The plaintiffs who are piece-goods merchants, allege that they entered into certain contracts with the defendants, for the purchase of a number of bales of piece-goods, under contracts Nos. 3311, 3348 to 3350, 3357 to 3360, 3363 to 3368 and 3374, between December, 1919 and July and August 1920, that they took delivery of a number of bales, and 120 bales remaining to be delivered to the plaintiffs, that on the 28th September, 1921, an arrangement was come to, between the plaintiffs and the defendants, whereby it was agreed that the plaintiffs were to take delivery of the 120 packages, within nine months from that date, that the defendants were to deliver the said goods to the plaintiffs, against the promissory notes of the plaintiffs, payable 60 days from the date of the promissory notes and that the defendants were to pay the plaintiffs an allowance of Rs. 30,000 subject to certain conditions. The plaintiffs took delivery of 15 bales against promissory notes. The defendants wrote on the 8th May, 1922 that, if the plaintiffs did not pay cash for the goods, they would be sold at their risk. The plaintiffs replied on the 17th May, 1922, cancelling the contract with the defendants. The plaintiffs pray that the contract with the defendants be rescinded, that the defendants be restrained by injunction from selling the goods at their risk, and that they be further restrained from commencing and prosecuting any proceedings in arbitration; they also pray for incidental reliefs.
The defendants admit several of the allegations in the plaint, and contend that the arrangement of the 28th September, 1921 was in consequence of the heavy loss sustained by the plaintiffs and that, in order to induce them to fulfil their contract, they (defendants) made certain concessions that the plaintiffs defaulted to perform their part of the contract, that they themselves did not break their contract with the plaintiffs, and that the plaintiffs are not entitled to any relief.
The following issues have been framed:—
1. What are the terms of the suit contract?
2. Were the contracts superseded by the letter of the 28th September 1921?
3. Was there a breach of the contracts, and if so, by whom, and if there was suppression of the contracts by Ex. A, was there a breach thereof, and if so, by whom?
4. To what relief are the plaintiffs entitled?
The contracts, which are the subject matter of this suit are Nos. 3311, 3348 to 3350, 3357 to 3360, 3363 to 3368 and 3374. They are marked Exs. A and P. Under the terms of the contracts, the plaintiffs were to take delivery of the goods by paying cash. By letter dated the 28th September 1921, the defendants agreed among other things to give credit for 60 days. Ex. A is, by the defendants to the plaintiffs, and it is in these terms:—
“In consideration of your taking delivery of the above mentioned goods in full, within 9 months from to-day, delivery to be made against 60 days promissory notes. We will pay you an allowance subject to the following conditions:—
1. Your present overdue promissory notes amounting to Rs. 24,362-4-6 are to be paid by you in full, within 15 days from this date.
2. The allowance will only be paid to you on completion of delivery of and payment for the 120 bales.
3. Should any promissory notes become overdue, the allowance will be subject to cancellation.
4. Allowance Rs. 80,000 (Rupees thirty thousand only) We shall be glad to receive your confirmation of the foregoing.”
It is disputed that this letter was the result of negotiations between the plaintiff's and the defendants owing to a falling market in order to enable the plaintiffs to take delivery of the goods contracted to be purchased by them. It is admitted that after the date of this letter, plaintiffs took delivery of only 15 packages. One hundred and five packages were not taken delivery of. On the 8th May 1922, defendants wrote Ex. D, which is in these terms:—
“Dear Sirs,
Contracts Nos. 3311, 3348 to 3350, 3857 to 3360, 3363 to 3368 and 3374.
120 packages of dhoties and saries.
We addressed you on the 28th September last under the above heading and would now call special attention to our writings of that date, which was confirmed by you on the same date. You undertook to clear the above goods in full by the end of next month; but so far you have taken delivery of 15 packages only, which is not at all satisfactory. Please note that unless you considerably reduce your stocks by taking delivery of and paying for the goods we shall be obliged to take steps to dispose of some on your account in accordance with the terms of your signed contracts”.
The plaintiff wrote Ex. E on the 17th May, 1922, in which they referred to their dealings with the defendants since 1909 and after mentioning a number of other things they said:
‘You write in your letter of 8th May, 1922, asking us to pay cash and take delivery. You have no right to do so. As you have broken the arrangement, we have cancelled all these contracts with you “.
