Radhakrishna Sivadutta Rai & Ors Vs.
Tayeballi Dawoodbeai  INSC 300 (13 October 1961)
SINHA, BHUVNESHWAR P.(CJ) DAYAL, RAGHUBAR
CITATION: 1962 AIR 538 1962 SCR Supl. (1) 81
CITATOR INFO :
RF 1968 SC1308 (9)
Breach of contract-Suit for damages-Brokers'
bought and sold notes, if and when constitute terms of the contract-Commercial
usage-Contract on behalf of disclosed partner-Maintainability of suit-Indian
Contract Act, 1872 (9 of 1872), 8. 230.
The appellant sued the respondent for damages
for breach of contract. The respondent pleaded that the appellant had
contracted as agent for its disclosed principal and had no right to sue. The
bought and sold notes issued by the brokers showed that the appellant had
entered into the contract on account of the disclosed principal; but in the
confirmation slips and subsequent letters exchanged between the parties no
reference was made to the principal nor did the appellants describe themselves
as acting or signing on his behalf.
^ Held, that it is well established in
commercial usage that the bought and sold notes issued by the brokers, where 82
there is no variation or disparity between them, constitute the contract that
must bind the parties.
But where the bought and sold notes show
material variations, neither of them nor both of them taken together can be
relied upon for proving the terms of the contract.
Since there was no disparity in the instant
case between the two notes which specifically mentioned the appellants as
acting on account of the disclosed partner, it must be held that the appellants
had entered into the contract on behalf of the disclosed partner and as such
was not entitled to sue.
Cowie v. Ramfry, (1846) 3 Moo. I. A. 448,
sievewright v. Archibald,(1851) 117 E.R. 1221, Ah Shain Shoke v. Moothia Chetty
(1899) L. R. 27 I.
A. 30 and Gadd v. Houghton (1876) I Ex. D.
357, referred to.
Held, further, that in deciding whether or
not the agent had entered into the contract on behalf of the principal, the way
he signed the document must be considered in the light of the recitals in the
relevant document. In the instant case, the letters and the confirmation slips
must be read in the light of the bought and sold notes and presumed to be
consistent with them and it would, therefore, be unreasonable to attach undue
importance to the signature or how the parties described themselves.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 212 of 1959.
Appeal from the judgment and decree dated
March 1, 1957, of the calcutta High Court in appeal from original Decree No. 71
G. S. Pathak and Naunit Lal, for the
A. V. Viswanatha Sastri, S. N. Andley,
Rameshwar Nath and P. L. Vohra, for the respondent.
1961. October 13. The Judgment of the Court
was delivered by GAJENDRAGADKAR, J.-This appeal by a certificate granted by the
Calcutta High Court arises out of a suit filed by the three appellants against
the respondent to recover Rs. 83,640/-.
The three appellants are respectively the
Firm Radhakrishan Shivdutt Rai which carries on business at Banaras and
RamKumar Lal for himself and as karta of his joint family as well as Madan
Gopal for himself and as karta of his joint family, the latter two being 83 the
partners in the first-mentioned Firm Radhakrishna Sivadutta Rai; for
convenience we will refer to the partnership firm hereafter as the appellant.
The respondent Tayeballi Dawoodbhai is a partnership firm which carries on
business at Calcutta. The appellant's case was that the appellant and the
respondent had entered into a contract in the first instance on December 18,
1980, through brokers named T. N. Mehrotra & co.,Calcutta. This contract
was later confirmed by two letters written respectively on January 3 and 15, 1951,
by the appellant to the respondent and replied to by the. respondent. By this
contract the respondent agreed to sell 1000 bales of Banaras Hemp particulars
of which were set out in the plaint. According to the appellant, by a letter
written on March 14, 1951, the appellant in part performance of the said
contract accepted delivery of 110 bales of Banaras Hemp No. 1 and 50 bales of
Banaras Hemp No. 2; this delivery was Made by the respondent to L. N. Poddar
& Co., who acted as the agent of the appellant and Paid the price of the
said 160 bales. In they transaction the respondent realised Rs. 3,840 from the
said I,. N. Poddar &; Co. in excess of the actual price of the goods
delivered to the said company.
Inspite of the repeated demands made by the
appellant the respondent failed to deliver the balance of the goods contracted
for and thus committed breach of the contract. That is how the appellant
claimed Rs.(9,80(j as difference between the market rate on March 31, 1951, and
the contract rate of the balance deliverable under the contract in suit. This
amount was claimed as damages for the breach of contract. In addition an amount
of Rs. 3,840 was claimed as having been paid in excess of tho value of 160
bales delivered to L. N. Poddar & Co., on behalf of the appellant.
