The Judgment of the Court was as follows:—

Sanderson, C.J:— This is an appeal by the Defendants from the judgment of my learned brother Rankin, J., whereby be made a decree in favour of the Plaintiff for damages for breach of contract.

My learned brother, in the judgment which he is about to deliver, has set out the material facts, which in this case are to be gathered from the correspondence, and it is therefore not necessary for me to deal with them in detail.

By the contract the Defendants undertook to manufacture and deliver 50 wagons. The terms of payment were that the Plaintiff should advance ⅓ of the price with the order; ⅓ was to be paid when the wheels were attached to the under-frames and the remaining on receipt of the wagons and after their erection.

In accordance with these terms a cheque for Rs. 30,833, representing the first instalment, was sent by the Plaintiff to the Defendants on the 20th February 1915.

By a letter, dated the 25th October 1916, the Defendants submitted a bill for Rs. 30,833, representing the second instalment under the contract “being ⅓ value due when under-frames are wheeled.”

Inspite of many applications this sum was not paid by the Plaintiff. Amongst other things he alleged that he feared that the second instalment would remain locked up as the first and asked that he should be informed definitely when the wagons would be completed and despatched.

The Defendants explained that they could not give such definite information. War conditions were prevailing, and there was a difficulty in obtaining various parts of the wagons, which had to be imported from England.

In February 1917 the Defendants despatched eight wagons to the Plaintiff.

After these eight wagons had been accepted by the Plaintiff, the Defendants again demanded the payment of the bill for the second instalment, viz., Rs. 30,833 and they added a demand for Rs. 5,000 in respect of a further bill, which represented the amount due in respect of the third instalment for the eight wagons, which had been delivered.

On the 5th March 1917, the Defendants wrote a letter to the Plaintiff's manager, which is an important one, as follows:—

“5th March 1917,”

“The Manager,

Morvi Railway,

Hill Buildings,

Morvi.

Dear Sir,

Regarding our Bill No. 5014 W/7786 of 24th October 1916 for Rs. 30,833 we are in receipt of your telegrams of 19th and 28th ultimo informing us that you had referred our requests for payment to the proprietor of the Railway but we have, to say that we are most dissatisfied with the delay in payment and with the treatment meted out to us, and have decided not to despatch any more wagons till your proprietor has paid the bill before mentioned and also that for Rs. 5,000 sent you with our letter of the 27th ultimo.

If it is a matter of finance and your proprietor cannot at the present time further finance this order we are willing to cancel it, and sell the remaining wagons as soon as we can secure a buyer, refunding the cash already paid or as much of it as may be realised by sale of the material and wagons thereafter.

Please state by return which course you propose to take and if you want us to proceed with the order send us a cheque for Rs. 35,833.”

This letter contained a demand not only for the Rs. 30,833 which the Defendants were fully entitled to make, but also a demand for the Rs. 5,000 which, in my judgment, they were not entitled to make. The Defendants stated that if the Plaintiff wanted them to proceed with the order he was to send a cheque for Rs. 35,833. The Rs. 5,000 was not payable until all the wagons, the subject-matter of the contract, had been completed in accordance with the terms of the contract.

No answer was received to this letter, and the Defendants wrote again on the 11th April 1917 as follows:—

“11th April 1917.”

“The Manager,

Morvi Railway,

Hill Buildings,

Morvi.

Re: Wagons.

As we have neither received a cheque for the money due to us nor any reply to our letter, dated the 5th of March, we find it necessary to address you again upon this matter and we desire to point out to you that by not paying our bills when they become due for payment you have broken the contract and we shall therefore take whatever action appears to us to be necessary for our own interests if we do not receive a satisfactory reply to this letter before the date specified below.

The wagons could be delivered as soon as we could obtain trucks from the Railway to carry them but we regret we cannot now permit another of your wagons to leave our Works until you pay us in full for the whole order. Your action has put us to very considerable expense and very great inconvenience and at the present time your wagons are occupyin much valuable space in our Works. If we do not receive a satisfactory reply on or before April 20th we shall take whatever action appears to us to be necessary to prevent further loss to ourselves.”

It is to be noted that in this letter the Defendants asserted that they would not permit another of the wagons to leave the Works until the Plaintiff paid the Defendants in full for the whole order. The reply to this was a telegram, dated 21st April 1917, as follows:—

“To Burn, Howrah.

Your letter though dated eleventh reached here yesterday matter referred to proprietor who now in Bombay.

Manager M. Ry.”

On the 7th May 1917 the Defendants wrote:—

“7th May 1917.”

“The Manager,

Morvi Railway, Hill Buildings,

Morvi.

