Shah v Mohanlal (Civil Appeal No. 21 of 1951) [1951] EACA 79 (1 January 1951)

## COURT OF APPEAL FOR EASTERN AFRICA

Before SIR BARCLAY NIHILL (President), SIR NEWNHAM WORLEY (Vice-President) and LOCKHART-SMITH (Justice of Appeal)

DEVSHI SAMAT SHAH, Appellant (Original Defendant)

v.

## BUDHRAM MOHANLAL, Respondent (Original Plaintiff)

## Civil Appeal No. 21 of 1951

(Appeal from decision of H. M. High Court of Tanganyika—Mahon, J.)

Tanganyika Sale of Goods Ordinance Section 37 and Section 6. Acceptance-Breach of contract—Date of breach—Assessment of damages.

By an oral contract, respondent sold 30 tons of physic nuts at Sh. 675/- per ton. Respondent delivered nearly 13 tons in two instalments and had balance of nuts awaiting acceptance by appellant when market for nuts collapsed. The appellant gave notice of intention to refuse acceptance of the balance of nuts. The respondent elected to treat contract as repudiated and to sue for damages.

Held (8-8-51).—(1) Where there has been acceptance within section 37 of the Sale of Goods<br>Ordinance, the requirements of section 6 have been complied with and it is unnecessary to consider sub-section $(3)$ of section 6.

(2) Where contract oral a term for delivery by instalments may be inferred from conduct of parties.

(3) Where market had ceased to exist when contract repudiated the measure of damages for goods procured for buyer is cost of goods plus the loss of profit which the seller would have made upon the sale and was in this case the contract price.

The appeal failed.

Cases referred to: Abbott v. Wolsey (1895) L. R. 2 Q. B. 97; In re a Debtor (1939) 1 Ch. 225, p. 231; Colley v. Overseas Exporters (1921) L. R. 2 K. B. 302; Frost v. Knight<br>(1872) L. R. 7 Ex. 111; In re Vic Mill Ltd. (C. A.) (1913) 1 Ch. 645; Cort v. Ambergate<br>Railway Co., (1851) L. R. 17 Q. B. 127; Dunkirk Co 633 $(C. A.)$ .

D. N. Khanna for appellant.

Reid for respondent.

JUDGMENT (delivered by SIR NEWNHAM WORLEY, Vice-President).—This is an appeal from a judgment and decree of the High Court of Tanganyika whereby it was ordered that the appellant (defendant in the Court below) should pay to the respondent (plaintiff) the sum of Sh. 20,250 "being the value of goods delivered to the defendant and awaiting acceptance by him" with consequential orders for costs and interest.

The respondent based his claim on an oral contract for the purchase and sale of 30 tons of physic nuts to be delivered at Arusha at a price of Sh. 675 a ton and he claimed (a) Sh. $8,674/11$ as the value of 12 tons 17 cwt. 15 lb. delivered in two instalments on 31st March and 2nd April, 1950, in part fulfilment of the contract and (b) Sh. $11,575/89$ being the value of the goods (balance of the contract) awaiting acceptance by the appellant, or, alternatively, such sum by way of damages for breach of contract as to the Court should seem fit.

The appellant in his defence admitted an oral contract for 15 tons of nuts only "according to sample as a trial consignment" at Sh. 675 a ton, delivery at Arusha by 15th April, 1950. He admitted the delivery of 152 bags on 31st March

and of 57 bags on 2nd April but pleaded that he refused to accept the nuts delivered on 31st March because they were damaged by water and unmerchantable. He further pleaded that on March 31st, April 2nd and finally on April 7th, the respondent agreed to take back the nuts already delivered and that the contract was rescinded by mutual consent. Finally, he pleaded that the action did not lie as there was no note or memorandum, in writing of the contract as required by section 6 (1) of the Sale of Goods Ordinance (Chapter 214 of the Laws of Tanganyika 1947).

The respondent's reply denied that the contract was for 15 tons only also that he had ever agreed to take back the nuts delivered and alleged that the plea that the action did not lie was "untenable".

The findings of fact by the trial judge are: that the contract was for 30 tons of nuts and not 15 tons, that delivery was tendered and accepted, that the respondent had failed to substantiate either the allegation that the nuts were unmerchantable or the allegation that the contract had been waived by mutual consent. He further found that after the 8th April, 1950, there was no market for physic nuts and that the respondent was entitled to recover not only the contract price of Sh. 8,674/11 for the nuts delivered, but also the amount of Sh. 11,575/89 for the unfulfilled balance of the contract, and gave judgment accordingly.