This claim was resisted by the respondent on
several grounds. The principal contention urged by the respondent, however, was
that in relation to 84 the contract in suit the appellant had acted as agent
for its disclosed principal Messrs Khaitan and Sons Ltd., and as such it was
not entitled to bring the present suit. The respondent further alleged that the
said disclosed principal Messrs.
Khaitan and J. Sons had settled all their
rights and loams under the suit contract with their agent and so the present
claim for damages was not maintainable. In regard to the claim for Rs. 3,840
tho respondent pleaded that the appellant's case was untrue. Several other
pleas were also raised but with the said pleas we are not concerned in the
Mr. Justice Bose who tried the suit framed
twelve issues. On the principal point in controversy between the parties the
learned judge found that the appellant had entered into the contract with the
respondent on its own account and not on account of the disclosed principal as
alleged by the respondent. According to the learned judge the reference to
Messrs. Khaitan and Sons Ltd., made in the bought and sold notes on which the
respondent's plea was based had been inserted by the brokers "by mistake
or due to some misconception." The learned judge also found that the
respondent had committed a breach of the contract as alleged by the appellant.
The appellant's case with regard to the excess payment of Rs. 3,840 made by L.
N. Poddar & co. was, however, held not to have been proved. In the result a
decree was passed in favour of the appellant for Rs. 79,800 along with interest
as stipulated in the decree.
Against this decree the respondent preferred
an appeal; and the main point which was urged on its behalf was directed
against the finding of the trial judge that the contract had been entered into
by the appellant for itself and not on account of the disclosed principal. This
contention was based in the Court of Appeal, as in the trial court, on the
bought and sold notes; and it was urged that 85 the bought and sold notes
clearly showed that the appellant had entered into the contract on account of
the disclosed principal Messrs. Khaitan and Sons Ltd. Before the Appellate
Court the respondent's case was that the said bought and sold notes constituted
the terms. Of the contract and no other evidence was relevant and admissible in
order to determine the said terms. Das Gupta, J., upheld this. plea. In his
opinion the bought and sold notes issued by the brokers Constituted the sole
basis for the terms. Of the contract and the two letters subsequently written
on January 3 and 15, 1951, were inadmissible and irrelevant for the purpose of
determining the said terms of the contract. The learned judge, however,
considered the matter also on the alternative basis. that the said letters
could be considered for ascertaining the terms. Of the contract and came to the
conclusion that can reading the said letters and the bought and sold notes
together the result was the same, namely, that the contract had been entered
into by the appellant on behalf of the disclosed principal. Bachawat, J.,
differed from Das Gupta, J., on the question about the relevance and
admissibility of the two subsequent letters.
According to him the two bought and sold
and the two letters between them constituted
the terms of the contract. He was inclined to take the view that the letters
could not be regarded as inadmissible or irrelevant. Reading the four documents
together the learned judge. however, agreed with the conclusion alternatively
recorded by Das Gupta, J., and held that the four documents supported the
respondent's plea that the appellant had entered into the contract on behalf of
the disclosed principal. Both the learned judges agreed in holding that there
was no evidence to support the appellants plea that the reference to the
principal made in the bought and sold notes was a result of any mistake. On
these findings the decree passed by the trial court was reversed and the
appellant's suit Was ordered to be dismissed.
86 In regard to the costs, however, the Appellant
Could took the view that the point raised before the Appellate Court about the
effect of the bought and field notes had not been specifically mooted before
the trial court and that several other pleas raised by the respondent were
found by the trial court to be false and so the proper older as to costs would
be that each party should bear its costs throughout.
After this judgment was delivered the
appellant applied for and obtained a certificate from the High Court and it is
with the said certificate that the present appeal has been brought before this
Court. On its behalf Mr.
Pathak has strenuously contended that the
Appellate Court was in error in coming to the conclusion that the contracts in
suit had been entered into by the appellant on behalf of the disclosed
principal Messrs. Khaitan & Sons Ltd., Banaras. For the purpose of deciding
this point we propose to assume in favour of the appellant that the terms of the
contract may be gathered from the two bought and sold notes on which the
respondent relies as well as the two subsequent letters on which the appellant
It would be convenient at this stage to set
out the said documents. We will first refer to the brokers' notes and the
confirmation slips in respect thereon. This is how the brokers' notes read:
"T. N. Mehrotra and Co. No. 377 Hemp,
Oil and Oil Seedh Pollock House Brokers. (3rd Floor) 28-A, Pollock Street.
Any dispute in connection with this deal is subject
to Arbitration by Bengal Chamber of Commerce.