We desire to call your special attention to our letter, dated the 11th ultimo, and to inform you that it is now imperative that we receive a satisfactory reply to this letter at once, otherwise we shall have no option but to settle the matter without further reference to you. Kindly favour us with a reply by return.

Yours faithfully,

Managing Agents.”

The reply was to the effect that the Plaintiff had gone to a hill station for the hot weather, and that an answer would be sent when the Plaintiff's manager heard from him.

On the 4th July 1917, the Defendants' solicitors wrote:—

“4th July 1917.”

“The Manager and Executive

Engineer, Morvi Railway, Hill

Buildings, Morvi.

Our clients Messrs Burn & Co., Ld. have instructed us to address you with reference to the contract for the purchase by your Railway of 50 goods wagons from them. The terms of the contract were:—Payment as to ⅓ with the order, ⅓ when the under-frame was wheeled and the balance on delivery. The first instalment was duly paid but the second instalment has not yet been paid, inspite of repeated demands, and inspite of the fact that our clients have actually delivered eight wagons. In the existing circumstances of the trade, it is obvious that our clients cannot keep the undelivered balance of the wagons locked up indefinitely and, as you have failed to carry out your part of the contract the only course now open to them is to dispose of the wagons elsewhere as best they can but before doing so they are prepared to give you the opportunity of purchasing these wagons outright by paying the total amount of the original contract price outstanding and we are accordingly instructed to give you notice, as we hereby do, that unless the full amount of the original contract price is paid to our clients or to us as their Agents within 10 days from the date thereof the undelivered wagons will be disposed of by our clients as they may think fit.

Yours faithfully,

(Sd.) Orr, Dignam & Co.”

Having received no reply to the letter the Defendants' solicitors wrote again on the 18th July 1917 as follows:—

“The Manager and Executive

Engineer,

Morvi Railway,

Hill Buildings, P.O Morvi.

As neither our clients nor ourselves have received any reply to our letter to you of the 4th instant our clients have now taken steps to dispose of the undelivered wagons elsewhere and have made up an account showing the balance due to the Railway after deducting the costs of the wagons delivered from the deposit made to be Rs. 15,833. We enclose you herewith copy of this account together with our cheque for Rs. 15,833 and shall be obliged if you will let us have a formal receipt for this amount by return.

Yours faithfully,

Orr, Dignam & Co.”

I should have thought that the Defendants' letters from the 5th March to the 4th July 1917 involved definite intimation that the Defendants were not prepared to carry out the contract according to the terms thereof. For in these letters they were making demands which were not justified by the terms of the contract and in the letter of the 4th July 1917 they stated that the only course then open to the Defendants was to dispose of the wagons elsewhere, but that before doing so they were willing to give the Plaintiff the opportunity of purchasing the wagons outright by paying the total amount of the contract price within 10 days, otherwise the wagons would be disposed of as the Defendants thought fit. This was obviously not in accordance with the terms of the contract.

The learned Advocate-General, however, for the Plaintiff argued that these letters were merely threats, and were not intended to put an end to the contract.

The terms of the letters seem to me to be plain and definite and I should not have been prepared to accept the learned Advocate-General's argument but for the fact that the Defendants themselves in para 18 of the written statement stated that it was on or about the 18th July 1917 that they put an end to the contract.

The question, therefore, which remains in the case, is whether the Defendants were entitled to treat the contract as at an end on the 18th July 1917.

The learned Judge dealt with the case on the footing that one question only arose, viz., whether the provision that the second instalment of the price should be paid when the under-frames were put on the wheels was a provision as to which time was of the essence of the contract.

He held, with some difficulty, that it was not; and he held further that the Defendants did not at any time give a sufficient or adequate notice to pay the second instalment within a reasonable time, so as to make time of the essence of the contract.

But for the conduct of the Defendants, I should have thought that with regard to the payment of the second instalment, time was of the essence of the contract.

The Defendants were under contract to build 50 wagons. In my judgment they were not bound to proceed with the work, after the wheels were attached to under-frames, until the Plaintiff paid the second instalment. They surely could not be expected to keep the wagons, partly built, standing in their Works, for an indefinite time, or for so long as the Plaintiff chose to keep them waiting for the second instalment. Having regard to the terms of the contract and the nature of the work to be done by the Defendants, in my opinion, primâ facie time would be of the essence of the contract.

The Defendants, however, for some reason known to themselves, did not treat it as of the essence of the contract.

They actually delivered eight wagons in February 1917 although the second instalment which had been demanded in October 1916 had not been paid, and although as far as could be seen in February 1917 there was no immediate prospect of the second instalment being paid.

