Murlidhar Chiranjilal v. Harishchandra Dwarkadas

A Kanpur firm broke a contract (a legally enforceable promise) to sell canvas by not delivering the railway receipt on 5 August 1947. The buyer claimed damages (money compensation) at the Calcutta rate. The Supreme Court held the buyer had to prove the Kanpur market rate on the date of breach, and it had not done so.

Quick Revision

Parties

M/s Murlidhar Chiranjilal — appellant, a firm of sellers. It was the defendant in the suit and denied knowledge of the contract.

M/s Harishchandra Dwarkadas — respondent No. 1, a firm of buyers. The case title also names "another" respondent without naming it. It was the plaintiff in the suit and claimed damages for breach.

Babulal — a defendant in the suit. The contract was made through him, and the trial court held he acted as the appellant's agent.

Procedural History

The judgment has no numbered paragraphs. Blocks are counted from "WANCHOO, J." onward, one block per paragraph break.

1. The respondent sued the appellant and Babulal in November 1947 for damages for breach of contract (block 1).
2. The trial court held that Babulal acted as the appellant's agent and that the contract had become impossible to perform. It held that, once the appellant failed to perform, the respondent's duty was to buy the goods in Kanpur. It held that the respondent had failed to prove the Kanpur rate on the date of breach, 5 August 1947, so it got no damages. The suit was dismissed (block 4).
3. The respondent appealed to the High Court of Judicature, Madhya Bharat, Indore, in Civil First Appeal No. 58 of 1952 (case header). Two main questions arose there: impossibility of performance and the appellant's liability for damages (block 5).
4. The High Court held that the contract had not become impossible, because closure of booking from Kanpur to Calcutta at the relevant time was not proved. It allowed damages on the Calcutta rate and, after some deductions, gave a decree (a court's formal order) for Rs. 16,946 on the suit. The judgment was dated 3 October 1955 (case header; block 5).
5. The appellant's application for a certificate to appeal to the Supreme Court was rejected (block 5).
6. The Supreme Court granted special leave (permission to appeal granted by the Supreme Court itself) in Civil Appeal No. 193 of 1958 (block 5).
7. Judgment was delivered on 29 March 1961 (opening of the judgment).

Facts

1. The respondent said a contract was made with the appellant through Babulal. It was for the sale of goods (canvas) at Re. 1 per yard (block 1).
2. Delivery was to be by railway receipt for Calcutta, f.o.r. Kanpur (the judgment's term, free on rail at Kanpur) (block 1).
3. The respondent was to bear the cost of transport from Kanpur to Calcutta and the labour charges for it (block 1).
4. The railway receipt was to be delivered on 5 August 1947 (block 1).
5. The appellant did not deliver the railway receipt (block 1).
6. On 8 August 1947 the appellant wrote that booking from Kanpur to Calcutta was closed and the contract had become impossible to perform (block 1).
7. The appellant cancelled the contract and returned the advance it had received (block 1).
8. The respondent did not accept that performance was impossible. It told the appellant that the appellant had committed a breach and was liable in damages (block 1).
9. After further exchange of notices, the respondent filed the suit in November 1947 (block 1).
10. Babulal pleaded that the contract had become incapable of performance and was rightly rescinded (cancelled). He also pleaded that he was not liable for any damages (block 2).
11. The appellant denied all knowledge of the contract and did not admit liability. It raised other pleas that were not in issue in the appeal (block 2).
12. The respondent's evidence was the rate of coloured canvas in Calcutta on or about the date of breach. That rate was Rs. 1-8-3 per yard (block 6).
13. The respondent claimed damages at Re. 0-8-3 per yard, the gap between that rate and the contract rate of Re. 1 (block 6).
14. The respondent had not proved the rate of similar plain canvas in Kanpur on or about the date of breach (block 8).
15. There was no dispute that the buyer bought the canvas for resale (block 12).

Issues Raised

Issues 1 to 3 are the three questions the Court records on the pleadings. Issues 4 and 5 are derived from the judgment's later blocks.

1. Did Babulal act as the appellant's agent in making this contract? (block 3)
2. Had the contract become impossible to perform because booking of goods from Kanpur to Calcutta was stopped? (blocks 3, 6)
3. Was the respondent entitled to damages at the rate it claimed? (block 3)
4. Was the respondent entitled to any damages at all without proving the Kanpur market rate of similar canvas on the date of breach? (block 8)
5. Was this a contract of the special type in which the parties knew, when they made it, that the loss in Calcutta was likely to result from breach? (blocks 10, 12)

The Court found it unnecessary to decide the second question (block 6).

