P L D 1959 (W (PLP)

(2) In any case cad the plaintiffs enforce the alleged guarantee? (Both issues cover Para. 2-A of the written statement of defendants No. 1 and Para. 3-A of the W. S. of Defendants No. 2). The learned counsel for the defendants have dropped issues Nos. 1, 2, 10, 12, 14, 15, 16 and

17. Issue No. 18 was also dropped as the plaintiffs made the necessary amendment in the plaint and incorporated in it the allegation that a notice under section 70 of the Bombay Co-operative Societies Act, 1925 had been given before the institution of the suit. I will first take up the additional issues for consideration. Additional issues 1 and 2.-The preliminary objection to the maintainability of the suit is based on the ground that the contract in dispute and the letter of guarantee have not been drawn up in conformity with section 175 of the Government of India Act, 1935 which was in force at the relevant time. The learned counsel for the defendants have strongly urged before me that under section 175 of the Government of India Act a contract to be operative between the parties must be in a formal deed expressed in the name of the Governor and has to be signed on his behalf by an authorised officer. They contended that in the present case the suit is not based on any formal document but on certain letters which were exchanged between the Government of Sind and the defendants. In order to appreciate this argument it is necessary to consider the terms of section 175 (3) of the Government of India Act. It runs as under "Subject to the provisions of this Act with respect to the Federal Railway Authority, all contracts made in the exercise of the executive authority of the Federation or of a Province shall be expressed to be made by the Governor-General, or by the Governor of the Province, as the case may be, and all such contracts and all assurances of property made in the exercise of that authority shall be executed on behalf of the Governor-General or Governor by such persons and in such manner as he may direct or authorise." There are two essential ingredients of this provision of law firstly, that all contracts made in the exercise of the executive authority of a Province shall be expressed to be made by the Governor of the Province; secondly, all such contracts and all assurances of property made in the exercise of that authority A shall be executed on behalf of the Governor by such persons and in such manner as he may direct or authorise. There is no doubt in my mind that if section 175 (3) of the Government of India Act is a mandatory provision of law the suit must fail as no formal deed had been executed by the parties and the said provision has not been strictly complied with. In support of their contention the learned counsel for the defendants have invited my attention to a decision of this Court reported in LaClaire Pakistan Corporation v. The Islamic Republic of Pakistan (P L D 1957 Kan 285); a single Judge judgment of this Court in which Inamullah, J., expressed the view that the non-compliance of section 175 (3) of the Government of India Act renders all contracts between the Government and the private parties as ineffective and no suit on such contracts can be maintained. On the other hand, Mr. Riaz Ahmad, the learned counsel for the Province of West Pakistan, has pressed before me that this view is in direct conflict with the Division Bench decision of this Court reported in Azim Khan v. State of Pakistan and another (P L D 1957 Kar. 892) to which I was also a party. The Division Bench case considered Article 135 of the Pakistan Constitution, which is substantially in the same terms as section 175 (3) of the Government of India Act and it was held that: "The directions in Article 135 of the Constitution of Pakistan are merely directory and not mandatory. A contract other wise completed would not be rendered void simply because it does not comply with the provisions of Article 135 of the Constitution." In view of the later decision of the Division Bench, I am bound to take the view that the directions given in section 175 (3) of the Government of India Act are of a directory nature and their non-compliance will not render the contract void. The Division Bench Judgment, however, has not discussed at length the various aspects of the questions involved in this case, and as I was a party to that decision I venture to discuss the whole question afresh in order to explain why we came to the con clusion that the directions given in Article 135 of the defunct Constitution are of a directory nature. It is now a well settled proposition of law that the provisions of a constitution are always to be given liberal constructions and they are not to be interpreted in a narrow way. It is also a well settled law that "Where powers, rights or immunities are granted with a direction that certain regulations, formalities or conditions shall be complied with, it seems neither unjust nor inconvenient to exact a rigorous observance of them as essential to the acquisition of the right or authority conferred, and it is therefore probable that such was