P L D 1967 Lahore 1011 (PLP)

This second appeal is by the plaintiff Muhammad Abdullah and has arisen out of a suit instituted by him against the Municipal Committee of Gujranwala for the recovery of a sum of Rs. 2,000 which he had deposited with the defendant by way of security for participating in an auction held by the Municipal Committee on the 1st of October 1955 in respect of the right to collect the refuse of the town for the year 1955‑

56. The appellant offered the highest bid of Rs. 50,000 and was, therefore, successful in obtaining the contract. However on the 1st of November 1955, the contract in favour of the appellant was cancelled by the Municipal Committee and his security was forfeited, on account of his failure to pay one‑half of the auction money according to the terms of the auction sale. In the plaint no mention was made of the plaintiff's failure to deposit one‑half of the auction money, and instead it was asserted that the President of the Municipal Committee bad cancelled the contract for no reason whatsoever, and with the ulterior purpose of causing loss to the plaintiff.

2. On behalf of the defendant the suit was resisted on the ground that as the plaintiff had failed to comply with the terms of the sale inasmuch as he did not deposit one‑half of the auction money immediately after the conclusion of the sale, the Municipal Committee was justified in cancelling the contract from the name of the plaintiff and forfeiting the security deposited by him. It may be stated here that on the 20th of October 1955 the Municipal Committee had sent a notice (Exh. D. 2) to the appellant calling upon him to pay one‑half of the auction money but he refused to accept this notice. However, on the 28th of October 1955 he made an application (Exh. D. 1) referring to this notice and praying for instalments for the payment of the auction money. This prayer was, however, not accepted by the Municipal Committee which passed a resolution on the 1st of November 1955 cancelling the contract and forfeiting the security amount of Rs. 2,

000. The contract was later given to one Allah Rakha for Rs. 52,000 and he was allowed to pay the money in instal ments.

3. The suit was tried by the learned Senior Civil Judge at Gujranwala who held that according to condition No. 6, announced at the time of the auction, the successful bidder had to deposit one‑half of the auction money, after deducting the security amount already deposited by him, and that in default the security was to be considered to have been forfeited in favour of the Municipal Committee. He further observed that in a statement made on the 26th of March 1956, before the framing of the issues, the learned counsel for the plaintiff had admitted that one‑half of the auction money had to be deposited by the plaintiff‑appellant on the conclusion of the auction sale and before taking possession of the refuse godowns. The learned trial Judge, in these circumstances, came to the conclusion that the plaintiff bad contravened the terms of the sale with regard to the deposit of one‑half of the auction money, and accordingly the Municipal Committee was entitled to forfeit the amount in question. On these findings, the appellant's suit was dismissed.

4. In appeal the main contention raised on behalf of the appellant before the learned District Judge of Gujranwala was that as the Executive Officers Act had been applied to the Gujranwala Municipality before the auction in question took place, every contract between the Municipal Committee and a third party had to be in writing and was to bear the seal of the Municipal Committee, and in the event of non‑observance of these formalities the contract would be void and unenforceable. It was submitted that the auction sale in the present case not having been concluded in accordance with these formalities, no legal right accrued in favour of the Municipal Committee to forfeit the amount in question. This argument was sought to be repelled on behalf of the defendant‑respondent by saying that no such question was raised by the plaintiff before the trial Court; that the stage of drawing up a formal written contract between the appellant and the Municipal Committee had not been allowed to be reached on account of the default committed by the appellant himself, and finally that the appellant and his counsel had admitted the appellant's default in the matter of the payment of half the auction price. The learned District Judge observed that no authority had been cited before him in support of the appellant's contention, and that in his judgment the findings arrived at by the trial Court were correct. He, therefore, dismissed the plaintiff's appeal.

5. In the present appeal Mr. Munir Ahmad, the learned counsel for the appellant, has raised the following points:‑‑ (a) That under section 6 of the Executive Officers Act, which was applicable to the Municipal Committee of Gujranwala on the relevant date, all agreements and contracts between the Committee and third parties had to be in writing and bear the seal of the Municipal Committee, and as the auction sale in dispute did not carry these formalities, there was no valid agreement between the parties and the Municipal Committee did not have any power or authority to forfeit the sum of Rs. 2,000 deposited by the appellant as security. (b) that assuming that there was a valid contract between the parties, the sum of Ra. 2,000 had been deposited by the appellant merely to enable him to participate the auction pro ceedings, and condition No. 6, t which the Courts below have referred, did not contain any time limit for the payment of one‑half of the auction price, and accordingly no right accrued to the Municipal Committee to forfeit this amount on account of the appellant's failure to deposit one‑half of the auction price by the 1st of November 1955, and (c) that in any case, the contract in question having been re‑sold by the Municipal Committee for a higher sum, namely, Rs. 52,000, the Committee had suffered no loss and was thus not entitled to any damages by way of forfeiture of the security deposited by the appellant.