87 Radhakrishna Sivadutta Rai, A/c Khetan and
Sons Ltd., Shewpur, Banaras.
Dear Sirs, We confirm having purchased on
your account and risk under noted goods from Messrs. Tayeballi Dawoodbhai, 20,
Zakaria Street, Calcutta.
Commodity: 500 (five hundred) bales of
Banaras No. 1 only with Agmark Jan/March '51 at K. P. Docks @ Rs. 165 per bale
of 400 lbs.
each on receipt of the goods.
Yours faithfully, For T. N. Mehrotra and
Company, Sd. T. N. Mehrotra.
Sales Tax number should be furnished by the
Buyers otherwise to be charged." "T. N. Mehrotra and Co. No. 378
Hemp, oil and oil Seeds Pollock House Brokers (3rd Floor) Bank 4718 29-A
Pollock street Tel:
B.K. 1914 Calcutta, 18-12-50.
Any dispute in connection with this deal is
subject to arbitration by Bengal Chamber of Commerce.
To: M/s. Tayeballi Dawoodbhai, 20, Zakaria
Dear Sirs, We confirm having sold on your
account and risk, the under noted goods, to M/s.
Radakrishan Shiv Dutt Rai with A. G. Mark.
A/c Khetan and Sons Ltd., Shewpur, Banaras.
Commodity: (500) Five hundred Bales of
Banaras No. 1 only with A. G. Mark.
88 Delivery: Jan./March 1951 at K. P. Dock.
Price: @ Rs. 165 per bale of 400 Ibs. each.
Terms of Payment on receipt of goods.
Brokerage 0-8-O per bale.
Sales Tax number should be finished by the
buyer otherwise to be charged.
Yours faithfully, For T. N. Mehrotra &
Co., Sd. T. N. Mehrotra "To M/s. T. N. Mehrotra & Co., Calcutta.
We acknowledge receipt of your purchase
confirmation memo No. 377 dated 18-12-50.
Signature: Gopal Lal Gupta For Radhakrishna
Shivadutta Rai." "To M/s. T. N. Mehrotra & Co., Calcutta.
We acknowledge receipt of your purchase
confirmation memo. No. 378 dated 18-12-50.
Signature: Gopal Lal Gupta For Radhakrishna
The said confirmation slips were signed by
Gopal Lal Gupta for the firm of Radhakrishna Shivdutt Rai." After the said
notes were sent by the brokers to the respective parties Gopal Lal Gupta on behalf
of the appellant wrote a letter to the respondent on January 3, 1951, and on
1951 the respondent wrote a letter to the
appellant. These letters read at follows:
"Messrs. Tayeballi Dawoodbhai, 3-1- 51.
20, Zakaria Street, Calcutta.
Dear sirs, We have boughS from you one
thousand bales of Banaras Hemp through Messrs. T. N.
Mehrotra & Co., 28-A, Pollock Street,
Calcutta, on the following terms:
89 1. 500 (Five hundred) bales Banaras No.
1 with agmark @ Rs. 166 (one hundred and
sixtyfive) per bale of about 400 lbs.
delivery K. P. Docks during January/March
2. 500 (Five hundred) bales Banaras No.
II with agmark @ Rs. 145 (one hundred and
fortyfive) per bale of about 400 lbs.
delivery E. P. Docks during January/March
1951. Please note and confirm.
Yours faithfully, for Radhakrishna Shivdutt
Rai Sd. Gopal Lal Gupta." "Tayoballi Dawoodbhai 20, Zakaria Street,
Registered. Calcutta- 1.
Calcutta, 15th January, 1951.
Messrs. Radhakrishna Shivadutt Rai, Banaras.
Dear Sirs, We confirm having sold to you
through Messrs. T. N. Mehrotra & Co., Calcutta, 1000 (one thousand) bales
of Banaras Hemp as follows:
(i) 500 (Five hundred) bales Banaras Hemp No.
I with Agmark at Rs. 165 per bale of about 400 Ibs. delivery K. P. Docks during
(ii) 500 (Five hundred) bales Banaras Hemp
No. II with Agmark at Rs. 145 per bale of about 400 lbs. K. P. Docks delivery
during January/March 1951.
This confirms your letter of 3rd instant.
Yours faithfully, for Tayeballi Dawoodbhai.
Sd. x x Partner.