the intention of. the legislature. But when a public duty is imposed and the statute requires that it shall be performed in a certain manner, or within a certain time, or under other specified conditions, such prescriptions may well be regarded as intended to be directory only in cases when injustice or inconvenience to others who have no control over those exercising the duty would result if such requirements were essential and imperative". It is quite possible that if my brother Inamullah, J., had considered the matter from this angle he might have arrived at a different conclusion. These tests were applied by their Lordships of the Federal Court of India in J. K. Gas Plant Manufacturing Co. Ltd. and others v. Emperor (A I R 1947 F C 38), while considering the provisions of section 40 (1) in Schedule 9 of the Government of India Act, 1935. In order to find out whether its provisions were of a mandatory or directory nature, Spens, C. J., formulated the following questions: First, would the whole aim and object of the Legislature in, constituting the Governor- General in Council and conferring the far reaching powers which have by statute been conferred on the Governor-General in Council be plainly defeated if the provisions of section 40 (1) were not held to imply a prohibition to allow validity to orders of the Governor-General in Council, expressed otherwise than as provided in subsection (1) of section 40? Secondly, would the construction contended for by the appellants involve general inconvenience and injustice to innocent persons without promoting the real aim and object of the Constitution Act? Thirdly, is the construction suggested in conformity with the whole scope and purpose of the Constitution Act? It will be noticed that in section 40 (1) of the old Govern ment of India Act it was laid down that all orders and other proceedings of the Governor-General in Council shall be expressed to be made by the Governor-General in Council and shall be signed by the Secretary to the Government of India or otherwise as the Governor-General in Council may direct, and when so signed shall not be called into question in any legal proceedings on the ground that they were not signed by the Governor -General. The learned Judges of the Federal Court came to the conclusion that "if such overriding, if not vital, importance was intended by Parliament to be put upon the manner and form in which orders of the Governor-General in Council were to be expressed to be made the provisions of section 40 (1), would not have been enacted originally in the old Constitution Act and in the Transitional Provisions of the Constitution Act, in more absolute and emphatic terms and re-enforced by clear enactments, as to the complete invalidity of orders and strictly complying with the requirements of section 40 (1)". They also came to the conclusion that "no one can possibly doubt the immense general inconvenience and injustice which would be caused to innocent persons, if the provisions of section 40 (() of the Government of India Act were held to be mandatory." And they also held "that the scope of section 40 (1) was of a directory nature and not of a mandatory character". I will also consider the present case in the light of the test usually adopted for con struing such statutes. Section 175 (3) of the Government of India Act, as already stated by me, contains two essential ingredients. Firstly, that all contracts must be expressed in the name of the Governor and secondly, that all such contracts must be executed on behalf of the Governor of the Province by a person authorised by him. So far as the first ingredient is concerned, there is no doubt that it lays down that the contracts made in the exercise of the executive authority of a Province should be expressed in the name of the Governor. The question, however, is that if the contract is not concluded and executed in this form, can such a contract be defeated for this reason and is not binding between the parties. In my opinion, this requirement is only of a formal nature and much will not turn on the question whether the contract in dispute is expressed in the name of the Governor or not. If the Legislature wanted to render an agreement, not concluded in such form, as an invalid piece of document, it would have definitely expressed so in the subsection and provided that such a contract will not be operative between the Govern ment and the private party. So far as the general inconvenience is concerned, there is no doubt that private parties have no control over the actions of the Government and they cannot force them to execute a contract in a particular manner. As pointed out in so many decided cases the non-observance of this formality will result in great hardship. The Government enters into so many contracts daily and it is not possible to expect that every petty contract should be incorporated in a formal document, otherwise it will trot be binding on the Government. In my opinion, therefore, so far as the first ingredient of section 175 (3) is concerned, it is only of a directory nature and cannot be held to be