On the objection taken in point of law that the action did not lie, he held that there was ample evidence of acceptance within the meaning of section 6 (3) of the Sale of Goods Ordinance. From among the numerous grounds of appeal I select this one for prior consideration. It was contended before us, as before the learned trial Judge, that facts showing why the defence of the absence of a written memorandum was "untenable" should have been pleaded and that the acts and declarations of the appellant which were relied on as constituting an acceptance and a recognition of a pre-existing contract should have been expressly found by the learned trial Judge.

I can agree with counsel for the appellant that the pleading in the reply was inartistic and nebulous but, if the appellant felt himself prejudiced or hampered thereby he could have asked for particulars at or before the trial. I can also agree with counsel that it would have been preferable for the learned Judge to indicate the facts on which he relied to establish an acceptance for the purposes of section 6. But nevertheless, when I look at the substance of the matter it is clear to me that this ground of appeal must fail.

Sections 6 and 37 of the Sale of Goods Ordinance reproduce sections 4 and 35 of the English Sale of Goods Act, 1893 and the Ordinance generally reproduces the provisions of that Act. The Ordinance, following the Act, distinguishes between an acceptance recognizing the existence of a contract for the purposes of section 6 and an acceptance binding the buyer to pay for the goods (section 37) (see Abbott v. Wolsey (1895) L. R. 2 Q. B. 97) and Mr. Khanna, Counsel for the appellant, cited a number of English decisions as to what constitutes an acceptance within the meaning of section 4 of the Act in support of his contention that there was no evidence to support the Judge's finding.

But it is well settled that once there has been an acceptance within section 35 of the Act, the requirements of section 4 have been complied with and it is unnecessary to consider sub-section (3).

"The object of sub-section 3 is to provide that a contract may be enforceable if the requirements therein are complied with, even though there may be no acceptance within the meaning of that word as defined in section 35 .... Sub-section 3 and section 35 are in no way contradictory. If there is acceptance within the meaning of the latter section, the requirements of

section 4 have been complied with, but if there is no acceptance within section 35 there may still be acts amounting to acceptance within the meaning of sub-section 3 which will render a verbal contract enforceable"; (per Farwell and Morton, J. J., in In re a Debtor (1939) 1 Ch. 225 at page 231.)

It is implicit in the learned Judge's findings of fact that there was an acceptance of the 209 bags delivered on 31st March and 2nd April within section 37 of the Ordinance and therefore within section 6; and, although he does not refer in detail to the evidence, it is apparent that there was evidence on which he could so find. He found that the probabilities were all in the respondent's favour and criticizes adversely the appellant's evidence and demeanour, particularly his refusal to admit that the 209 bags were still in his store. There was evidence of some negotiations between the parties at the appellant's shop on April 7th when, according to the appellant, the contract was mutually rescinded. The learned judge rejected the appellant's evidence on this and accepted the respondent's evidence that he, on either April 8th or 9th tendered to the appellant two invoices for the nuts delivered on March 31st and April 2nd, that the appellant refused to accept them declaring that there was no market for the nuts and that he would neither take them nor pay for them.

From this finding that there had been an acceptance of the 209 bags of nuts delivered on March 31st and April 2nd it follows that the property in these nuts had passed to the appellant and that he is bound to pay the vendor the contract price for them (section 32 (1)). In my opinion, therefore, the appeal against that part of the decree which gave the respondent judgment on the first item of his claim must fail unless the appellant can successfully establish some other ground of appeal.

I take next the tenth ground of appeal which is that the appellant was not bound to accept goods within one month of the date of contract other than in a single consignment weighing 30 tons (and no other weight) and that the learned trial Judge was in error in holding that by spasmodic deliveries the respondent had performed his part of the contract. Section 33 (1) of the Ordinance (section 31 (1) of the Act) provides that "unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by instalments". It is well settled that, at least where the contract is an oral one, a term for delivery by instalments may be inferred from the other terms or from the nature of the contract or from the conduct of the parties. This defence was not raised upon the pleadings nor in the argument at the trial and the learned Judge therefore makes no specific finding on it. The respondent's evidence was that payment was to be made for each consignment as delivered and, as has already been said, the trial Judge found that two consignments were delivered and weighed at the appellant's godown and accepted. There was no suggestion in the appellant's evidence that he objected to delivery by instalments and I am fully satisfied from the evidence that both parties contemplated delivery by instalments. This ground of appeal also, in my opinion, fails.

