P L D 1967 Karachi 318 (PLP)

This printed clause was materially changed by the terms which were inserted in it in writing and by removal of its certain parts. The words in the second line of the printed contract "at any time at sellers' option between" were scored out. Instead the following words were put down in writing. "From 1st October 1958 ten thousand after continuous delivery". To make sure this term was again repeated in writing at the bottom of the printed form, viz. "from 1st October 1958 to ten thousand maunds after delivery continue regularly". The material part of the delivery clause after the change and the insertion of terms by the parties would read as follows :‑ "Weighment to be made in any of the factory, godowns or compound at Tando Allahyar and delivery to be given from 1st October 1958 ten thousand after continuous delivery."

9. The intention of the parties as to the term of delivery has been made abundantly clear by scoring out the printed part of the clause which would have given the sellers the option to deliver the goods between two dates or during a certain month and it was then expressly provided that delivery was to be from 1st October continuous until the contracted goods of the quantity of 10,000 maunds were delivered. There is then the Bardana clause in the contract under which the buyers had to apply and despatch empty Bardanas at the sellers' call to do so. These words "sellers' call to do so" were inserted in writing in this clause instead of a certain specific date which would have been the case if the printed terms of the delivery clause had been adhered to. In fact, it is clear by the perusal of the printed terms of these two clauses that the form was printed upon the assumption that certain period of delivery between two dates would be agreed upon and before the date of the delivery the Bardanas would be supplied. This, however, was altered by agreement of the parties as brought out in writing in the contract itself. Now, it may to recalled that the sellers had called upon the buyers as early as 10th September 1958 by Exh. 6 to send the empty Bardanas (gunny bags). If, therefore, the buyers bad sent the Bardanas and their representative for weighment they would have been entitled to insist for delivery commencing from 1st October 1958 and for it to continue until the whole quantity was delivered. According to the capacity of delivery given by the sellers in evidence this would not have taken more than two weeks at the outside. In fact, having regard to the capacity and the readiness of the sellers the delivery would have been completed much earlier. Likewise, the sellers would be entitled under the terms of the contract to insist upon delivery being taken as from the 1st of October. The contract, therefore, had to be performed on that date or to put it more accurately the performance had to commence from that date. If the buyers did not send the Bardanas and offer to take delivery on that day the sellers would be entitled to put an end to the contract. The contract itself is very clear on that point but I may refer to some of the evidence in the case led on behalf of the sellers themselves to show that this is what was intended by the contract. The sellers' witness No. 2 Din Muhammad, a broker in cottonseed transaction, stated:‑ "If a contract of sale of cottonseed provides for delivery, say from the 1st of October, then the buyers must send the gunny bags at least 3 days before that date." He was then asked that if the buyer had not sent Bardana before the date fixed for the commencement of the delivery but informed the seller that he will take delivery during the month and will send the Bardana for that purpose, was it open to the seller to cancel the contract. He promptly replied that it would be the right of the seller to make delivery in such condition or not. He might refuse the delivery in such a case. This witness has also stated that delivery in such a case must be completed by the end of October. Another witness of the sellers P. W. 5 Mukhtar Ahmed who is the manager of a cotton factory at Tando Allahyar and is in this business since 1952, stated:- "I agree that if a date is fixed from which delivery is to be given and if in such a case the buyer does not take delivery from that date the seller would have the right to cancel the contract and if the seller does not give delivery as from that date the buyer would have a right to cancel the contract. Whether they actually do it or not depends upon their relations and trade practice. In actual trade practice parties do make an allowance of a day or two either in the matter of taking delivery or of giving delivery when a particular date is fixed." In examination‑in‑chief this witness had stated that according to the usage of trade if the contract provided for delivery from 1st of October continuous then delivery should commence on 1st October until the quantity contracted for is delivered, but the delivery must be finished within that month, Abdul Karim, P. W. 1, a partner in the sellers firm stated that delivery in this case was to commence on 1st October and was to continue until the whole quantity was delivered. He, however, went on to state that they did not treat this contract as having been terminated before the 31st of October because this was a case of October delivery. I cannot agree, having regard to the terms of the contract that, correctly speaking, it was a contract of October delivery within the meaning of the term as used in this trade. If that was so, delivery could have commenced on any date during October at the request of the buyers or at the convenience of the sellers but that is not what the contract provided. The witness, however, himself admitted later on that considering that the buyers in this case had not sent Bardanas up to the 1st of October it would have been open to them as sellers to cancel the contract upon that ground.

