Hajee Ismail and Sons vs Wilson and Co.

John Wallis, Kt., C.J.—The plaintiffs in this case are a well-known firm carrying on business in Mysore and Madras. In 1913 they obtained

from the Mysore Government the Abkari contract for Mysore and arranged with the defendants who carry on business in Madras that they should

go on importing molasses for them in the same way as they had done for the previous holders of the contract. Admittedly the goods contracted for

were intended for use by the plaintiffs in their factories at Bangalore. Owing to the disorganization of shipping consequent on the outbreak of the

war at the beginning of August 1914, the defendants were unable to ship 800 tons from Java in the month of October 1914 as they were bound to

do under their contract. This was a breach of contract for which admittedly they are bound to compensate the plaintiffs in damages, and the main

question argued before the learned Judge and before us is as to the measure of damages. The learned Judge awarded the plaintiffs only nominal

damages on the ground that they had failed to put before him the proper materials for estimating the damages, and the plaintiffs have appealed. The

law as to this subject is to be found in Section 73 of the Indian Contract Act and the Explanation thereto. Under the body of the section the

damages are to be those which naturally arise in the usual course of things from the breach or which the parties knew when they made the contract

to be likely to result from the breach. By the Explanation, the means which existed of remedying the inconvenience caused by the non-performance

of the contract must be taken into account. The Explanation is in accordance with the decisions in Dunkirk Colliery v. Lever (1878) 9 Ch. D. 20,

and the decision of the House of Lords in British Westinghouse Electric and Manufacturing Company, Limited v. Underground Electric Railways

Company of London, Limited (1912) A.C. 673. In that case Lord Haldane, L.C., observed:

The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second,

which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any

part of the damage which is due to his neglect to take such steps.

The law was recently laid down to the same effect by the Judicial Committee in Jamal v. Moolla Dawood Sons and Co. ILR (1916) Cal 493.

The rule that, where there is a market at the place of delivery, the damages are the difference between the contract price and the market price at

the date of delivery may be regarded as an application of the principle embodied in the Explanation that the buyer must take the necessary steps to

minimize the damage. Where there is a market and the seller has no notice of any contract entered into by the buyer, the market price in the case of

failure to deliver is the test by which to estimate the value of the goods, independently of any circumstances peculiar to the buyer and so

independently of any contract made by him for sale of the goods. This is the rule in Rodocanachi v. Milburn (1886) 18 Q.B.D. 67 approved by the

House of Lords in Williams Brothers v. Agius (1914) A.C. 510 and applied by the Judicial Committee under the Indian Contract Act in Jamal v.

Moolla Dawood Sons and Co. ILR (1916) Cal 493. This is the rule in cases of non-delivery. It has recently been stated in the House of Lords that

there is a difference where delivery is only delayed, but that is not the case here, and, also, we are bound by the terms of the Indian Contract Act.

When there is no market for the goods at the place of delivery, the buyer may procure a substitute at a higher cost if it is a reasonable and

business like thing to do and calculated to diminish the loss, and may recover the difference in price as damages from the seller. It has not yet been

decided that he is bound to do so and apparently he may refrain from doing so and rely on his claim for damages. See the observations of Lord

Atkinson in Erie County Natural Gas and Fuel Company v. Carroll (1911) A.C. 105.

Where there is no market, Mr. Mayne says:

the principle upon which the damages are to be assessed is exactly the same. They are to be taken at the value of the article at the date of breach.

But the mode of estimating this value is different, for there is no market price which can be quoted.

Where the buyer was under a contract to resell, as in Barries v. Hutchinson (1865) 18 C.B. 445, and Hinde v. Liddell (1875) L.R. 10 Q.B.

265 the resale price is evidence of the value of the goods at the place and time of delivery as observed by Mr. Mayne and as recently held in

Stroms Bruks Aktie Bolag v. John and Peter Hutchinson (1905) A.C. 515, which approved the judgment of Blackburn, J., as he then was, in

O''Hanlon v. G.W. Ry. Co. (1865) 6 B. & S. 484, that the natural and fair measure of damages is the value of the goods at the time and place at

which they ought to have been delivered to the owner, which I read as meaning the value of the goods to the owner of such goods at the time and

place they ought to have been delivered. In that case also, the goods were intended for resale by the buyer.