$\epsilon$

Grounds 9, 11 and 12 all depend upon the assumption that some if not all of the 209 bags of nuts delivered were in fact wet and unmerchantable. But the learned trial Judge rejected this allegation holding that no attempt whatever had been made by the appellant to substantiate it. It is true that there was some confusion and seeming contradiction in the respondent's evidence on this point, as it appears on the record, but the trial Judge who heard and saw the witnesses appears to have been satisfied that the nuts were delivered dry and in good condition and he points out that, had it been otherwise, it would have been easy for the appellant to have had them examined by an independent person or persons who could have given evidence of their condition. In my view no good reason has been shown for interfering with the Judge's finding that the nuts delivered were of merchantable quality, and these grounds of appeal therefore also fail.

The remaining grounds of appeal, numbered 1 to 6, are in substance that the respondent was not entitled to recover the contract price of the nuts because he failed to plead or prove (and the trial Judge did not find) the date of breach of the contract, the market price on that date, or, alternatively, the non-existence of a market for nuts on that date or any criteria for ascertaining the respondent's loss on the basis of loss of profit.

As I have already indicated it must follow from the trial Judge's findings of fact that the property in the 209 bags of nuts delivered and accepted passed to the buyer and therefore the respondent is clearly entitled to the contract price for them as laid in paragraph $(a)$ of his claim. I therefore only consider these grounds of appeal in relation to paragraph $(b)$ of the statement of claim, i.e. the claim for Sh. 11,575/89, the contract price for the balance of the 30 tons to be delivered under the contract. On this point there seems to me, with respect, some confusion in the judgment. The learned Judge says "It is common ground that news that the market for these physic nuts was dead reached Arusha on 8-4-1950 and that since then there has been no market for them. That being so, I am of the opinion that the plaintiff (respondent) is entitled to recover the amount of Sh. 11,575/89 as claimed". He then, however, goes on to consider the issues framed at the hearing the second of which was: "Was delivery tendered and accepted?" and he answers this in the affirmative. He appears to have overlooked paragraph 5 of the plaint in which it is pleaded that "despite repeated demands the defendant refuses to accept delivery of the remainder of the nuts purchased by him" and the allegation in paragraph (b) of the prayer for judgment in which Sh. $11,575/89$ is set out as "the value of the goods awaiting acceptance". The question is of importance as different considerations apply to the remedy of the seller according to whether or not the property in the goods has passed to the buyer. Mr. Reid, counsel for the respondent, has sought to rely upon the respondent's evidence that he had 63 tons of nuts in his godown on 31st March and that he collected about 400 bags of nuts (approximately $20\frac{1}{2}$ tons) between that date and the 6th or 7th April, and has argued from this that the property passed to the buyer when the nuts were in a deliverable state. This would be so if the contract had been one for specific goods but there is no evidence that the respondent contracted to sell or the appellant to buy any specific 30 tons of nuts on 27th March. In my opinion, the contract was one for the sale of future goods by description: in such a case, before the property can pass to the buyer there must be an unconditional appropriation to the contract of goods of that description in a deliverable state, either by the seller with the assent of the buyer or by the buyer with the assent of the seller (section 20 Rule V) and there was no evidence of any such appropriation to the balance of nuts due on the contract. It is indeed quite clear from the evidence that each consignment had to be weighed on delivery and before acceptance and until that was done the property would not pass. It follows therefore that in these circumstances the respondent's prayer for judgment for the contract price for the balance of the nuts (paragraph $(b)$ ) was ill-conceived and that he could only sue for damages (Colley v. Overseas Exporters (1921), L. R. 2 K. B. 302); he did however save himself by adding an alternative prayer for such damages as the Court should see fit to award. In such case, the measure of damages for the buyer's breach of the contract is the estimated loss directly and naturally resulting, in the ordinary course of events, from the breach. (Section 51 $(2)$ .) Sub-section (3) of the same section lays down the rule for the measure of damages where there is an available alternative market for the goods in question, but this does not apply when there is no market and the case is then governed, so far as ordinary damages are concerned, by section 51 (2). "Under this clause, however, the question is really the same as under the third sub-section, viz. what is the difference between the contract price and the value of the goods which ought to have been accepted? This must be

ż

arrived at in other ways than by the criterion of a market". (See Benjamin on Sale, 6th edition, 931.)

