A.R. Krishnahurthy vs Arni Municipality, Arni, North Arcot

Nainar Sundaram, J.—The Defendant in Original Suit No. 767 of 1973 on the file of the District Munsif of Arni, is the Appellant in this second appeal. The Plaintiff in the suit is the Respondent herein. The Plaintiff, which is a Municipality, conducted auctions of leases of two bunks. In the auction, the Defendant participated and he was the highest bidder for the first bunk for Rs. 3,210 and for the second bunk for Rs. 3,050. It is admitted that there was a second highest bidder, who has bid for the first bunk for Rs. 3,200 and for the second bunk, for Rs. 3,010. The highest bids of the Defendant were confirmed by the Plaintiff, but since the Defendant did not pay the advance of three moths'' kist as per condition 14 of the Conditions of Auctions in spite of repeated demands, the leases in his favor of the two bunks were cancelled and the bunks were re-auctioned at the risk of the Defendant and on such re-auction, the first bunk fetched only a sum of Rs. 550 and the second bunk fetched only a sum of Rs. 520. The Plaintiff laid the suit for recovery as damages, of the difference between the bids of the Defendant and the bids at the second auction, deducting the earnest money of Rs. 200/- already paid by the Defendant. The Defendant contested the suit, stating that there was no concluded contract and in any event the Plaintiff ought to have confirmed the second highest bids of the first auction, having kept alive the second highest bids by retaining the earnest money deposits made by the second highest bidder of the first auction and if done so, the damages would have got mitigated. The first Court held that there was a concluded contract. However, the first Court countenanced the plea of the Defendant on the question of failure on the part of the Plaintiff of mitigate the damages on the facts pleaded and proved and in this view the suit of the Plaintiff was dismissed, but without costs. The Plaintiff appealed. In the appeal, the Defendant wanted to canvass the aspect that there was no concluded contract between the Plaintiff and the Defendant. The lower appellate Court did net permit the Defendant to canvas this aspect on the ground that he has not filed a cross-objection to the finding in this behalf rendered by the first Court. On the question of damages, the lower appellate Court has chosen to take a view different from the one expressed by the first Court and, opining that the Plaintiff has taken all the steps to mitigate the damages, reversed the judgment and decree of the first Court by allowing the appeal and the suit of the Plaintiff was decrees with costs. The lower appellate Court also allowed costs in the appeal before it. This second appeal is directed against the judgment and decree of the lower appellate Court.

At the time of admission of this second appeal, the following substantial questions of law were mooted out for consideration:

Whether the lower appellate Court is right, m holding that the Appellant cannot canvass the finding rendered against him by the trial Court because he has not filed any cross-objection against that finding, i.e., regarding the validity of the contract and whether the view of the lower appellate Court is contrary to Order XLI, Rule 22, of the Code of Civil Procedure?

Whether the lower appellate Court is correct in holding that on a proper interpretation of the terms of the Contract the Plaintiff is entitled to damages and in further holding that the Plaintiff is entitled to be dammified in the who of the sum claimed as damages?

With regard to the first substantial question of law Mr. D. Peter Francis, learned Counsel for the Appellant, did not press forth the same in view of the fact that or an assessment of the legal position with regard to the facts disclosed in the case, I am inclined to agree with the learned Counsel for the Appellant that there has been an omission in the part of the lower appellate Court to apply the correct principles on the, question of mitigation of damages. It is true that the Defendant committed breach of the obligation cast on him. It is true that the Plaintiff got the right to re-auction the bunks when there was a failure on the part of the Defendant to pay the advance of three months kist as per the conditions stipulated. It is also true that at the second auction, the bids were for meager amounts. But the evidence has disclosed that the second highest bids of the first auction were kept alive and the Plaintiff had preserved the right to accept the second highest bids of the first auction in case of failure to fulfill his obligations by the first highest bidder and that was the reason why the second highest bids of the first auction were kept alive by retaining the earnest money deposits made therefore and the Plaintiff has not offered any explanation for ignoring the second highest bids of the first auction kept alive and falling back upon the bids obtained at the second auction, which bids were admittedly for meager amounts. The Junior Assistant of the Plaintiff, examined a P.W. 1, has deposed that the amounts deposited by the second highest bidder of the first auction have been retained by the Plaintiff municipality to confirm the leases in his favor if it is to be found that the leases could not be concluded in favor of the first highest bidder in the first auction, namely, the Defendant. It is not made but by the Plaintiff that the second highest bid of the first auction stood abrogated at any relevant point of time and in any event, anterior to the second auction by returning the amounts deposited therefore, so that it could be stated that the second highest bids of the first auction could not be taken note of and implemented further. It is also not demonstrated by the Plaintiff that the second highest bidder bf the first auction declined to accept the grant of the leases in his favor in respect, of the two, bunks. On the other hand, that there is scope for accepting the second highest bids of the first auction in case the first highest, bids of the first auction could not be implemented and prosecuted is evident from Rule 11 of the Auction Rules. Such being the factual position, I am of the view that the explanation to Section 73 of the Indian Contract Act, hereinafter referred to as the Act, would squarely come into play and there is a blatant omission on the part of the Plaintiff to remedy the situation and mitigate the damages even though, as established by the facts in the case, it had the means to do so.

Explanation to Section 73 of the Act reads as follows:

In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

The main part of Section 73 of the Act contemplates recovery of damages caused by breach of contract, as per the principles set out therein. But the damages or loss recoverable stand qualified limited or circumscribed by another principle set out in the explanation to Section 73 of the Act. In estimating the damages off loss, the means which existed of remedying the damages should always be taken info account. The damages or loss recoverable is limits by the test of what a prudent man as per the circumstances prevailing should have reasonably done to mitigate the damages. A party omitting to take advantage of the existing and obvious means of remedying or diminishing the damages consequent upon the breach of contract, cannot recover such portion of the damages or loss equitable to his own negligence and lethargy. In other words, damages or loss, which might have been avoided by the exercise of ordinary prudence and common intelligence is not recoverable.

The second principle to govern the award of damages is that there is a duty cast upon the Plaintiff to take all reasonable steps to mitigate the loss, consequent on the breach and if there is a failure to discharge this duty and obligation, it will debar him from claiming any part of the damages which is due to his negligence to take such steps. This principle has been recognized by the Supreme Court in Murlidhar Chiranjilal Vs. Harishchandra Dwarkadas and Another, . If this principle is applied, I find that the Plaintiff could have as well resorted to the second highest bids of the first auction in the facts and circumstances disclosed and mitigated the damages to a very large extent, and hence the Plaintiff has to confine its claim for damages for a sum of Rs. 10 with reference to the first bunk and Rs. 40 with reference to the second bunk, aggregating to Rs. 50. But, we find that the Plaintiff has with it already the moneys deposited by the Defendant to the tune of Rs. 200, which the Plaintiff could adjust and, in fact, is inflamed to adjust on the other basis towards the damages and hence there is no need to pass a decree even for this sum of Rs. 50. This obliges me to interfere in second appeal and accordingly, this second appeal is allowed the judgment and decree of the lower appellate Court are set aside; and the suit of the Plaintiff will stand dismissed. In the peculiar circumstances of the case, I direct the parties to bear their respective costs throughout.