China Cotton Exporters Vs. Beharilal
Ramcharan Cotton Mills Ltd.  INSC 54 (17 February 1961)
GUPTA, K.C. DAS GAJENDRAGADKAR, P.B.
CITATION: 1961 AIR 1295 1961 SCR (3) 845
Breach of Contract-Contract for sale of goods-Supply
subject to import licence-Shipping date guaranteed-Failure to supply Inadequacy
of seller's contract with overseas suppliers Liability.
The appellant had made a contract with its
Italian suppliers for 200,000 lbs. of cotton fibre for August, 1950, shipment
and another for 300,000 lbs. for Novermber /December, 950, shipment. On July
22, 1950, the appellant entered into a contract with the respondent for the
sale Of 40,000 lbs. of fibre, August shipment. On August 9, 950, it entered
into another contract with the respondent for sale of 50,000 lbs.
of fibre, "I October/November 1950
shipment ". In the remarks column of the second contract it was mentioned:
" This contract is subject to import licence and therefore the shipment
date is not guranteed ". In October, 1950, 50,000 lbs. out of the first
contract with the Italian suppliers arrived; Out Of this 40,000 was delivered
to the respondent against his first contract and 10,000 against the second The
balance Of 40,000, lbs. against the second contract was not 846 supplied. The
respondent filed a suit for damages for breach of contract. The appellant
contended that it was not liable as. the date of shipment was not guaranteed
and as it had adequate contracts with its suppliers to cover the contract with
the respondent but was unable to fulfill it as the supplier failed to make the
Held, that the appellant was liable for
breach of contract as the date of shipment was guaranteed and as the appellant
had no adequate contracts with its suppliers to cover the contract with the
respondent. In commercial contracts time is ordinarily of the essence of the
contract. The words in the remarks column meant that the date of shipment was
not guaranteed only to the extent that delay in obtaining the import licence
stood in the way of keeping to the shipment date. As there was no delay in
obtaining the licence the shipment date October/November, 1950, was guaranteed.
The other terms of the contract also showed that the date of shipment was guaranteed.
The appellant had to show that on the date of the breach i.e. on December 15,
1950, it had a contract under which it could, provided the contract was not
broken, obtain the goods to honour its agreement to sell October/November
shipment of goods. The first contract with the suppliers was cancelled at the
end of September and the appellant was not entitled to receive any goods under
it on the relevant date. Under the second contract it could not be said that
the suppliers were bound to deliver the goods by installments or to supply at
least 40,000 lbs. before December 15, as the contract with the suppliers was
not produced before the Court. The appellant had failed to establish that it
had an adequate contract to cover the contract in suit. It was not enough for
the appellant to show that there was a chance of it fulfilling its contract
with the respondent.
Bilasiram Thakurdas v. Gubbay (1915) I.L.R.
43 Cal. 305 and Phoenix Mills Ltd. v. Madhavdas Rupchand (1916) 24 Bow.
L.R. 142, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 331 of 1956.
Appeal by special leave from the judgment and
decree dated March 11, 1955, of the Bombay High Court in Appeal No. 97 of 1954.
M. C. Setalvad, Attorney-General for India
and G. C. Mathur, for the appellants.
Purshottam Trikumdas, S. N. Andley, J. B.
Dadachanji and Rameshwar Nath, for the respondents.
1961. February; 17. The Judgment of the Court
was delivered by 847 DAS GUPTA J.-This appeal is from a judgment of the Court
of Appeal of the Bombay High Court confirming the decision of a single judge of
that Court in a suit for damages for breach of a contract of sale. By a
contract in writing dated August 9,1950, entered into at Bombay, the appellants
who carry on business at Bombay as import and export merchants agreed to sell
to the respondent, a company carrying on business also at Bombay as a Cotton
Spinning and Weaving Mill, and the respondent agreed to purchase 50,000 lbs. of
Italian Staple Fibre Cotton of the quality mentioned therein, at Rs. 1,350/per
Candy Ex docks, Shipment October/November 1950. Of this quantity 10,000 lbs.
was delivered to and accepted by the respondent company on October 31, 1950.
