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Judgment
Venkatarama Ayyar, J.—This is an appeal against the judgment and decree of Bell J. dismissing C. S. No. 100 of 1946 on the original side
of this Court. The plaintiffs are merchants carrying on business at Alandur near St. Thomas Mount and the suit was to recover damages for breach
of warranty in respect of goods sold to them by the defendants under a contract entered into on 19-9-1945. During this period there was a great
demand for chillies in Madras. The defendants had purchased 250 maunds of chillies from a firm of Calcutta merchants called Ganjee Sajun and
Company and the same had been shipped per S.S. Dhruva on 16-9-1945. While the shipment was on its way the plaintiffs agreed to purchase this
consignment of 250 maunds from the defendants at Rs. 37-12-0 per maund C.I.F. Cuddalore. The steamer arrived at Cuddalore on 2-10-1945.
The bills of lading had been sent by the Calcutta merchants to the defendants along with their invoice dated 21-9-1945. The original arrangement
was that the defendants should clear the goods at the port through Messrs. Parry & Co., and consign them by rail to the plaintiffs at St. Thomas
Mount. On 4-10-1945 the plaintiffs wrote to the defendants that the bills of lading may be sent immediately the object of the plaintiffs being to
make their own arrangements for promptly taking delivery of the goods. The defendants having agreed, the plaintiffs paid Rs. 9437-8-0 to them
being the price of the goods as per invoice and took delivery of the bill of lading on 9-10-1945 and entrusted the same to one Kuppuswami
Mudaliar who was doing business as clearing and forwarding agent at Cuddalore. The said Kuppuswami Mudaliar in turn engaged Messrs. Parry
& Co. for clearing the goods and handed over to them the bills of lading on 11-10-1945. The goods were in due course cleared and sent to the
plaintiffs at St. Thomas Mount in two consignments. The first consignment of 160 bundles made up of 479 bags was despatched on 20-10-1945
at Cuddalore and they reached St. Thomas Mount on 26-10-1945. The second consignment consisting of 7 bundles made up of 21 bags was
despatched at Cuddalore on 30-10-1945 and it reached St. Thomas Mount on 1-11-1945. The plaintiffs stocked all these 167 bundles in their
godown at Alandur.
The case of the plaintiffs is that when they then inspected the goods they found them to be in a very damaged condition and that they complained
about this to the defendants who sent one Kesavalal working in their office to inspect the goods, that the latter was satisfied that the goods were
worthless and that it was agreed that the defendants would refund the amount and take back the goods. On 12-11-1945 the plaintiffs sent a
lawyer''s notice with the above allegations, Ex. P. 6. The defendants replied on 19-11-1945 repudiating their liability and stating that the bills of
lading having been handed over to them on 19-10-1945 they were under no further liability to the plaintiffs and that the complaint, could not be
entertained. Alter some further correspondence the plaintiffs arranged with E.R. Prudhomme and Co., to have the goods surveyed. That was done
on 27-12-1945 after notice to the defendants. The surveyor reported that the goods were bleached in colour with no appearance or vitality, that
the stalks of a greater portion of the goods had come off, that the seeds were pouring out and that the supply must have been from old stock.
Thereafter the plaintiffs had the goods sold in public auction through Messrs. Murray & Co., after giving notice to the defendants. At the sale held
on 26-1-1946 the plaintiffs realised net Rs. 5934-14-0. The suit is laid for recovery of Rs. 5446-10-4 as damages as per particulars mentioned in
the plaint.
In Ex. P. 6 the plaintiffs took up the position that under the contract the goods must be ""chillies of new best quality and red colour"" and that as
the goods actually sent were not in accordance with this description they had a right to reject them. In the plaint the claim was also made on the
footing that there was a breach of the warranty as to the quality of the goods and that the plaintiffs were entitled to recover damages therefor. The
defendants pleaded that they agreed to deliver only chillies and not best new red chillies, that the plaintiffs having taken delivery of the bills of lading
on 9-10-1945 and treated the goods as their own, had lost the right to reject them and that the damage to the goods was due to exposure to rain
and sun at Cuddalore and that the defendant? wore not liable therefor. The suit was tried by Bell J. He held that by taking delivery of the bills of
lading and exercising other acts of ownership over the goods the plaintiffs had lost the right to reject them. Dealing next with the claim for damages
for breach of warranty he held that the defendants did not agree to supply ""best new red chillies"", that the goods were not wholly unmerchantable
and that they had suffered by exposure to rain at the sea port that the defendants were not liable for the damage and that in any event only a sum of
Rs. 400 and odd could be claimed as damages. In the result he dismissed the suit with costs. The plaintiffs have preferred this appeal against this
decision.