of a mandatory character. So far as the second essential ingredient is concerned, I am of the view that it goes to the very root of the contract and if the contract is not entered into by the person duly authorised by the Governor it cannot be binding on the Government and cannot be considered to be a valid contract. This ingredient is not of a formal character. It is specifically stated that the contracts entered into on behalf of the Government must be executed by persons duly authorised. This is a protective clause and it cannot be considered to be of a directory nature. By its very object it must be treated as mandatory. Mr. Parmanand, the learned counsel for defendant No. 2, has taken me through the decision of my brother, Inamullah, J.; in P L D 1957 Kar. 285 to press his point of view. In that case Inamullah, J., held (a) that the word "shall" in clause (3) of section 175 of the Act renders the compliance of the pro vision mandatory; (b) he traced the history of this legislation and observed that in Statute 22 and 23 Vic., c. 41 and section 30 of the Government of India Act, the phraseology was different and in spite of that the view of the various Indian Courts is that its provisions are of a mandatory character; and (c) after review of the whole case law on the subject, observed that the only difference is on the question whether any formal document is necessary for entering into a contract, but there is unanimity of opinion that the contract must ex facie show that the pro vision of section 175 of the Government of India Act has been complied with. But while coming to this conclusion he also observed that a formal document was necessary and the failure to execute such a document is fatal to a suit based on it. I have already expressed my view on this aspect of the question and with great respect I do not find myself in agreement with the view expressed by him. It is well settled under the general law that contracts can be concluded both by a formal document and can also be spelt out from the correspondence exchanged between the parties. Section 175 of the Government of India Act has not in any way changed the general law of the land, in Secretary of State v. Bhagwandas Goverdhandas (A I R 1938 Bom. 168) and Devi Prasad Sri Krishna Prasad Ltd. and another v. Secretary of State (A I R 1941 All. 377) this aspect of the question was fully dealt with. Beaumont, C. J., in A I R 1938 Bom. 168 observed "In any case I apprehend that if parties rely on a contract to be spelt out of a series of letters, it would generally be very difficult to show that the contract complied with section 30, Government of India Act, and obviously in a case to which that section applies the parties would be wise in having a formal document inter partes. I do not wish, however, to bind myself to the proposition that in no case can a contract comply with section 30 unless it takes the form of a contract inter partes. It is possible that a contract in the form of letters, complying with the provisions of section 30 and signed by the proper officer would be a contract complying with the terms of the Act." Blackwell, J. in the same judgment observed "In Municipal Corporation, Bombay v. Secretary of State 58 Born. 660 Mirza J., in a passage beginning at the bottom of p. 707 expressed the opinion that the contract contemplated by section 30, Government of India Act, should be evidenced by a formal document in the nature of an indenture or deed to which the Secretary of State in Council is made a party and not merely by correspondence. I am, with respect, quite unable to agree with the learned Judge that the section requires a formal document in the nature of an indenture or deed. The words used in subsection (1) of section 30 are quite general in terms and authorise the Local Government on behalf and in the name of the Secretary of State in Council to make any contract for the purposes of this Act. There is nothing in the section to indicate that the contract is to take any particular form. Subsection (2) of section 30 requires the contract to be executed by such person and in such manner as the Governor-General in Council by resolution directs or authorises. The use of the word `executed' no doubt does suggest that a formal contract executed between the parties is required to be entered into. I am not however prepared to take the view that a formal contract of this character is necessarily required. It seems to me that such a contract as is required by section 30 might be entered into by letters provided that it was plain that the correspondence was executed by a person authorised by resolution in that behalf." In A I R 1941 All. 377, the learned Judges of the Allahabad High Court followed this decision and observed "A good deal of Government business is being done in the form of tenders and acceptance of tenders in which, till a very late stage, formal deeds are not drawn up. However much desirable it may be to have a formal deed with regard to all the agreements made by the Government, we are not prepared to hold, as a matter. of law, that an agreement evidenced by