Case: M. Lachia Setty &amp; Sons Ltd. Etc. Etc Vs. The Coffee Board, Bangalore

Vol. 22 para 33 (at pp. 55-56) contains the following statement of law:"33. The general doctrine of avoidable consequences applies to the measure of damages in actions for breach of contract. Thus, the damages awarded to the non-defaulting party to a contract will be determined and measured as though that party had made reasonable efforts to avoid the losses resulting from the default. Some courts have stated this doctrine in terms of a duty owing by the innocent party to the one in default; that is, that the person who is seeking damages for breach of contract has a duty to minimise those damages. However, on analysis, it is clear that in contract cases as well as generally, there is no duty to minimize damages, because no one has a right of action against the non-defaulting party if he does not reasonably avoid certain consequences arising from the default. Such a failure does not make the non-defaulting party liable to suit; it only indicate s that the damages actually suffered are greater than the law will compensate. Therefore, in contract actions, the doctrine of avoidable consequences is only a statement about how damages will be measured." (Emphasis supplied).13. From the above statement of law it will appear clear that the non-defaulting party is not expected to take steps which would injure innocent persons. If so, then steps taken by him in performance or discharge of his statutory duty also cannot be weighed against him. In substance the question in each case would be one of the reasonableness of action taken by the non-defaulting party.14. Here the material on record clearly shows that internal coffee prices in the year- 1952, particularly from March to October 1952, had soared very high on account of malpractices indulged in by coffee dealers and even the Government of India felt itself very much concerned about it and suggestions had been made by Government officials as well as by the Members of the Coffee Board to take steps to bring down the coffee prices at reasonable level in the interest of both the trade as well as the consumer and, in fact, several measures, including the step of accepting lower bids in preference to the higher bids, with a view to regulate coffee prices were taken by the Coffee Board pursuant to the Governments directive in that behalf. Clearly, these measures were being taken by the Board in discharge of their main function and duty to maintain the coffee prices at proper level in the interest of all concerned, particularly the consumer and were not directed against the defaulting dealers at the concerned pool auction. In fact, the evidence of Kuttalaingam Pillai (PW3), the Chief Coffee Marketing Officer, has been that before the commencement of the "pool auction" on that day he had issued oral warning to the bidders that Government of India was concerned about the increase in coffee prices and that they should not try to push up prices and corner stocks and M. L. Gopal Setty (D.W. 1) has admitted that Chief Coffee Marketing Officer had given a warning that the higher bids will not be accepted. Therefore, when in spite of such warning being issued unnecessarily higher bids were given exceeding the average prices prevailing in the month of September 1952, (which themselves were high), the Chief Coffee Marketing Officer decided to accept lower bids in preference to the higher ones. It was in these circumstances that at the re-sale held on December 23, 1952 the prices realised were lower than the appellants bids which had been accepted at the "pool auction" held on October 7, 1952. It must b e stated here that at the re-sale admittedly only the highest bids were accepted. So it is not as if at the re-sale lower bids were deliberately accepted to enhance the loss. It is impossible to subscribe to the proposition that the Board should have maintained the high price level at the cost of the consumers merely with a view to see that the defaulting bidders did not suffer any loss on re-sale. The loss arising on the resale, therefore, cannot be regarded as "unreal" loss. The attack of the appellants against the grant of damages to the respondent on this ground is clearly unsustainable.As regards the alleged delay in holding the re-sale it must be observed that both the trial court as well as the High Court have taken the view that the same was held within reasonable time at the next "pool auction" conducted in the normal course. The results of the concerned "pool auction" were declared some time after 2 P.M. on October 8, 1952. The period of 17 days (14 days initial period plus 3 days of grace for taking delivery) expired on October 26, 1952, but the evidence on record shows that there was a general request on behalf of the successful bidders for extension of time for making payment and taking delivery and such extension had been granted by the Board upto November 10, 1952 by issuing a circular. We have already held that there was no valid retraction of bids by the appellants and to their knowledge their retraction had been rejected by the Board on October 8, 1952 itself. That the appellants were interested in the extension granted by the Board becomes evident from their telegram dated October 22, 1952 (Ex. A - 129) seeking confirmation of the extension. After November 10, 1952. some reasonable notice of re-sale would have to be issued, so the defaulted coffee could not be put up for sale in the pool auction that was held in the month of November, 1952. The next pool auction was to be held in December, 1952 and, therefore, after issuing notice of re-sale on December 18, 1952 the re-sale was held by conducting a pool auction on December 23, 1952. In our view, both the Courts were right in taking the view that the re-sale had been held within the reasonable time.15.