1. Suit for recovery of price of goods sold and delivered — dispute over applicability of Article 115 of the Jammu and Kashmir Limitation Act. (Para 1 , 2 , 3 )
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1959 Supreme(SC) 141
SUPREME COURT OF INDIA
19th August, 1959.
S.R. DAS, C.J.I., S.K. DAS, A.K. SARKAR, K.N. WANCHOO AND M. HIDAYATULLAH, JJ.
Hindustan Forest Company, Appellant
Versus
Lal Chand and others, Respondents.
Civil Appeal No. 161 of 1955.
Advocate Appeared
M/s. S. K. Kapur and N. H. Hingorani Advocates, for Appellant; M/s. Bhawani Lal and K. P. Gupta, Advocates, for Respondents.
Advocates:
BHAVANI LAL, K.P.GUPTA, N.H.Hingorani, S.K.KAPOOR
BHAVANI LAL, K.P.GUPTA, N.H.Hingorani, S.K.KAPOOR
A mutual account requires reciprocal demands involving independent obligations on both sides. Advance payments or payments made toward the price of goods under a contract are discharges of obligations and do not create the independent obligations necessary to qualify as reciprocal demands for limitation purposes.
Headnote:(A) Limitation Act - Article 115 - Mutual, open and current account - Reciprocal demands - Limitation period - The requirement of reciprocal demands involves transactions on each side creating independent obligations on the other and not merely transactions which create obligations on one side, those on the other being merely complete or partial discharges of such obligations (Para 7).
(B) Contract - Advance payment - Payment made as an advance for the price of goods to be delivered under a contract does not create an independent obligation on the seller in favour of the buyer; it is paid in discharge of obligations to arise under the contract and does not amount to an independent transaction detached from the rest of the contract (Para 10).
Facts of the case:
A buyer and seller entered into a written agreement for the supply of grains. The buyer paid a sum as an advance and subsequent payments were made as goods were delivered. The last delivery was made on June 23, 1947, and a suit for the balance price was filed on October 10, 1950. The primary dispute was whether the suit was governed by the six-year limitation period applicable to mutual accounts with reciprocal demands under the relevant Limitation Act.
Findings of Court:
The account was not mutual as there were no reciprocal demands. The advance payment and subsequent payments were merely discharges of obligations arising from the contract of sale and did not create independent obligations on either side.
Issues: Whether the account between the buyer and seller was a mutual account involving reciprocal demands such that Article 115 of the Limitation Act would apply.
Ratio Decidendi: For an account to be mutual, there must be transactions on each side creating independent obligations. Payments made as advances or towards the price of goods delivered under a single contract are discharges of obligations and do not constitute independent transactions creating reciprocal demands.
Result: Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the account between the parties was mutual involving reciprocal demands to attract the extended limitation period under Article 115 of the Jammu and Kashmir Limitation Act. (Para 6 )
3. Advance payments for goods do not create independent obligations on the seller but are discharges of obligations arising under the contract for supply. (Para 9 , 10 , 11 , 12 )
4. A mutual account requires reciprocal demands involving transactions on each side creating independent obligations, not merely transactions that discharge existing obligations. (Para 7 , 9 , 10 )
5. Appeal allowed — judgment of the appellate bench of the High Court set aside and order of the single judge restored. (Para 14 )
6. What constitutes a mutual account with reciprocal demands for limitation purposes?
A mutual account requires transactions on each side creating independent obligations on the other, rather than transactions that merely create obligations on one side with the other side's actions being partial or complete discharges of those obligations. (Para 7 , 9 )
7. Does an advance payment for goods create a reciprocal demand in a supply contract?
No. An advance payment made towards the price of goods to be delivered is a discharge of obligations to arise under the contract and does not create an independent obligation on the seller. (Para 10 )
8. Does failure to adhere to strict delivery and payment timelines in a contract imply an intention to abandon the contract?
No. Such conduct indicates that the parties have extended the time fixed for delivery and payment, leaving the contract otherwise unaffected. (Para 11 )
Judgement
A. K. SARKAR, J.: This appeal arises out of a suit filed in the High Court of Jammu and Kashmir for recovery of price of goods sold and delivered. The only point involved in it is whether the suit was governed by Art. 115 of the JAMMU AND KASHMIR LIMITATION ACT . The courts below have held, and this has not been disputed in this appeal, that if that article did not apply, the suit would fail on the ground of limitation.
2. Sometime in November 1946 the parties entered into an agreement in writing for the supply, by the sellers, the respondents, to the buyer, the appellant, of 5,000 maunds of maize, 500 maunds of wheat and 100 maunds of Dal at the rates and times specified. The agreement stated that on the date it had been made the buyer had paid to the sellers as, 3,000 and had agree to pay a further sum of Rs. 10,000 with ten or twelve days as advance and the balance due for the price of goods delivered after the expiry of every month. It is admitted that the said sum of Rs. 10,000 was later paid by the buyer to the sellers.
3. Various quantities of goods were thereafter delivered by the sellers to the buyer and though such deliveries had not been made strictly at the times specified in the contract, they had been accepted by the buyer. The buyer in its turn made various payments towards the price of the goods delivered but not month by month and had not further paid it in full. The last delivery of goods was made on June 23, 1947, and the suit was brought on October 10, 1950, for the balance of the price due.
4. The learned Judge of the High Court who heard the suit held that Art. 115 had no a application and dismissed the suit as barred by limitation. The sellers went up in appeal which was heard by two other learned Judges of the High Court. The learned Judges of the appellate bench of the High Court held that Art. 115 of the JAMMU AND KASHMIR LIMITATION ACT applied and the suit was not barred. They thereupon allowed the appeal and passed a decree in favour of the sellers. The buyer has now come up in appeal to this Court.
5. Article 115 of the JAMMU AND KASHMIR LIMITATION ACT which is in the same terms as Art. 85 of the Indian Limitation Act except as to the period of limitation, is set out below :
Description of suit Period of Limitation Time from which period begins to run for the balance due on a mutual, open and current account, where there have been reciprocal demands between the parties. Six years. The close of the year in which the last item admitted or proved is entered in the account; such year to be computed as in the account.
6. If the article applied the suit would be clearly within time as the last item found to have been entered in the account was on June 23, 1947. The only question argued at the bar is whether the account between the parties was mutual.
7. The question what is a mutual account, has been considered by the courts frequently and the test to determine it is well settled. The case of the Tea Financing Syndicate Ltd. v. Chandrakamal, ILR 58 Cal 649 : may be referred to. There a company had been advancing monies by way of loans to the proprietor of a tea estate and the proprietor had been sending tea to the company for sale and realisation of the price. In a suit brought by the company against the proprietor of the tea estate for recovery of the balance of the advances made after giving credit for the price realised from the sale of tea, the question arose as to whether the case was one of reciprocal demands resulting in the account between the parties being mutual so as to be governed by Art 85 of the Indian Limitation Act. Rankin C.J. laid down at p. 668 (of ILR Cal): the test to be applied for deciding the question in these words :
"There can, I think, be no doubt that the requirement of reciprocal demands involves, as all the Indian cases have decided following Halloway A.C.J., transactions on each side creating independent obligations on the other and not merely transactions which create ob