Where, as in the present case, the article is purchased not for sale but for use to the knowledge of the sellers, Mr. Mayne observes:

Damages will also be assessed with reference to its value to the purchaser. But its value will be determined by other considerations, that is to say,

by the use for which it was intended, the loss which followed from its not being supplied, and the profit which would have been made out of it if it

had been delivered in time.

In Portman v. Middleton (1858) 4 C.B.322, where the defendant failed to deliver a fire box, the plaintiff recovered the price and the extra cost

of procuring a substitute but not the special damages of which the defendant had no notice. In Smeed v. Foord (1859) 1 E. & E. 602, the

defendant who had failed to supply on the due date a threshing machine was held liable for the deterioration of the wheat owing to its being

stacked and injured by rain as that was a natural consequence of the delay in supplying the machine according to the contract. In Gee v.

Lancashire and Yorkshire Railway Co. (1860) 6 H. & N. 211, as I read it, all that was ruled was that it could not be held as a matter of law that

the stoppage of the buyer''s mills was a natural consequence of the seller''s delay in delivering cotton under his contract. In Elbinger Actien-

Gesellschafft v. Armstrong (1874) L.R. 9 Q.B. 473 Blackburn, J., as he then was, delivering the judgment of the Court of Queen''s Bench

observed that:

where, from the nature of the article, there is no market in which it can be obtained, the rule as to the difference of contract and market prices is

inapplicable,

and the plaintiffs were allowed to retain the damages awarded them as the reasonable result of the delay in delivery. We have not been referred to

any case in which a different test was applied in the case of non-delivery as distinguished from late delivery of goods intended for use.

As regards goods intended for resale where there is no market price at the place of delivery, in O''Hanlon v. G.W. Ry. Co. (1865) 6 B. & S.

484 (which was a case of non-delivery by a carrier, but that appears to make no difference) the value of the goods was arrived at by taking into

account the wholesale price at the place of manufacture and adding to it the cost of carriage to the place of delivery and the profit which a

hypothetical importer at the place of delivery might be expected to charge. This hypothetical market price is by no means so satisfactory a measure

of damages as the real market price where it exists, and is only applicable in the absence of other evidence of value such as the price at which the

buyer had contracted to resell. It is especially unsatisfactory in cases like the present where it takes nearly a month from the date of order to

procure the goods at the place of delivery. Logically, the price at the date when the goods would have had to he ordered so as to reach the place

of delivery on the contract date would seem to be the price to be regarded, rather than the price at the contract date which the learned Judge has

adopted; but, in the case of goods purchased for use, whichever date be taken, and whether in the present case the price be taken at Calcutta, or

at Java, damages assessed on this basis bear no real relation to the buyer''s actual loss, and as in the present case, give him heavy damages where

he has sustained no real loss. I think therefore there is much to be said in favour of adopting Mr. Mayne''s rule, and have felt considerable doubt on

the question. In this Court however we are governed by the Indian Contract Act and illustration (a) to Section 73 says that the measure of

damages in this case is the sum by which the contract price falls short of the price for which the purchaser might have obtained goods of like quality

at the time when they ought to be delivered.

On a careful consideration of the question. I have not found sufficient reason for refusing to follow the rule laid down in the illustration which also

appears from the latest edition of Sedgwick on Damages to be the accepted rule in America.

In the present case the learned Judge finds, and I entirely agree with him, that the plaintiffs sustained no actual loss from the defendants'' failure

to ship the October consignment, as they were admittedly well stocked. They might therefore without any prejudice to themselves have accepted

the defendants'' offers to ship the October consignment along with the November consignment, or their subsequent offer about the 29th November

to forward it by an early shipment in December. These considerations however are inapplicable if the rule in illustration (a) is to be strictly applied,

as I think it should be.