When the buyer gives notice to the seller of his intention to refuse to accept or to pay for goods before the date fixed for delivery, the seller is put to his election whether he will (1) accept the buyer's notice as repudiation of the contract and sue for damages upon this basis, or (2) continue to hold the buyer to his contract until the appointed time for performance: and where the seller accepts the buyer's repudiation of the contract, the damages are calculated with reference to the date of his acceptance of the repudiation, and, if the market price rule is applicable, the market price is ascertained at that date: see Halsbury's Laws of England (Hailsham Edition) vol. XXIX, paragraph 257, pages 192, 193. In the instant case, there can be no doubt that the respondent elected to accept the appellant's repudiation for he issued his writ on April 13th, though the closing date for delivery was April 15th. It will therefore be necessary to determine what was the date of the appellant's repudiation. Mr. Khanna contended that this should have been pleaded and proved and specifically found by the trial Judge and argued that if it occurred before April 8th (the date on which it is agreed that the market collapsed) there was a duty on the respondent to sell the nuts at the best price obtainable and that his damages would be limited to the difference between that price and the contract price. Here again, it seems to me that we, sitting as a Court of Appeal, are bound to accept the finding of the trial Judge, whose judgment on this point reads: —

"As to the manner in which this agreement is alleged to have been brought to an end, I feel bound to say that I regard the evidence called by the defence, and that of the defendant in particular, with very considerable suspicion. The defendant was evasive to a degree in answering many of the questions put to him, was unable to say how many bags are now in his store, when asked if he would deny that the number is 209 refused to answer the question at all and merely said that he had never counted them. In short, he was a most unconvincing witness. Of all the witnesses who spoke to this particular question, the most reliable and independent appeared to me to be Jagat Singh who said that when the plaintiff handed the defendant the invoices, the latter said that he would not pay the prices or accept the goods and added that there was no demand for the goods and that he would not take them. I see no reason to suppose, as has been suggested, that the tendering of these invoices. was done merely to manufacture evidence."

$\mathring{\mathfrak{c}}$

Now the respondent said that he tendered the invoices on either the 8th or 9th of April: Jagat Singh merely said it was "about April", the appellant himself swore they were brought by the respondent on the 9th of April. Mr. Khanna has argued that there was a repudiation, accepted by the respondent, on March 31st on which date there was a good market for the nuts but this argument cannot be accepted unless we reject the trial Judge's findings of fact, which I am not prepared to do. Even if the Judge had found that the contract was repudiated by the appellant in the course of the discussion on the afternoon of April 7th, I should still feel doubtful whether it would be reasonable to hold in the absence of evidence that the respondent could have sold the remaining 17 tons of nuts in Arusha that afternoon or before the market suddenly collapsed on the morning of April 8th. But, in my view, from the evidence as to the tendering of the invoices, which was accepted by the learned Judge in the Court below, it must follow that the respondent was seeking to hold the appellant to his bargain (as he was entitled to do) on either April 8th or April 9th, and on neither of these days, it is admitted, was there any market for the nuts nor has there been since.

The rule for the measure of damages in such a case was stated by Cockburn, C. J., in *Frost v. Knight* (1872), L. R. Ex. 111, at pages $112-113$ :

"The promisee may, if he thinks proper, treat the repudiation of the other party as a wrongful putting an end to the contract, and may at once bring his action as on a breach of it, and in such action he will be entitled to such damages as would have arisen from the non-performance of the contract at the appointed time, subject, however, to abatement in respect of any circumstances, which may have afforded him the means of mitigating his loss."

Where the subject-matter of the sale is goods to be manufactured, or produced, or *procured* for the buyers, and the contract is repudiated by the buyer *before* such goods are manufactured, or produced, or procured, as the case may be, the measure of damages, if there is no market for such goods, ... is the loss of the profit which the seller would have made upon the sale (Halsbury-Hailsham Edition, vol. XXIV, page 193.) See also in re Vic Mill Ltd. (C. A.) 1913. 1 Ch. 465.) In such a case it is not necessary for the seller to make or produce, and tender the remainder of the goods: Cort v. Ambergate Railway Co. (1851), L. R. 17 Q. B. 127. I can see no reason why this last-mentioned rule should not equally apply when the contract is for goods to be procured by the seller.