6. A preliminary objection was raised on behalf of the defendant by Mr. Khalilur Rehman to the effect that the points now urged had not been raised in the Courts below and should not, therefore, be permitted to be agitated at this stage in second appeal. The first point was, as already stated, raised before the lower appellate Court; and the second point seems to be implicit in the discussion contained in the judgment of the trial Court on the question whether the plaintiff‑appellant was under an obligation to deposit one‑half of the auction price immediately on the conclusion of the auction. It is only the last point which does not appear to have been agitated at all so far in the two Courts below, but I think it can be permitted to be raised even in second appeal, as it is a pure question of law. See Dr. Fazal Din v. Municipal Committee, Lyallpur (P L D 1956 Lah. 916).

7. Section 6 of the Punjab Municipal (Executive Officers) Act, 1931 (hereinafter referred to as the Act) is in the following terms:‑ "6. (1) Every contract to be entered into by the Committee shall be made on behalf of the Committee by the Executive Officer Provided that the Executive Officer shall be found by any resolution of the committee fixing terms, rates or maximum prices in the particular case or any class of cases. (2) No contract affecting immovable property or involving a sum exceeding such sum as the committee may fix shall be made by the Executive Officer unless it has been sanctioned by the committee. (3) Every contract made by the Executive Officer shall be reported to the committee within fifteen days of its being made. (4) Every contract made by the Executive Officer on behalf of the committee shall be entered into in such manner and form as would bind him if it were made on his own behalf and may in like manner and form be varied or discharged: Provided that every contract involving a sum exceeding one hundred rupees or affecting immovable property shall be in writing and shall be sealed with the common seal of the committee. (5) The common seal of the committee shall remain in the custody of the Executive Officer and shall not be axed to any contract or other instrument except in the presence of the Executive Officer who shall sign the contract in token that the same was sealed in his presence. (6) No contract executed otherwise than as provided in this section shall be binding on the committee: Provided that, when work is given on contract at unit rates and the number of units is not precisely determinable, the contract shall not be deemed to contravene the provisions of this section merely by reason of the fact that the pecuniary limits prescribed in subsection (2) or subsection (4) are eventually exceeded."

8. It will be seen that under the proviso to subsection (4) of this section every contract involving a sum exceeding one hundred rupees or affecting immovable property has to be iii writing and has to be sealed with the common seal of the Committee; and under subsection (6) any contract executed otherwise shall not be binding on the Committee. In the present case, the auction sale did involve a sum exceeding one hundred rupees and, therefore, ordinarily the contract entered into between the parties would have to be in writing and bear the common seal of the Committee. But the question is regarding the stage at which these formalities have to be complied with.

9. The learned counsel for the appellant has placed reliance on Dr. Fazal Din's case, to which reference has already been made in another connection, in support‑ of his contention that unless and until the formalities mentioned in the proviso to subsection (4) of section 6 of the Act had been complied with, the Municipal Committee could not enforce the condition re garding the forfeiture of the deposit made by the appellant at the time of participating in the auction sale. In that case agree ments relating to immovable property had in fact been entered into in writing, but they did not b; ar the common seal of the Committee. After a review of a large number of authorities, the learned Judges observed that "it is only by a seal that the Corporation acts when it enters into contracts in writing and if there be no seat the Corporation has not acted at all. No question of the existence of a contract, therefore, arises".

10. Now, in the present case the conditions of the auction had been approved by the Executive Officer of the Municipal Committee, as deposed to by Haji Muhammad Ibrahim (D. W. 3) who was then functioning as the Executive Officer. The auction was also conducted in his presence and at the conclusion of the auction he recorded an order to the effect that "bid closed in favour of Muhammad Abdullah son of Rasul Dar of Gujranwala for Rs. 50,000 only. The appellant also signed on the bid‑sheet which has been placed on the record as Exh. D.

3. There was thus an offer by the appellant which was accepted unconditionally by the Executive Officer acting on behalf of the Municipal Committee, with the result that a contract of sale came into existence in writing. In Johnston v. Boyes ((1899) 2 Ch. 73) and Warlo v. Harrison ((1858) I E & E 295, 317) it was held that "after acceptance by the fall of the hammer, the sale is complete and damages can be recovered for the breach of the contract". It seems to me, therefore, that in the absence of a specific or even implied stipulation regarding the drawing up of a subsequent formal deed of contract between the parties, or regarding the subsequent confirmation of the auction sale by any authority, Exh. D. 3 must be deemed to be the formal contract of sale. The contention raised on behalf of the respondent that the stage of drawing up a formal contract in writing had not yet been reached in this case is thus without any merit, for the reason that a contract in writing had already come into being bearing the signatures of the Executive Officer as well as of the appellant, and in the conditions of sale there was no stipulation that a formal contract will have to be drawn up subsequently on the appellant depositing one‑half of the auction price.

