Sudhakar and Co. vs The City Municipal Corporation of Madras

Ismail, J.—These two appeals arise out of a common judgment of the learned Fifth Assistant Judge. City Civil Court, Madras, rendered in Original Suit Nos. 3631 of 1966 and 3466 of 1967. For the purpose of this judgment, the parties will be referred to only as the Appellant and the Respondent. The Appellant was the sole Plaintiff in Original Suit No. 3631 of 1966 and the sole Defendant in Original Suit No. 3466 of 1967 while the Respondent was the sole Plaintiff in Original Suit No. 3466 of 1967 and the sole Defendant in Original Suit No. 3631 of 1966. Admittedly the Appellant herein entered into a contract with the Respondent, the Corporation of Madras for providing R.C.C. slabs covering the storm water drain in Habibullah Road, T. Nagar, Madras, on the side walls which had been constructed earlier. Under the original contract entered into between the parties, the work was to be completed before 31st March 1965. However, the Appellant herein wrote to the Respondent on 29th March 1965 under Exhibit A 13 stating that the work could not be completed within the prescribed period due to non-availability of materials in time. Under those circumstances, the Respondent extended the time for performance of the contract for a period of two months from 29th March 1965. Consequently, the Appellant had to complete the work before 28th May 1965. Admittedly the Appellant did not complete the work on or before 28th May 1965. After series of correspondence that passed between the parties, the Appellant instituted the former suit, namely, Original Suit No. 3631 of 1966 for recovery of a sum of Rs. 1,109-85. This sum was claimed on the basis that the contract was rendered incapable of performance by the conduct of the Respondent itself, since the side walls were defectively constructed and they gave way preventing the Appellant from performing her obligation under the contract. The Appellant had made a security deposit of Rs. 1,650 and on certain bills submitted by the Appellant, a sum of Rs. 525 had been retained by the Respondent herein. Thus, according to the Appellant, her monies amounting to Rs. 2,175 (Rs. 1,650+525) were with the Respondent herein. At the same time, the Appellant conceded that for the value of certain materials supplied by the Respondent, credit must be given for a sum of Rs. 1,065 15 and after deducting the said sum, the suit was instituted for recovery of Rs. 1,109-85.

The Respondent herein resisted the suit putting forward the contention that the Appellant did not complete the work as per the terms of the contract within the time stipulated, that therefore the Respondent had to take steps to complete the remaining work by entrusting the same to another contractor after calling for fresh tenders and that on account of the failure of the Appellant to complete the work as per the terms of the contract, the Respondent incurred heavy loss and damages to the tune of Rs. 6,358-43. The Respondent denied that the non-performance of the contract by the Appellant was cue to any defective side walls which prevented the Appellant from performing her contract.

On the above pleading of the parties, the trial Court framed the following issues:

(1) Whether the Plaintiff is entitled to recover the suit amount from the Defendant?

(2) Whether the security deposit made by the Plaintiff has been forfeited for the reasons stated in Paragraph 3 of the written statement?

(3) To what relief, if any, is the Plaintiff entitled?

Original Suit No. 3466 of 1967 was instituted by the Respondent here in for recover of a sum of Rs. 6,898-58 on the same allegations referred to already. According to the Respondent, it suffered loss to the extent of Rs. 6,358-43 on account of the default committed by the Appellant and the necessity for entrusting the work to another contractor. To this sum of Rs. 6,358-43 was added a sum of Rs. 1,065-15 being admittedly the value of the materials supplied to the Appellant by the Respondent. Consequently, after adjusting the retention amount of Rs. 525 the amount the Respondent was entitled to was Rs. 6,898-58. It is for this amount that the latter suit was instituted by the Respondent. The Respondent also claimed that it was entitled to forfeit the security deposit of Rs. 1,650 admittedly made by the Appellant herein.

The Appellant resisted the above suit putting forward the same case as she put forward in her plaint.

On the basis of the above pleadings, the trial Court framed the following issues in this suit:

(1) Who committed the breach of contract, the Plaintiff or Defendant?

(2) To what amount is the Plaintiff entitled?