If, on the other hand, the goods have been produced or procured by the seller before the contract is repudiated by the buyer and there is no alternative market for them, then the measure of damages is the full amount of the damage actually sustained, the person who broke the contract not being put to additional cost by reason of the other party not doing what he ought to do, as a reasonable man and he, on the other hand, not being bound to do otherwise than in the ordinary course of is business: see Dunkirk Colliery Co. v. Lever (1879), 41 L. T. N. S. 633 (C. A.), affirmed in the House of Lords sub nomine Lever v. Dunkirk Colliery Co. (1880), 43 L. T. N. S. 706. In that case the plaintiffs, a colliery company, contracted to sell to the defendant 15,000 tons of cannel coal at Sh. 26/- a ton deliverable by weekly instalments beginning in the month of June. In July the defendant gave notice that he repudiated the contract. Unsuccessful negotiations took place between the parties and in September the plaintiffs elected to consider that the contract had been broken. There was no regular market for cannel coal but ultimately the plaintiffs sold the whole 15,000 tons at Sh. 19/- a ton, and then commenced their action to recover the difference in price which they ought to have obtained from the defendant and that which they obtained from the ultimate purchaser. The report of the case is concerned mostly with the discussion as to whether the plaintiffs had done all that they as reasonable men ought to have done to mitigate the loss, and, it being held on the evidence that the plaintiffs had not omitted to do anything which reasonable men, acting on their own behalf under similar circumstances, would do, they recovered the whole of the amount claimed. All the judges in the Court of Appeal affirmed the rule as to the measure of damages set out above.

$\mathcal{L}$

In the instant case, it appears that there was nothing that the respondent could do to mitigate the loss. We were informed by counsel for the respondent that these physic nuts are not cultivated but grow wild and that a demand for them sprang up because it was believed that they could be used as a substitute for castor oil nuts. They were, however, found unsuitable for this purpose, whereupon the market collapsed and they have now no commercial value at all. In these circumstances, it would be futile for the respondent to make any effort to find another buyer, and he is entitled to recover his actual loss, which is represented by the cost to him of the puts bought to fill the balance of the contract, plus the profit he would have made on them had the appellant fulfilled his bargain: in other words, his actual loss is, in the peculiar circumstances of this case, the same as the contract price.

The issue, therefore, on this part of the appeal comes down to a question of fact: was the respondent in a position to supply the balance of nuts due on the contract on 8th or 9th April, if he had been called upon to do so? The learned Judge makes no specific finding on this in his judgment and I have been very exercised in my mind as to whether there was sufficient evidence on it. The respondent's evidence on this point was that when the agreement was made (i.e. on 27th March) he had 30 tons of nuts at Singida and other places and that between March 31st and April 6th he was away from Arusha on safari buying more nuts: he further said that when he left Arusha on March 31st he had 63 tons in his godown and that on 7th April he had there about 400 bags (approximately 20 tons) which he had collected between 31st March and 6th or 7th April. If this were true, he was able to perform his obligation to the appellant under the contract. He denied under cross-examination that he had admitted to the appellant on 7th April that he had no further nuts to deliver or that he had said he had another customer for the nuts if the appellant did not want them. I think it is implicit in the judgment that the trial judge accepted the respondent's evidence on this point, which, indeed, is consistent with the probabilities of the case. According to the respondent the market began to fall on April 7th, whereas the appellant said that on the 7th the market was higher than when the contract was made and he did not hear that it had gone down until the 8th. Whichever of these dates is correct, it seems certain that the market was stable, if not actually rising, until the 7th at the earliest and it therefore seems probable that the respondent was telling the truth when he said he was buying nuts during the first week of April.

In the result, therefore, my conclusion is that no sufficient grounds have been shown for disturbing the judgment on the second paragraph of the respondent's claim and $I$ would dismiss this appeal with costs.

SIR BARCLAY NIHILL, President.—I am in full agreement with the judgment of the learned Vice-President and have nothing to add. The appeal will be dismissed with costs.

$\rightarrow$

LOCKHART-SMITH, J. of $A$ :—I agree.