Copy to Messrs. T. N. Mehrotra & Co.,
Calcutta, and to Gopinath Mehrotra, Banaras." Mr. Pathak contends that in
construing the effect of the relevant documents we should not 90 attach any
importance to the reference to Khaitan & Sons made in the bought and sold
notes for the simple reason that the said reference is the result of a mistake
or misconception on the part of the brokers. In that connection he contended
that the J. finding recorded by the trial court on the issue of mistake should
be accepted by us and not the finding made by the/ Appellate court. We are not
impressed by this argument. In regard to these notes we have the evidence of
Trilokinath and Gopinath on behalf of the brokers which negatives the theory of
mistake or misconception.
Trilokinath has stated on oath that when he
got the offer from the respondent he telephoned to his brother Gopinath who is
a broker in respect of hemp of the firm of Sewnath Gopinath and he told him
about the offer. Gopinath then informed Trilokinath that the offer was closed
either on the 16th or on the morning of the 17th. This information was received
by Trilokinath from Gopinath on the telephone. Trilokinath was then asked about
the information that his brother gave him, and he stated that his brother told
him that the offer which he had communicated to him in respect of 1000 bales at
Rs. 165 and. Rs. 145 had been sold by him to Khaitan Sons & Co., Fibre Ltd.
He also added that he received another
message from his brother either on the 18th or on the night of the 17th to
prepare a contract so that it will be Khaitan & Sons through the appellant;
Thus, it is clear that the evidence of
Trilokinath, if believed, clearly shows that there could be no mistake or
misappreciation on the part of the brokers, when the notes referred to Khaitan
& Sons as principal in respect of the transaction.
Gopinath substantially corroborated the
evidence given by Trilokinath. He stated that when he got the offer from his
brother Trilokinath he went to Deokinandan who was working for Khaitan &
Sons and it was after discussion with Deokinandan thatthe souda was closed as
one on behalf of Khaitan & Sons. Having thus closed this 91 contract with
Deokinandan, who represented the principal Khaitan & Sons, Gopinath told
Trilokinath to close the offer and asked him to prepare the note showing that
the appellant was acting as agent for the disclosed principal Khaitan &
Sons. Reading the evidence of the two brothers who worked as brokers in respect
of the transaction in suit it is clear that any possibility of a mistake or
misappreciation is wholly excluded.
On behalf of the appellant Gopal Lal Gupta
has given evidence. He attempted to explain away the fact that he did not
protest against, or object to, the insertion of the name of Khaitan & Sons
in the notes by suggesting that when he signed the confirmation slips after
receiving the notes he had not noticed the reference to Khaitan & Sons. His
case was that the purchase had been made by the appellant for itself and not
for any other firm, and the suggestion he made was that if he had noticed that
the notes had made reference to Khaitan & Sons he would either have
insisted upon the said name being delete(l or would not have concluded the
contract; but when his statement that he did not notice the reference to
Khaitan & Sons was tested in cross-examination Gopal Lal was shaken, and he
had to admit that when he signed the confirmation slip he may have noticed the
reference to Khaitan & Sons but he did not read the document attentively. He
was, however, forced to concede that he had gone through the note before he
signed the confirmation slip. It was under stress of cross-examination that
Gopal Lal incidentally mentioned that the reference to Khaitan & Sons may
have been made by mistake. It is obvious that Gopal Lal's evidence which
otherwiee suffers from the infirmity that it is full of contradictions cannot
be accepted on the question of mistake because his explanation about his
conduct in signing the confirmation slips considered by itself is wholly
unsatisfactory. Therefore, in our opinion, the Appellate Court was fully
justified in 92 reversing the finding of the trial court on this point and in
coming to the conclusion that the reference to Khaitan & Sons which the
notes made was no the result of any mistake or misconception In this connection
it may be relevant to refer to the attitude adopted by the appellant when the
dispute arising between the parties in the present contract had gone before the
Bengal Chamber of Commerce for adjudication. In those proceedings the
respondent had raised the same plea that it has raised in the present suit. It
was urged on its behalf that the appellant was not entitled to make ally claim
on the contract because it had entered into the contract on behalf of a
disclosed principal and on its account.
Apparently that plea appears to have been
accepted and the arbitration proceedings therefore ended as being without
jurisdiction. In meeting the plea raised by the respondent it is significant
that the appellant thought it fit to urge that the respondent's allegation that
the appellant was the agent of one Khaitan & Co. was not correct and that
there is no firm or company known as Khaitan & Co. Or Khaitan & Sons,
Ltd., or Khaitan & Sons in Shewpur, Banaras. The appellant therefore
pleaded that the jurisdiction of the Chamber to entertain the case could not be
disputed on that score. The appellant also alleged that the reference to
Khaitan &; Sons was superfluous and no importance should be attached to the
said words. In the suit itself a faint attempt was no doubt made to challenge
the identity of the firm Khaitan Sc Sons, but Mr. Pathak has very fairly not
attempted to raise that point before us. It would thus be noticed that the
principal point made by the appellant in the arbitration proceedings before the
Chamber in respect of the reference to Khaitan & Sons in the notes was
entirely frivolous; no case of mistake appears to have been set out at that
state. Besides, as we have already pointed out, there is no evidence on which a
finding of mistake can be reasonably made in favour of the appellant.