(3) To what relief is Plaintiff entitled?

The learned V Assistant Judge, City Civil Court, Madras, by his judgment and decrees, dated 5th April 1969 came to the conclusion that it was the Appellant who was guilty of the breach of contract and that therefore she was liable to pay damages to the Respondent herein. He also held that the Respondent was entitled to forfeit the security deposit of Rs. 1,650 made by the Appellant herein, with the result the suit instituted by the Appellant, namely, Original Suit No. 3631 of 1966 was dismissed and the suit instituted by the Respondent, namely, Original Suit No. 3466 of 1967 was decreed. It is against the above judgment and decrees that the present appeals have been preferred.

In these two appeals, the points that arise for consideration are : (i) who was guilty of the breach of contract, whether it was the Appellant or the Respondent? (ii) If the Respondent was entitled to damages for the breach of contract, what is the quantum of damages to which it was entitled? and (iii) Whether the Respondent in addition to claiming damages can also forfeit the security deposit of Rs. 1,650 made by the Appellant herein?

As far as the first point is concerned the evidence absolutely makes it clear that it was the Appellant who was guilty of the breach of contract. I repeat that the only ground put forward by the Appellant and urged before me was that the contract was made incapable of performance by the defective nature of the side walls which had collapsed and come down. I have already pointed out that the original contract provided for the completion of work by 31st March 1965 and by the subsequent extension, the work had to be completed on or before 28th May 1965. Therefore, the Appellant can escape her obligation under the terms of the contract only if she can prove the on or before 28th May 1965 she discovered that the side walls were defective and they collapsed. Admittedly there is not a single communication sent by the Appellant to the Respondent putting forward a case that the collapse of the side walls took place on or before 28th May 1965, thereby disabling the Appellant from performing her part of the contract. As a matter of fact, to the repeated communications sent by the Respondent to the Appellant, the Appellant did not send any reply at all. The explanation for not sending any reply was offered by D.W. 1, son of the Appellant, who stated that when he brought to the notice of the Assistant Engineer, the defective condition of the side walls, the said Assistant Engineer told D.W. 1 that if the matter was brought to the notice of the higher authorities, the persons who supervised the constructions of the side walls would be taken to task, that therefore the matter need not be brought to the notice of the higher authorities and that he would settle the matter. As a matter of fact, D.W. 1 admitted that he did not send any reply to the various communications received from the Respondent solely with a view to protect the officials of the Respondent Corporation. On the face of it, such an explanation was farfetched and therefore rightly rejected by the trial Court. As I have pointed out already, there had not been any communication sent by the Appellant to the Respondent stating that on or before 28th May 1965 she noticed the collapse of the side walls which prevented or disabled her from completing the contract. D.W. 1 even in the course of the oral evidence before the trial Court did not say that on or before 28th May 1965 collapse of the side walls occurred and that therefore the Appellant could not perform her contract. Consequently the only ground put forward by the Appellant for the non-performance of the contract, namely, collapse of the side walls, had not been established and hence the Appellant alone was guilty of the breach of contract and not the Respondent and that is my conclusion on point No. 1.

As far as the second point is concerned, there had been no evidence contrary to the evidence let in on behalf of the Respondent herein that in view of the failure of the Appellant to fulfill the contract, the work had to be entrusted to another person after calling for tenders and that as a result of the completion of the work by that person, the Respondent Suffered loss to the extent of Rs. 6,358-43. There being no evidence contra the claim of the Respondent and the evidence in support thereof must stand and therefore the Respondent having incurred the said amount by way of loss, it was entitled to claim the same from the Appellant herein. I may point out that considerable amount of irrelevant materials appears to have been produced before the trial Court and equally irrelevant argument appears to have been advanced on the basis of those materials, forgetting the fact that if the Appellant wanted to escape from the liability to perform her contract, she could do so only by proving that on or before 28th May 1965 there was a collapse of the side walls preventing the Appellant from performing her contract. Great reliance was placed upon Exhibit B-1, copy of a letter said to have been written by the Appellant to the Respondent on 10th January 1966 and certain proceedings of the Central Committee of the Corporation in July 1965 and the Commissioner''s report and in my opinion all these things are totally irrelevant, in view of the crucial question which has to be decided, namely, whether the collapse of the side walls had occurred on or before 28th May 1965 or not.