10. The buyers only examined one of their directors and he attempted to make out that the contact had subsisted until 27th November 1958. This was so according to him, because that was the date on which they bad asked for delivery. He also stated that in a contract of the nature as Exh. 5, delivery could have been given even after the end of October 1958 and that it was not correct that it had to be completed by the 31st of October. He had earlier stated that the delivery in this case had to be taken after the 1st of October 1958. I may point out that having regard to the prevailing market prices on the 1st of October and several days thereafter even the sellers were attempt ing in the course of the evidence to make out that delivery could have commenced at any time during the month of October so long it was completed during that month. This attempted stand was due to the fact that they had pleaded the date of the cause of action as 31st October 1958 on which date the prices had gone down and upon the basis of which they bad made the claim for damages. On the other hand, the prices on the 1st of October and even thereafter were not lower than the contract price. This stand cannot be accepted having regard to the clear terms of the contract itself and even in view of the evidence led on their behalf. Likewise, the position taken by the buyers' witness that the contract subsisted until the 27th of November and goods could have been taken delivery of at any time even after the 31 at of October is clearly untenable. This stand was taken because the buyers' plea was that the contract was bit by Martial Law Regulation No. 42 whereby lower prices were fixed and at which they were willing to take delivery. But the Regulation itself was enacted on the 1st of November and the prices were not fixed and the notification of prices was gazetted on 14th November though it had come out in the papers about 2 or 3 days earlier. How could then this contract be hit by the Martial Law Regula tion No. 42 or the price fixed by it? Mr. Zari, the learned counsel for the buyers, readily moved away from the stand taken in his clients' written statement and urged that if the breach took place on the 1st of October the market rate of the cottonseed on that date was even higher than the contract rate and for that reason the sellers were not entitled to any damages because the basis of damages would be the difference between the market rate and the contract rate on the date of breach. Mr. Naimuddin for the sellers, however, contended that the seller could keep the contract alive until the 31st of 'October and that this would be the material date for the purposes of the market rate. It is true that according to the rate prevailing on the date the sellers would be entitled to the damages claimed by them or a little less.

11. It is now well settled and Mr. Zari did not dispute the proposition that in the case of commercial contracts, the usual: rule is that time is of the essence of the contract. In the present case, I have already referred to the evidence led on behalf of the sellers which itself makes it clear that time was of the essence of the contract. If this was not so, the sellers could not have the right to cancel the contract on 1st October 1958 and that they had this right has been asserted uniformally by all the sellers' witnesses. The question then is whether the sellers, notwith standing that the buyers had not sent the Bardanas or sent any body for weighment or done anything to indicate that they were willing to take delivery in the terms of the contract, could keep the contract alive without a fresh agreement, till the end of October 1958. If this contract had provided for October delivery there would have been no difficulty, but that was not the contract. The contract expressly provided for delivery to com mence from the 1st of October and to continue regularly until the quantity was exhausted. I am, therefore, unable to agree that the sellers could unilaterally extend the time till the 31st of October so as to entitle them to treat that date as the date of breach and claim damages upon the basis of the difference between the market rate prevailing on that date and the contract rate. The date of the breach would be the date on which the contract had to be performed. This was 1st of October. It was for this reason that: the sellers' witnesses stated that the sellers had the right to cancel the contract. They could only have the right to cancel the contract if there had been a breach and when the breach took place the parties in the matter of damages must be governed by the conditions prevailing on the date of breach. However, time for performance could have been extended but this could only be done by the agreement of parties. Was there such an agreement in this case? Mr. Naimuddin referred me to the evidence of his witness Muhammad Yousaf, P. W. 4, who was the man in charge of the sellers office at Karachi. But even this witness does not state that there had been an agree ment extending the time of delivery. He says that he had contacted the buyers on telephone and had gone to theist personally. On 23rd or 24th October 1958 and they were telling him that they would send the Bard anal and take delivery before the 31st. But this statement, I am not prepared to accept because neither in the letter of 20th October, Exh. 7, nor of 28th October, Exh. 8, both of which are signed by the same Mohd. Yusuf, there is any indication to the effect that the buyers had promised to take delivery before the 31st of October. In fact, considering that the market had, in the middle of the month, came to a stand still, it would be extremely unlikely for the buyers to agree to take delivery on the contracted rate sometime about the end of October. The buyers' witness categorically stated that they did not make any request to the sellers to extend time with regard to deliveries. Muhammad Siddiq stated that Muhammad Yusuf had come to him before the 28th of October and he had told him that the market was at a stand still and so all the traders should get together and reach a decision. This seems to be more likely. Indeed, the sellers in their notice dated 2nd December 1958, Exh. 11, through their lawyer had expressly said that the breach of contract was committed on 1st October 1958 when the buyers had neither demanded delivery nor taken it. I have, therefore, no hesitation in holding that there was no agreement for extension of time for performance in this case. That being so, could the sellers of their own accord extend the date of breach and claim damages on that basis? The answer to that question, in my opinion, must be in the negative. In the case. of A. K. A. S. Jamal v. Moola Dawood Sons & Co. (AIR 1915 PC 48) was considered the effect of section 73 of the Contract Act which deals with the question of compensation for loss caused by breach of contract. That was a case of contract for sale for negotiable securities and the seller, after the breach of contract by the buyer, claimed damages at the rate prevailing at a later time. This claim was repelled and in doing so their Lordships observed that if the seller held on to the shares after the breach the speculation as to the way the market would go was the speculation of the seller and he cannot recover from the buyer the loss below the market price at the date of the breach if the market fell, nor would he be liable to the purchaser for profit if the market rose. It was further observed that it was the undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss subsequent upon the breach. To the same effect is the decision of the privy Council in a subsequent case reported in Erroll Mackay v. Maharaja Dhiraj Kameshwar Singh (AIR1932PC196). It was held that in a contract for sale of goods where delivery bad to be made at a certain time and there was default by the seller to give delivery at that time, the date of breach was the date when the contract ought to have been but was not fulfilled and not the date of refusal of liability. It was further held that in the case of breach of contract of sale of goods if there was an available market for the goods at the date of breach the damages must to based on the difference between the Market price and the contract price. In a Nagpur case Mohanlal v. Gyaniram Agarwal (AIR 1935 Nag. 111) it was held that in a contract to sell and buy it is open to the seller to avoid the contract when the buyer fails to take delivery but he cannot elect to keep alive the broken contract in the hope that he might recover heavier damages for the breach of contract.

