Patna High Court
Gopalji And Anr. vs Nagarmal Baijnath on 18 April, 1956
Equivalent citations: AIR1956PAT441, AIR 1956 PATNA 441
JUDGMENT Raj Kishore Prasad, J.
1. This appeal by the defendants is against a judgment of affirmance of the 1st Additional District Judge of Muzaffarpur.
2. It is really unfortunate that the suit, which was instituted on 19-8-1944, although it has run a course of about twelve years, has not yet come to an end. This is the second time that the matter has come up before this court. The point which has been presented in the present appeal is a short one; but in order to appreciate it, it is necessary to state a few facts.
3. The plaintiffs are a firm carrying on business at Muzaffarpur under the name and style of Nagarmall Baijnath with their head office at Bombay. The defendants Gopalji and Baldeoji are brothers, being members of a joint Hindu Mitakshara family carrying on their business at a place called Chanpatia, in the district of Ghamparan, under the name and style of Gopaiji Baldeoji.
But according to the plaintiffs they carried on their business also in the name of Sitaram Shreekishan. Sitaram is the sister's husband of the defendants. Radhakishun and Shreekishun are the sons of Sitaram. Shreekishun is a minor aged only about 10 years. The plaintiff's' case is that on 19-5-1943, the defendants through their representative Radhakishun purchased from the plaintiffs' farm at Muzaffar-pur 6 bales of long cloth at the rate of Rs. 4/9/- per lb. at the total price of Rs. 10,025. The goods were to be despatched from Bombay in June-July 1943, and were to be delivered when received at Muzaffar-pur to the defendants on cash payment.
When the intimation of the despatch of the goods from Bombay reached the plaintiffs' firm and the railway receipt was received, the plaintiffs sent a registered letter on 15-7-1943, to the defendants, addressed to Sitaram Shreekishun intimating that the railway receipt of the goods had been received. No reply having been received from the defendants a second letter was sent on 23-7-1943, by the plaintiffs addressed to Gopalji Baldeoji, the present defendants.
When the defendants took no action, a registered notice was sent on 29-7-1943 by the plaintiffs to the defendants intimating that in the event the defendants did not take delivery of the goods received they would be sold by public auction on 5-8-1943. On 2-8-1943 the defendants sent a reply refusing to take delivery and stating therein that Radbakishun had made no purchase from the plaintiffs on behalf of the defendants, and that they had no concern with the firm Sitaram Shreekishun, and as such the transaction entered into between the plaintiffs and Radhakishun as agent of the firm Sitaram Shreekishun was not binding on them.
This reply of the defendants was received by the plaintiffs on 4-8-1943. The goods accordingly were sold on 5-8-1943, by a pleader appointed by the plaintiffs to hold the sale by public auction and the cloths were sold for Rs. 5530/1/3 and purchased by a firm Hari Prasad Chiranjilal. The plaintiffs by the sale, therefore, suffered a loss of Rs. 4494/14/9, being the difference between the contract price and the price fetched at the sale. The plaintiffs then brought the present suit for breach of contract claiming Rs. 4494/14/9 by way of damages.
4. The defendants contested the suit, and their main defence was that they had no concern with the firm Sitaram Shreekishun, which according to them, was an independent firm belonging to Sitaram and his sons. They denied Radhakishun being the representative, or having purchased any cloth from the plaintiffs on behalf of the defendants. They also denied to have received the notice dated 29-7-1943, by which intimation was sent by the plaintiffs that the goods were to be sold by public auction in default of the defendants taking them on cash payment:
5. The first Court decreed the plaintiffs' suit on the finding that the defendants were the proprietors' of the firm Sitaram Shreekishun, and that Radhakishun was their representative or agent, who in his capacity as such had placed orders with the plaintiffs, and, therefore, the defendants were bound to make good the loss which accrued to the plaintiff's on account of their refusal to take delivery of the cloths. The learned Subordinate Judge, who decided the suit, in assessing the loss held that it should be the difference between the contract price and the price fetched at the sale, which was the basis of the plaintiffs' suit.
6. On appeal the learned District Judge affirmed the decision of the first court subject to this variation that the measure of damage was differently assessed. He was not satisfied that the rate at which the foods were sold on 5-8-1943 represented the true market rate at that time, and, therefore, relying on a piece of evidence supplied by the defendants themselves as regards the then market rate he held that the market rate was Rs. 3/4/- per lb., and not Rs. 2/8/- or Rs. 2/9/- at which the goods had been actually sold. He, therefore, varied the decree in favour of the plaintiffs to that extent only.
7. The defendants came up in appeal to this Court, and this Court by an order dated 6-4-1949, remanded the appeal to the Court of appeal below with the direction that it must come to a finding definitely as to whether there were in existence two firms under two different names, or that there was only one cloth business, and Sitaram and Shreekishun were merely two assumed names for carrying on that same business.
8. On remand the learned Additional District Judge, who heard the appeal on transfer, came to the conclusion that Sitaram Shreekishun were only assumed names, and the firm had no separate existence, and that Radhakishun was the defendants' agent, and, therefore, the defendants were bound by the transaction into which Radhakishun entered with the plaintiffs' firm, though in the name of Sitaram Shreekishun. He, however, did not agree with the learned District Judge, who heard the appeal before remand, that the measure of ' damage should have been assessed at Rs. 3/4/- per lb. He considered that the first court had taken the correct view, and, therefore, the damage should be assessed at the rate for which the cloths were sold on 5-8-1943, and, therefore, he affirmed the decree of the first court.