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]In the first place giving of telegraphic bids having been expressly barred in the earlier part of the Condition the phrase "telegraphic instructions regarding bidding" cannot again refer to instructions regarding the act of giving or making bids. Secondly, on the face of it "instructions regarding bidding" would mean any instructions, not merely instructions by way of clarification, modification, amplification of bids but also withdrawal or retraction of the b ids and such instructions by telegrams would be impermissible. Moreover having regard to the solemn procedure prescribed and followed by the Coffee Board in the matter of conducting its "pool auctions" submission of bids is required to be done in prescribed forms and telegraphic bids are prohibited it stands to reason that any instructions concerning such bids whether by way of clarification, amplification, modification, cancellation or retraction should not be permissible by telegrams which are more often cryptic and do not possess authenticity on their face. Further, the fact that nowhere else in the Conditions of Sale is the topic of withdrawal or retraction of bids dealt with would precisely be the reason why Condition No. 8 should be widely construed as including the topic of instructions regarding the withdrawal or retraction of bids. In our view, the High Court was right in coming to the conclusion that Condition No. 8 was wide enough t o bar withdrawal or retraction of bids by telegram.Turning to the oral retraction made by M. L. Gopal Setty on October 8, 1952, the High Court has taken the view that the case of oral retraction before the results were announced was not true, which may be difficult to sustain. But, even if the evidence about such oral retraction which consists of the testimony of Gopal Setty (D.W. 1) and Saldhana (PW 1) were to be accepted at its face value, the same would be of no avail to the appellants because, such oral retraction was made to Saldhana, the Assistant Coffee Marketing Officer, who had no authority in the matter. Under the procedure it is the Sale Conducting Officer who is in charge of the pool auctions. Therefore, retractions had to be made to either the Sale Conducting Officer or the Chief Coffee Marketing Officer, the executive head of the Board, and that is why the telegram Ex.was addressed on behalf of the appellants to the Chief Coffee Marketing Officer. In this case the Chief Coffee Marketing Officer himself was the Sale Conducting Officer and the oral retraction was not made to him but it was made to Saldhana, who had no authority. The oral retraction was, therefore, ineffective and of no consequence. In our view, therefore, it is not possible to accept the contention of the appellants that there were no concluded contracts between them on the one hand and the Coffee Board on the other on account of withdrawal or retraction of theirwill appear clear that the underlined portion of the statement of law is supported by the case of Blackbeard v. Lindigren referred to at footnote 3. [(1786) 1 Cox Eq Cas 205 = 29 English Reports Chancery) 1130]. It was a case where an Estate was sold before the Master for payment of debts and A was reported to be the best bidder at the sum of `13, 000 but before the report was confirmed it was discovered that A was insane at the time of the bidding. The Court was moved on behalf of all the parties in the cause that B the next best bidder might be reported to be the purchaser at the sum bidden by him. To this motion B consented but the Court thought it was irregular and directed the estat e to begenerally. Relying on this decision counsel for the appellants contended that the normal rule was that a lower bid lapses on the receipt of a higher bid, and if the highest bid was not to be accepted for any reason, the auction must be abandoned and fresh auction would be required to be held and, therefore, in the instant case the Chief Coffee Marketing Officer could not accept the lower bids of Giri Coffee Works in respect of fivecannot be disputed that an auctioneer can set his own terms and conditions for holding an auction and if he does so those conditions would govern the rights of the parties. The short question which arises for our consideration is whether Condition No. 6 includes a power to accept a lower bid in preference to any higher bid ?Condition No. 6 runsThe seller does not bind himself to accept the highest or any bi d. He is not bound to assign any reasons for his decision, and his decision shall be final andare not impressed by the submissions made by counsel for the appellants on the question of proper construction of Condition No. 6. It is true that Condition No. 6 is couched in a peculiar way but when it states that the seller is not bound to accept the highest bid it necessarily implies that he can accept any lower bid. The additio n of the words "or any bid" after the words "the highest" seems to us to be of some significance. We do not agree that these words are used merely for the purpose of emphasising the aspect that even the highest bid need not be accepted. We are o f the view that two separateto decline the highest bid and power to decline anydifferent consequences ensuing are intended to be conferred on the seller by this condition. The addition of the word "or any bid" would be superfluous if the same consequence (of holding a fresh auction) was to ensue in the event the highest bid being declined. Therefore, on construction of the condition it is clear that by necessary implication power had been conferred on Board or its Chief Coffee Marketing Officer to accept a lower bid in preference to any higher bid. Besides, at Ex.the respondent Board has produced a tabulated statement showing a number of instances where the highest bids were rejected and lower bids accepted at "pool auctions" conducted by it from 1949 toperiod long before the instant dispute arose which clearly shows that the parties to the pool auctions also understood Condition No. 6 as conferring a power on the Board or its Chief Coffee Marketing Officer to accept lower bids in preference to higher bids. Moreover, such construction of Condition No. 6 would accord with the accomplishment of the main function of the Board to control coffee prices by maintaining them a t proper level as the