tenders and acceptance of tenders of an agreement evidenced by correspondence or other documents of informal nature, though fully established by evidence, must fail and be said to offend the terms of section 30, Government of India Act. In our opinion, it is a sufficient compliance with the terms of section 30 if the agreement is expressed in writing, and this writing may comprise of a series of letters or a series of informal documents." Mr. Permanand, however, contended that these decisions are under section 30 of the Government of India Act, 1915 and the terms and language of section 175 of the Government of India Act, 1935 are different from the terms of section 30 of the Government of India Act, 1915. A comparison of the two provisions of law however shows that the intention of both are that the contract will be expressed, in one case, by the Secretary of State for India and, in the other case, by the Governor-General in Council or the Governor as the case may be, but so far as the material portions of the two provisions are concerned they are the same and I do not think that for this reason the decisions cited above have lost their importance and should not weigh with me. Mr. Permanand then took me through a decision] of the Indian Supreme Court reported in Chatturbhuj Vithaldas Jassani v. Moreshwar Parashram and others (A I R 1954 S C 236). He contended that the Division Bench in Azim Khan v. State of Pakistan (P L D 1957 Kar. 892) had only relied on a portion of the observations made in that case by Bose, J., and did not take into consideration the full effect of the decision. I have again gone through the decision of the Indian Supreme Court. In my opinion they have clearly laid down that merely because the formalities of Article 299 of the Indian Constitution have not been followed, a contract cannot be declared to be void. According to them it may be that such a contract may not be enforced against the Government but at the same time it can be enforced against the officers who entered into the contract under section 230 (3) of the Contract Act. It was in that context that the learned Judges of the Supreme Court have noted that general inconvenience will be caused if every petty contract entered into between the parties and the Government is followed by a ponderous legal document. This is exactly what we considered in the Division Bench case and held that so far as the execution of a formal document under section 175 (3) of the Government of India Act is concerned, it is only of a directory nature. In a recent decision of the Indian Courts reported in Messrs Tilakram Rambaksh v. Bank of Patiala and others (A I R 1959 Pb. 440) the learned Judges of the Punjab High Court observed as under "It is incomprehensible to me how it is at all possible for such banking transactions to be made with the solemnity referred to in Article 299 of the Constitution and our Supreme Court has on more than one occasion indicated that every executive act does not have to be clothed in that. particular form and that a transaction does not become invalid by not being so expressed." I am also fortified in my view by a decision of the Lahore High Court reported in Sarfaraz Khan v. Crown (P L D 1950 Lah. 384). In that case the controversy was whether a Bill assented to by the Governor -General under section 76 of the Government of India Act not in the name of His Majesty was a valid assent or not. Munir, C. J., as he then was, observed: that merely because the Governor-General did not say in the assent that I assent in His Majesty's name, the assent will not be ineffective. He further proceeded and observed: "The word `declare' in section 76 of the Constitution Act does not mean that the assent must be declared to be in His Majesty's name, and means no more than this that in the case of Bills reserved by a Governor the Governor -General shall declare whether he assents to them or withholds assent therefrom. If the assent is given, it is required by the Constitution Acts, to be treated as having been given in the name of His Majesty. If the Act had stated that the Governor- General shall have the power to give assent to Bills on behalf of His Majesty, and the Governor-General gave assent, without saying that he was doing so on behalf of His Majesty, it could not have been contended that the assent was invalid because while giving it the Governor-General did not declare that he was giving it on behalf of His Majesty." The learned Chief Justice further observed:- "Even under the general law when a person acts as an agent within the limits of the authority delegated to him by his principal and it is clear from the transaction that he acts on behalf of his principal, the principal would be bound by the transaction even if the agent while acting does not expressly say that he is acting as the agent of the principal." The present suit is based on a contract entered into by the Director of Civil Supplies on behalf of the Government of Sind. Exhibit 10/l5 shows that it was addressed on behalf of the Government of Sind, Department of Food and Agriculture, to defendant No.

