submits that, the learned Trial Judge having found that the contract and the covenants embodied in the contract having not been disputed by the defendants and having found out that the first defendant committed breach of terms of the contract, erred in holding that the contract comes to an end on the expiry of the 11th day. This finding of the trial court needs re-consideration. Failure to complete the transaction within 11 days did not automatically cease the contract. Reading of the entire Contract agreement would show that, Clause (7) provides additional period subject to payment of carrying charges. In the event of cancellation and revocation of the contract, the plaintiff was entitled to dispose of the bales or any balance quantity thereof in the manner it deems fit and at the same time, reserving to itself the right to recover damages or any loss sustained in such a sale, carrying charges at the rate of 2 1/2% per month of 30 days from 12th day of the date of contract. The trial court erroneously came to the conclusion that there was avoidable delay on the part of the plaintiff in disposing of the property. But the evidence of PW-1 shows that they had to find out a suitable buyer for purchase of the cotton. At the relevant time, cotton market was very weak and there was no delay on the part of the plaintiff. As per the contract, the plaintiff is entitled to claim damages even after cancellation. The finding recorded by the trial court that second and third defendants are not necessary parties to the suit was incorrect. Third defendant did not enter the witness box. The second defendant has acted in his capacity as the Managing Director of first defendant and is responsible for breach of the contract. The true scope of Sections 73 and 74 of the Contract Act is ignored. Hence, he prays for a decree as prayed for.
8. In reply, Sri. Ajay Kumar, learned Counsel for the respondents, supporting the judgment of the trial court submits that, there was no privity of contract between the third respondent/third defendant and the appellant/plaintiff. Third defendant was only a service provider and the second defendant was not a party to the contract in question and being the Managing Director of the Company, he cannot be saddled in his individual capacity for any of the claims led by the plaintiff. Once the time stipulated for carrying out the contract expired, the parties were discharged from mutual obligation. The plaintiff could not have extended the time unilaterally. They have not placed evidence as to what was the actual rate of the cotton in the market on 11th day of contract and was there any difference between the price agreed in the contract and the market rate. There is no satisfactory explanation for the delay in disposing of the cotton. Since the cotton was in the premises of the plaintiff only, they are not entitled to pay the carrying charges, there was no agreement between the parties with regard to interest. Under the circumstance, the trial court was not justified in dismissing the suit.
9. After hearing Counsel for both parties, the following point arises for our consideration:
"To what damage plaintiff is entitled for, on breach of contract by the Defendant?"
10. It is an admitted case of breach committed by the buyer/first defendant. The second defendant being the Managing Director of the first defendant and the third defendant being a Middleman are not shown to be legally bound by the contract and no case is made out against them to saddle with the liability jointly and severally along with the first defendant. Ex. P1 is the sale agreement dated 31.8.1981 signed by the plaintiff and the second defendant on behalf of first defendant. Among 12 covenants imbibed in the agreement Ex. P1, the core of the contract under the head "Delivery" is at para-6. Accordingly, the time stipulated for payment and delivery is 11 days from the date of contract. That is to say, it ran from 31.8.1981 upto 11.9.1981. It is further depicted under the head "delivery" that, if the buyer committed default, the contract should be treated as cancelled and revoked on the aforesaid last date entitling the plaintiff to dispose of the bales and any balance quantity thereof in the manner it deems fit, reserving liberty to recover damages, a loss sustained in the said sale along with the entitlement for carrying charges @ 2 1/2% for 30 days, commencing from the 12th day of the contract. If the buyer made payment within usual free period allowed in the contract, he was to get additional free days to lift contracted quantity without lifting charges. Late payment was also permissible which carried normal carriage charges.
11. Except for signing the agreement Ex. P1, the defendants remained non-reciprocative thereafter even after repeated reminders. On the defendants turning its deaf ears to the reminders, the plaintiff disposed of the cotton to three different buyers under five contract notes marked as Ex. P10 to P14 dated 27.5.1982, 8.10.1982, 12.1.1982, 16.10.1982 and 16.10.1982 respectively. The loss suffered by the said sale minus sale amount agreed by the first defendant is brought to litigation along with carrying charges till the date of disposal and also interest. PW-1 during his evidence has explained the carrying charges as administrative expenses, godown, insurance charges and interest on money blocked and interest as per the contract rate. Rs. 3,69,366.60 paise is the rate difference (contracted rate less realized rate) and the interest is Rs. 2,81,802.44 paise from the date of re-sale till the date of filing of the suit on 31.1.1984. But the break up calculation of the carrying charges is not supported by concomitant documentary proof.
12. A seller can bring action against a buyer under Section 56 of the Sale of Goods Act, 1930, which reads thus:
"56. Damages for non-acceptance. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance."
