Karsandas H. Thacker v. Saran Engineering Co. Ltd.

A buyer made a contract in July 1952 to buy 200 tons of scrap iron. The seller did not deliver. The buyer had separately promised the same iron to an export firm and had to pay that firm the price difference. The Supreme Court held that the seller did not have to bear this loss, because it was never told of the export purpose when the contract was made.

Quick Revision

Parties

Karsandas H. Thacker — appellant and plaintiff; the buyer of scrap iron, who sued for Rs. 20,700 as damages for breach of contract.

The Saran Engineering Co. Ltd. — respondent and defendant; the seller of scrap iron, which did not deliver.

M/s. Export Corporation, Calcutta — not a party; the firm to which the appellant had contracted to supply 200 tons of scrap iron.

Procedural History

1. The appellant sued the respondent for Rs. 20,700 as damages for breach of contract (para 1).
2. The trial Court held that there was a completed contract, that the respondent broke it and that the appellant was entitled to the damages claimed. It passed a decree for the appellant (para 3).
3. The respondent appealed. The High Court reversed the decree (para 3).
4. The High Court held that a contract was completed on October 25, 1952. It held that the respondent was not responsible for the breach, because it could not perform on account of the appellant's laches (delay). It held that the appellant suffered no damages, since the controlled price was the same on January 30, 1953 as in July 1952. It dismissed the suit (para 3).
5. The High Court granted the certificate required by Article 133(1)(a) of the Constitution, and the appeal came to the Supreme Court (para 3).
6. The Supreme Court dismissed the appeal with costs on 14 February 1965 (para 17).

Facts

1. On June 9, 1952, the appellant wrote to the respondent that he was buying scrap iron of various descriptions "at a very fancy price". He asked for the quantity of each item available and the lowest price (para 12).
2. In July 1952, the appellant and the respondent made a contract by correspondence for the supply of 200 tons of scrap iron. The contract price was Rs. 100 per ton (paras 1, 13).
3. The negotiation closed on July 25, 1952. The appellant first talked of selling to Export Corporation only after that (para 11).
4. On October 25, 1952, the appellant sold 200 tons of scrap iron to M/s. Export Corporation, Calcutta (paras 1, 11).
5. Late in October 1952, the respondent was told that the scrap iron was to be despatched to Export Corporation (para 9).
6. By its letter of January 30, 1953, the respondent said it could not comply with the contract. It did not deliver the scrap iron (para 1).
7. The appellant could not comply with his contract with Export Corporation. That firm bought the scrap iron in the open market. It recovered from the appellant the difference between what it paid and what it would have paid under the contract (para 1).
8. The controlled price of scrap iron on January 30, 1953 was the same as in July 1952 (para 2).
9. In March 1954, the Iron and Steel Controller wrote to the appellant (Exhibit 6) that there was no statutory price for scrap iron meant for export (para 6).
10. In August-September 1954, the Deputy Assistant Iron and Steel Controller wrote to the appellant (Exhibit 1(Y)). He said the Scrap Control Order did not apply to scraps meant for export (para 7).
11. In paragraph 7 of the plaint, the appellant said that, to the defendant's knowledge, he sold the iron to Export Corporation, who needed it for shipping purposes. The respondent denied this in its written statement (para 10).
12. In evidence, the appellant said that the respondent knew of his sale to Export Corporation and its shipping need. In cross-examination, he said he had no interest in Export Corporation's business and bought the iron on his own accord (para 11).

Issues Raised

1. Did the Scrap Control Order, 1943 and the controlled price of scrap iron apply to sales of scrap iron for export? (paras 4-8)
2. What is the measure of damages for the respondent's breach? Can the appellant claim the difference between the price paid by Export Corporation and the price he would have paid the respondent? (paras 9-13)
3. Did the respondent know when the contract was made that the appellant was buying the scrap iron for export? (paras 9-13)
4. Did the appellant suffer any damage recoverable from the respondent under Section 73 of the Contract Act? (paras 13-15)
5. Was there a completed contract, and did the appellant commit a breach? The Court did not decide this. (para 16)

Arguments Contended

For the appellant (Karsandas H. Thacker)

• The Scrap Control Order, 1943, and the controlled price applied only to sales of scrap iron for use within the country. They did not apply to sales for export (para 4).
• Exhibit 6, the Controller's letter of March 1954, said that there was no statutory price for scrap iron meant for export (para 6).
• Exhibit 1(Y), the letter of August-September 1954, said that the Scrap Control Order was not applicable to scraps meant for export (para 7).
• The appellant was entitled to damages equal to the difference between the price paid by Export Corporation and the price he would have paid the respondent (para 9).
• Paragraph 7 of the plaint and the appellant's deposition showed that the respondent knew of the sale to Export Corporation and its need for shipping (paras 10-11).
• The words very fancy price in the letter of June 9, 1952 showed that the appellant was buying for export. Prices were controlled, so only an export buyer would offer a fancy price (para 12).