1. On this very letter defendants No. I noted down its acceptance. In pursuance of this letter defendant No. 2 wrote a letter on 23-4-1951 (Exhibit 10/7) whereby they agreed to give a guarantee on behalf of defendant No.

1. These documents clearly disclose that the contract in dispute was entered into on behalf of the Government of Sind with defendants No. 1 and

2. It is not disputed that the Director of Civil Supplies Government of Sind was authorised to enter into such al contract or that the said officer in any way exceeded hiss authority. In these circumstances, merely because, no formal document was executed and expressed in the name of die Governor, I am not prepared to hold that the contract in question is not binding on the parties and cannot be made the i basis of the suit. I will therefore decide these issues against the defendants and hold that the suit is maintainable on the basis of: the contract spelt from the above mentioned correspondence between the parties. Issue Nos. I and 2.-Dropped. Issues Nos. 3, 5 and 6.-These are the most important issues in this case. As already stated the plaintiff has filed this suit for the recovery of the earnest money forfeited by them under the terms of the agreement (Exh. 10/15). The agreement reads as under: SUGDASI BROKEN RICE 1948-49 CROP. Reference your offer of 23rd April 1951 for 4000 tons of Sugdasi broken rice of 1948-49 crop. I am directed to inform you that your offer of Rs. 33-4-0 per bag of 2 mounds net ex-godown Karachi is accepted subject to the following conditions (1) You shall have to accept any quantity upto 400 tons of Sugdasi broken rice offered to you by Government. (2) Export of the broken rice will be allowed to you outside Pakistan subject to currency restrictions. You shall have to pay for exports in Sterling if required to do so. (3) The goods will b;, supplied to you on `as is where is' basis in the bags in which they are contained. (4) Supplies will be made to you against payment and earnest money returned (or Bank Guarantee released) after you have completed the delivery. (5) You shall have to credit 5% of the total (value of the goods immediately or give an unconditional Bank guarantee in the draft from hereunto annexed. (6) You shall have to lift the goods within three months from the date of this acceptance. If you fail to lift the goods within this period the earnest money deposit shall be forfeited or guarantee cashed and goods disposed of at your risk and cost. (7) The goods shall be subject to Central and Provincial Government inspection at the time of export and Sind Govern ment shall not be responsible if any difficulty arises at the time of export. No claim shall lie against Government on this or any account." This agreement wag followed by a letter from defendant No. 2 (Exh. 10/14) which is in the following terms: "Whereas our clients Messrs Mistry and Patel Co., Issaji Ibrahim Buildings, Second floor, Bunder Road, Karachi, have entered into a contract with Government dated 27-4-1951 embodied in Government letter No. C-476/6/B R dated 27-4-1951 for the purchase of 4,000 tons of Sugdasi broken rice, and whereas Government have required from our clients an earnest money deposit to the extent of 5 percent of the total value of the goods or an unconditional bank guarantee in lieu thereof, we have the pleasure to inform you that we hereby guarantee unconditionally the payment on demand to the Government of Sind of the earnest money deposit payable by the said Messrs Mistry and Patel Co., amounting to 5 percent of the total value of the goods purchased with interest at the rate of 6 percent per annum from the date of acceptance of our clients' offer by the Government, in the event of the said Messrs Mistry and Patel Co., failing to discharge their obligations to the Government, of which failure and the extent thereof, the Government of Sind will be the sole judge. We also agree that this guarantee will be irrevocable until the said Messrs Mistry and Patel Co., have wholly discharged their obligations to the Sind Government in conformity with the conditions of their contract to the satisfaction of the Government. We further undertake to finance the entire business ourselves in case of any financial difficulty on the part of the said Messrs Mistry and Patel Co." The learned counsel for the parties argued that the terms of the contract, subject to other objections, are to be spelt from these two letters. Now an examination of Exh. 10/15 proves beyond doubt that the plaintiffs and defendant No. 1 agreed on the following terms (1) That defendant No. 1 was to credit 5% of the total value of the goods immediately or give an unconditional bank guarantee in the draft form annexed; and (2) Defendant No. 1 was required to lift within 3 months of the date of the acceptance, the goods up to 4000 tons offered by the Government and if they failed to lift the goods within this period the earnest money deposited was to be forfeited or the guarantee cashed and the goods disposed of at their risk and cost. It, however, appears that defendant No. I did not credit 5% of the value of the goods but gave an unconditional bank guarantee in draft form annexed with the letter dated the 27th of April 1951 (Exh. 10/14). This letter of guarantee fully establishes that defendant No. 2 gave an unconditional guarantee for the pay ment on demand to the Government of Sind of the earnest money deposit payable by defendant No. 1 amounting to 5% of the total value of the goods, purchased with interest at the rate of 6% per annum from he date of acceptance of the offer in the event of defendant No. 1's failure to discharge their obligations, of which failure and extent the sole judge was the Government of Sind. It further provided that the said guarantee will be irrevocable unless and until defendant No. 1 have wholly discharged their obligations under the contract to the satisfaction of the Government. The letter of guarantee further shows that defendant No. 2 undertook to finance the entire business in case of financial difficulty of-defendant No.