On the question whether the plaintiffs are entitled to reject the goods there has not been much of an argument before us. There is authority for
the position that in a C.I.P. contract the purchaser is entitled to reject the goods as not being in accordance with the terms of the contract
notwithstanding that the property in the goods has passed to him by delivery of the bills of lading if he had no opportunity to inspect the goods
before. It is only when he does any act which is inconsistent with the ownership of the seller that he loses his right of rejection u/s 42, Sale of
Goods Act. In -- ''Hardy & Co. v. Hillerns and Fowler'', (1923) 2 KB 490 (A), the purchasers under a C. I. P. contract had sold the goods even
before they took delivery of them from their sellers, and the goods having been found not to be in accordance with the contract, the question arose
whether the purchasers had the right to reject, them u/s 35, English Sale of Goods Act corresponding to Section 42 of the Indian Act. In discussing
the scope of that section Bankers L. J. observed:
1 understand the section to refer to an act which is inconsistent with the seller being the owner at the material date; and the material date for the
purposes of this case is not the date of the resale but the date of the notice of rejection, upon receipt of which the ownership revested in the sellers.
It is with that revested ownership that in my opinion that the act of resale was inconsistent. And it was. Inconsistent with it for this reason: where-.
under a contract of sale goods are delivered to the buyer which are not in accordance with the contract, so that the buyer has a right to reject them
the seller upon receipt of notice of rejection is entitled to have the goods placed at his disposal so as to allow of his resuming, possession forthwith
and if the buyer has done any act which prevents him from so resuming possession that act is necessarily inconsistent with his right.
Vide also the decision in -- ''Ruben (E. & S.) Ltd. v. Paire Bros. & Co. Ltd.'', 1949 1 All ER 215 (B), where the decision in -- (1923) 2 KB 490
(A), was followed. On this reasoning it is possible to argue that the plaintiffs had not lost the right to reject the goods merely by transporting them
from Cuddalore to St. Thomas Mount, because they were in a position to"" return the goods to the defendants. That appears to have been the
attitude taken up by them ''in Ex. p. 6. But on that basis the title to the goods would have revested in the sellers and the plaintiffs should have had
no right to sell the goods by public auction as they did on 26-1-1946 through Messrs. Murray and Co. In -- ''L. J. Lyons & Co. Ltd. v. May &
Baker Ltd.'', (1923) 1 KB 685 (C), quoted by Mr. V. C. Gopalaratnam, the learned advocate for the respondents it was held that when a
purchaser rejects the goods, he has no lien on them nor has he a title to retain possession of them until the price paid is returned. ''A fortiori'' he has
no right to have the goods sold at the risk of the seller. In our opinion whatever be the rights of the plaintiffs in respect of the goods prior to 23-1-
1946 when the goods were auctioned, thereafter their right is only to damages for breach of warranty.
The next question for consideration is whether there has been any breach of warranty on the part of the defendants. There has been some
dispute as to whether the defendants warranted that the goods would be ""best new red chillies"". They denied having given any such warranty. The
transaction was brought about through a broker Pyarllal Malhotra. He certainly assured the plaintiffs that the goods would be best new red chillies.
Vide Ex. P. 1. The only question is whether he had authority of the defendants to give this assurance. He has stated in his deposition that tie had
such authority. D.W. 2 the managing director of the defendant company has denied it. The invoice, Ex. P. 2 merely mentions chillies. The learned
Judge was not prepared to find that any such authority was given. He was of opinion that the plaintiffs must have been misled by their own broker.
That, however, does not conclude the matter because even if there was no express warranty, u/s 16(2), Sale of Goods Act there would be an
implied condition that the goods shall be of merchantable quality. D.W. 2 admits that though he did not give an express warranty he would have
replied if he had been asked, that the chillies were red and new. That the goods were in a very damaged condition at the time when they were
inspected at Alandur is amply established.
(After discussion of the evidence His Lordship proceeded:) In the result we hold that the goods which were supplied to the plaintiffs were
damaged articles and that they are entitled to damages for breach of warranty.
It is next contended by Mr. V.C. Gopalaratnam that the alleged defects In the quality of the goods could have easily been discovered by
examining them, that the plaintiffs had the opportunity to inspect them at Cuddalore and having failed to do so they are not entitled to damages on
account of patent as distinguished from latent defects of quality. This argument proceeds on a misapprehension of the true scope of Section 16(2),
Sale of Goods Act which runs as follows:
Where goods are bought by description from a seller who deals in goods of that description (whether he is the manufacturer or producer or not)
there is an implied condition that the goods shall be of merchantable quality;
Provided that, if the buyer has examined the goods, there shall be no implied condition as regards defects which such examination ought to have
revealed.