In reply to Ex. E, defendants wrote Ex, F on the 20th May, 1922, in which they stated the circumstances, under which Ex A came to be written, that it was purely an act oi grace on their part to give certain concessions to the plaintiffs and that they received no consideration for showing such concession. They further stated that owing to certain circumstances, they were obliged to insist upon the terms contained in the signed contracts. A number of letters passed between the plaintiffs and the defendants, which are marked Exs. G to N. It is unnecessary to refer to them; for, they do not advance the case of either party. The contention of the plaintiffs is that by Ex. A, the defendant undertook to give delivery against promissory notes payable within 60 days; in other words, that the defendants contracted to give credit to the plaintiffs for 60 days, and this term of the contract was in supersession of the term of the contract, contained in Exs. O and P, under which the plaintiffs were obliged to pay cash against delivery; that in as much as defendants wrote Ex. D, insisting upon payment of cash against delivery, they made it impossible for the plaintiffs to perform the contract and that therefore, they were justified in putting an end to the contracts. It is argued that but for the agreement to give credit for 60 days, the plaintiffs would not have undertaken to take delivery of the goods contracted for by them, that the giving of the credit being an important item of the contract, the defendants by refusing to give credit have broken one of the most important terms of the contract and given the plaintiffs the right to put an end to the contract.
The plaintiffs had been dealing with the defendants since the year 1909, and the terms, on which business was done, are contained in Ex. B, dated 1st February 1909. Ex. C dated 29th April, 1915, written by the defendants to the plaintiffs, contains an agreement by which the former undertook to give the latter 90 days credit. But the contracts Exs. O and P do not contain any term as to giving credit, but require the plaintiffs to pay cash against delivery. Ex. A gives the plaintiffs the right to demand delivery against promissory notes payable within 60 days. It is not seriously disputed by the defendants that Ex. A contains an important term of the contract, in variation of these contained in Exs. O and P. The question is whether the defendants by writing Ex. D, and asking the plaintiffs to pay cash against delivery have broken an important term of the contract, which would justify the plaintiffs in putting an end to the contract. If one party to a contract breaks an important term of the contract, the other party is entitled to put an end to the contract. The real question in this case is whether owing to certain circumstances which happened, the defendants were justified, in asking for cash against delivery or, in other words, whether they were entitled to alter one of the terms of the contract.
The plaintiffs have not adduced any oral evidence. The defendants' case is that the plaintiffs became hopelessly insolvent in 1922, that they had information about the insolvency of the plaintiffs and that was the reason for their insisting on the plaintiffs, paying cash before taking delivery. Defendants have examined the agent of their dubashes,’ who swears that he had reliable information that the plaintiffs were unable to meet their liabilities. The defendants' second witness, Ramanuja Razu, head clerk of the National Bank, produced Ex. IV series—letters written by the National Bank to the plaintiffs—which show that the plaintiffs were heavily indebted to the Bank and that they were unable to meet their liabilities, The plaintiffs wrote on the 7th May, 1922, a letter to the Imperial Bank of Madras, a copy of which is marked Ex. 1, in which they gave a statement of their assets and liabilities and intimated plainly that they would be liable to pay only 30 to 40 per cent of their debts. Abdul Shukur, a partner of the plaintiffs' firm was examined in the Insolvency Proceedings (his deposition is marked Ex. III) and he stated that be wrote the original of Ex. I and produced a copy of it before the Deputy Registrar during his public examination; and he admitted the truth of the contents of the letter; as a matter of fact, the plaintiffs were adjudicated insolvents on a petition presented on 25th September, 1922, (vide Exs. II and II-a).