The balance amount of 40,000 lbs. not having been delivered in terms of the
contract the respondent company brought the present suit for damages on the
allegation that the appellant firm had wrongfully failed and neglected to
deliver this balance amount of the contract goods. The appellant admitted
failure to deliver this amount; but -pleaded that this was not wrongful failure
to deliver. The appellant averred in its written statement that the non-supply
of the goods arose by reason of the " intermediary parties (meaning
thereby the suppliers) failing to supply and deliver goods to the defendant and
also of the circumstances beyond their control"; and claimed that it was
exempted from any liability to the plaintiff company under printed term 16 of
the contract. The defendant ,further pleaded that the shipment time mentioned
in the contract was not guaranteed, and the time of shipment was not of the
essence of the contract. The Trial Judge held that the shipment time was
guaranteed, except in so far as; delay in shipment might be due to delay in
obtaining import licencewhich however was in the present case obtained in good
time; that time of. shipment was of the essence of the contract;
and finally that there was no case here of
any " intermediary parties " failing to supply or -deliver the goods
and as the defendant firm had not made any adequate contract which would have
848 enabled it to obtain the supply of goods-if such contract had not been
broken-from which it could have delivered those 40,000 lbs. ;the further
defence that the non-supply was due to " circumstances beyond their
control " also failed.
Accordingly the Trial Judge held that there
had been wrongful breach of the contract by the appellant firm and the
plaintiff company-the respondent-was entitled to damages. The actual assessment
of damages was referred to the Commissioner.
On appeal by the defendant, the Appeal Court
held agreeing with the Trial Judge that as there was no delay in obtaining the
import licence, the obligation to deliver to the plaintiff contract goods of
October/ November shipment continued. The learned judges also pointed out that
" the failure to give delivery primarily arose because the defendants
never were ready and willing to carry out their obligation to give delivery
because they had made no arrangement to get goods from Italy which they could
have delivered at the contract time." Therefore, the Court of Appeal held
that it was not open to defendant to rely on any of the clauses in the contract
which condones delay on their part or which excuses them from giving delivery.
The appeal was accordingly dismissed.
It is against this order of dismissal that
the present appeal has been preferred by the defendant firm after having
obtained special leave from this Court.
Three contentions were raised before us in
support of the appeal. The first contention is that the shipment date was not
guaranteed; the second contention, which really is involved in the first,, is
that the shipment time was not of the essence of the contract. Lastly, it was
urged that the contracts which the defendant firm had made with its:
Italian suppliers, were adequate for their
obtaining supplies in good time to enable, them-if these contracts were not
broken to complete the requisite delivery to the plaintiff company, in proper
The contract wag on a printed document, with
the teems regarding quantity,: quality, price, shipment, payment, and the
remarks column. filled in manuscript.
849 Against Shipment-we find "
October/November, 1950. " In the remarks column we find the following
written: " 1. Invoice weight to be accepted ; 2. This contract is subject
to import licence and therefore the shipment date is not guaranteed." We
find thus that whatever may have been said earlier in the printed portion of
the contract the parties took care, after specifying " October/November,
1950 " as the date of shipment to make a definite condition in the remarks
column, on the important question whether the shipment date was being
guaranteed or not and if so, to what extent. The words are: "This contract
is subject to import licence, and therefore the shipment date is not
guaranteed." Remembering, as we must, that in commercial contracts, time
is ordinarily of the essence of the contract and giving the word "
therefore " its natural, grammatical meaning, we must hold that what the
parties intended was that to the extent that delay in shipment stands in the
way, of keeping to the shipment date October/November, 1950, this shipment date
was not guaranteed; but with this exception shipment October/November, 1950,
was guaranteed. It has been strenuously contended by the learned
Attorney-General, that the parties were mentioning only one of the many reasons
which might cause delay in shipment and the conjunction " therefore "
was used only to show the connection between one of the many reasons-by way of
illustration and a general agreement that the shipment date was not guaranteed.