For the respondent (The Saran Engineering Co. Ltd.)

• There was no completed contract between the parties (para 2).
• The appellant suffered no damages. The controlled price on January 30, 1953 was the same as in July 1952 (para 2).
• The respondent was not liable for the damages the appellant had to pay to Export Corporation. The appellant contracted on a principal to principal basis (as a buyer on his own account, not as an agent). He did not disclose that he was buying for Export Corporation or for export (para 2).
• The respondent denied the statement in paragraph 7 of the plaint in its written statement (para 10).

The judgment does not record any case law cited by either side.

Court's Reasoning

The judgment is a single opinion of Raghubar Dayal, J. for the Bench.

Raghubar Dayal, J.

1. Noted: The suit was for Rs. 20,700 as damages. The appellant alleged a July 1952 contract for 200 tons of scrap iron, non-delivery, and the respondent's letter of January 30, 1953 expressing its inability to comply. (para 1)
2. Noted: The appellant had meanwhile contracted to supply 200 tons to Export Corporation, Calcutta. It bought in the open market and recovered the price difference from him. (para 1)
3. Noted: The respondent pleaded that there was no completed contract and that the appellant suffered no damages. It also pleaded that it was not liable for what he paid Export Corporation, because he never disclosed the export purpose. (para 2)
4. Noted: The trial Court decreed the suit. The High Court reversed the decree, found a completed contract on October 25, 1952, and held that the respondent was not responsible for the breach, because it could not perform on account of the appellant's laches. It found that the appellant suffered no damages, and the Article 133(1)(a) certificate was granted. (para 3)
5. Noted: The appellant argued that the Scrap Control Order, 1943, and the controlled price applied only to sales of scrap iron for use within the country. (para 4)
6. Held: Neither the Defence of India Rules, 1939 nor the Essential Supplies (Temporary Powers) Act, 1946 shows this. Nothing in them says Control Orders do not apply to export sales of controlled articles. (para 4)
7. Noted: Rule 81 of the Defence of India Rules, 1939 authorised the Central Government to provide by order for essential supplies and services. It also covered controlling the prices at which articles may be sold. (para 4)
8. Held: Nothing suggests that this control of prices applied only to sales within the country and not to export. (para 4)
9. Noted: Section 3(1) of the Essential Supplies (Temporary Powers) Act, 1946 allowed the Central Government to regulate or prohibit the production, supply and distribution of any essential commodity. It also covered trade and commerce in it, so far as necessary for maintaining supplies or securing fair prices. (para 4)
10. Held: Nothing in the Scrap Control Order, or in Notification No. S.R.O. 1007 dated 30-6-51 issued under Clause 8 by the Controller, excludes sale of scrap iron for export. (para 5)
11. Held: The Controller's letter of March 1954 (Exhibit 6) might describe the position in March 1954. It does not show that the price of scrap iron meant for export was outside the Control Order in 1952. (para 6)
12. Noted: The letter of August-September 1954 (Exhibit 1(Y)) said that the Scrap Control Order was not applicable to scraps meant for export. It also said: "Scraps which are permitted for export are generally collected from uncontrolled sources by the exporters." (para 7)
13. Noted: The Court drew two points from this letter. First, it does not make clear whether the Order was inapplicable to export scrap in 1952. Second, some permission seemed necessary for exporting scrap iron, and export scrap was generally collected from uncontrolled sources. (para 7)
14. Noted: This means the Controller ordinarily did not authorise purchase of scrap iron for export from controlled sources. (para 7)
15. Held: The Notification fixing prices applied to prices charged by persons other than controlled sources. So purchases for export from uncontrolled sources also offended Clause 8(4) of the Scrap Control Order if the price was above the fixed price. (para 8)
16. Noted: Clause 8 empowered the Controller, with Central Government approval, to publish prices for different classes of scrap. Sub-clause (4) barred any person from selling, disposing of or acquiring scrap at a price above the notified price. (para 8)
17. Noted: The appellant claimed damages equal to the difference between the price paid by Export Corporation and the price he would have paid the respondent. (para 9)
18. Held: The appellant is not entitled to calculate damages on this basis unless he told the respondent of the export purpose before contracting. This holds if no controlled price applied to purchases for export. (para 9)