In these circumstances, the question is whether the defendants were justified in insisting on cash being paid notwithstanding the agreement to give 60 days time. Mr. V.V Srinivasa Aiyangar, who appears for the plaintiffs, urges that the giving of credit being an important term, the defendants were not justified in breaking the term of the contract. His contention is that, inasmuch as they insisted on delivery, they should have given 60 days credit and that they had no right to insist on the plaintiffs taking delivery of the goods and at the same time to refuse to give credit. He relies on Sect. 96 of the Contract Act, and argues that if the buyer becomes insolvent, before delivery of the goods, the seller has a right to retain the goods. In other words, the seller can keep the goods, if he finds that the buyer has become an insolvent; and by doing so, he puts an end to the contract. It is difficult to follow this argument. Sect. 96 entitles a buyer to take delivery of goods, where the payment is to be made at a future day and no time is fixed for the delivery of the goods; but it gives the seller a right to retain the goods, if the buyer becomes an insolvent before delivery of the goods. The latter portion of the section, which gives a lien in favour of the seller applies to cases where the properties in the goods has passed to the buyer, for a seller cannot be said to have a lien over his own goods. He can have a lien only on goods which have become the buyer's. Where there is a contract for the sale of unascertained goods, the property in the goods does not pass to the buyer, till the goods are ascertained or appropriated towards the contract. In this case, the plaintiffs contracted to buy from the defendants a certain number of bales of dhoties and saries. Till the bales were appropriated towards the particular contract, the property in the bales did not pass to the buyer. It would be against all rules of construction to hold that a buyer has a lien on the goods, which are his own, the property in which has not passed to the buyer. As soon as goods are appropriated to a particular contract, by selection or otherwise, the property in the goods happens to pass to the buyer, and if the goods happen to be under the contract of the seller, the latter has a lien on them for unpaid purchase money.
Mr. Srinivasa Aiyangar's argument is that it would be monstrous to allow a seller to break an important term of the contract, merely because the plaintiffs have become insolvents and at the same time allow him to insist on the contract being performed. It is settled law that the insolvency of a buyer does not ipso facto put an end to the contracts.
The Official Assignee, or the trustee in bankruptcy will be entitled to have the contract performed. The trustee in bankruptcy has to elect within a reasonable time either to insist on the performance of the contract or to put an end to the contract. If within a reasonable; time he does not inform the seller or the other party to the contract, as to what he intends to do, the other party has a right either to put an end to the contract or to insist on the contract being performed and to claim damages for the breach thereof. Mr. Srinivasa Aiyangar relies strongly on an observation of Brett, J., afterwards Lord Esher, in Morgan v. Basin(1), which is as follows:—
“If the purchaser insists on delivery, the vendor may refuse to deliver, except on payment of cash. But if the vendor insists on delivery, the purchaser not wishing to go on with the contract. I take it, the vendor can only insist on delivering in accordance with the contract, that is, he must give credit to an insolvent party”.
The facts of the case are: the defendants sold to the plaintiffs 200 tons of iron, to be delivered, 25 tons monthly, and agreed to take 4 months bills. No delivery was made till the 1st of April. On the 12th of March, the plaintiffs found themselves to be insolvents and gave notice of the fact to the defendants. On the 16th of March, they filed a petition in the bankruptcy Court for liquidation by arrangement or composition. No delivery was made by the defendants or claimed by the plaintiffs in April. Owing to rising market the plaintiffs claimed delivery in May. The defendants refused to give delivery and the plaintiffs brought the action. It was held that there was a recission of the contract before the 13th of May. Lord Coleridge, C. J., held that the facts in evidence showed that the plaintiffs put an end to the contract before May. Brett, J., held that the contract was put an end to by the parties. In the course of the judgment, he no doubt makes the observation already quoted; but that observation has to be taken in connection with the facts of the case. According to the terms of the contract, the defendants were bound to deliver monthly so many tons. They did not deliver nor were they asked to deliver in April. If they of their own accord delivered the goods, they could only have done so, according to the terms of the contract, and could not have insisted upon cash being paid. But in this case, the plaintiffs were to take delivery from the defendants and it was optional with the defendants to deliver the goods or not to the plaintiffs by reason of the Insolvency of the latter. No person would deliver goods to an insolvent, knowing perfectly well that he would not be able to pay for the goods. The argument is that, if the seller is unwilling to give credit as agreed to, by him, it must be considered that the contract is at an end and as Sect. 97 of the Contract Act gives the seller only the right to retain the goods, there is no warrant in law for such a position. The insolvency of the plaintiffs altered one of the important terms of the contract. Sect. 96 does not enable a buyer to say the moment the seller refused to give credit that the contract is at an end. It is unnecessary to pursue this argument further; for, I hold that Sect. 96 gives a lien to the seller in cases, where the property in the goods has passed to the buyer. It does not enable the buyer to insist on the terms as to credit when he becomes an insolvent. Owing to the insolvency of the buyer, the seller is entitled to insist on cash being paid.