In the face of such conduct, it seems to me impossible to hold that the Defendants regarded time as of the essence of the contract with respect to the second instalment.

I agree with the learned Judge's further decision that no sufficient or adequate notice was given to make time the essence of the contract, and with the reasons which he gave for such decision.

There remains, however, a further question, which, to my mind, is a more difficult one.

The learned Counsel for the Defendants contended that the Plaintiff's repeated failure to pay the second instalment inspite of the Defendants' demands, showed that the Plaintiff never intended to perform his part of the contract, and that consequently under the provisions of sec. 39 of the Contract Act, the Defendants were entitled to put an end to the eon-tract as they did on the 18th July 1917.

The question is whether the Plaintiff bad refused to perform his promise in its entirety within the meaning of the section. As stated in Freeth v. Burr : “The true question is whether the acts and conduct of the parties evince an intention no longer to be bound by the contract.”

And as stated by Lord Selborne in Mersey Steel & Iron Coy v. Naylor :

“You must look at the actual circumstances of the case in order to see whether the one party to the contract is relieved from its future performance by the conduct of the other; you must examine what that conduct is, so as to see whether it amounts to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to rescind, and whether the other party may accept it as a reason for not performing his part.”

The letter of the 22nd July 1917, written on behalf of the Plaintiff, in my judgment, is not inconsistent with the Plaintiff's intention to carry out his part of the contract. I read it as a complaint about the delay and a proposal to vary the provisions as to the payment of the second instalment. The letter, however, concluded with a protest against the Defendants' alleged right to put an end to the contract, and stated that if the Defendants disposed of the wagons they would do so at their risk and responsibility as to the consequences.

Although written on the 22nd July 1917, the writer apparently was not dealing with the Defendants' solicitors' letter of the 18th July 1917, for that letter is dealt with in a subsequent letter of the 24th July 1917 in which the Plaintiff's representative refused to accept the cheque for Rs. 15,833.

The market-price of the wagons had increased considerably; there was no suggestion that the Plaintiff was in any difficulty as regards finance; it was alleged that the Plaintiff required the wagons; and on the 22nd September 1917 the Plaintiff's solicitors tendered a cheque for the second instalment, no doubt with a view to this suit being brought.

It is true that the Plaintiff was suggesting that he was entitled to compensation for the Defendants' delay, but it is not made clear in any of the letters written on behalf of the Plaintiff that he was insisting on compensation being paid as a condition of his performance of the contract. Although there was great delay on the part of the Plaintiff in paying the second instalment, in my judgment, the conduct of the Plaintiff was not such as amounted to an absolute refusal to perform the contract. The Defendants were not, in my opinion, entitled to assume that the Plaintiff was not going to perform the contract, and consequently they were not entitled to put an end to the contract on the 18th July 1917.

The remaining question relates to the measure of damages.

The learned Counsel for the Defendants argued that the amount of damages awarded should be materially reduced. He urged that the Defendants had offered in April 1917 and again in the solicitors' letter of 4th July 1917 to let the Plaintiff have the wagons at the contract price provided he paid the total amount outstanding: that the Plaintiff should have accepted the offer, and that his damages should be limited to the amount of interest which he would have lost, by reason of his being obliged to pay the contract price at a date earlier than that provided by the contract, and reliance was placed on the case of Payzu, Ld. v. Saunders .

In my judgment the decision in that case is not applicable to the present case.

The offer, made in the letter of 4th July 1917, was by the terms thereof open to the Plaintiff for 10 days from that date: the Defendants' own case was that they did not put an end to the contract until the 18th July 1917.

The Defendants, having so pleaded, cannot now be allowed to say that the breach of the contract by them occurred at an earlier date, and the 18th July must be taken as the date when they definitely put an end to the contract. At that time the offer contained in the letter of 4th July 1917 was no longer open to the Plaintiff. The Plaintiff, it is true, was bound to take all reasonable steps to minimise the damages, but he was not bound to do so, until a breach of the contract had occurred. And having regard to the Defendants' pleading, to which I have already referred, it is not now open to them to say that the breach occurred before the 18th July 1917.

The learned Judge has found that after the 18th July 1917 the Defendants were no longer willing to let the Plaintiff have the wagons at the contract price on any terms.

In my opinion this finding by the learned Judge is correct having regard to the evidence in the case: the letter of the 26th July 1917 from the Defendants' solicitors is inconsistent with any other interpretation of the position after the 18th July 1917.

For these reasons, in my judgment, this appeal must be dismissed with costs.