12. I shall now examine the question with reference to section 55 of the Contract Act to determine whether upon the failure of the buyers to perform the contract on the 1st of October and in the absence of any rescission by the sellers, the contract was kept alive to enable the sellers to claim damages upon the basis of the market rate prevailing on a later date such as 31st October which the sellers in this case claim. The material part of section 55 for the purposes of the present discussion reads:‑ "When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract." In this case time was of the essence of the contract and the buyers did not send the Bardana nor took any steps to take delivery from 1st of October which they were expressly asked to do. The argument which might then arise is that in so far as the sellers did not exercise their option of avoiding the contract, the contract which was voidable at their option was kept alive and, therefore, a subsequent date of breach‑must be looked for purposes of determining the damages having regard. to the market rate pre vailing on such subsequent dates. This question directly arose before a Division Bench of the Bombay High Court consisting of Stone, C. J. and Chagla, J. in the case of Anandram Mangharam and others v. Bholaram Tanumal (A I R 1946 Bom. 1). In that case, the action was by a purchaser of certain goods against the vendors for damages for failure to deliver the remaining 36 bales of cloth. The case of the seller was that in effect time for performance was extended and having regard to the market rate on a subsequent date the buyer was not entitled to any damages. The learned Chief Justice after quoting the material part of sections 55 and 63 of the Contract Act went on to consider the case law on the point and the first amongst these was the judgment of the Madras High Court delivered by Sir Charles White C. J. in the case of Mutthaya v. Lekhu Reddiar (I L R 37 Mad. 412). The learned Chief Justice in that case had observed: "Now, in my opinion, section 55 entitled a party to a contract, where time (as in this case) is of the essence of the contract, to say if he is sued upon the contract: Time is of the essence of this contract, you have failed to comply with the stipulation as to time, I repudiate he contract.' It does not enable the promisee to say: I elect to keep alive this broken contract in the hope that I may hereafter recover heavier damages for the breach of the contract than I should) be entitled to recover at the time of the breach of the contract. Mr. Seshagiri Ayyar contended that the only way by which a promisor who had broken his stipulation as to time could protect himself if the promisee did not avoid the contract would be to give notice that the contract was at an end. It seems altogether unreasonable to place any such obligation on a promisee when ex‑consensus the contract has been broken with reference to a matter which goes to the root of the contract."