11. The question is whether this contract should have borne the common seal of the Municipal Committee in order to be enforceable, as required by the proviso to subsection (4) of section 6 of the Act, and as held in Dr. Fazal Din's case to which reference has just been made. On page 150 of the Law of Auctions by Heber Hart, Third Edition, the learned author has observed as follows:‑ "The fall of the hammer duly signifies the vendor's acceptance by the auctioneer, acting as his agent, of the offer made by the last bidder. Thenceforward there is a contract of sale. By reason, however, of certain statutory provisions, many contracts are unenforceable unless and until they are evidenced by a signed memorandum showing the parties thereto and the subject‑matter and the terms thereof. In some of the earlier cases it was doubted whether sales by auction were within the scope of these statutory provisions, but it has long been settled that they are." In support of these statements the learned author has referred to the cases of Blagden v. Bradbear ((1806) 12 Ves.466), Hinde v. Whitehouse ((1806) East 558) and Kenworthy v. Schofield ((1824) 2 B 8, C 945). It would be seen, therefore, that contracts of sale which come into being as a result of auction proceedings are not exempt from the operation of the ordinary law relating to the execution of contracts in respect of the type of property or goods which are the subject of such auctions. In the present case the contract involved a sum exceeding one hundred rupees and was required to be in writing and to bear the common seal of the Municipal Committee under the proviso to subsection (4) of section 6 of the Act. These requirements could not be dispensed with simply on account of the fact that the contract had been concluded as a result of auction proceedings. The writing exists, but it does not bear the common seal of the Committee. In these circumstances, I think it must be held that the contract of sale, namely, Exh. D. 3, is not a valid contract in the eye of law, and is thus unenforceable by or against the Municipal Committee as held by the learned Judges in Dr. Fazal Din's case. On this view of the matter, the Municipal Committee was not entitled in law to forfeit the security of Rs. 2,000 deposited by the appellant.

12. In view of the conclusion that I have reached on the question of the enforceability of the contract of sale in question, it does not appears to be necessary to discuss the other points raised by the learned counsel for the appellant. As, however, these points were argued at some length by the learned counsel for the parties, I may briefly observe that I agree with the two Courts below that according to condition No. 6 the appellant was under an obligation to pay one‑half of the auction price soon after the auction and before, taking possession of the refuse godowns, and that on account of his failure to do so the security deposited by him was liable to forfeiture. This position was clearly admitted by the appellant's counsel in his statement at the trial, and this admission proceeds on the basis of the words used in condition No. 6 itself to the effect that on the conlcausion of the auction one‑half of the auction price shall be deposited by the highest bidder and that in default of this deposit the security amount would be considered to have been forfeited in favour of Committee. It has already been mentioned that the Municipal Committee had issued a notice to the appellant to comply with the condition in question and still he failed to do so, and it was only then that the contract was cancelled and re‑sold.

13. It is true that the contract was re‑sold for a higher price, namely, Rs. 52,000, and the Committee did not suffer any loss on account of the appellant's failure to carry out the condi tions of the auction, yet it is clear that the security was liable to forfeiture, as held in Chiranjit Singh v. Har Swarup (A I R 1926 P C 1) in which it was observed that "earnest money is part of the purchase price when the transaction goes forward: it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee". In the present case the security was clearly indicated to be a part of the purchase price and must accordingly be regarded as earnest money and thus liable to forfeiture in accordance with the dictum of their Lordships of the Privy Council in the case mentioned above.

14. The same view was adopted in Ramchand v. Central Flour Mills of Kasur and others (A I R 1935 Lah. 192), Bhalchandra Pandurang Rajandekar v. Mahadeo Laxminarayan Shraogi and others (A I R 1947 Nag. 193) and Mathradas Valabhadas v. Punathil Aboobaeker and others (A I R 1951 Mad. 752).

15. The present case is not covered by section 73 of the Contract Act and no question, therefore, arises of assessing the damages suffered by the Municipal Committee, or of arguing that in fact no loss has been sustained by the Committee on account of the re‑sale of the contract. If at all, the case would fall under section 74 of the Contract Act, although there is some difference of view among the judicial authorities as to whether a deposit or earnest money or security is indeed covered even by section 74 of the Contract Act. However, this question need not detain us, as judicial pronouncements with regard to the liability of the deposit or earnest money to forfeiture in the event of breach of contract by the vendee are clear.

16. For the foregoing reasons, although I am of the view that the amount of Rs. 2,000 deposited by the appellant under condition No. 6 of the conditions of the auction sale was liable to be forfeited on account of his failure to pay one‑half of the auction price immediately after the auction, yet the contract of sale, which came into existence between the parties on the conclusion of the auction sale, is not enforceable for the reason that it does not bear the common seal of the Municipal Committee. That being so, the Municipal Committee is not entitled in law to retain this amount. I would accordingly accept this appeal, set aside the judgment and decree of the trial Court as well as of the lower appellate Court, and decree the appellant's suit for the recovery of Rs. 2,000 from the defendant Municipal Committee. In the peculiar circumstances of the case, I would leave the parties to bear their own costs throughout. K. B. A. Appeal accepted.