Richardson, J.:— Under this contract, one-third of the price of the fifty railway wagons was to be paid with the order for their supply, one-third when the under-frames were wheeled, and the remaining third on the receipt of the wagons. The official or formal order for the wagons was given either on the 7th February or on the 20th February 1915, when a cheque for Rs. 30,833 in payment of the first instalment was forwarded. In the course of the previous correspondence, the Defendants in their letter of 17th November 1914, had promised “delivery of the 50 wagons in six months from date of receipt of order.”

The plans for the wagons were not finally approved till the 18th June 1915 when the Manager of the Railway telegraphed to the Defendants to “commence building of the wagons as per your original plans plus minor alterations suggested by our Loco-Superintendent.” Meanwhile by, letter, dated 28th April 1915, the Defendants had plainly intimated to the Morvi Railway “that our promised delivery cannot now be adhered to.”

In October 1915 the Morvi Railway began complaining of delay in delivery and suggesting a right to compensation. The Defendants' letter of 8th November 1915 attributed the delay in delivery partly to the delay in the approval of the plans but mainly to causes arising out of the War.

There was further correspondence on the subject in May 1916, closing for the time with the Defendants' letter of 27th May 1916, in which they referred to their letter of 28th April 1915.

By letter dated 25th October 1916, the Defendants forwarded their bill for the second instalment of the price on the footing, as to which no question arose, that the under-frames had been wheeled. In answer, the Morvi Railway on the 19th November, again complained of the delay in delivery. “We fear,” they concluded, “the payment of second instalment will remain locked up as the first and shall therefore be glad to know definitely when the wagons will be completed and despatched.”

The Defendants replied on the 23rd November stating that the delay was entirely due to conditions brought about by the War and regretting that information could not be given when delivery would be made.

On the 14th December 1916, and the 25th January and 14th February 1917, the Defendants reminded the Morvi Railway by letter or telegram of their bill for the second instalment. They were told by telegram, dated 19th February, that the matter had been, referred to the proprietor of the Railway, that is; the present Plaintiff.

On the 20th February 1917, the Defendants wrote advising the despatching of eight completed high-sided wagons, which were accepted (subject to certain minor objections dealt with by the Defendants in their letter of 27th June 1917) without reference to delay in delivery.

On the 27th February the Defendants again telegraphed about the non-payment of their October bill. By letter of the same date they submitted a further bill claiming payment of Rs. 5,000 as the proportionate amount of the third or last instalment due in respect of the eight wagons (at Rs. 1,875 each). They thus imparted into the discussion an element of difficulty inasmuch as under the contract the last instalment was not due till all the wagons had been delivered.

To the telegram of the 27th the Morvi Railway replied, as they had done on the 19th February, that the matter had been referred to the proprietor.

We then come to the Defendants' letters of the 5th March and 11th April, on which the discussion before us has largely turned. The letters have already been read and I will not read them again. I will only observe, in favour to some extent of the Defendants, that the offer contained in the second paragraph of their letter of 5th March was apparently made before the Defendants got into touch on the 23rd March with the Mysore State Railways to whom the remaining 42 wagons were ultimately sold at a price considerably higher than that due under the contract with the Morvi Railway.

To the letter of 11th April the Morvi Railway gave the reply, by this time stereotyped, that the matter had been referred to the proprietor, who was then in Bombay.

On the 7th May the Defendants wrote again: “It is now imperative,” the said, “that we receive a satisfactory reply to this letter at once, otherwise we shall have no option but to settle the matter without further reference to you.” To this the Morvi Railway answered that the proprietor had gone to a hill station and that the correspondence would be forwarded to him.

On the 4th July, the Defendants wrote through their solicitors, Messrs Orr, Dignam & Co., that they were prepared to give the Morvi Railway “the opportunity of purchasing these wagons outright by paying the total amount of the original contract price outstanding.” The solicitors concluded: “We are accordingly instructed to give you notice, as we hereby do, that unless the full amount of the original contract price is paid to our clients or to us as their agents within 10 days from the date hereof, the Undelivered wagons will be disposed of by our clients as they may think fit.”

No reply was received to this letter and on the 18th July the solicitors wrote enclosing a cheque for Rs. 15,833 the balance of the first instalment after deducting the price of the eight wagons and finally purporting to put an end to the contract.

Then came, first; the long letter of the 22nd July written under the instructions of the proprietor by one of his officers, the letter of 24th July from the Morvi Railway returning the cheque for Rs. 15,833 and in reply to these two letters, the letter of the Defendants' solicitors, dated 26th July, stating that it was impossible for the Defendants to reconsider the matter. The Morvi Railway was subsequently advised to tender the second instalment. The tender, made by letter dated 2nd September, was refused, the goods having been meanwhile sold to the Mysore State Railways.