1. It will thus be observed that defendant No. 1 did not deposit any amount with the then Government of Sind as an earnest money and defendant No. 2 gave an unconditional guarantee to pay the amount in lieu of earnest money in the event of defendant No. 1's failure to fulfil their obligations under the terms of the contract. Now the sole question for determination in this case is whether the bank guarantee can be considered to be an earnest money and whether the Government was entitled to forfeit it and recover it from the defendants or to put it in other words, whether the promise of defendant No. 2 to place the amount contemplated as earnest money at the disposal of the plaintiffs for the purpose of forfeiture is a condition which could be enforced in law by a suit. It is hotly contested on behalf of the defendants that such assurance cannot be enforced in law unless the seller has suffered any loss. According to' them earnest money is an amount which is deposited by the purchaser with the seller as guarantee for the due performance of the contract. Mr. Permanand, the learned counsel for the defendants, has urged that as no amount was deposited with the plaintiffs, there was no earnest money with them and they were not entitled to forfeit it. He also contended that earnest money is a technical term and must be interpreted in that sense. I have considered this question very carefully and in my opinion there is much force in the contention raised on behalf of the defendants. It is difficult to give a precise definition of the word "earnest" as pointed out by Wright, J., in Farr. Smith and Company, Limited v. Messrs Limited (sic) ((1928) 1 K B 397). The learned Judge, however, described it in the following words "An earnest must be a tangible thing, in which definition it may be that deposit is included, but in the old cases it was always some tangible thing. That thing must be given at the moment at which the contract is concluded, because it is something given to bind the contract, arid, therefore, it must come into existence at the making or conclusion of the contract. The thing given in that way must be given by the contracting party who gives it, as an earnest or token of good faith, and as a guarantee that he will fulfil his contract, and subject to the terms that if, owing to his default, the contract goes off, it will be forfeited. If, on the other hand, the contract is fulfilled, an earnest may still serve a further purpose and operate by way of part payment." This definition is based on English cases reported in Howe v. Smith (27 Ch. Div. 89 at p. 101), Sumner and Leivesley v. John Brown & Co. (25 T L R 745) and Blenkinshop v. Clayton (7 Taunt 597). In 25 T L R 745 it was contended that the handing over of the bags should be treated as earnest of the con tract but Hamilton, J. observed "that `earnest' in his opinion meant something given for the purpose of binding a contract, something to be used to put pressure on the defaulter if he fails to carry out his part. If the contract went through, the thing given in earnest was returned to the giver or if money, was deducted from the price. If the contract went off through the giver's fault the thin given in earnest was forfeited". In Blenkinsop v. Clayton, the bargain was contended to have been concluded as the agent of the purchaser taking a shilling in his hand, drew the edge of it across the palm of the seller's hand and replaced the shilling in his own pocket. But the whole Court denied that there was ever any payment or transfer of the shilling or payment for any. moment. In Chiranjit Singh v. Har Swarup (A I R 1926 P C 1), their Lordships of the Privy Council in this connection observed:- "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." The burden of all these decisions is that the earnest must be given either in the shape of money or some tangible thing at the time of the conclusion of the contract and should be available with the seller for forfeiture in case the transaction falls through the fault of the purchaser. I have not come across a single case where nothing is given as earnest but the promise to pay some amount towards it has been allowed to be enforced independently. It appears to me that in such circumstances it is open to the Court to determine the real nature of the transaction between the parties and to give effect to it. On the true construction of the terms of the agreement in question it is not possible for me to hold that the then Government of Sind had any tangible thing with them as a guarantee for the due fulfilment of the contract. In my opinion the letter of guarantee given by defendant No. 2, can by no stretch of imagination be considered as a tangible thing held by the Government of Sind as an earnest in the true sense of the word. It was at best a promise by defendant No. 2 bank to reimburse the plaintiffs for any losses suffered by them due to any breach committed by the defendant No.

1. I am firmly of the view that the earnest money must be paid at the time of the conclusion of the contract, it must be lying with the seller and if H that is not the case, any promise to pay the amount in lieu of earnest money cannot be treated as such and cannot be forfeited for breach of the contract. In this view of the matter, the plaintiffs having nothing with them as earnest money had no right r to forfeit it and cannot recover the amount in dispute on this ground from the defendants. A perusal of the terms of the agreement between the parties will also make it clear that the letter of guarantee given by defendant No. 2 cannot be treated as earnest money. Under the terms of the agreement the Government of Sind had two options open to them : either to forfeit the earnest or to cash the letter (if guarantee. The answer to this question will depend on the circum stances under which they were entitled to cash the letter of guarantee. The terms of the letter are very significant on this point. It says that the Government of Sind will cash it only on the failure of Defendant No. 1 to discharge their obligations, of which failure and the extent thereof they will be the sole judge. This term in itself implies that the Government of Sind will enforce it provided they have suffered any loss in the transaction in question. There is also much force in Mr. Permanand's argument that in a case where the seller besides forfeiting the earnest money has also after notice to the purchaser sold the goods in question, it is his duty to account for the sale proceeds and if the sale proceeds are sufficient to reimburse his claim, he must refund the amount lying with him as earnest money. It appears to me that the seller has two options: either to forfeit the earnest money and keep quiet or to forfeit the earnest money and reimburse his losses, by selling the goods at the risk and cost of the defaulting party. If he exercises the second option and the sale proceeds are more than sufficient to meet his claim, both in equity and law, be is bound to refund the amount of the earnest money forfeited by him. In such event the earnest amount will be treated as part payment and will be dealt with accordingly. I am supported in this view by the observation of Coutts-Trotter, C. J. in Manepalli Satyanarayanamurthi v. Thommandra Erikalappa (A I R 1926 Mad. 410). Adverting to a similar question the learned Chief Justice observed:- "With regard to the seller's appeal (A. S. No. 141 of 1923) he says that, having got a deposit and there having been failure by the buyer to take delivery, he ought to keep the deposit. His own original suggestion was that he should return the deposit less whatever he is entitled to by way of damages. I can content myself with saying that it is never the practice in mercantile contracts, to hold that whatever be the damage suffered or not suffered the seller is to be entitled to keep the deposit. He is only entitled to such damages as the learned Judge sitting as a jury has suggested, namely, 12 annas a bag, and I do not think we ought to interfere in a matter which is eminently one for the trial Judge." In this case there is ample material on the record to prove that the plaintiffs had not suffered any damages on account of the breach of contract by defendant No.