13. Section 73 of the Contract Act contemplates compensation for loss or damage caused by breach of contract and the same reads as under:
"73. Compensation for loss or damage caused by breach of contract:- When a contract has been broken, the party who suffers by such breach is entitled to receive from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract:- When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation: In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account".
14. Rules and principles relating to damages common to the law of contract as a whole are assessed by the English Courts on the rule that, where a party sustains loss by reason of a breach of contract, as far as money can do it to be placed in the same situation with respect to the damages as if contract had been performed. The measure to assess the monetary loss is by comparing claimants'' present position with the position he would have been in, had if the defendant performed as required and to compensate the claimant accordingly. Prima facie where a contract is not performed or is repudiated, damages other than for consequential loss are measured, as at, the time of the breach or in the event of repudiation, the acceptance of the repudiation. Thus, the starting point is the rule of date of breach applies equally to the buyer and the seller when the defendant has repudiated the contract and the repudiation has been accepted, the claimant is entitled to be put in the position he would have been in, had the contract been performed on the due date, the relevant damages be reckoned as at that time, subject to the duty of the claimant to mitigate as soon as the repudiation has been accepted.
15. The Apex Court in
"The seller can claim as damages the difference between the contract price and the amount realized on resale of the goods where he had the right of resale under Sec. 54(2) of the Sale of Goods Act. The statutory power of resale under Sec. 54(2) arises if the property in the goods has passed to the buyer subject to the lien of the unpaid seller. Where the property in the goods has not passed to the buyer the seller has no right of resale under Sec. 54(2)."
16. The fact involved in that case was, the property in the goods had not passed to the buyer and consequently the seller had no right to resell the goods under Section 54(2) of the Sale of Goods Act. While declining the seller''s claim to recover the deficiency on resale, Their Lordships observed:
"The respondent (seller) is entitled to claim as damages the difference between the contract price and the market price on the date of the breach. Where no time is fixed under the contract of sale for acceptance of the goods, the measure of damages is prima facie the difference between the contract."
In the case on hand, it is an admitted fact that, buyer had not paid any advance amount nor had sought for extension of time to perform his part of the obligation and the property in goods had not passed on to the buyer.
17. The damages are assessed on the basis of the principles laid down in Sections 73 and 74 of the Contract Act. Section 73 provides inter alia that in estimating the loss or damage arising from a breach of contract, means which existed of remedying the inconvenience caused by the non-performance of the contract have to be taken in to account. But the loss to be ascertained is the loss at the date of the breach if at that date, the plaintiff could do something, add something which mitigated the damage, the defendant would be entitled to the benefit of it (as per
18. The law continues to be the same till date. In the case on hand, on the showing of the plaintiff itself, they had not made any effort to put the commodity on sale on the 11th day of the contract. Though they have built up their case that they were waiting for the defendants/firm to perform its part of contract, it does not appeal to us that, the plaintiff could have unilaterally treated the contract as subsisting even after 11th day of the contract and extended time. The plaintiff has sold the cotton during the month of May 1982; though the contract came to an end on 11.9.1981. The plaintiff is in business in trading of the cotton, they have not shown what was the market price of cotton as on the date of the breach. Wherefore, there is no material to infer that, the plaintiff made diligent efforts to mitigate the loss. In that view of the matter, we endorse the finding of court below that plaintiff is not entitled for the amount claimed in their plaint viz., Rs. 10,74,474.66 paise being the loss incurred for the default on the part of the defendants in not fulfilling the contractual obligations.
19. Though it is the right of the seller under Section 56 of the Sale of Goods Act to sue for damages, on the buyer wrongfully neglecting to accept and pay for the goods, the plaintiff having failed to establish the damages suffered, a nominal damage could have been the ultimate relief for the plaintiff, that the Trial Court could have ordered.
20. Unfortunately, the Trial Court lost track of the matter in dismissing the entire suit against all the defendants. The first defendant having not shown its bonafides for the breach of contract committed, we are of the considered opinion that, justice will sub-serve if an amount of Rs. 25,000/- is ordered as damages payable by the first defendant.
Accordingly, the Appeal is allowed in part, without costs.
The impugned judgment and decree dated 2.9.1998 passed in O.S. No. 737/1984 on the file of the I Additional City Civil Judge, Bangalore, in dismissing the suit as against defendant No. 1 is hereby set aside. The order of dismissal passed as against defendant Nos. 2 and 3 stands undisturbed.
The first defendant is directed to pay Rs. 25,000/- towards damages to the plaintiff along with interest @ 6% per annum from the date of filing of the suit i.e., 31.1.1984 till the date of recovery.
