A contract is not illegal merely because it is not in accordance with a by-law of the East India Cotton Association. A contract is illegal only if it contravenes a by-law specified in the by-laws of the East India Cotton Association.

Headnote:
SALE OF GOODS - Forward Contracts - Legality - Bombay Forward Contracts Control Act, 1947, S. 8 - Whether contracts not in accordance with by-laws of East India Cotton Association are illegal - Whether contracts contravene any by-laws specified in the by-laws of the Association - Whether consent of non-member of Association is necessary - Sale of Goods Act, 1930, S. 54(2) - Re-sale of goods - Notice to buyer - Damages - Assessment - Date of breach.
Fact of the Case:

The plaintiffs and the defendants entered into three contracts for the sale of cotton. The defendants contended that the contracts were oral, that they had never been reduced to writing, and that they were therefore void and unenforceable. The plaintiffs contended that the contracts were in writing and that they were enforceable. The trial court held that the contracts were in writing and that they were enforceable. The defendants appealed.
Finding of the Court:

The High Court held that the contracts were in writing and that they were enforceable. The Court held that the contracts did not contravene any by-laws specified in the by-laws of the East India Cotton Association and that they were therefore not illegal. The Court also held that the consent of the non-member of the Association was not necessary. The Court further held that the re-sale of the goods was not binding on the defendants because it had taken place after an unreasonable time of the giving of the notice. The Court held that the damages that the plaintiffs were entitled to were the difference between the market price of the bales on 15th July, 1953 and the contract price.
Issues: 1. Whether the contracts were in writing and enforceable? 2. Whether the contracts contravened any by-laws specified in the by-laws of the East India Cotton Association? 3. Whether the consent of the non-member of the Association was necessary? 4. Whether the re-sale of the goods was binding on the defendants? 5. What damages were the plaintiffs entitled to?
Ratio Decidendi: 1. A contract is not illegal merely because it is not in accordance with a by-law of the East India Cotton Association. 2. A contract is illegal only if it contravenes a by-law specified in the by-laws of the East India Cotton Association. 3. The consent of a non-member of the Association is not necessary for a contract to be valid. 4. A re-sale of goods is not binding on the defendants if it takes place after an unreasonable time of the giving of the notice. 5. The damages that the plaintiffs are entitled to are the difference between the market price of the bales on the date of the proper re-sale and the contract price.
Final Decision: The High Court modified the decree of the trial court. The Court held that the plaintiffs were entitled to a decree against the defendants for Rs. 15,926-11-6 with interest thereon from the date of the suit at 4%. The Court also held that the suit should be referred to the Commissioner for Taking Accounts for assessment of damages in respect of 1110, 415 and 810 bales. The Court further held that the damages in regard to 1110 bales should be ascertained on the basis that the re-sale should have taken place on 15th July, 1953, and the damages with regard to 415 and 810 bales should be assessed on the basis that the date of breach is 5th June, 1952. The Court also held that the direction of the teamed Judge with regard to the costs of the suit and also the direction with regard to further costs and further directions would stand. The Court further held that the appellants must pay to the respondents three-fourths of the costs of the appeal.

Judgment -

1. The suit out of which this appeal arises is based on three contracts by which the plaintiffs agreed to sell cotton to the defendants. The first contract is dated "18th December, 1951 and by this contract the plaintiffs sold 500 bales of Bengal Deshi Cotton at Rs. 640/- per candy F. O. R. Bombay. The second and the third contracts are of even date 22nd December, 1951. By the first of these two contracts the plaintiffs sold 2145 bales also of Bengal Deshi Cotton at Rs. 627/- per candy F. O. R. Bombay, and by the second they sold 1000 bales at Rs. 627/- per candy F. O. R. Bombay.

2. The main dispute with regard to these two contracts between the plaintiffs and the defendants was that according to the defendants this cotton was to come from Pcpsu region and the cotton was to be accepted by the defendants on buyers selection, i.e. their selection. As against this the plaintiffs contention was that this cotton was to be of Dhuri Line and was to be of "fair average quality". The plaintiffs relied in the suit on contracts which according to them were in writing and in the written contracts on which they relied these two terms appear, viz., that the cotton was to be of Dhuri Line and was of fair average quality. The defendants contended that the contracts were oral, that they had never been reduced to writing, and they also contended that the contacts had not been signed by the parties. They therefore urged that the contracts were void and unenforceable. It appears that up to 28th January, 1952 samples with regard to 1015 bales in respect of the three contracts had been approxred by the defendants. On 29th January, 1952 the contract notes in respect of these three contracts were sent by the plaintiffs to the defendants and these contract notes, as already pointed out, contained the two terms which were in dispute between the parties. On 29th January, 1952 the defendants wrote to the plaintiffs pointing out :

"Regarding the quality your contracts state Bengal Deshi Dhuri Line, whereas our purchases are Bengal Deshi Pepsu Line.

Secondly, regarding the selection your contracts state Fair Average Quality, whereas our purchases are Buyers Selection.

We are returning herewith the contracts in question and request you to send us at your earliest amended contracts."

It seems that Barot, who was a director of the plaintiffs firm and who was attending to these transactions, left Bombay for Cairo in the first week of January and on 8th February, 1952 he returned, and the plaintiffs case was that in the second week of February there was an interview between Barot and Hirji, a partner of the defendants firm, and at this interview the controversy raised by the defendants with regard to these two terms was settled and Hirji accepted the terms as embodied in the contract notes. Thereafter 450 bales were delivered by the plaintiffs to the defendants and were paid for by the defendants. 815 bales out of the second and third contracts were also delivered and paid for. On 10th April, 1952 a railway receipt for 1110 bales was sent by the plaintiffs to the defendants, The plaintiffs case was that the defendants were in financial difficulty and they requested the plaintiffs to keep these bales in their godown. The plaintiffs acceded to the request of the defendants and removed the bales from the railway yard and kept them in their godown. After that the goods were surveyed, but after the survey the defendants failed lo pay for these goods. Thereupon the goods were re-sold by the plaintiffs and the plaintiffs claimed in respect of these 1110 hales the difference between the price realised on the re-sale and the price of the goods. They also claimed in respect of these 1110 bales demmurage and what is technically known as carrying charges which includes muka-damage and rent for the godown. 1270 bales under these three contracts still remained. Out of these delivery was taken by the defendants of 45 bales of Patti East Punjab Cotton, and there is no dis

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