1. On the contrary they had made profit as admitted by P. W. I Nisar Ahmad. This witness admitted that the record of the file shows that the plaintiff on 15-11-51, sold the goods in dispute to Messrs Habib Rawji & Co. at Rs. 33-8-0 per bag ex-godown Karachi. Under these circumstances, on any view of the matter, the plaintiffs' claim is misconceived, they are not entitled to claim any amount from the defendant and the suit must fail. I will therefore decide these issues against the defendants. Issues Nos. 7 and II.-Defendant No. 2 has raised an objection that the letter of guarantee given on their behalf by their Manager Mr. A. Tayab Ali is not binding on them as he was not authorised to do so. In this connection Mr. Permanand, the learned counsel for the defendants, has taken me through the bye-laws to defendant No. 2's co-operative Bank (Exh. 10/2) and also referred me to the power-of-attorney (Exh. 10/1) executed in favour of the said gentleman. According to him the business of the bank is not to stand surety for any person and therefore under its constitution the Manager acted beyond the scope of., the business undertaken by them. He then referred me to bye-law 31 (C) and 29 (2) to show that in order to bind the company of any obligation, the letter of guarantee could not be issued without a specific. resolution of the Board of Directors and it should also have been signed by ,another Director of the Company for making it effective and binding against defendant No.

2. The learned counsel also referred me to National Coal Coy. Ltd. v. Gyan Ranjan Bhattacharya (45 Cal. L J 96 at p 107), Koda Venkataswamy v. Chinta Ramamurthy (A I R 1934 Mad; 579) and Chapleo and Wife v. The Brunswick Permanent Building Society and others (I1881) 6 Q B 696) and IV Indian Appeals in support of his contention that if a particular transaction is to be entered into in a particular manner under the bye-laws of the company and the same has not - been done in that way the company or the association concerned is not bound to honour ary commitment made on their behalf. I have given my best con sideration to the arguments advanced on behalf of the defendant No.

2. In my opinion the contentions raised by them are not of much substance. In this case it is admitted that Mr. Tyabali was not only the Manager but was also holding a general power of-attorney on behalf of the defendant bank. So far as the business of defendant No. 2 is concerned it is clearly mentioned in the bye-laws that one of its objects is to finance the industrialists and businessmen. The concluding portion of the letter of guarantee clearly says that the defendant No. 2 had undertaken to finance the business of defendant No. 1 with the plaintiffs. I am therefore very clear in my mind that the letter of guarantee is definitely within the scope of the business contemplated under the bye-laws of the association. So far as the authority of Mr. Tayabali to give the guarantee is concerned, one has to look into the matter from the point of view that, the Government was in the position of a stranger who was not in the know of the internal arrangement of the Co-operative Bank. It seems to me that if a transaction is entered into in such circumstances with a person holding a general power-of-attorney authorising him to sign letters and other papers on behalf of a Bank, may be a Co-operative Bank, it shall be presumed that he is entering the contract in the ordinary course of business with fu"l authority on their behalf and such contracts will be binding on this principal. This is exactly what has happened in the present case. I have already observed that one of the businesses of the defendant No. 2 was to finance the industrialists and the businessmen. Mr. Tyabali was in charge of the defendant bank not only as the Manager but also had with him the power-of-attorney authorising him to sign letters on behalf of defendant No.

2. In such circumstances I do not think it is of any importance that the letter in question was not written after all the other formalities have been completed. That is the internal affair of defendant No.

2. If Mr. Tyabali had not been holding a power-of-attorney and had not been authorised to sign letters and carry on the day to day business of defendant No. 2, the contentions of the defendants might have had some force, but on the facts of the present case I am not prepared to hold that the letter of guarantee was written without any authority and defendant No. 2 are not bound by the action of their Manager. I will therefore decide this issue against defendant No.

