Case Note & Summary
This civil appeal before the Supreme Court of India arose from a contract for the sale of canvas between two firms. The respondent-plaintiff firm had entered into an agreement with the appellant-defendant firm through one Babulal for the sale of certain canvas at Re. 1 per yard. Delivery was to be made through a railway receipt for Calcutta f.o.r. Kanpur, with transport and labour charges from Kanpur to Calcutta borne by the buyer, and the railway receipt was to be delivered on August 5, 1947. The appellant failed to deliver the receipt and on August 8, 1947 informed the respondent that booking from Kanpur to Calcutta was closed, so the contract had become impossible; it cancelled the contract and returned the advance. The respondent disputed impossibility and filed a suit in November 1947 claiming damages based on the Calcutta market price of coloured canvas of Rs. 1-8-3 per yard, which it alleged would have yielded a profit of Re. 0-8-3 per yard over the contract price. The trial court held that Babulal acted as the appellant's agent, but also found the contract impossible of performance and that the respondent had failed to prove the Kanpur market rate, so dismissed the suit. On appeal, the High Court of Madhya Bharat reversed both findings, held the contract not impossible, and awarded damages based on the Calcutta rate amounting to Rs. 16,946. The appellant then obtained special leave to appeal to the Supreme Court. The Supreme Court did not decide the impossibility question, as it found the appeal could be disposed of on the issue of damages. The key legal issue was the measure of damages under Section 73 of the Indian Contract Act, 1872. The Court restated two well-settled principles: first, the aggrieved party should be placed as far as possible in the position as if the contract had been performed; second, that party has a duty to mitigate loss and cannot claim damages due to its own neglect. The Court distinguished between losses that naturally arise in the usual course of things and special losses that the parties knew were likely to result from the breach. Relying on British Westinghouse and Chao v. British Traders, the Court held that the present contract was an ordinary contract for delivery f.o.r. Kanpur, where the buyer was free to resell anywhere. The mere fact that goods were booked for Calcutta did not imply that the seller knew the goods were meant for resale in Calcutta only. Therefore, the measure of damages was the difference between the market price in Kanpur on the date of breach and the contract price, not the Calcutta price. The respondent had not proved any rate for similar canvas in Kanpur on or about the date of breach, so there was no basis to compute damages. Consequently, the Supreme Court allowed the appeal, set aside the High Court's decree, and dismissed the respondent's suit.
Headnote
A) Contract Law - Damages for Breach - General Principles - Indian Contract Act, 1872, Section 73 - The court restated two principles under Section 73 read with the Explanation: the aggrieved party must be placed, as far as money can do it, in the same situation as if the contract had been performed, but that party has a duty to take all reasonable steps to mitigate the loss consequent on the breach and cannot claim any part of the damage due to neglect to take such steps. Held that these principles govern compensation for loss or damage caused by breach of contract (Not mentioned). B) Contract Law - Measure of Damages - Ordinary versus Special Contract - Indian Contract Act, 1872, Section 73 - Where a contract was for delivery f.o.r. Kanpur and the buyer could resell the goods anywhere, the mere fact that the goods were to be booked for Calcutta did not establish that the seller knew the goods were for resale in Calcutta only; therefore the contract was an ordinary contract and damages were limited to the difference between the market price at Kanpur on the date of breach and the contract price. Held that the respondent could not claim damages based on the Calcutta rate; distinguished Victoria Laundry v. Newman Industries and Re R. & H. Hall Ltd., relied on Chao v. British Traders and Shippers Ltd. (Not mentioned). C) Evidence - Burden of Proof - Quantum of Damages - Indian Contract Act, 1872, Section 73 - The plaintiff failed to prove the rate of similar canvas in Kanpur on or about the date of breach; without such proof there was no measure for arriving at the quantum of damages. Held that the respondent was not entitled to any damages, the appeal was allowed, and the High Court's decree was set aside (Not mentioned).
Issue of Consideration
Whether the respondent was entitled to damages based on the Calcutta market rate or the Kanpur market rate under Section 73 of the Indian Contract Act, 1872; and whether the respondent had proved the quantum of damages.
Final Decision
The Supreme Court allowed the appeal on the question of damages. It held that the contract was an ordinary contract for delivery f.o.r. Kanpur, and the measure of damages should be the difference between the market price in Kanpur on the date of breach and the contract price. As the respondent failed to prove the Kanpur market rate, it was not entitled to any damages. The Court accordingly set aside the High Court's decree awarding Rs. 16,946 and dismissed the respondent's suit.
Law Points
- Measure of damages under Section 73 of Indian Contract Act 1872
- difference between market price at delivery point and contract price
- duty to mitigate loss
- foreseeability of special loss
- burden of proof of market rate
- ordinary contract versus special contract