In Ex parte Stapeteon, Re Nathan, Jasael M. R. held that the insolvency of the buyer entitled the seller to insist on cash payment. He observed at page 590 as follows:—
“The sale of the cargo was for a price to be paid by acceptance, which were to be given by the debtor. Long before the cargo arrived, the insolvency of the debtor was known and was announced to the vendor. What was the consequence to him? It would be absurd to suppose that he, not having then parted with the cargo, was bound to part with it, in exchange for acceptance of the debtor, which were worthless or nearly so…………I am of opinion that if a person who has entered into a contract of this kind gives to the vendor before he has parted with the goods that which amounts in effect to this notice, “I have parted with all my property and am unable to pay the price agreed upon.”
It is equivalent to a repudiation of the contract. Of course that would not affect the right of the trustees, in the liquidation to elect, to fulfil the contract on paying the price in cash, provided that he does so within a reasonable time. But if he does not do that, I think the vendor is entitled to treat that contract, as broken without making any tender of the goods to the trustees. If that be so and the contract is broken, the damages of the breach are plainly, if the market is falling, the difference between the contract price and the price obtained on the resale.
In Ex parte Chalmers, Re Edwards(2), Sir George, Mellish, L. J., sums up the law in the following terms:
“I am of opinion that the result of the authorities is this—that in such a case the seller, notwithstanding he may have agreed to allow credit for the goods, is not bound to deliver any more goods under the contract until the price of the goods not yet delivered is tendered to him; and that if a debt is due to him for goods already delivered, he is entitled to refuse to deliver any more, till he is paid the debt due for those already delivered as well as the price of those still to be delivered”.
I do not consider that Ex. D is an absolute refusal by the defendants to perform their part of the contract. They only intimated that cash should be paid before delivery was taken. That was not a sufficient justification for the plaintiffs to cancel the contract, as they did by writing Ex. E.
It was argued rather feebly that the defendants were not entitled to shift the ground in defending this suit, by setting up a defence, which they did not set up in the correspondence. In the correspondence, the defendants denied that giving credit for 60 days was one of the terms of the contract, and they insisted on cash against delivery, relying upon the terms of the suit contract. The defendants can rely upon circumstances, which have come to their knowledge, subsequent to the alleged breach, provided such circumstances would be a sufficient answer to the plaintiff's claim.
The authority of the well-known case of Braithwaite v. Foreign Hardwood Co., is very much shaken by the observations of Lord Sumner in British Beningtons Ltd. v. North Western Cachar Tea Co. The learned Lord observed at page 71 in reference to the Braithwaite case:—
“I do not think that the case as reported lays it down that a buyer, who has repudiated a contract for a given reason, which fails him, has therefore no other opportunity of defence, either as to the whole or as to part, but must fail utterly. If he had repudiated giving no reason at all, I suppose all reasons and all defences in the action, partial or complete, would be open to him. His notices certainly are immaterial, and I do not see why his reasons should be crucial.”
In Taylor v. Oakes Roncoroni and Co.(3), Green. J., observes as follows:—
“It is a long established rule of law that a contracting party, who after he has become entitled to refuse performance of his contractual obligations, gives a wrong reason for his refusal, does not thereby deprive himself of a justification, which in fact existed whether he was aware of it or not.”
I do not think that the evidence on record warrants the plaintiffs to say that the defendants gave a wrong reason for insisting on cash payment and therefore they are unable to show that by reason of the insolvency of the plaintiffs they were entitled to insist on cash payment. Though the defendants did not explicitly say that they insisted on cash payment, by reason of the insolvency of the plaintiffs, they speak of the circumstances, which have supervened since writing Ex. A, which constrained them to insist on cash payment against delivery. I think the letters contain sufficient indication as to what was in the mind of the defendants at the time. I hold that there is nothing in this contention of the plaintiffs.
I find issue 55 in the affirmative.
I find that the breach of the contract was by plaintiffs. In the result, the plaintiffs are not entitled to the reliefs asked for by them, and I dismiss their suit with costs. Two counsel.
K.V.SSuit dismissed.