Case: M/S. Murlidhar Chiranjilal Vs. M/S. Harishchandra Dwarkadas And Another

A suit was filed by firm Messrs. Harishchandra Dwarkadas (hereinafter called the respondent) against the appellant firm Messrs. Murlidhar Chiranjilal and one Babulal. The case of the respondent was that a contract had been entered into between the appellant and the respondent through Babulal for sale of certain canvas at Re. 1/- per yard. The delivery was to be made through railway receipt for Calcutta for Kanpur. The cost of transport from Kanpur to Calcutta and the labour charges in that connection were to be borne by the respondent. It was also agreed that the railway receipt would be delivered on August 5, 1947. The appellant however failed to deliver the railway receipt and informed the respondent on August 8 1947, that as booking from Kanpur to Calcutta was closed the contract had become impossible of performance; consequently the appellant cancelled the contract and returned the advance that had been received. The respondent did not accept that the contract had become impossible of performance and informed the appellant that it had committed a breach of the contract and was thus liable in damages. After further exchange of notices between the parties, the present suit was filed in November, 1947.2. Written statements were filed both by the appellant and Babulal. The contention of Babulal was that the contract had become incapable of performance and was therefore rightly rescinded. Further Babulal contended that he was not in any case liable to pay any damages. The appellant on the other hand denied all knowledge of the contract and did not admit that it was liable to pay any damages. Certain other pleas were raised by the appellant with which we are however not concerned in the present appeal.3. Three main questions arose for determination on the pleadings of the parties. The first was whether Babulal had acted as agent of the appellant in the matter of this contract; the second was whether the contract had become impossible of performance because the booking of goods from Kanpur to Calcutta was stopped; and the last was whether the respondent was entitled to damages at the rate claimed by it.4. The trial court held that Babulal had acted as the agent of the appellant in the matter of the contract and the appellant was therefore bound by it. It further held that the contract had become impossible of performance. Lastly it held that it was the respondents duty when the appellant had failed to perform the contract to buy the goods in Kanpur and the respondent had failed to prove the rate prevalent in Kanpur on the date of the breach (namely, August 5, 1947) and therefore was not entitled to any damages. On this view the suit was dismissed.5. The respondent went in appeal to the High Court and the two main questions that arose there were about the impossibility of the performance of the contract and the liability of the appellant for damages. The High Court held that the contract had not become impossible of performance as it had not been proved that the booking Kanpur and Calcutta was closed at the relevant time. It further held that the respondent was entitled to damages on the basis of the rate prevalent in Calcutta on the date of breach and after making certain deductions decreed the suit for Rs. 16,946/-. Thereupon there was an application by the appellant for a certificate to appeal to this Court, which was rejected. This was followed by an application to this Court for special leave which was granted; and that is how the matter has come up before us.

Court's reasoning:
We think it unnecessary to decide whether the contract had become impossible of performance, as we have come to the conclusion that the appeal must succeed on the other point raised on behalf of the appellant.The two principles on which damages in such cases are calculated are well-settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed; but this principle is qualified by a second, which imposes on a plaintiff the duly of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to is neglect to take suchtwo principles also follow from the law as laid down in S. 73 read with the Explanation thereof. If therefore the contract was to be performed at Kanpur it was the respondents duty to buy the goods in Kanpur and rail them to Calcutta on the date of the breach and if it suffered any damage thereby because of the rise in price on the date of the breach as compared to the contract price, it would be entitled to be re-imbursed for the loss. Even if the respondent did not actually buy them in the market at Kanpur on the date of breach it would be entitled to damages on proof of the rate for similar canvas prevalent in Kanpur on the date of breach, if that rate was above the contracted rate resulting in loss to it. But the respondent did not make any attempt to prove the rate for similar" canvas prevalent in Kanpur on the date of breach. Therefore it would obviously be not entitled to any damages at all, for on this state of the evidence it could not be said that any damage naturally arose in the usual course oftwo cases exemplify that provision of S. 73 of the Contract Act, which provides that the measure of damages in certain circumstances may be what the parties knew when they made the contract to be likely to result from the breach of it. But they are cases of a special type; in one case the parties knew that goods purchased were likely to be re-sold before delivery and therefore any loss by the breach of contract eventually may include loss that may have been suffered by the buyers because of the failure to honour the intermediate contract of re-sale made by them; in the other the goods were purchased by the party for his own business for a particular purpose which the sellers were expected to know and if any loss resulted from the delay in the supply the sellers would be liable for that loss also, if they had knowledge that such loss was likely to result.Now there is no dispute that the buyer had purchased canvas in this case for re-sale; but we cannot infer from the mere fact that the goods were to be booked for Calcutta that the seller knew that the goods were for re-sale in Calcutta only. As a matter of fact it cannot be denied that it was open to the buyer in this case to sell the railway receipt as soon as it was received in Kanpur and there can be no inference from the mere fact that the goods were to be sent to Calcutta that they were meant only for sale in Calcutta, it was open to the buyer to sell them anywhere it liked. Therefore this is not a case where it can be said that the parties knew when they made the contract that the goods were meant for sale in Calcutta alone and thus the difference between the price in Calcutta at the date of the breach and the contract price would be the measure of damages as the likely result from the breach. The contract was for delivery for Kanpur and was an ordinary contract in which it was open to the buyer to sell the goods where itthese circumstances this is not a case where it can be said that the parties when they made the contract knew that the likely result of breach would be that the buyer would not be able to make profit Calcutta. This is a simple case of purchase of goods for re-sale anywhere and therefore the measure of damages has to be calculated as they would naturally arise in the usual course of things from such breach. That means that the respondent had to prove the market rate at Kanpur on the date of breach for similar goods and that would fix the amount of damages, in case that rate had gone above the contract rate on the date of breach. We are therefore of opinion that this is not a case of the special type to which the words "which the parties knew, when they made the contract, to be likely to result from the breach of it" appearing in S. 73 of the Contract Act apply. This is an ordinary case of contract between traders which is covered by the words "which naturally arose in the usual course of things from such breach" appearing in S. 73. As the respondent had failed to prove the rate for similar canvas in Kanpur on the date of breach it is not entitled to any damages in the circumstances.