Therefore, we 93 must proceed to consider the question about the construction
of the relevant documents on the basis that the reference to Khaitan & Sons
which the notes make is not the result of any mistake and has been made in the
ordinary course of businesss by the brokers.
Let us then consider what the effect of the
bought and sold notes is according to the established custom in the mercantile
world. Mr. Viswanatha Sastri, for the respondent, contends that, according to
the established commercial usage, if there is no variation or disparity in the
bought and sold notes, the bought and sold notes issued by the brokers
constitute the terms of the contract between the parties for whom the brokers
act. We are inclined to accept this contention. The effect of such notes issued
by the brokers has been frequently considered by judicial decisions. As early
as 1846 the Privy council had occasion to deal with this question in Cowie v. Remfry
(1). In that case a. C & Co and H.& Co; were merchants at Calcutta. The
latter sold to the former a large quantity of indigo through the medium of a
broker who drew up a sold note addressed to H.& Co. and submitted. it to H.
for his approval. H. Objected to a particular word appearing in the note
whereupon the broker took the sold note to C. and informed him of His
objection. C. then struck his pen through the word objected to by H. placed his
initials over the erasure and returned the note to the broker. The broker then
delivered it in that altered form to H. & Co. Next day the broker delivered
to C. & Co. a bought note which differed in certain material terms from the
sold note. In an action brought by H. & Co. against C. & Co. for the breach
of the contract as contained in the sold note the Supreme Court at Calcutta was
of the opinion that the sold note alone formed the contract and so it decreed
the plaintiff's suit. On appeal by the defendant the Privy Council reversed (1)
(1846) 3 M.I.A.448 94 the finding of the Supreme Court and held that the
transaction was one of bought and sold notes and Rai held that the
circumstances attending C.'s alteration of the sold note and affixing his
initials were not sufficient to make that note alone a binding contract.
According to the Privy Council, there being a material variation in the terms
of the bought with the sold note they together did not constitute a binding
contract. It would thus be seen that the Judicial Committee was dealing with a
case where the bought and sold notes did not tally and so the decision was that
where the bought and sold notes do not tally the sold note alone cannot
constitute the terms of the contract. In dealing with this question, however,
their Lordships referred to the mercantile custom in regard to the bought and
sold notes and observed that "the established usage of dealing in the
mercantile world should be held in high respect; the very existence of such
usage shows that in practice it has been found useful and beneficial; the
presumption is in its favour, and no departure from it is to be inferred from
doubtful circumstances". That is why the Privy Council reached the
conclusion that "this must be considered as a transaction in the
contemplation of the parties by bought and sold notes, and that, the contract
is contained in both of the notes, and not in one;" inevitably there being
a material variation between the two notes "the consequence follows, from
all legal principles, that no binding contract has been effected". This
decision shows that the mercantile usage of entering into contracts evidenced
by the bought and sold notes issued by the brokers was treated by the Privy
Council as well recognised.
The next decision to which reference may be
usefully made is the case of Sievewright v. Archibald(l). In that case again
there was a variation in the bought and sold notes and the variation was
material, and so it was held that there was no (1) (1851) 117 E.R. 1221, 1228,
95 sufficient memorandum of a contract to
satisfy the Statute of Frauds. In dealing with the question raised for the
decision of the Court Lord Campbell, C. J., has made certain general
observations which throw considerable light on the genesis of the bought and
sold notes and the effect which is ually attributed to the said notes by
commercial usage. "If the bought note case be considered a memorandum of
the parol agreement", observed Lord Campbell, C. J., "so may the sold
note; and which of them is to prevail ? It seems to me, therefore, that we get
back to the same point at which we-were when the variance was first objected,
and the declaration was amended. I by no means say that where there are bought
and sold notes they must necessarily be the only evidence of the contract;
circumstances may be imagined in which they might be used as a memorandum of a
parol agreement. Where there has been an entry of the contract by the broker in
his book signed by him, I should hold without hesitation, notwithstanding some
dicta, and a supposed ruling of Lord Tenterden in Thornton v. Meux (M. & M.