19. Held: Nothing on the record shows that the respondent was told before the contract that the appellant was buying for export. Nothing about it appears in the correspondence that concluded the contract. (para 9)
20. Noted: The first indirect sign of export came late in October 1952, when the respondent was told the iron was to be despatched to Export Corporation. The respondent could possibly have inferred then that it was meant for export. (para 9)
21. Held: That information was belated. Liability for damages on the export market price depends on the respondent's knowledge when it made the contract, not on later knowledge. (para 9)
22. Noted: Paragraph 7 of the plaint does not say when the respondent had knowledge that the iron was needed for shipping. From the correspondence, such knowledge could possibly have come after October 25, 1952. (para 10)
23. Noted: The plaint refers to knowledge of the sale to Export Corporation. It does not directly refer to knowledge that the iron was needed for export. The respondent denied the paragraph in its written statement. (para 10)
24. Noted: In evidence, the appellant said the respondent knew of the sale to Export Corporation and its shipping need. In cross-examination, he said he had no concern or interest in Export Corporation's business. He said he bought on his own accord and sold to it on October 25, 1952. (para 11)
25. Held: The respondent could not have known in July 1952, when the contract was made, that the appellant was buying for export through Export Corporation. (para 11)
26. Why: The appellant admitted in cross-examination that he talked of selling to Export Corporation only after the negotiation closed on July 25, 1952. (para 11)
27. Noted: The only other material was the phrase very fancy price in the appellant's first letter of June 9, 1952. The appellant argued that, as prices were controlled, this showed he was buying for export. (para 12)
28. Held: An offer to buy at a very fancy price is a very remote and slender basis for concluding that the respondent must have known of the export purpose. (para 12)
29. Why: The Controller's fixing of prices only means that nobody can lawfully charge more than the fixed price. A seller may sell at any lower price. This is why the appellant asked for the respondent's lowest prices. (para 12)
30. Held: Readiness to pay a very fancy price could mean a good price within the limit fixed by the Controller. (para 12)
31. Held: The High Court was right in concluding that the respondent did not know that the appellant was buying scrap iron for export. (para 13)
32. Noted: Under Section 73 of the Contract Act, a party who suffers by breach is entitled to compensation. This covers loss that arose naturally in the usual course of business from the breach. He may also recover for loss that the parties knew, when they made the contract, to be likely to result from the breach. (para 13)
33. Noted: Under Section 73, "such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach". (para 13)
34. Held: The loss that would have arisen naturally in the usual course of things from the breach in this case would be nil. (para 13)
35. Why: The appellant agreed to buy at Rs. 100 per ton. It may be presumed he paid Rs. 70 as the controlled price and Rs. 30 as incidental charges. After non-delivery he could have bought on the market at the same controlled price and charges. He did not stand to pay more than the contract price. (para 13)
36. Noted: The actual loss, according to the appellant, came from his contract to sell 200 tons for export to Export Corporation. The Court assumed that the export market price on January 30, 1953 was the price Export Corporation paid that day. (para 13)
37. Held: The parties did not know, and could not have known, in July 1952 that the iron would be sold to Export Corporation. So they could not have known of the likelihood of the loss the appellant actually suffered. (para 13)
38. Held: Illustration (k) to Section 73 is apt for this case. (para 14)
39. Noted: Under illustration (k), the party in breach pays the difference between the contract price of the articles and the sum paid by the other party for another article bought on the default. (para 14)
40. Noted: Under illustration (k), the party in breach does not pay the compensation the other party owed third parties. That holds where he was not told at contracting that the purchase was for delivery to them. (para 14)
41. Held: The High Court was right in holding that the appellant suffered no damage that he could recover from the respondent. (para 15)
42. Noted: In view of this, the Court need not discuss whether the June-July 1952 correspondence made out a completed contract. It also need not discuss whether the appellant committed a breach of contract. (para 16)
43. Held: The appeal fails and is dismissed with costs. (para 17)

Authorities

The judgment does not discuss or cite any decided case. It rests on statute and delegated legislation only.