In arriving at the price for which the goods might have been obtained on the date of delivery, I entirely agree with the learned Judge that we

should look prima facie at the cost of obtaining them from Java, and not from Calcutta which gets its supplies from Java, especially as the evidence

is that the goods can be obtained as quickly from Java as from Calcutta. Obviously, the market price at Java would ordinarily be less than at

Calcutta. It is quite clear that the shipping and insurance difficulties consequent of the outbreak of war in August 1914 must have caused an

advance of the prices ruling in Java and Calcutta over those at which the plaintiffs purchased before the war. Exhibit G shows that the defendants

were asking Its. 2-9-3 per cwt., ex war risk on the 29th October 1914, about the time when the hypothetical dealer in Madras might be expected

to purchase the goods in Java to have them ready in Madras on the 29th November which the learned Judge has fixed as the date of delivery in

Madras. Though the plaintiffs have only tendered evidence as to the prices ruling in Calcutta, and the defendants have abstained from tendering any

evidence on the subject, Mr. Chamier, for the plaintiffs, has put before us certain calculations from which he estimates the c.i.f. Java Madras price

on November 29th at Rs. 2-8-7 per cwt. This figure he arrived at by deducting the freight to Calcutta, as spoken to in evidence, and adding the

freights from Java to Madras, but these are not proved to have been the prevailing freight either at the end of October or of November 1914, and

I agree with the learned Judge that the c.i.f. prices from Java are not accurately proved. I think therefore that Mr. Chamier is not entitled to

judgment as claimed by him for Rs. 8,800 as the difference on 800 tons between Rs. 2-8-7 per cwt., his estimated c.i.f. price from Java on the

29th November and the c.i.f. contract price of Rs. l-l5-6 plus Rs. 250, importer''s profit and Rs. 33 lading charges, in all Rs. 9,083. On the other

hand, looking at the evidence as a whole, and especially at Exhibit G-1, I think there is evidence from which I am justified in concluding that the

hypothetical value of 800 tons in Madras at the end of November must have exceeded the c.i.f. contract price by not less than Rs. 5,000, It is very

likely that the figure would be higher if all tie evidence were before us, but we are agreed that that sum may safely be awarded on the evidence

before us. I would accordingly allow the appeal and increase the damages to Rs. 5,000, The respondents will pay the costs of the appeal. The

memorandum of objections is dismissed with costs. .

Sadasiva Ayyar, J.

Plaintiffs are the appellants. The defendants under two contracts with the plaintiffs were bound to ship 800 tons of solid Java molasses in

October 1914 at Java to arrive in Madras in November 1914, the plaintiffs to take delivery at Madras paying Rs. 1-15-6 per cwt. The defendants

failed to make the October shipment and thus committed breach of the contract. The plaintiffs sue for recovery of (a) Rs. 23,000 alleged to be the

difference ""between the contract price and the market price"" of the 800 tons of molasses in November 1914 when the molasses ought to have

been delivered at Madras by the defendants, and (b) Rs. 2,725-15-6 being the sum paid under protest by the plaintiffs to the defendants owing to

the illegal detention by the defendants of some other shipments under the contracts till that sum was paid to the defendants.

The learned Judge on the Original Side gave a decree for the Rs. 2,725-15-6 claimed under the heading (b) on account of the sum paid under

protest, but gave only Rs. 100 as nominal damages in respect of the Rs. 23,000, damages claimed under heading (a). Hence the plaintiffs have

appealed under the Letters Patent, the appeal being valued at Rs. 21,000 evidently because the plaintiffs'' contention in appeal is that the learned

Judge on the Original Side ought to have given them Rs. 21,100 as damages instead of only Rs. 100 under the heading (a).

As stated by my Lord in his judgment, the law as to this subject is to be found in the Indian Contract Act, Section 73, and in the illustrations

thereto. The plaintiffs are, by the section, entitled to have:

compensation for the loss or damage caused to them by the breach, the loss or damage being such as naturally arose in the usual course of things

from such breach or which the parties knew when they made the contract to be likely to result from the breach of it.