43), to the contrary, that this entry is the
binding contract between the parties and that a mistake made by him, when
sending them a copy of it in the shape of a bought or sold note, would not
affect its validity. Being authorised by the one to sel], and the other to buy,
in the terms of the contract, when he has reduced it into writing and signed it
as their common agent, it binds them both, according to the Statute of Frauds,
as if both had signed it with their own hands; the duty of the broker requires
him to do so; and till recent times, this duty was scrupulously performed by
every broker. What are called the bought and sold notes were sent by him to his
principals by way of information that he had acted upon their instructions, but
not as the actual contract which was to be binding upon them. This; clearly
appears from the practice still followed of sending the bought note to the
buyer, and the sold 96 note to the seller; whereas, if these notes had been meant
to constitute the contract, the bought note would be put into the hands of the
seller, and the sold note into the hands of the buyer, that each might have the
engagement of the other party J, and not his own. But the broker, to save
himself trouble, now omits to enter and sign any contract in his book, and
still sends the bought and sold notes as before. If these agree, they are held
the constitute a binding contrat; if there be any material variance between
them, they are both nullities, and there is no binding contract.
This last proposition, though combated by the
plaintiff's counsel, has been laid down and acted upon in such a long series of
oases that I could not venture to contravene it, if I did not assent to it;
but, where there is no evidence of the contract unless by the bought and sold
notes sent by the broker to the parties, I do not see how there can be a
binding contract unless they substantially agree; for contracting parties must
consent to the same terms; and where the terms in the two notes differ there
can be no reason why faith should be given to the one more than the
other". These observations seem to establish two propositions, first that
if the bought and sold notes show a material variation neither of them nor both
of them taken together can be re. lied upon for the purpose of proving the
terms of the contract, and second if the bought and sold notes agree they are
held to constitute a binding contract. To the same effect is the observation
made by the Privy Council in Ah Shain Shoke v. Moothia Chetty,(l) when Sir
Richard Couch observed that "Moothia Chetty, one of the respondents, said
in his evidence he did not consider the contract as concluded until bought and
sold notes were signed. He was right in this. They were the only evidence of
the contract." It is in the light of this legal position that we must
consider the effect of the bought and sold (1) (1899) L. R. 27 I.A. 30 97 notes
in the present case. The notes referred to the appellant and added "A/C
Khaitan & Sons Ltd." There is no disparity in the notes at all; and so
the two notes can be safely taken to evidence the terms of the contract. When
along with the name of the appellant the notes specifically refer to a
"Khaitan & Sons Ltd." with the preceding words "A/c'', there
can be no doubt that the appellant is shown by the notes to be acting on
account of the disclosed principal. The appellant realised that the effect of
the reference to Khaitan & Sons in the notes would inevitably be to support
the plea of the respondent that it was not entitled to bring the present action
and so it pleaded that the said reference was the result of a mistake.
Therefore, there can be no doubt that if the
material question had to be considered in the light of the bought and sold
notes alone the appellant was acting on behalf of the disclosed principal and,
on the contract thus entered into, it had no right to sue end can claim no
cause of action in its favour.
In Gadd v. Houghton (1), James, L. J. Observed
"when a man says that he is making a contract 'on account of' someone
else, it seems to me that he uses the very strongest terms the English language
affords to show that he is not binding himself, but is binding his
principal". In that case fruit brokers in Liverpool gave a fruit merchant
a sold note which read thus: "We have this day sold to you on account of
James Morand &; Co., Valentia, 2000 cases Valentia, oranges, of the brand
James Morand & Co., at 12s. 9d. per case free on board", and the
brokers signed the note without any addition. The purchaser brought an action
against the broker for non-delivery of the oranges. It was held that the words
"on account of James Morand & Co." showed the intention to make
the foreign principals and not the brokers liable and that the brokers were not
liable upon the contract. It would be noticed that (1)(1876) 1 Ex. 357.
98 in dealing with the question about the
brokers liability two points fell to be Gonsidered. The first point in support
of fixing the liability with the brokers was that the brokers had signed this
note without describing themselves as acting for the disclosed principals; and
the argument was that "when a man signs a contract in his name he is prima
facie a contracting party and liable and there must be something very strong on
the face of the instrument to show that the liability does not attach to
him". This principle was accepted by the learned judge who decided the
case; but it was pointed out that there was another fact which had an
overriding effect and that was that the note showed that the brokers were
acting for the diclosed principal, and that fact clearly repelled the brokers'
liability in regard to the contract.
In dealing with the argument about the effect
of the signature Mellish, L. J. Observed "when the signature comes at the
end you apply it to everything which occurs throughout the contract.