2. Issues Nos. 8 and 4 (a).-It was urged on behalf of the defendants that the defendant No. 1 had not committed any breach of the contract as they had not contracted to lift four thousand tons of Sukhdasi rice but only agreed to lift rice upto the said quantity. A reference to the terms of the contract, however, clearly shows that the contract between the parties was that defendant No. 1 would lift rice upto 4000 tons offered by the Government of Sind. The correspondence between the parties clearly indicate that defendant No. 1 had agreed to purchase 4000 tons of Sukhdasi rice. The earnest money and the letter of guarantee was also in respect of the said quantity. In my judgment the mere fact that the Government was to decide about the availability of the quantity does not show that the contract was for a lesser quantity. In view of an unequivocal stipulation in the letter of guarantee that defendant No. I had entered into a con tract to purchase 4000 tons of Sukhdasi rice, there is no doubt in my mind that they were bound to take the delivery of the whole quantity of rice as and when it was offered by the plaintiff. Mr. Permanand also raised a point that the contract was without consideration as it offends the doctrine of mutuality. He contended that the performance of the contract was dependent on the sweet will of the Government of Sind and if they declined to offer any goods, defendant No. 1 had no say in the matter. According to him such contracts are voidable under section 2 (i) of the Contract Act. The learned counsel, however, overlooks that section 2 (i) forms part only of the definition clauses. In order to find out what are voidable contracts one has to go to the main provisions of the Contract Act. The learned counsel has not pointed out any provision in the contract whereby such contracts are to be treated as voidable contracts. The learned counsel then referred me to a decision of Muhammad Bakhsh, J. in Amin Agencies Ltd. v. Haji Moosa Haji Oomar (P L D 1953 Sind 57), to show that the doctrine of mutuality is recognised in our Courts independent of the provisions of the Contract Act. This decision is not only opposed to the view taken in 5 S L R 61 and A I R 1929 Sind 83 (D B) but is also based on the erroneous view that their Lordships of the Privy Council in I L R 39 Cal. 232 had recognised the doctrine of mutuality in Indian cases. That decision related to a case where a contract was entered into on behalf of a minor, which are void contracts. It will be observed that their Lordships of the Privy Council did not discuss and extend this doctrine to other cases. As observed in 58 Born. 660 I am not prepared to extend this doctrine outside the provisions of the Contract Act or other relevant enactment. Even under the English Law there are limitations upon the doctrine of mutuality and unilateral contracts in certain circum. stances are included in it. But in this case defendant No. 1 could claim damages if the Government of Sind had offered the good in question to a third party in breach of the contract and in my view the contract under consideration does not suffer for want of mutuality. I have fully discussed in the earlier part of my judgment the points covered under issue No. 4 (b). Although the original contract is not signed by defendant No. 2, but the contents of the letter of guarantee sufficiently prove that they knew and had gone through its terms. In my judgment defendant No. 2 are bound by its terms. The evidence recorded in this case fully establishes that the plaintiffs called upon the defendants to lift the balance of 2450 tons of rice. The plaintiffs wrote several letters including Exh. 11/1 calling upon defendant No. 1 to take delivery of the said goods, but they failed to do so. I will therefore hold that defendant No. 1 failed to lift the balance of 2450 tons of rice and decide the issue against the defendants. Issue No. 9.-It was contended on behalf of defendant No. 2 that the plaintiffs should have given notice to them of the breach of the contract committed by defendant No. 1 so that they could fulfil the terms of the contract as the guarantor of defendant No.

1. The terms of the contract do not require it and I do not think that it was necessary for the plaintiffs to give such a notice to defendant No.

2. Defendant No. 2 had only guaranteed to reimburse the plaintiffs to the extent of 5% of the value of the contract goods on the breach of the contract com mitted by defendant No.

1. There is no term in the contract that defendant No. 2 will also be called upon to fulfil its terms. In view of this I do not think the failure to give any notice to defendant No. 2 about the breach of the contract before asking defendant No. 2 to pay the amount in dispute, is of any conse quence. The plaintiff's letter to defendant No. 2 (Exh. 11/2) dated 8-8-1951 was sufficient and valid in law. I will therefore decide this issue against the defendants. Issue No. 13.-The statement of P. W. 1 Nisar Ahmad (Exh. 11) clearly shows that the plaintiffs have made a profit on the transaction in question. The witness stated in clear terms that the goods were sold to Messrs Habib Rawji & Co. at Rs. 33-8-0 per bag of 21 maunds on 15-11-1951. The Plaintiffs sold the goods in dispute to defendant No. 1 at Rs. 33-4-0. In this way they made a profit of four annas on each bag of 2J maunds. I will therefore hold that the plaintiffs have made a profit on the re-sale of the goods in dispute. After a careful consideration of the matter I am of the opinion that the suit must fail against the defendants. The plaintiffs are not entitled to sue for the recovery of any promised amount as earnest money. The agreement with defendant No. 2 was in the nature of a guarantee to reimburse the plaintiffs for any losses suffered by them. As the plaintiffs have not suffered any loss in the transaction in suit they are not entitled to claim anything from defendant No. 2, and for that matter from defendant No.

1. For the reasons given above, I will dismiss the suit, but in the special circumstances I will order the parties to bear their own costs. A. H. Suit dismissed.