Case Note & Summary
The dispute arose from a contract for sale of Italian Staple Fibre Cotton between China Cotton Exporters, an import and export merchant, and Beharilal Ramcharan Cotton Mills Ltd., a cotton spinning and weaving mill, both carrying on business in Bombay. By a written contract dated August 9, 1950, the appellant agreed to sell to the respondent 50,000 lbs of Italian Staple Fibre Cotton at Rs 1,350 per candy ex docks, with shipment October/November 1950. In the remarks column of the contract it was stated: 'This contract is subject to import licence and therefore the shipment date is not guaranteed.' Of the contracted quantity, 10,000 lbs was delivered and accepted on October 31, 1950, but the balance 40,000 lbs was never delivered. The respondent filed a suit for damages for breach of contract. The appellant admitted non-delivery but pleaded that the non-supply was due to failure of intermediary suppliers and circumstances beyond its control, and claimed exemption under printed term 16. It further contended that the shipment time was not guaranteed and time was not of the essence of the contract. The Trial Judge held that the shipment time was guaranteed except for delay in obtaining import licence, which was obtained in good time; that time of shipment was of the essence; and that the appellant had not made an adequate contract with its Italian suppliers which would have enabled it to obtain the goods if such contract had not been broken. The assessment of damages was referred to a Commissioner. On appeal, the Bombay High Court affirmed the Trial Judge's findings, observing that the failure to give delivery primarily arose because the appellant never made arrangements to get goods from Italy which could have been delivered at the contract time. The appellant then obtained special leave to appeal to the Supreme Court. Before the Supreme Court, the appellant raised three contentions: first, that the shipment date was not guaranteed; second, that shipment time was not of the essence of the contract; and third, that the contracts with Italian suppliers were adequate for obtaining supplies in time. The Supreme Court examined the words in the remarks column and held that in commercial contracts time is ordinarily of the essence, and the word 'therefore' in the clause indicated that only delay in obtaining import licence would render the shipment date not guaranteed. Since there was no delay in obtaining the licence, the shipment date October/November 1950 was guaranteed. The Court also found that printed term 2, which provided for allowances and extension of time, actually supported the conclusion that time was of the essence. On the question of adequate supplier contract, the Court ruled that the appellant had to show that on the date of breach, i.e., December 15, 1950, it had a contract under which it could, if the contract were not broken, obtain the goods to honour its agreement. The first supplier contract was cancelled at the end of September, and the second supplier contract was not produced, so the Court could not infer that it required delivery by instalments or at least 40,000 lbs before December 15. The Court held that a mere chance of obtaining supplies was insufficient. Accordingly, the appeal was dismissed and the appellant was held liable for breach of contract, confirming the decision of the High Court. The respondent was entitled to damages.
Headnote
A) Contract Law - Time as Essence of Contract - Interpretation of Contract Terms - In commercial contracts time is ordinarily of essence; remark 'shipment date not guaranteed' limited to delay in import licence - Appellant argued 'therefore' indicated illustrative reason, but court held natural grammar means only licence delay exempts; since licence obtained in time, shipment date guaranteed. Held that trial court and appellate court correctly interpreted (Paras 6-7). B) Contract Law - Adequate Contract Defense - Burden on Seller - Seller must prove existence of adequate contract with suppliers to cover sale contract; mere chance insufficient - Appellant had two supplier contracts; first cancelled, second not produced, so unable to show it could deliver if not broken. Held that appellant failed to discharge burden and remained liable for breach (Paras 8-9). C) Contract Law - Breach of Contract - Non-delivery due to intermediary supplier failure not excused - Trial court found no case of intermediary parties failing; inadequate arrangement. Held seller liable (Paras 3-4, 8-9).
Issue of Consideration
Whether the shipment date was guaranteed and time was of the essence of the contract; whether the seller had an adequate contract with Italian suppliers that, if not broken, would have enabled delivery of the balance goods; whether non-supply due to failure of intermediary suppliers excused the seller from liability under the contract terms.
Final Decision
The Supreme Court dismissed the appeal, confirming the Bombay High Court judgment. The appellant was held liable for breach of contract for failing to deliver the balance 40,000 lbs of cotton fibre. The shipment date of October/November 1950 was guaranteed as there was no delay in obtaining import licence; the appellant failed to prove an adequate contract with suppliers to cover the sale contract; the defense of intermediary supplier failure did not excuse liability.
Law Points
- In commercial contracts time is ordinarily of the essence of the contract
- The words 'subject to import licence and therefore shipment date not guaranteed' limit non-guarantee to delay in obtaining import licence
- A seller claiming exemption from liability for non-delivery due to supplier default must prove an adequate contract with supplier that would have enabled performance
- A mere chance of obtaining supplies is not sufficient to exonerate seller
- Printed contract term providing allowances for delay supports that time is of essence
- The burden lies on seller to establish existence of adequate supplier contract
