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1952 Supreme(Nagpur) 109
HIGH COURT OF NAGPUR
Hidayatullah, Sen
PULGAON COTTON MILLS LTD – Appellant
Versus
GULABAI W/O RATANCHAND SARDA AND ANR – Respondent
First Appeal No. 66 of 1944
Decided on : 06-10-1952
A V Khare, B S Byas, D T Mangalmurti, M B Deshpande, M R Bobde, P R Padhye, Advocates
The insolvency of a party to a contract may amount to a refusal to perform the contract, if it shows his inability to fulfil the contract and his lack of readiness and willingness to do so.
Headnote:
SALE OF GOODS - CONTRACT - TIME OF THE ESSENCE - CLAUSE MAKING TIME NOT OF THE ESSENCE - EFFECT - INSOLVENCY OF PURCHASER - EFFECT ON CONTRACT - ABANDONMENT OF CONTRACT - RESCISSION - DAMAGES.
Fact of the Case:
The Plaintiff, a cotton yarn merchant, placed an order with the Defendant-company, a cotton mill, for the purchase of 51 bales of mixed counts. The contract was to be fulfilled by the end of June 1940. Later, the Plaintiff requested the Mills for an extension of time, which was granted till the end of July 1940. Before the due date, the Plaintiff presented a petition for insolvency. The Mills presented an application to the Insolvency Court claiming damages for the Plaintiff's failure to take delivery of the goods. The Plaintiff opposed the application, stating that the 'souda' was outstanding and that the receiver had become entitled to the benefits of the 'souda' and its liabilities. The matter was not decided by the Insolvency Court. Prior to the annulment of the adjudication order, the Mills' new selling agents wrote a letter to the Plaintiff reminding him of the outstanding delivery of bales and asking him to send orders for despatch of the bales. The Plaintiff replied, asking for delivery of 11 bales and promising to take delivery of the remaining bales in the near future. The Mills denied any contract with the Plaintiff and stated that the contract had been cancelled at the instance of their agents. The Plaintiff filed a suit for damages for breach of contract, claiming Rs. 10,000/-. The Mills denied liability and alleged that the contract had been cancelled due to the Plaintiff's insolvency.
Finding of the Court:
1. Time was of the essence of the contract, as evidenced by the fact that the Plaintiff had asked for an extension of time and the Mills had granted it reluctantly, making it clear that some of the ordered goods must be taken in June. 2. Clause 10 of the contract, which provided for action by the seller if delivery was not taken within the time fixed, did not make time not of the essence of the contract. It was a provision in the interest of the seller and did not relieve the purchaser from the operation of the agreement about time. 3. The breach of contract proceeded from the Plaintiff, as he failed to take delivery of the goods within the time fixed and did not ask for delivery before the expiry of the period fixed for the fulfilment of the contract. 4. The Plaintiff's insolvency amounted to a refusal to perform the contract, as it showed his inability to fulfil the contract and his lack of readiness and willingness to do so. 5. The conduct of the Plaintiff and the interim receiver in the insolvency proceedings amounted to a refusal to perform the contract, entitling the Mills to treat the contract as abandoned by the Plaintiff. 6. The letter written by the Mills' new selling agents to the Plaintiff, who was still an adjudged insolvent, did not bind the Mills and did not have the effect of rehabilitating the contract. 7. The Plaintiff was not entitled to damages, as he had abandoned the contract and the Mills were entitled to treat the contract as repudiated.
Issues: 1. Was time of the essence of the contract? 2. Did Clause 10 of the contract make time not of the essence of the contract? 3. Was there a breach of the contract and if so by whom and when? 4. Did the contract made by the Plaintiff vest in the receiver along with the general property of the Plaintiff on his becoming insolvent? 5. Could the Plaintiff be said to be ready and willing to perform the contract at all times after 2-7-1940 when he presented his petition for being adjudged an insolvent? 6. What was the effect of the insolvency proceedings upon the contract and whether the Defendants were exonerated from fulfilling the contract after their application to join as creditors of the Plaintiff was opposed by the interim receiver? 7. Did the conduct of the interim receiver show that he had abandoned the contract? 8. What was the effect of the letter written by the new selling agents to the Plaintiff who was still an adjudged insolvent and not to the receiver? 9. Did the letter of the new selling agents bind the Defendants and whether it had the effect of rehabilitating the contract, if the same had fallen through due to the insolvency of the Plaintiff and the attitude of the insolvent and interim receiver? 10. Is the Plaintiff, if he succeeds, entitled to damages on the basis of the rates prevailing on 29-8-1942 or any earlier date? 11. Is the Plaintiff entitled to interest 'pendente lite' as also till realization?