Under this section there is an implied condition that the goods bought by description shall be of merchantable quality. This is subject to the
proviso, which enacts that if the buyer has examined the goods, then no such condition could be implied with reference to patent defects. Now this
section is relevant only when a question arises as to the existence of a warranty in any given contract. It is not contended that the proviso to
Section 16(2) operates in this case so as to deprive the plaintiffs of the benefit of a warranty. It applies only to cases where the goods were
actually examined by a buyer. Vide -- ""Thorenett and Pehr v, Beers & Sons'', (1919) 1 KB 486 (D) and -- ''Peer Mohomed Rowther v.
Dalooram Jaya Narayana'', AIR 1919 Mad 728 (E). But where, as here, the goods were not examined at the time of the sale on 19-9-1945 and
indeed could not be as the goods were is the course of carriage on the high seas, the proviso does not apply and the plaintiff would be entitled to
the benefit of the warranty is per the terms of Sub-section (2). This was established by a decision of the Court of Appeal in the leading case of --
''Jones v. Just'', (1868) 3 QB 197 (P). There the plaintiffs purchased Manilla hemp which was to arrive from Singapore by ship. On arrival the
goods were delivered to the plaintiffs and the price-was paid. On examining the goods the plaintiffs found that they were damaged and claimed
damages for breach of warranty. It was held that they were entitled. The headnote is in these terms:
Under a contract to supply goods to a specified description, which the buyer has no opportunity of inspecting, the goods must not only, in fact,
answer the specific description, but must be saleable or merchantable under that description. The maxim, ''caveat emptor'', does not apply to a sale
of goods where the buyer has no opportunity of inspection.
This decision was quoted with approval in --Drummond v. Van Ingen'', (1887) 12 AC 284 (G), Lord Herschell observing,
It is equally well settled that upon a sale of goods of a specified description, which the purchaser has no opportunity of examining before the sale,
the goods must not only answer that specific description but must be merchantable-under that description. This doctrine was laid down in --
(1868) 3 QB 197 (P)'', where all the previous authorities on the point were reviewed.
The noble Lord agreed with the law as laid down in that case. The provisions of Section 16, Sale of Goods Act and the corresponding provisions
in Section 14 , English Sale of Goods Act are in accordance with these authorities. It must, therefore, be held that the plaintiffs are entitled to the
benefit of warranty an provided in Section 16(2).
When once that conclusion is reached and It is found that the warranty has been broken, then the rights of the parties are thereafter determined
by Section 59, Sale of Goods Act. Under that section the only point for determination is what damages should be awarded for breach of warranty.
The question of inspection has no relevance to the determination of that question. The learned advocate for the respondent relied on a decision in -
- ''Mithanlal v. Suraj Parshad'', AIR 1932 Lah 53 (H), as supporting this position. There the purchaser claimed the right to reject the goods on the
ground that they were not In accordance with the contract and it was held that as he had sold the goods to a third person he was not entitled to
reject them. The case would be covered by Section 42, Sale of Goods Act. Then dealing with the claim for damages the Court proceeded to
decide the same on the merits. It was not held that the plaintiffs were disentitled to damages by reason of their having had an opportunity of
inspecting the goods and not availing themselves of the opportunity. We are, therefore, of opinion that the plaintiffs are entitled to damages
notwithstanding that they did not inspect the goods on 9-10-1945.
It now remains to determine what damages the plaintiffs are entitled to. There has been some discussion before us about the basis on which
damages should be assessed. In -- (1868) 3 QB 197 (P)''. already referred to the facts were very similar to those in the present case and with
reference to the measure of damages it was held,
that the plaintiffs were entitled as damages to the difference between what the hemp was worth when it arrived and what the same hemp would
have realised had it been shipped in a state in which it ought to have been shipped.
Again In -- ''Champanhac & Co. Ltd. v. Waller & Co. Ltd.''. (1948) 2 All EB 724 (I), the plaintiffs having accepted unmerchantable goods
were held entitled to damages for breach of warranty and it was observed:
The measure of damages is in the first place, the difference in value between the goods as they were and the value which they would have had had
they complied with the warranty.
In -- ''Bunting v. Tory'', (1948) 64 TLR 353 (J), it was held that in the case of breach of warranty of quality such loss is prima facie the difference
between the value of the goods at the time of the delivery to the buyer and the value they would have had if they answered to the warranty. The
principles applicable to the case are thus well settled and applying them to the present case, we have to ascertain what the value of good chillies
was on 9-10-1945 which is the date of delivery; what the value of the damaged chillies was; and award the difference as damages to the plaintiffs.
Simple as is the statement of the position in law, its practical application, however, presents difficult problems.
It is contended for the respondent that as the contract was C.I.F- Cuddalore, the valuation of the goods must be on the basis of the market
rate at Cuddalore and not at Madras. It was argued by Mr. V. Thyagarajan, the learned advocate for the appellants that the agreement between
the parties was that the goods should be delivered at St. Thomas Mount and that, therefore, the market rate in Madras could properly be taken as
the basis for valuation. For this he relies apart from oral evidence on the words ""in transit, St. Thomas Mount"" occurring in the invoice, Ex. P. 2.