We do not consider this explanation of the use of " therefore "
acceptable. If the parties intended that quite &part from delay in
obtaining import licence, shipment date was not guaranteed, the natural way of
expressing such intention-an intention contrary to the usual intention in
commercial contracts of treating time as the essence of the contract would be
to say: ,,This contract is subject to import licence and the shipment date is
not guaranteed. " There might be other ways of expressing the same
intention, but it is only reasonable to expect that anybody following the
ordinary rules of grammar would not use " therefore" 850 in such a
context except to mean that only to the extent that delay was due to delay in
obtaining import licence shipment time was not guaranteed.
As we have already mentioned, the remarks
column was filled in manuscript and consequently even if the terms in print by
themselves might have justified a conclusion that the parties intended that the
shipment date was not guaranteed, the intention expressed in the manuscript
We are not satisfied however that the terms
in print would justify any such conclusion. The learned Attorney-General tried
to persuade us that the printed term 2 was inconsistent with shipment date
being guaranteed at all.
The term 2 is in two parts. The first part
provides that subject to provisions of cls. 7 and 9, ,if the goods or any
portion of them are not shipped for any reason, or reasons other than those
specified in el. 9, within the shipment time with the fifteen days latitude
provided for in the said clause 7, the sellers shall not be responsible but
shall give notice to the buyers of such non-shipment and the buyers shall have
option to cancel the portion so overdue without claiming any allowance or
compensation or grant such extension of time for shipment from time to time as
may be required by the sellers " at allowance as mentioned in the second
paragraph. The second paragraph of term 2 lays down graduated rates of
allowance for different periods of delay:
at 2 1/2 % for delay up to a month; at 2-1/2%
for delay from one month to two months; 3-1/2% for delay of two to three months
and 7-1/2% for delay of more than three months.
Different rates were mentioned as regards the
It may be mentioned here that cl. 7 of the
contract provides for a latitude of 16 days after the shipment while cl. 9
contains the special exemption clause where shipment is delayed by force
majeure, war or warlike operations, strikes, lock-outs, etc. The learned
Attorney-General contends that provisions of term 2 show that the parties
agreed that the time will not be, of the essence of the contract and shipment
time will not. be guaranteed. It appears to us that these provisions show just
The provisions in the first 851 paragraph
give the seller a right to give notice to the buyer of non-shipment and give
the buyer an option on such notice either to cancel the portion not shipped or
to grant extension of time at allowances mentioned in the second paragraph.
Unless time was of the essence of the contract and shipment time was Ramces
guaranteed there would be no need for making such provisions for an option for
extension of time, or for these allowances.
The provisions of cls. 7 and 9 do not affect
We are therefore of opinion that the courts
below were right in thinking that the shipment time was guaranteed, and time
was of the essence of the contract.
This brings us to the question whether the
defendant firm had any adequate contract with their Italian suppliers which if
not broken would have put them in a position to supply the good,-, in question.
It is not disputed that if there was any such adequate contract the defendant
will not be liable for damages. It is equally clear that if there was no such
contract, the defendant cannot escape liability.
The learned Attorney-General sought to argue
that even if the contract was such that there was a chance of the defendant
obtaining the supplies in good time that would be sufficient to exonerate it.
We think that this proposition is not sound. Before the seller could be heard
to say that the non-supply was due to default on the part of his suppliers or
some other cause beyond his control the seller is bound to show that be himself
did all in his power to ensure timely supply. He could do so by showing that he
had made a contract under which he was entitled to obtain the supplies in good
time. If under his contract with his own suppliers he was not so entitled but
there was merely a chance of his getting the supplies in time to enable him to
honour his contract the non-supply would clearly be due to his own default in
not making a contract which would have so entitled him and not to a default on
the part of the supplier or to a circumstance beyond his control.
852 Turning now to the facts of the case we
find that the defendant had made two contracts with its Italian suppliers one
contract for 200,000 lbs. of cotton for August, 1950, shipment which it is said
was later extended to September, 1950; another contract Of August 4, 1950, for
for November/ December, 1950. The defendant
had also a contract with the plaintiff company of July 22, 1950, for sale of
40,000 lbs. August shipment-later converted to November/December shipment. In
October, 1950, 50,000 lbs.
out of the first contract with the Italian
suppliers arrived; out of this 40,000 was delivered to the plaintiff company in
satisfaction of the earlier contract and 10,000 was delivered in satisfaction
of this second contract-the contract now in suit. Under the contract for
the buyer (the defendant) received 70,000
lbs. of goods. Of this nothing was given to the plaintiff company and so 40,000
lbs. remained undelivered. The question is had the defend. ant a contract under
which it could, provided the contract was not broken, obtain the goods in time
to honour its agreement to sell October/November shipment of goods.