If all that appears is that the agent has
been making a contract on behalf of some other person, it seems to me to follow
of necessity that that other person is the person liable. This is one of the
simplest possible case. How can the words 'on account of Morand & Co.'. be
inserted merely as a description ? The words mean that Morand & Co. are the
people who have sold. It follows that the persons who have signed are merely
the brokers and are not liable". We have referred to there observations
made by Mellish, L. J., because as we will presently point out they would be of
material assistance in deciding the point which Mr. Pathak has raised on the
strength of the two subsequent letters. Thus, the bought and sold notes in this
case unambiguously indicate that the appellant was acting for a disclosed
principal and the contracting party was the disclosed principal and no other.
It is, however, urged by Mr. Pathak that
before determining the terms of the contract and the 99 parties to it we must
read the notes in question along with the two letters. We have already seen the
sequence of the documents. First, the notes were delivered by the brokers to
the appellant and the respondent. Then the respective parties filed
confirmation slips and then followed the two letters exchanged between them.
Mr. Pathak contends that in its letter addressed to the respondent the apellant
has definitely stated that 'they' had bought from the respondent 1000 bales in
question. Mr. Pathak places considerable emphasis on the use of the word
"we" without reference to the principal; and he also relies on the
fact that the letter is signed by the appellant without describing itself as
acting on behalf of the principal already disclosed.
Similarly he relies on the statement of the
respondent's letter to the appellant that the respondent had sold to the
appellant "to you" the bales in question. According to Mr. Pathak the
significance of these letters should not be underestimated in determining the
parties to the contrat. There is no doubt, and indeed it is a matter of
common-ground before us, that the letters do not constitute all the terms of
the contract, and all that is urged by Mr. Pathak is that they should be consider
along with the notes.
The notes refer to the fact that if any
dispute arises in the deal it is subject to the arbitration by the Bengal
Chamber of Commerce.
They also refer to the sales tax number which
is to be furnished by the buyers, otherwise they would be charged. These terms
undoubtedly constitute terms of the contract; but the argument is that in the
correspondence which took place between the parties there is no reference to
the principal and indeed the correspondence proceeds on the basis that the
appellant acts for itself and not for a disclosed principal, and that Should be
borne in mind in deciding whether the appellant was acting for tho disclosed
principal or not.
100 In support of his argument that the
signature of the appellant to its letter of January 3, 1951, and the use of the
word "we" in the first paragraph of he letter indicate that the
appellant was acting for hi itself. Mr. Pathak relies on a decision of the
King's. Bench Division in H. O. Brandt & Co. v. H.N. Morris o. Ltd. (1). In
that case the plaintiffs who carried on business in Manchester gave to the
defendants a bought note dated September 3, 1914. This note was addressed to
the defendants and was headed From Messrs. H.O.
Brandt & Co., 63 Granby Row Manchester,
For and on behalf of Messrs. Sayles Bleacheries, Salesville, Rhode, Island, U.
S. A.". The note stated "we have this day bought from you 60 tone
pure an line oil" and it was signed "H. O. Brandt & Co.".
The plaintiffs sued for non-delivery of the oil. Their claim was resisted on
the ground that they had entered into the contract on behalf of a disclosed
principal and therefore were not entitled to be sued. It was held by Viscount
Reading, C. J., and Scranton, L. J., Neville, J., dissenting, that the
plaintiffs were the contracting parties and were entitled to sue upon the
contract. The majority decision was based on three grounds. The first ground
was that the plaintiffs had signed the note without describing themselves as
acting on behalf of the principal and so it was held following the language
used by Mellish, L. J., in the case of Gadd (2) that prima facie when a man
signs a document in his own name and states therein "I have this day
bought from you" he is the person liable on the contract. The second
consideration was that the reference to the foreign principal was made in the
note in order to declare the destination of the goods. There wax evidence
adduced in the case to show that during wartime the destination of goods
intended for export had to be made known. Therefore the reference to the
foreign principal was treated as having been made for the purpose of meeting
the said (1)  2 K B. 784. (2) (1876)1 Ex. D. 357.
101 requirement; and the third circumstance
was that the plaintiff's statement at the head of the note that they were
acting for and on behalf of a foreign principal could not get rid of the prima
facie presumption that a person signing a contract in his own name is
personally liable on it. It would thus be seen that the rule of construction
which prescribes that if a person signs a contract prima facie he is the
contracting party prevailed in that case because the reference to the disclosed
principal was otherwise explained as serving another purpose altogether. The
said rule of construction prevailed also for the additional reason that the
plaintiffs were acting for a foreign principal. It would be remembered that 8.