But the evidence discloses that during this period there were restrictions on the movement of goods from one district to another and that these
words were introduced for purposes of facilitating prompt transport of goods from Cuddalore to St. Thomas Mount. We accept this evidence and
hold that the place of delivery under the contract is Cuddalore and that the damages must be assessed on the basis of the market rate at that place.
The more difficult question is to find out what the damaged chillies were worth on 9-10-1945. As they were not sold on that date, the
ascertainment of their, true value as on 9-10-1945 must to some extent be a matter of speculation. It was contended on behalf of the appellants
that as there was no allegation or proof that the goods had deteriorated between November 1945 and January 1946 the price realised at the
auction on 26-1-1946 might be taken as a basis for determining the value of the damaged goods. On this aspect of the case the decision in --
''Loder v. Kekule'', (1857) 3 CB 128 (K), is of considerable assistance. There the contract was for the delivery of Russian tallow which was to be
shipped from the Port of Danzig. The price was paid. The. goods arrived on 12-1-1856 and were cleared by 25-1-1856. The plaintiff then
inspected the goods and on 28-1-1856 he complained to the defendant that the quality was inferior. Then there was correspondence between the
parties and ultimately the plaintiff had the goods resold on 12-3-1856. The action was to recover the difference between the price paid and the
amount realised on the resale on 12-3-1856. After holding that the action was in substance one to recover damages for defect in quality and not to
recover the return of the price paid,'' the Court observed as follows:
Looking at the case in this aspect we think that the pre-payment cannot be taken into consideration in apportioning the damages; and that the true
measure of damages would have been, If there had been nothing else in the case, the difference between the value of tallow of the quality
contracted for, at the time of the delivery and the value of the tallow actually delivered. This, however, Js on the assumption that the tallow
delivered could be immediately resold in the market. But as in the present case it appears clearly from the correspondence that the defendant by
his conduct delayed the resale, and, as the jury have found, we think, correctly that the resale on 12th March was in a reasonable time, we are of
opinion that the proper measure of damages is the ''difference between the value in the market of tallow of the quality contracted for on 25th
January, and the amount made by the resale of the tallow actually delivered.
The facts of the above case bear a strong resemblance to those in the present. There as here there was delay caused by disputes and
correspondence between the parties and ultimately a resale by the-purchaser. It was held that the price realised at the resale might be taken as the
true value of the damaged goods as there was no unreasonable delay on the part of the purchaser in selling the goods. In the present case, though
there was constructive delivery of the goods to the plaintiff on 9-10-1945 when the bills of lading were handed over to them, the understanding of
both the parties clearly was that the goods were to be consigned to St. Thomas Mount and it cannot be said that there has been any delay on the
part of the plaintiffs in transporting the goods from Cuddalore to St. Thomas Mount. They inspected the goods immediately after their arrival at St.
Thomas Mount in the beginning of November 1945 and reported to the defendants that the goods were in a damaged condition and had them
inspected by Kesavalal the representative of the defendants. In Ex. P. 6 they exercised the right to reject the goods within a reasonable time and
the further delay was due to the attitude taken up by the defendants in disclaiming all liability. We are unable to find that there was unreasonable
delay on the part of the plaintiffs in bringing the goods to sale and we think that the price realised at the auction may fairly be taken as the basis for
determining the value of the goods,
But it is argued by Mr. V.C. Gopalaratnam that there was practically no market for the goods at Alandur where the auction was held and that
further the notice of sale by Messrs. Murray and Co., Ex. P-18, marked the goods as sold at the risk of the defendants and that that was a
depreciatory condition which must have brought down the price and that, therefore, the amount realised at the auction could not be taken as the
proper value of the goods. This argument is not without force.
The question of damages does not appear to have received adequate attention during the trial. No evidence was adduced about the market
rate for chillies at Cuddalore on 9-10-1945. Nor was any attempt made to establish how far the price realised on 26-1-1946 could be taken as
the true value of the damaged goods. The difference between the market rate for good chillies on 26-1-1946 and the amount realised at the
auction on that date might be taken as furnishing a workable basis for assessing damages, due allowance being made for the absence of a proper
market at Alandur and the depreciatory character of the sale conditions and the differences in the market rates ruling at Madras and Cuddalore. In
the circumstances we think that the proper course is to remand the case for assessing the damages payable to the plaintiffs on the principles
mentioned above. Both parties will be at liberty to adduce fresh evidence. We accordingly set aside the decree of the Court below and remand the
case for trial on the question of damages.
The costs of this appeal will be provided for in the decree to be passed at the re-trial.