The learned Attorney-General complains that
the courts below totally left out of consideration the sellers' (the
appellants') earlier contract with Italian suppliers and says that that, at
least, was an adequate contract. There would be force in this argument if at
the time the breach took place, that is, the last date under which shipment
could be made under the con. tract in suit, the defendant would have been
entitled to obtain goods, under that earlier contract. But that is not the
position. In any case the earlier contract was cancelled at the end of
September; so that at the. time of the breach the seller was not entitled to
receive any goods under that contract.
We come next to the seller's
November/December shipment contract with its Italian suppliers. The courts
below have pointed out that under such a contract, the Italian suppliers were
entitled to delay shipment till the last day of December. If that be the
position the seller would not, on the last day by which 853 the goods under its
contract ought to have been supplied, viz., December 15, 1950, after adding 15
days under clause 7, have any contract under which it would have been entitled
to receive goods in sufficient time. The learned Attorney General has however
contended that under the contract which the defend-' ant had with its Italian
suppliers the Italian suppliers would be bound to spread the supply over the
period, November/December and thus bound to ship 40,000 lbs.
at least well before the December, 15.
The great difficulty in the way of this
argument is that the defendants' contract with its Italian suppliers has not
been produced and we do not know the terms of that contract. In Bilasiram
Thakurdas v. Gubbay (1) from which the learned counsel sought assistance the
terms of shipment in the contract was " shipments to be made by steamers
during JulyDecember 1914 -shipment in any month by one or more steamers This
was clearly an installment contract and on the construction of that contract
the court held that the buyer had the right to demand delivery of goods by
separate shipments spread over the months from July to December. In Phoenix
Mills Ltd. v. Madhavdas Rupchand (2) the question arose whether the plaintiff's
sellers had committed a breach by not giving delivery where the terms of
delivery were: " 200 bales No. 20s and 20-1/2s Ring October-November 1913
and 50 bales No. 6-1/2s Mule yarn as manufactured ". It was further
mentioned in the contract that the buyers agreed to take delivery of the bales
from time to time as they are ready. It was in view of these terms that Mr.
Justice Macleod held that " the Court can only consider the parties to
have in-tended, when they signed that contract, that delivery should be asked
for and given during October November of two hundred bales, delivery being
asked for of reasonable quantities at a time during the period of
delivery." These decisions are in line with the English law in this matter
as stated by Benjamin on Sale, 8th Edition, at P. 724 thus :" Where the
amount of installments is not specified, the prima facie rule would seem to be
that the (1) (1915) I.L.R. 43 Cal. 305.
(2) (1916) 24 Bom. L.R. 142.
854 deliveries should be rateably distributed
over the contract period." The learned author goes on to say that "
if it can be gathered from the terms of the contract or the circumstances that
rateable deliveries were not intended, it then becomes a question for the jury
whether the tender of or demand for, delivery is a reasonable one." Quite
clearly however the question whether delivery should be spread over the period
arises only in case of installment contracts. There is nothing however before
us to show that the defendant's contract with its Italian suppliers was an installment
contract. Even though the proprietor of the defendant's Italian supplier was examined
he said nothing which would even tend to show that the contract between him and
the defendant was an installment contract. In the absence of the contract or
any other circumstances justifying a conclusion that it was installment
contract it is not possible to accept the contention of the learned
Attorney-General that the defendant's Italian suppliers would be bound to
spread the supply over the period October/November, 1950.
There is thus no escape from the conclusion
that the defendant has failed to establish its case that it had an adequate
contract with its Italian suppliers, which if not broken, would put it in
possession of 40,000 lbs. of cotton fibre before December 15, 1950. The
defendant firm cannot therefore escape the liability for the damages for breach
of the contract, by the failure to supply those goods.
The appeal is accordingly dismissed with