230 of the Indian Contract Act provides that
in the absence of any contract to that effect, an agent cannot personally enforce
contracts entered into by him on behalf of his principal, nor is he personally
bound by them. There are, however, three cases specified in the section where
such a contract would be presumed to exist; one of these cases is where a
contract is made by an agent for sale or purchase of goods for a merchant
resident abroad. In other words, under s. 230 if an agent enters into a
contract for a disclosed foreign principal the main provision of s. 230 will
not apply because there would be a presumption that there is a contract to the
contrary under which the agent would be personally bound by the contract
notwithstanding the fact that he has entered into it on behalf of a foreign
Therefore, we are not prepared to hold that
the decision in the case of H. C. Brandt & Co. (1) lays down an unqualified
rule of construction on which the appellant can rely. In fact, it may be
pointed out that Neville, J., who dissented from the majority view, has
significantly observed that "I rather gaudier that I should not have found
myself in isolation on this point were it not for the fact that during the war
there is an obligation to disclose the destination (1)  2 K.B.784.
102 of the goods". this observation
shows that reference to the disclosed principal was not given its full effect
in considering the question about the liability of the agent because it was
held by the majority decision that the said reference was primarily, if not
exclusively, made for the purposes of disclosing the destination of the goods.
In support of his argument that the relevant
recitals in the two letters show that the contract had been entered into by the
appellant on its own behalf Mr. Pathak has also referred us to the statement of
the law made by Bowstead on "Agency".
"The question whether the agent is to be
deemed to have contracted personally," it is observed, "in the ease
of contract in writing other than a bill of exchange, promissory note, or
cheque, depends upon the intention of the parties, as appearing from the terms
of the written agreement as a whole, the construction whereof is a matter of a
law for the Court-(a) if the contract be signed by the agent in his own name
without qualification, he is deemed to have contracted personally, unless a
contrary intention plainly appear from other portions of the document, (b) if
the agent add words to his signature, indicating that he signs as an agent, or
for or on behalf of a principal, he is deemed not to have contracted
personally, unless it plainly appears from other portions of the document,
that, notwithstanding such qualified signature, he intended to bind
himself." In conclusion it is added that "effect should be given to
every word used and none should be rejected unless it is apparent that they
have been introduce per incuriam" (P. 266, Art. 116). These observations
do not carry the appellant's case very for because all that they show is that
in determining the question as to whether the agent has entered into the
contract on behalf of the principal or not the way he has signed the document
has to be considered along with the other recitals made in the relevant
103 What then would be the effect of the
relevant recitals in the letter on which Mr. Pathak relies? In this connection
it is necessary to recall that we are reading these letters along with the
bought and sold notes, and that the bought and sold notes have unequivocally
and clearly indicated that the appellant was acting on behalf and on account of
the disclosed principal Khaitan & Sons. If we read the letters in the light
of the bought and sold notes it would be clear that the signature of the
appellant will not have much significance, nor would the use of the word
"we" by the appellant or "you" by the respondent make any
Parties knew that the appellant was acting on
behalf of the disclosed principal. It is not suggested that in such a case
every time the agent has to sign expressly stating that he is acting on behalf
of the disclosed principal. Therefore, if the appellant was acting for the disclosed
principal the fact that he did not add the relevant description to his
signature, or used the word "we" in the operative portion of the
letter would not materially alter the fact spoken to by the notes that the
appellant was acting on behalf of the disclosed principal. It cannot be
suggested that these letters intended to alter the position disclosed by the
notes. The letters, like the confirmation slips, are and must be, presumed to
be consistent with the notes; and so it would be unreasonable to attach undue
importance to the signature and to the use of the relevant words "we"
and "you" on which reliance has been placed.
In our opinion, therefore, the appellate
Court was right in holding that even if the bought and sold notes are read
along with the confirmation slips and the two letters of January 3, 1961, and
January 15, 1951, the conclusion is inescapable that the appellant entered into
the contract on behalf of the disclosed principal Khaitan & Sons Ltd. If
that be so, it follows as a matter of law that the appellant is not entitled to
bring the present suit.
104 Mr. Pathak faintly attempted to argue in
the alternative that even if the appellant was acting on behalf of the
disclosed principal it would be entitled to sue because from the subsequent
conduct of the parties a contract to the contrary could be reasonably inferred.
We have, however, not allowed Mr. Pathak to argue this point. It was conceded
by the appellant before the Appellate Court that if it was held that the
plaintiff firm was acting as agent for Khaitan & Sons Ltd., the suit was
not maintainable. This concession was made in view of the provisions of s. 236
of the Contract Act. Besides, the alternative plea which Mr. Pathak wanted to
raise does not appear to have been expressly pleaded or considered in the trial
In the result the appeal fails and is
dismmissed. In the circumstances of this case we direct that the parties should
bear their own costs in this Court.