Provisions mentioned

• Section 73, Indian Contract Act: a party who suffers by breach may receive compensation. It covers loss that arose naturally in the usual course of business, or that the parties knew when contracting to be likely. It gives nothing for remote and indirect loss (para 13).
• Illustration (k) to Section 73: the party in breach pays the difference between the contract price and the price paid for a substitute. He does not pay what the other party owes third parties, unless he was told at contracting that the purchase was for them (para 14).
• Article 133(1)(a), Constitution of India: the High Court's certificate on which the appeal reached the Supreme Court (para 3).
• Iron and Steel (Scrap Control) Order, 1943: the control order issued under the Defence of India Rules, 1939 (paras 4-5).
• Clause 8 of the Scrap Control Order: empowers the Controller, with Central Government approval, to publish prices for different classes of scrap. Sub-clause (4) bars selling or acquiring scrap at a higher price (para 8).
• Notification No. S.R.O. 1007 dated 30-6-51: issued under Clause 8, it fixed the controlled price of scrap iron (para 5).
• Rule 81, Defence of India Rules, 1939: authorised the Central Government to order the maintenance of essential supplies and the control of prices (para 4).
• Section 3(1), Essential Supplies (Temporary Powers) Act, 1946: the Central Government may regulate or prohibit the production, supply and distribution of essential commodities by notified order (para 4).

Judgement

1. The appeal fails and is dismissed (para 17).
2. The appeal is dismissed with costs (para 17).
3. The High Court's decision that the appellant suffered no recoverable damage stands (para 15).
4. The Court did not decide whether a completed contract existed or whether the appellant committed a breach (para 16).

Legal Principle / Ratio

A buyer who resells goods to a third party cannot recover from the seller what he pays the third party. The seller must have known of the resale purpose when the contract was made, under Section 73 and its illustration (k). Later knowledge does not count (paras 9, 13-14).

The Court said liability "would depend on its knowledge of the fact at the time it entered into the contract" (para 9).

The Court also said that the loss which arose naturally from the breach in this case was nil. The market price was the same as the contract price (para 13).

Critical Analysis

Analysis based on the judgment text.

• The Court did not decide whether a completed contract existed. It says it is unnecessary to decide that, or whether the appellant broke the contract (para 16).
• The Court treats the export-market loss as lying outside the usual course of business. It relies on the absence of any disclosure of the export purpose at the time of contracting (paras 9, 13).
• The Court found nothing in the instruments that excludes export sales from the Control Order (paras 4-5, 8). Paragraph 9 treats the contrary position only as a hypothesis. The Controller's 1954 letters do not clearly show the position in 1952 (paras 6-7).
• The Court assumes that the appellant paid Rs. 70 as the controlled price and Rs. 30 as other charges. It marks this as a presumption, not a proved fact (para 13).

Significance

• It applies the knowledge limb of Section 73 to a resale made for export. The seller's knowledge when the contract is made fixes its liability.
• It uses illustration (k) to Section 73 to show that a seller does not pay a buyer's compensation to third parties unless told of them when contracting.
• It shows that a buyer who wants special-purpose losses covered must disclose the purpose before the contract is made.

Exam-Important Points

• Rule: under Section 73, the seller answers for loss arising naturally from the breach and for loss both parties knew was likely when they contracted. Trap: knowledge gained after the contract does not count (paras 9, 13).
• Rule: illustration (k) to Section 73 makes the seller pay the price difference on a substitute purchase. Trap: it does not pay the compensation the buyer owes third parties unless it was told of them at contracting (para 14).
• Rule: the words very fancy price in a letter was held a remote and slender basis for inferring knowledge of export purpose. Trap: a high offered price does not prove disclosure (para 12).
• Rule: a seller may sell below the controlled price, but not above it. Trap: the Court found nothing excluding export sales from the Control Order (paras 4-5, 8, 12).
• Rule: the loss that arose naturally in the usual course was nil, since the market price equalled the contract price. Trap: the actual loss came only from the separate export contract (para 13).
• Rule: the Supreme Court did not decide if there was a completed contract or breach by the appellant. Trap: do not cite the case on those points (para 16).
• Related terms: damages (money compensation for loss) and breach of contract (failure to perform a contract).

Prepared from the full text of the judgment. Paragraph numbers follow the official Supreme Court judgment text; law reports may number the same paragraph differently.