The sole point in the case is whether on the 18th July 1917, the Defendants were entitled to cancel the contract.

Now, as it seems to me, to ask whether the time fixed for the payment of the second instalment was in the circumstances of the essence of the contract, or whether the failure to pay the instalment when due went to the root of the contract, or whether the agreement of the Plaintiff to pay the instalment and the agreement; of the Defendants to supply the wagons, were or were not interdependent agreements is to put the same question in different ways. The learned Judge, Rankin, J., who tried the suit, has found, as he says, with some difficulty that time was not of the essence. I agree with that conclusion which in my opinion is fortified by the consideration that the despatch of the eight wagons in February 1917 shows that the Defendants themselves did not treat the punctual payment of the second instalment as being of the essence of the contract.

Then, the learned Judge turned to the method of notice by which time, if not originally of the essence, might have been made of the essence. The position, he says, “was that if the Plaintiff had not pay promptly, the Defendants were entitled to give him a reasonable notice, fixing a time within which he must pay and warning him that unless he paid within that time they would rescind.” Such notices are not expressly mentioned in sec. 55 of the Contract; Act, but they are well known in relation to contracts between vendors and purchasers of land [Stikney v. Keeble (4)] and are no doubt equally available in relation to mercantile contracts. Under the Contract Act refusal by a party to comply with a reasonable notice would probably be regarded as refusal to perform his contract in its entirety within the meaning of sec. 39. But, however that may be, I agree again with the learned Judge that the Defendants never gave the Plaintiff a proper notice demanding payment simply of the second instalment within a limited time and making time of the essence. From the 5th March onwards they suggested, or demanded payment of an amount exceeding that then due and were themselves in fault.

It has, however, been further contended before us that under sec. 39 of the Act, apart from the question of notice making time of the essence, the conduct of the Plaintiff was such as to evince an intention not to be bound by the contract and amounted to a refusal to perform his promise in its entirety. The learned Advocate-General appearing for the Plaintiff says that this contention was not advanced before the learned Judge, but as it is open on the issues and turns entirely on the correspondence on the record, I shall deal with it.

For the principle involved we have been referred to the case of Mersey Steel and Iron Co v. Naylor . I quite appreciate Mr. Pugh's argument that as an illustration, of the principle this case must be treated with caution, because the facts there were of a very special character. The facts of the present case are doubtless very different. Nevertheless I am unable to say that the Plaintiff's conduct, however reprehensible his delay may have been, amounted in the words of. Lord Selborne, L.C “to a renunciation, to an absolute refusal to perform the contract, such as would amount to a rescission if he had the power to ???” or in the words of Lord Blackburn, ??? an absolute refusal to pay.” Doubtless again there is a limiting point at which prolonged delay will amount to refusal. In my opinion, however, that point had not been reached at any time before the Defendants purported, to cancel the contract on the 18th July.

As I apprehend, the Plaintiff considered, rightly or wrongly, that he was entitled to some compensation for delay in delivery. He wanted to parley but he did not want to break off the contract and he never made the payment of compensation a condition precedent to the payment of the second instalment. The Defendants, on the other hand, it may well be, were tired of dilatory methods resembling those of diplomacy rather than those ordinarily employed in business and having found an opportunity to get rid of the remaining wagons at a profit, they took the risk of breaking off negotiations with the Plaintiff. As things had turned out, the contract with the Plaintiff was a losing one. The Defendants may well have been uncertain as to the legal consequences. They may have thought that they had the right to cancel. But, as I regard the matter, they accepted the risk of having to pay damages, in preference to continuing an unsatisfactory contract, attended by troublesome correspondence.

The rise in the price of railway wagons between 1915 and 1917 makes it unlikely that the Plaintiff would not intend to fulfil the contract. Nor can such an intention be gathered from the Plaintiffs letter of 22nd July. The letter was written after the cancellation by the Defendants and is only relevant for the purpose of throwing light on the Plaintiff's intention. The letter does not import that the Plaintiff was absolutely refusing to carry out the contract.

The result is that I agree with the conclusion of the learned Judge that the Plaintiff is entitled to damages.

As to the quantum of damages, the learned Counsel for the Appellants has not satisfied me that the learned Judge is wrong in refusing to apply to the facts of the present case the principle of Payzu, Ld. v. Saunders .

Accordingly in my opinion the appeal should be dismissed.

Messrs Orr, Dignam & Co., Solicitors for the Appellants.

Messrs Eggar & Co., Solicitors for the Respondent.

P.K.C