13. The next authority considered by the Chief Justice was of the Privy Council in the case of Muhammad Habibullah v. Bird & Co (49 I A 175). Lord Dunedin delivering the judgment of the Board had after quoting with approval from an observation of Baron Martin in a case reported in 10 Ex. 195, held : "The effect of section 55, Contract Act, above quoted is, where the party having the option elects not to avoid, to put agreement after the original date on the same footing as an agreement, as put by Baron Martin, just before the original date." Referring to this passage Stone, C. J. held "Be it observed that what is said is that section 55, Contract, Act, is to put an agreement after the original date on the same footing as the agreement mentioned in the quotation in Baron Martin's judgment. But it must be an agreement. Mere forbearance, from suing or giving a formal notice is not enough."

14. His Lordship then went on to consider an earlier judgment of Blackwell, J. in a Bombay case reported in Ratilall Parikh v. Dalmia Cement & Paper Marketing Co. Ltd. (A I R 1943 Bom. 229) and dissented from the view taken by Blackwell, J. which he had expressed in the following terms:‑ "It is well established that a party to a contract may at the request of the other party forbear from insisting upon delivery at the contract time and may allow time to be extended, without binding himself to do so. The learned Chief Justice observed that this proposition was not in accordance with the Privy Council decision nor with the decision of the Madras High Court quoted by him earlier.

15. Chagla, J. who agreed with the learned Chief Justice summarised his view as follows:‑ "Under section 55, Contract Act, the promisee is given the option to avoid the contract where the promisor fails to perform the contract at the time fixed in the contract. It is open to the promisee not to exercise the option or to exercise the option at any time, but it is clear to my mind that the promisee cannot by the mere fact of not exercising the option change or alter the date of performance fixed under the contract itself. Under section 63, Contract Act, the promisee may make, certain concessions to the promisor which are advantageous to the promisor, and one of them is that he may extend the time for such performance. But it is clear again that such an extension of time cannot be a unilateral extension on the part of the promisee. It is only at the request of the promisor that the promisee may agree to extend the time, of performance and thereby bring about an agreement for exten sion of time. Therefore, it is only as a result of the operation of section 63, Contract, Act, that the time for the performance of the contract can be extended and that time can only be extended by an agreement arrived at between the promisor and the promisee."

16. The above view was rearmed in another case by another Division Bench of the Bombay High Court The Paper Sales Ltd. v. Chokhani Bros. (A I R 1946 Bom. 429). Pollock and Mulla have approv ed of this view in their commentary on section 55 of the Contract Act. After quoting the words "the contract becomes voidable at the action of the promisee" the learned authors have gone on to express their view by an illustration which they have put thus:‑ "A agrees to sell and deliver 6 candies of cotton to B on 12th July 1909. A fails to deliver the goods on 12th‑July. On 4th September 1909, B writes to A stating that if A failed to deliver the cotton within a week, he will claim damages according to the market rate at the date of the letter. A takes no notice of this letter. On 3rd October 1909, B writes another letter to A stating that as A had failed to deliver the goods he would claim damages on the footing of the market rate at the date of the second letter. B is not entitled to damages on that footing, but to the difference between the contract rate and the market rate on 12th July 1909, the latter being the date of the breach. The present section does not enable a promisee to keep alive a broken contract in the hope of being able to recover heavier damages for its breach. It is immaterial that no notice was given by A to B that the contract was at an end." It may be noted that the learned authors have not considered the giving of a notice by the promisee, upon the breach of the promisor that the contract was at an end, to be necessary. I am in respectful agreement with the view taken in the above two cases and in the commentary quoted above. It seems to me that to hold otherwise would amount to a massive repudiation of the well established concept of the law relating to damages in the case of sale of goods with reference to the date of breach. When two traders enter into a contract of sale of goods and fix a date for performance, then performance must take place on that day assuming time to be of the essence of the contract. If delivery under that contract is of a commodity considerable in quantity--then delivery has to commence on that day and continue accor ding to the usage of that trade if the terms of the contract them selves do not provide for it. But the date of delivery must be adhered to. This has to be so as transactions of sale of good to have many ramifications. For instance the buyer may have in his turn agreed to deliver the same goods to another trader and so on. But whet the time for delivery comes it may well be that one or the two parties or both of them are in some difficulty either with regard to payment or with regard to delivery. In that case the party in difficulty may, approach the other and ask him to accommodate him by extending time for the performance of the contract. The other party may agree. If he does then the contract is to that extent novated with regard to the question of time of performance. It takes the place of the original contract. But where no such extension of time is made by mutual agreement, the promisee, against whom the default has taken place, cannot be promitted unilaterally to choose his own time for fixing a date of breach merely by not avoiding the contract and determine the damages with reference to the date of his own choosing.