Arguments Contended

For the appellant

1. The contract was for delivery f.o.r. Kanpur. The respondent therefore had to prove the rate of plain (not coloured) canvas at Kanpur on or about the date of breach (block 8).
2. The respondent did not prove that rate. It was therefore not entitled to any damages, as the record gave no measure of the amount (block 8).
3. Where goods are available in the market, damages are the difference between the market price on the date of breach and the contract price (block 8).
4. The respondent did not say that similar canvas was unavailable at Kanpur. It was its duty to buy the canvas in Kanpur and rail it to Calcutta. Any loss from a rise in price above the contract price would then be recoverable (block 8).
5. The contract had also become impossible to perform because booking from Kanpur to Calcutta was closed. The judgment records this as the other point the appellant raised (block 6).

For the respondent

1. The contract showed that the goods were to be transported to and sold in Calcutta. The Calcutta price therefore had to be taken for the measure of damages (block 10).
2. The parties knew when they made the contract that the goods were to be sold in Calcutta (block 10).
3. The seller knew the goods were to be sent to Calcutta. It should be presumed to know they would be sold there, so loss of profit from the Calcutta rate difference was the measure (block 12).
4. The respondent relied on Re. R. and H. Hall Ltd. and W.H. Pim (Junior) & Co.'s Arbitration and on Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. (block 10).
5. The judgment does not record the respondent's separate arguments on impossibility. Before suit, it had rejected the appellant's claim that performance was impossible (block 1).

Court's Reasoning

Wanchoo, J. (for the Court)