power to accept a lower bid in preference to any higher or the highest bid helps avoiding malpractices such as formation of rings or syndicates by coffee dealers, cornering of coffee by a few dealers, puffing up of prices by them, etc. In the view which we are taking of Condition No. 6, it is clear that the Chief Coffee Marketing Officer in the instant case was within his rights when he accepted the lower bids received from Giri Coffee Works in respect of 5 lots . The appellants contention in this behalf, therefore, mustthe Board was under an obligation to mitigate or minimise the loss arising from the failure on the part of the appellants to pay for and take delivery of the coffee allotted to them at the pool auction, but instead deliberate measures were taken by the Board to bring down the prices of coffee and then effected aon December 23, 1952 resulting in the alleged loss of Rs. 34,and Rs. 5, 917 respectively, which could not be regarded as a loss directly and naturally arising from the breach in the ordinary course of events, but was unreal, created and brought about by the respondent and, therefore, the same was not recoverable from the appellants. Secondly, thewas not held within reasonable time of breach but was inordinately delayed and, therefore, the appellants were not liable for the quantum claimed. It may be stated that the contention that the defaulted coffee ought to have been put up for sale at Export Auction and not at Pool Auction, though urged in the lower Courts, was not pressed before us. For the reasons which we shall indicate presently, we do not find substance in either of these two grounds ofthe outset it must be observed that the principle of mitigation of loss does not give any right to the party who is in breach of the contract but it is a concept that has to be borne in mind by the Court while awarding damages. The correct statement of law in this behalf is to be found i n Halsburys Laws of England (4th Edn.) Vol. 12, para 1193 at pagethe material on record clearly shows that internal coffee prices in the year1952, particularly from March to October 1952, had soared very high on account of malpractices indulged in by coffee dealers and even the Government of India felt itself very much concerned about it and suggestions had been made by Government officials as well as by the Members of the Coffee Board to take steps to bring down the coffee prices at reasonable level in the interest of both the trade as well as the consumer and, in fact, several measures, including the step of accepting lower bids in preference to the higher bids, with a view to regulate coffee prices were taken by the Coffee Board pursuant to the Governments directive in that behalf. Clearly, these measures were being taken by the Board in discharge of their main function and duty to maintain the coffee prices at proper level in the interest of all concerned, particularly the consumer and were not directed against the defaulting dealers at the concerned pool auction. In fact, the evidence of Kuttalaingam Pillai (PW3), the Chief Coffee Marketing Officer, has been that before the commencement of the "pool auction" on that day he had issued oral warning to the bidders that Government of India was concerned about the increase in coffee prices and that they should not try to push up prices and corner stocks and M. L. Gopal Setty (D.W. 1) has admitted that Chief Coffee Marketing Officer had given a warning that the higher bids will not be accepted. Therefore, when in spite of such warning being issued unnecessarily higher bids were given exceeding the average prices prevailing in the month of September 1952, (which themselves were high), the Chief Coffee Marketing Officer decided to accept lower bids in preference to the higher ones. It was in these circumstances that at theheld on December 23, 1952 the prices realised were lower than the appellants bids which had been accepted at the "pool auction" held on October 7, 1952. It must b e stated here that at theadmittedly only the highest bids were accepted. So it is not as if at thelower bids were deliberately accepted to enhance the loss. It is impossible to subscribe to the proposition that the Board should have maintained the high price level at the cost of the consumers merely with a view to see that the defaulting bidders did not suffer any loss onThe loss arising on the resale, therefore, cannot be regarded as "unreal" loss. The attack of the appellants against the grant of damages to the respondent on this ground is clearly unsustainable.As regards the alleged delay in holding theit must be observed that both the trial court as well as the High Court have taken the view that the same was held within reasonable time at the next "pool auction" conducted in the normal course. The results of the concerned "pool auction" were declared some time after 2 P.M. on October 8, 1952. The period of 17 days (14 days initial period plus 3 days of grace for taking delivery) expired on October 26, 1952, but the evidence on record shows that there was a general request on behalf of the successful bidders for extension of time for making payment and taking delivery and such extension had been granted by the Board upto November 10, 1952 by issuing a circular. We have already held that there was no valid retraction of bids by the appellants and to their knowledge their retraction had been rejected by the Board on October 8, 1952 itself. That the appellants were interested in the extension granted by the Board becomes evident from their telegram dated October 22, 1952 (Ex. A129) seeking confirmation of the extension. After November 10, 1952. some reasonable notice ofwould have to be issued, so the defaulted coffee could not be put up for sale in the pool auction that was held in the month of November, 1952. The next pool auction was to be held in December, 1952 and, therefore, after issuing notice ofon December 18, 1952 thewas held by conducting a pool auction on December 23, 1952. In our view, both the Courts were right in taking the view that thehad been held within the reasonable time.