As far as the third point is concerned, the question to be considered is, whether the Respondent was entitled to claim the loss suffered by it by having the work completed by another person, in addition to forfeiting the earnest deposit of Rs. 1,650 admittedly made by the Appellant herein. In other words, even if the terms of the contract grant two rights to a party like the Respondent, namely, to forfeit the earnest deposit and also to claim damages, the question is, in arriving at the quantum of damages, should not credit be given to the defaulting party for the earnest deposit made by that party. This question has been concluded as far as this Court is concerned by a Full of this Court in Vellore Taluk Board v. Gopalasami Naidu ILR Mad. 801. The opinion of the Full Bench is very short and the Full Bench after referring to the decisions in Ockenden v. Henly (1858) 1 E.B.E. 485 Essex v. Daniell (1875) L.R. 10 C.P. 538 and Howe v. Smith (1884) L.R. 27 C.D. 89 stated: We accordingly agree with Sadasiva Ayyar J., and dismiss the appeal with costs. Therefore we have to go back to the view of Sadasiva Ayyar J., to find out as to what exactly was the decision of the Full Bench. The learned Judge posed the question and answered the same at follows.

But the question in the present case is whether, if the person for whose benefit the forfeiture clause was entered in the contract did not content himself with retaining the deposit as a forfeiture but send for the actual loss incurred by him through the default of the other party on the ground that the deposit amount (which according to all the English cases was security for the due performance of the contract by the defaulter) was insufficient to cover such a loss or on the ground that the contract provided for both the forfeiture of the deposit and also for the right to recover the loss, whether in such a case, the Plaintiff was not legally bound to give credit to the deposit money and whether he could recover more than the difference between the damages incurred and the deposit money.

I am inclined to hold that the Plaintiff in such a case cannot recover more than the difference between the loss incurred him and the deposit money.

The learned Judge in support of the above opinion of his referred to Mayne on Damages as well as to the decision of Ockenden v. Henly (1858) 1 E.B.E. 485 referred to already.

The obvious rationable behind such judgment is where a breach of contract has been committed, the party not in default is entitled only to receive damages or compensation for the loss which he or it suffered as a consequence of the other party committing default and the very notion of damages or compensation for the loss suffered will exclude the idea of the said party making any profit out of the breach committed by the other party. If it is to be held that the party not in default is entitled to claim the whole of the loss it suffered and also to forfeit the security deposit, he will be getting more than the compensation to which he is entitled or in other words, he will be making a profit out of the breach committed by the other party. That is the reason why the Full Bench of this Court took the above view. The said decision is binding on me. The learned Counsel for the Respondent was not able to bring to my notice any decision of the Privy Council or the Supreme Court overruling the above decision or a decision or a Fuller Bench of this Court taking a view different from the view of the Full Bench referred to already. Under these circumstances, following the judgment of the Full Bench, I must hold that the Respondent herein, while claiming damages from the Appellant herein by way of compensation for the loss suffered by it, as a result of the breach of contract committed by the Appellant, must give credit for the sum of Rs. 1,650 deposited by the Appellant as security deposit. If so, in original suit No. 3466 of 1967, the Respondent herein would be entitled to a decree for Rs. 6,898-58 minus Rs. 1,650 that is, Rs. 5,248-58 only.

Since the security deposit made by the Appellant had been taken into account in arriving at the amount to which the Respondent was entitled, the Appellant herein will not be entitled to obtain a separate decree for the return of the said security deposit in the suit filed by her.

The result is the judgment of the trial Court is modified to the extent indicated above and original suit No. 3631 of 1966 instituted by the Appellant herein will stand dismissed and original suit No. 3466 of 1967 will stand decreed for Rs. 5,248-58 instead of Rs. 8,898-58 as prayed for and decreed by the trial Court. There will be no order as to costs in either appeal.