1. Noted: The Court found it unnecessary to decide whether the contract had become impossible to perform. The appeal had to succeed on the other point (block 6).
2. Held: There was undoubtedly a breach on 5 August 1947, the date fixed for delivery of the railway receipt f.o.r. Kanpur. The question was whether the respondent had proved its damages (block 6).
3. Noted: The respondent proved only the Calcutta rate of coloured canvas, Rs. 1-8-3 per yard. It claimed Re. 0-8-3 per yard against the contract rate of Re. 1 (block 6).
4. Noted: Section 73 of the Contract Act governs the amount of damages. The relevant part gives the injured party "compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach" (block 7).
5. Noted: Section 73 also covers loss "which the parties knew, when they made the contract, to be likely to result from the breach of it" (block 7).
6. Noted: The Explanation to section 73 says the means that existed to remedy the inconvenience of non-performance must be taken into account in estimating loss (block 7).
7. Noted: The appellant argued that the respondent had to prove the Kanpur rate of plain canvas. It argued that no measure of damages existed without it (block 8).
8. Noted: Where goods are available in the market, damages are the difference between the market price on the date of breach and the contract price (block 8).
9. Noted: There are two well-settled principles for damages in such cases, from British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Railways Company of London (block 9).
10. Noted: The first principle is that the injured party is "to be placed, as far as money can do it, in as good a situation as if the contract had been performed" (block 9).
11. Noted: The second principle qualifies the first. The plaintiff must take all reasonable steps to mitigate (reduce) the loss from the breach. The plaintiff cannot claim any damage caused by neglect to take such steps (block 9).
12. Held: Both principles also follow from section 73 read with its Explanation (block 9).
13. Held: If the contract was to be performed at Kanpur, the respondent's duty was to buy the goods in Kanpur and rail them to Calcutta on the date of breach. If it lost money from a price rise on that date, it would be compensated (block 9).
14. Held: The respondent could claim damages even without actually buying at Kanpur. It had to prove the rate for similar canvas at Kanpur on the date of breach, if that rate was above the contract rate and caused loss (block 9).
15. Held: The respondent made no attempt to prove the Kanpur rate. It was not entitled to any damages, as no damage naturally arising in the usual course of things could be shown on that evidence (block 9).
16. Noted: The respondent relied on the part of section 73 about what the parties knew when they made the contract. It said the contract showed the goods were to be sold in Calcutta (block 10).
17. Noted: In Re. R. and H. Hall Ltd. and W.H. Pim (Junior) & Co.'s Arbitration, buyers recovered more than the market difference. They recovered their own loss of profit on resale and damages for breach of the resale contract (block 10).
18. Why (Hall): The contract itself expressly provided for resale before delivery, and the parties knew resale was not unlikely (block 10).
19. Noted: Hall concerned the sale of unspecified Australian wheat at a fixed price. Notice of appropriation of a specific cargo in a specific ship had to be given in a set time (block 10).
20. Noted: The Hall contract had express provisions on what to do if the cargo was resold before delivery. Both parties knew there was an even chance of resale before delivery (block 10).
21. Noted: In Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd., a boiler was sold to a laundry. Loss of profit was recoverable if it was apparent to the defendant, as a reasonable person, that delay was liable to cause it (block 11).
22. Held: Hall and Victoria Laundry show the part of section 73 about what the parties knew was likely to result. But they are cases of a special type (block 11).
23. Noted: In Hall, the parties knew the goods were likely to be resold before delivery. Loss on the resale contract could therefore be included (block 11).
24. Noted: In Victoria Laundry, the goods were bought for the buyer's own business for a particular purpose the sellers were expected to know. The sellers were liable for the loss if they knew it was likely (block 11).
25. Noted: The question was whether this case resembled those two cases. The respondent said the seller knew the goods were going to Calcutta and so must be presumed to know they would be sold there (block 12).
26. Noted: There was no dispute that the buyer bought the canvas for resale (block 12).
27. Held: The Court could not infer from the mere booking for Calcutta that the seller knew the goods were for resale in Calcutta only (block 12).
28. Why: The buyer could sell the railway receipt as soon as it was received in Kanpur. It could sell the goods anywhere it liked (block 12).
29. Held: The parties did not know when they made the contract that the goods were meant for sale in Calcutta alone. The Calcutta price on the date of breach was therefore not the measure of damages (block 12).
30. Held: The contract was for delivery for Kanpur and was an ordinary contract in which the buyer could sell the goods where it liked (block 12).
31. Noted: The Court cited Chao and others v. British Traders and Shippers Ltd. as relevant. Chao said every seller to a merchant knows the merchant has bought for resale (block 13).
32. Noted: In Chao, it was said that this makes no difference to the ordinary measure of damages where there is a market. The merchant, if goods are not delivered, will go into the market and buy similar goods to honour his contract (block 13).
33. Noted: The Chao observation continues that if the market has fallen the buyer has suffered no damage, and "if the market has risen the measure of damages is the difference in the market price" (block 13).
34. Held: The parties did not know when they made the contract that breach would likely stop the buyer from making a profit in Calcutta (block 14).
35. Held: This was a simple case of purchase of goods for resale anywhere. Damages are therefore those that naturally arise in the usual course of things from such breach (block 14).
36. Held: The respondent had to prove the market rate at Kanpur on the date of breach for similar goods. That would fix the damages if the rate had gone above the contract rate (block 14).
37. Held: This was not a case of the special type under the second limb of section 73 (block 14).
38. Held: It was an ordinary case of contract between traders, covered by the first limb of section 73 (block 14).
39. Held: The respondent did not prove the rate for similar canvas at Kanpur on the date of breach. It was not entitled to any damages (block 14).
40. Held: The appeal was allowed. The High Court's decree was set aside and the trial court's decree was restored, with costs to the appellant throughout (block 14).

Authorities

• British Westinghouse Electric and Manufacturing Company Limited v. Underground Electric Railways Company of London ([1912] A.C. 673, 689): relied on for the two principles of damages, compensation and the duty to mitigate (block 9).
• Re. R. and H. Hall Ltd. and W.H. Pim (Junior) & Co.'s Arbitration ([1928] All E.R. 763): distinguished. It was a special case with express provision for resale, so damages included loss on resale (blocks 10, 11).
• Victoria Laundry (Windsor) Ltd. v. Newman Industries Ltd. ([1949] 1 All E.R. 997): distinguished. The goods were bought for a particular purpose known to the seller (blocks 10, 11).
• Chao and others v. British Traders and Shippers Ltd. ([1954] 1 All E.R. 779, 797): followed as relevant. Where there is a market, a merchant's resale purpose does not change the ordinary measure of damages (block 13).