Though there are 18 illustrations (a) to (r) appended to Section 73, none of them refers in terms to a case where there is no market for the

goods at the place of delivery mentioned in the contract. (Three of the illustrations, namely, (e), (o) and (q) expressly refer to ""market price"" as one

of the essential ingredients to be. considered in arriving at the damages.) If there was no illustration at all which could be reasonably held to govern

the facts of this case and if the body of the section alone remained for consideration on the question of the amount of damages which the plaintiffs

are entitled to, there seems much to be said in favour of the view that, as there is no market for the goods at the place of delivery, and as the

pecuniary loss naturally flowing from such a breach cannot therefore be estimated with reference to the market price, the plaintiffs ought to prove

that ""damages"" capable of calculation in some other reasonable manner naturally flowed and was sustained by them from such breach or prove (the

second alternative mentioned Section73) that both themselves and the defendants knew that some other damage was likely to result from the

breach of the contract and the amount of such damage. This latter alternative right is, in my opinion, given by the section only as an additional right

to that given by the clause which gives compensation for ""the loss or damage which naturally arose in the usual course of things"" from such breach,

such additional right to be availed of at the plaintiffs'' option.

Assuming, as I said before, that none of the illustrations to the section throws any light on the dispute in this case in which there is no market for

the goods at the place of delivery, I agree with my Lord that the plaintiffs have not proved that any loss or damage naturally arising in the usual

course of things from the breach of the plaintiffs'' contract has been caused to them, nor (in the alternative) any loss or damage which both parties

knew when they made the contract to be likely to result from its breach.

The English cases (see Hinde v. Liddell (1875) L.R. 10 Q.B. 265 and Elbinger Actien-Gesellschafft v. Armstrong (1874) L.R. 9 Q.B. 473 no

doubt decide that in such a case (which we might shortly call ""no market case"") the damages must be calculated on the basis of the value fixed by

the price which would actually have to be paid for the best and nearest available substitute. Some of the English cases, if I may say so with respect,

use the expression ""market-value"" in a loose manner and lay down that the market-value for the calculation of damages must be ascertained in

particular modes where there is no market at all for the goods at the place of delivery: see Wertheim v. Chicontimi Pulp Company (1911) A.C.

301.

I agree with Kumaraswami Sastriyar, J., that the English and Indian cases do not lay down any inflexible rule that in estimating damages in ""no

market"" cases that ""one has to go to the place which is nearest to the place where the breach occurred"" and where there is a market. I agree with

him that:

It is not the nearest market that always governs but the place where, having regard to all the facts of a particular case, the plaintiff would without

any material inconvenience to himself procure the goods in a manner that would throw the least amount of hardship on the other party.

In the present case, it was to Java and not to Calcutta that the plaintiffs should have turned to if they really wanted to procure molasses as a

substitute for the molasses contracted for.

I further agree with Kumaraswami Sastriyar, J., that the fact that the plaintiffs did not make any purchase of molasses as a substitute for the

molasses contracted for or that they have not proved that they suffered a pie of actual damage through the breach of contract does not disentitle

them if the English and American law applies to this case from recovering the difference between the Java price in October 1914 plus the cost of

carriage to Madras and the contract price. As I said already, it may be a question whether if the body of the Section 73 stood alone, such a

difference in a ""no market"" case could be treated as loss or damages arising naturally from the breach. I shall take an extreme case to illustrate

what is in my mind, as extreme cases sometimes bring out clearly the principle in dispute. Suppose A at Madras wishes to bring up a wild animal

found in Australia as a household pet; there being no market for such an animal at Madras, he enters into a contract with B of Australia through

B''s agent at Madras in March 1917 for delivery to him at Madras of the animal, the price to be Rs. 300 payable to B''s agent at Madras on

delivery in September 1917. B illegally repudiates the contract in July 1917 and thus commits a breach. If A had taken other steps in July or