Ratio Decidendi: 1. Time is of the essence of a contract for the sale of commodities liable to fluctuations in price from day to day. 2. A provision in a contract for the sale of goods, which provides for action by the seller if delivery is not taken within the time fixed, does not make time not of the essence of the contract. 3. The insolvency of a party to a contract may amount to a refusal to perform the contract, if it shows his inability to fulfil the contract and his lack of readiness and willingness to do so. 4. The conduct of the insolvent and the interim receiver in the insolvency proceedings may amount to a refusal to perform the contract, entitling the other party to treat the contract as abandoned by the insolvent. 5. A letter written by the seller's new selling agents to the insolvent, who is still an adjudged insolvent, does not bind the seller and does not have the effect of rehabilitating the contract.
Final Decision: The appeal was allowed with costs throughout. The Plaintiff's suit was ordered to be dismissed. The cross-objection failed and was dismissed with costs.
1. This appeal is by the Defendant, the Pulgaon Cotton Mills, a limited company registered under the Companies Act, having its registered office at Pulgaon, tahsil and district Wardha. The suit was brought by the present Respondent to claim damages in the sum of Rs. 10,000/- from the Appellant-company on account of a transaction for the sale and purchase of cotton yarn entered into between the parties on 24-4-1940. The trial Court has found in favour of the Plaintiff and hence the present appeal. There is also a cross-objection by which the Respondent in the suits asks for interest 'pendente lite' and also till realization. This judgment shall dispose of both the appeal and the cross-objection.
2. The Plaintiff Ratanchand Maheshwari placed an order by a letter with the Respondent-company through their selling agents Radhakisan Ramsahai on 23-4-1940 asking them to supply 51 bales of mixed counts at the rate of Rs. 3/14/- for No. 12 1/2, the contract to be fulfilled by the end of June 1940 (Ex. D-1). Later, the next day, the Mills' sent a telegram accepting the offer of the Plaintiff. They stated in their telegram: "Accepted 51. Received letter. Three fourteen basis. Ganesh." On the same day two counterparts of the agreement, which are described in this case as the 'sold' and 'bought' notes, were executed. They are Exs. P-1 and D-3 respectively. These notes were signed by Ratanchand as the purchaser (and Radhakisan Ramasahai as the selling agents of the Defendants.
3. It appears that the Plaintiff could not take delivery by the end of June 1940 and requested the Pulgaon Mills for a further extension of time. Exhibits P-4 and P-5 are the letters requesting the Pulgaon Mills to extend time of delivery to the end of July 1940. At the request of the Plaintiff. the Pulgoan Mills extended the time for delivery to the end of July 1940 by their letter dated 27-6-1940 (Ex. P-2). In that letter, however, they stated that though time had been extended by one month, the Plaintiff should try his best to send orders for some bales at least by the end of June 1940. It was also made clear that delivery of all bales must be taken by the end of July 1940.
4. Before the due date arrived, the Plaintiff presented a petition to the Insolvency Court for being declared an insolvent. The record of the Insolvency case is not before us, but certain certified copies of applications filed as well as the order sheets and other orders have been produced in this case. The petition for insolvency, which is Ex. D-21, was presented on 2-7-1940. In that petition the Plaintiff made a mention of this contract, though he did not show either the Pulgaon Mills or Radhakisan Ramsahai as one of the creditors. It appears, however, from the record of the case that on the day the application for insolvency was presented the market had been falling and the rates were against the Plaintiff. In his petition the Plaintiff stated as follows:
(5). Besides this, the applicant has entered into a contract to purchase 51 bales of yarn from the sole agent of Pulgaon Mills. The applicant has taken delivery of two bales and the contract is outstanding for 49 bales. The prices have since fallen but as there is no settlement of the 'souda' the said sole agent of Pulgaon Mills is not shown as creditor in his application.
(6). The applicant is unable to pay his debts, and has no alternative but to apply for his adjudication.
5. Prom this petition it appears that the Plaintiff was indebted to the tune of Rs. 39,000-0-0 and, as has been found subsequently, his assets did not amount to more than 0-4-0 in the rupee which were paid to the creditors when the adjudication order passed against him was annulled. We shall, however, refer to this matter later in detail.
6. When the Pulgaon Mills and their selling agents knew of the insolvency of the Plaintiff, they presented an application to the insolvency Court on 27-8-1940 (Ex. D-22) by which they made a claim for Rs. 1,470/- on account of losses