17. My conclusion for the reason given is that the sellers were not entitled to keep the contract alive unilaterally and recover damages upon the basis of the subsequent market rate. I further hold that there had been no agreement extending time for the performance of the contract. The date of the breach of contract in the present case for the purpose of determining damages must be held to be 1st October 1958. This conclusion is inescapable both from the terms of the contract and the evidence of the sellers themselves. The market rate according to the evidence of the sellers witness P. W. 3 Dad Muhammad which evidence was given with reference to the market bulletins, on 1st October 1958 was between Rs. 18‑8‑0 and Rs. 19‑12‑

0. Thereafter there was a gradual decrease of prices but until the 11th of October it was between Rs. 14‑12‑0 and Rs. 16 per md. The contract rate was Rs. 15‑14‑0 per maund F. O. R. Tando Allahyar. Adding therefore about a rupee or even two as the cost of transport between Tando Allahyar and Karachi and even giving allowance for the fact that Tando Allahyar cottonseeds are not of the highest quality, it is clear that the market price compared favourably with the contract price on the date of breach. I have taken into account the cost of transport because the rates quoted are of Karachi Market. The sellers partner stated in his evidence that they had sold even on 29th, October 1958 at the rate of Rs. 18 per maund. In this, however, he made a mistake because it became clear from the evidence of Muhammad Yousaf, the office in charge of the tellers' that the said sale was upon the basis of a contract which was of a much earlier time. This must be so because the evidence of Dad Muhammad estab lished that on the 15th of October there was hardly any business in the market as the rate was very uncertain and that between 16th and 17th of October the rate was between Rs. 13 and Rs. 14‑4 per maund. On 29th and 30th October it was between Rs. 12 and Rs.

14. On 31st October it was between Rs. 12‑11‑0 and Rs. 13‑12‑0.

18. From what has been said above the sellers' claim for damages must fail because on the date of the breach the market rate was no lower than the contract rate. Upon this finding the sellers' Suit No. 183/61 must be dismissed.

19. With regard to the buyers' Suit No. 174/62 which is based upon their claim for the refund of advance money it must be remembered that it is they who committed the breach of the contract. In fact, they acted in a strange manner inasmuch as they did not even reply to the letters of the sellers in which they were asking them to send the Bardana and take delivery. The question then is are they entitled to claim the refund of the advance money? My answer to that question is in the negative. This amount of Rs. 5,000, though described as an advance was of the same nature as a deposit or as earnest money. Such an amount is paid as a guarantee for the performance of the contract. When the contract is performed it goes as part of the price and when it is broken it is liable to be forfeited. This is the view taken by us in the case of the Trustees of the Port of Karachi v. Ghulamali Habib Rawjee (P L D 1961 Kar. 623). In this case we had relied upon A I R 1926 P C 1 and the leading case on the subject is of Howe v. Smith ((1884) 27 Ch. D 89), which case has been followed for more than 50 years in this sub‑continent on the subject of deposit. My view finds support from another Division Bench judgment of this Court in the case of Jatoi Cotton Ginning and Pressing Factory v. Mst. Zabrab Usman. I have referred to this case earlier in connection with the effect of the prices fixed by Martial Law Regulation No. 42 in respect of cottonseed. In that case it was held that the contract had been frustrated by the said Martial Law Regulation. For the reason the seller was ordered to refund the deposit but this is what their Lordships said :‑ "This is now a well established rule, of law that where a contract for sale of goods is not performed for default of the purchaser the vendor is entitled to retain the deposit, but where there is no repudiation of the contract by the purchaser nor any conduct on his part amounting to repudiation, he is entitled to the return of 'the deposit. In the present case we have already held that the two contracts in dispute could not be performed on account of frustration or impossibility in the performance of the contract created by the Martial Law Regulations. There was no fault of the respondents in this respect. In law, therefore, the respondents are entitled to the refund of the deposit paid by them towards the performance of the contract." For the reasons given I hold that the buyers are not entitled to the refund of their advance money.

20. In view of my conclusions my finding on the first issue is that Martial Law Regulation No. 42 does not apply to this contract. On issue No. 2 my finding is that the breach was committed by the buyers.

21. Issue No. 3.‑1n view of my conclusions and findings recorded earlier, neither of the parties are entitled to any relief. I accordingly dismiss both the suits. The parties will bear their own costs. K. B. A. Suit dismissed.