August 1917 he could have obtained a similar wild animal from Australia delivered at Madras in September at a cost of Rs. 500. does not take

any such steps but makes a demand for Rs. 200 as damages payable to him and he dies (say) three days after the date fixed for the delivery of the

animal to him at Madras under the contract. A''s son and heir C does not himself care to have any such animal as a pet. Is C entitled to recover

rupees 200 as damages from B for breach of the contract according to Section 78 of the Contract Act? Section 73 as I said before, speaks of loss

or damage which naturally arose from such breach using the word ''arose'' in the past tense. Can we say that Rs. 200 was the damage which had

naturally arisen to A by his not having had a pet wild animal by him during the three days between the date fixed for delivery of the same under the

contract and A''s death or to A''s son and heir by not having inherited a wild animal which he does not want? If, of course, he had tried to obtain a

substitute and had obtained it at a cost of Rs. 500, the loss of Rs. 200 might be said to have naturally arisen. Apart from authority therefore and on

the language of the body of the Section 73 alone, I would be inclined to think that no damages at all can be claimed.

But I think illustration (a) to Section 73 authoritatively interprets what the legislature meant by the phrase ""loss or damage which naturally arose

in the usual course of things from a broach of the contract"" in a ""no market"" case also. That illustration is as follows: ""(a) A contracts to sell and

deliver 50 maunds of saltpetre to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of

compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 maunds of saltpetre of like

quality at the time when the saltpetre ought to have been delivered."" It will be seen that the language of the illustration is absolutely general and wide

and it makes no exception on account of special circumstances like the following (a) a case where B could have used some other substitute for the

saltpetre, (b) a case where B was made a gift of 50 maunds of saltpetre as substitute on the date fixed for delivery by A, (c) where there was no

market at all for the saltpetre at the place of delivery. The law as stated in the illustration gives an unconditional right to B to get the difference

between the contract price and the cost which he would have had to incur to obtain the lite quantity of saltpetre with, of course, the least amount of

hardship to A. I think this illustration is fully consistent with the English law as laid down in the House of Lords case Werthiem v. Chicontimi Pulp

Company (1911) A.C. 301 though that case was a case of breach by late delivery and not a case of no delivery at all. So also in Jugmohandas v.

Nusserwanji ILR (1902) Bom. 744 Jenkins, C.J., and Chandavarkar, J., construe Section 73 of the Contract Act similarly:

There was no ready market rate. We, therefore, must have recourse to some other test.

And then the learned Judges consider all the facts including a statement prepared by the plaintiff himself in that case as to what he considered

reasonable compensation from another party who committed a similar breach of contract with plaintiff. Where there are absolutely no materials put

forward by the plaintiff to indicate what it would have cost him to obtain similar goods in the cheapest manner, it may be that only nominal damages

would have to be allowed. But where there are some materials, the Court should, I think, as a jury try to arrive at the cost at which the plaintiff

could have got other similar goods for the contracted date of delivery and give him the difference, if any, between that and the contracted price. In

the present case, we have got the facts that the defendants themselves wrote the letter (Exhibit G) in October 1914 wherein they offer to deliver

molasses at Rs. 2-9-3 per cwt. in November. If we take that rate as the rate at which the plaintiffs would have been obliged to pay if they had

attempted to obtain 800 tons or 16,000 cwts. in substitute for the molasses contracted for, then the damages which they would be entitled to

would be 16,000 x Rs. 2-9-3 minus Rs. 1-15-6 (9 annas 9 pies or Rs. 975). But it appears that the plaintiffs themselves considered the price Rs.

2-9-3 as too high a quotation and that the price of molasses was probably rising even between the beginning of October and the end of October at

Java.

I might here remark that the plaintiffs might have let in evidence as to why they considered Rs. 2-9-3 as too high or what they considered as a

fair price and the defendants might also have let in evidence as to how they arrived at the figure Rs. 2-9-3 and what the real price was of molasses

at Java and what, with the freight and reasonable commission to importers the cost per cwt. would have come to when delivered at Madras. I

therefore agree with my Lord that under the circumstances Rs. 5,000 must be taken as a reasonable amount to be awarded to the plaintiff as

damages in this case.

I would in the result allow the appeal to the extent of this amount of Rs. 5,000 minus Rs. 100, nominal damages allowed under this head by the

learned trial Judge with the costs of the appeal. The memorandum of objections is dismissed with costs.