Statutory provisions

• Section 73, Indian Contract Act, 1872: when a contract is broken, the injured party may receive compensation. First, for loss that naturally arose in the usual course of things from the breach. Second, for loss the parties knew when they made the contract to be likely to result (block 7).
• Explanation to section 73: in estimating loss, the means that existed to remedy the inconvenience of non-performance must be taken into account (block 7).

Judgement

1. The appeal is allowed (block 14, closing line).
2. The decree of the High Court of Madhya Bharat is set aside (block 14).
3. The decree of the trial court is restored, so the suit stays dismissed (block 14).
4. Costs are awarded to the appellant throughout, in all courts (block 14).

Legal Principle / Ratio

When goods are bought for resale but could be resold anywhere, the contract is an ordinary one. Damages are what naturally arise in the usual course of things, measured by the market price at the place of delivery on the date of breach. The buyer must prove that rate.

The Court said this was "an ordinary contract in which it was open to the buyer to sell the goods where it liked".

Subsequent Treatment

H.J. Baker v. MMTC — H.J. Baker and Bros. Inc. v. The Minerals and Metals Trade Corporation Ltd., 2023 INSC 747, decided 18 August 2023 by S. Ravindra Bhat and Aravind Kumar, JJ.

• Baker argued that a party need not go to the market, and that damages follow the difference between contract price and market price. It relied on Murlidhar Chiranjilal (Baker, para 8).
• The Court recorded Baker's use of Murlidhar Chiranjilal. Baker said a buyer who did not buy in the market could still prove the rate on the date of breach (Baker, para 8).
• The Court said the measure of damages under section 73 is the difference between the market price on the date of breach and the contract price (Baker, para 20).
• It quoted Murlidhar Chiranjilal for the point that the claimant had to prove the market rate at the place on the date of breach (Baker, para 20).
• It said that in Murlidhar Chiranjilal the seller failed to prove the price at the place of delivery, and the Court refused compensation (Baker, para 20).
• The Court held that the impugned judgment applied the correct principles in partly setting aside the award (Baker, para 20).

Other later cases (not summarized): none identified.

Comparative Analysis

• In Murlidhar Chiranjilal the buyer claimed the Calcutta rate and failed to prove the Kanpur rate. The Court allowed no damages (block 14).
• In Baker the Court recorded that the claimant also failed to produce its best evidence of damages for the later period (Baker, para 19).
• Both decisions apply section 73 and rest on proof of the market rate on the date of breach (block 14; Baker, para 20).
• Baker was an arbitration appeal, while Murlidhar Chiranjilal was a civil appeal from a suit (Baker, para 2).

Critical Analysis

Analysis based on the judgment text.

• The Court did not decide impossibility. Its result depends only on failure to prove the Kanpur rate (block 6).
• The judgment does not say what the respondent could have done to prove the Kanpur rate, beyond buying in the market or proving the rate (block 9).
• The Court says that it cannot infer knowledge of resale in Calcutta alone from booking for Calcutta. It does not say what other facts would show such knowledge (block 12).
• The judgment quotes the Explanation to section 73 and says the two principles follow from it. It states the mitigation duty through British Westinghouse (blocks 7, 9).

Significance

• It shows how the two limbs of section 73 apply to a contract for sale of goods for resale.
• It separates ordinary contracts between traders from special cases like Hall and Victoria Laundry.
• It makes proof of the market rate at the place of delivery on the date of breach a condition for damages in an ordinary case.
• The Supreme Court applied it again in Baker (2023).

Exam-Important Points

• Rule: in an ordinary contract, damages are the market price at the place of delivery on the date of breach, less the contract price.
• Trap: a buyer's known resale purpose does not bring in the second limb of section 73. It must be known that the goods go only to one market.
• Two principles: put the injured party in the position as if the contract had been performed, and require reasonable steps to mitigate loss.
• Cases distinguished: Hall (express resale clause) and Victoria Laundry (known particular purpose). Chao was followed.
• Outcome: appeal allowed, trial court's dismissal restored, costs to the appellant. The Court did not decide impossibility.
• Facts: canvas at Re. 1 per yard, f.o.r. Kanpur, delivery 5 August 1947. Calcutta rate Rs. 1-8-3. High Court decree Rs. 16,946.

Prepared from the full text of the judgment. The judgment text has no numbered paragraphs, so the page cites blocks counted from the start of Wanchoo, J.'s opinion. The citation is as printed in the header of the saved text.