9. The defendants have now again come up in second appeal against the decision of the learned Additional District Judge after remand.
10. Mr. Lalnarain Sinha, the learned Government Advocate, appearing for the appellants, has not challenged the decree for damages passed by the courts below. He has only argued that the sale held on 5-8-1943, was bad in law, because one of the partners of the plaintiffs' firm was also a partner of the purchasing firm.
11. The above contention is based on an observation made by the learned Additional District Judge towards the end of his judgment. He has observed as follows:
"It is true that the plaintiffs are also partners in the firm which purchased at the auction sale".
12. It was not disputed before me by Mr. Nandlal Untwalia, who appeared for the plaintiffs-respondents, that one of the partners of the plaintiffs firm was also a partner of the purchasing firm. He, however, in reply to the argument of Mr. Sinha, put forward three contentions: (1) this point has not been taken either in the written statement, or in any of the courts below, or even in this Court on the first occasion, or even in the present memorandum of appeal in this Court, and, therefore, no notice should be taken of this new point raised at such a late stage; (2) because one of the partners is common, the sale will not be bad in law; and (3) even if the sale is bad, its only result will be that the sale rate at the public auction would be ignored, but still the plaintiffs would be entitled to a decree for damages on the basis of the difference between the contract price and the rate pravailing on 4-8-1943, which has been found by the courts below to be the date of the breach of contract, or even on 5-8-1943, for which rates there was ample material on the record.
13. I may at once state that none of the parties have been able to cite before me any direct authority on the point, whether, if one of the partners of the selling and purchasing firms is common, the sale is bad in law, or not. Mr. Sinha, however, on the analogy of Section 52, Trusts Act 1882 and Section 69 of the Transfer of Property Act 1882 has contended that as a trustee or a mortgagee cannot sell to himself, so the firm could not sell to the purchasing firm because one of the partners of both was the same person. He, however, conceded that by virtue of Section 54(2), Sale of Goods Act, 1930, the plaintiffs had the right of resale.
14. The only point, therefore, for determination is, whether the sale held on 5-8-1943, is bad in law. Mr. Sinha has relied on Halsbury's Law of England, Volume 33, page 282 para 498, wherein the following passage occurs:
"A person who is invested with a trust or power to sell property cannot purchase it from himself, since he cannot at the same time occupy the two positions of vendor and purchaser; and one of several such persons cannot purchase it from others. If such a person is asked to purchase such property he must first be discharged from his trusteeship, and even then, in order that the transaction may be unimpeachable, it must be clear that, in purchasing it, he is not taking an advantage of knowledge which he has acquired in respect of it during his trusteeship. Nor can he sell the property to himself jointly with others,, or to a trustee for himself, or to another person with a view to its resale to himself".
15. He has also relied on a passage at page 287 in E. B. M. Company Ltd., v. Dominion Bank, 1937 PC 279 (AIR V 24) (A). Their Lordships quoted the following observations of Lord Cranworth L. C. in Aberdeen Rly. Co. v. Blaikie (1853-54) 1 Macq 461 (B) :
"This, therefore, brings us to the general question whether a director of a Railway Company is or is not precluded from dealing on behalf of the company with himself, or with a firm in which he is a partner. The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is of course the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting. Such agents have duties to discharge of a fiduciary nature towards their principal.
And it is a rule of universal application, that no one, having such duties to discharge, shall be allowed to enter into engagements in which he has, or can have, a personal interest conflicting, or which possibly may conflict, with the interests of those whom he is bound to protect. So strictly is this principle adhered to, that no question is allowed to be raised as to the fairness or unfairness of a contract so entered into. It obviously is, or may be, impossible to demonstrate how far in any particular case the terms of such a contract have been the best for the interest, of the cestui que trust, which it was possible to obtain.
It may sometimes happen that the terms on which a trustee has dealt or attempted to deal with the estate or interests of those for whom he is a trustee, have been as good as could have been obtained from any other person they may even at the time have been better. But still so inflexible is the rule that no inquiry on that subject is permitted".
16. In this case their Lordships of the Privy Council pointed out that if directors misuse their powers as directors for their own advantage, the transaction is as against the Company of no effect, & the Court will not inquire whether the Company derived any benefit from the transaction. Their Lordships further observed as follows:
"They believe it to be of supreme importance that the distinction should be clearly marked, observed and maintained between an incorporated company's legal entity and its action, assets, rights and liabilities on the one hand, and the individual shareholders and their actions, assets, rights, and liabilities on the other hand".
Their Lordships quoted with approval the opinion of Masten, J. A. that: "the company was not a sham or cloak for the three partners, and did not act as agent for them"
17. He has also relied on the decision of Chandrasekhar Ayyar, J. in Egmore Benefit Society v. Aburupammal, 1943 Mad 301 (AIR V 30) (C), in which his Lordship observed as follows:
"A mortgagee exercising a power of sale under Section 69 cannot purchase the property himself, and the Act does not save contracts between the parties to the contrary authorising the mortgagee to make the purchase, the principle being that a man cannot contract with himself and in such a case there cannot be any independent bargaining as between two opposite parties. This principle is not abrogated merely because there was a contract between the mortgagor and the mortgagee that the mortgagee could purchase if he happened to be the highest bidder at the sale. The purchase would nevertheless be a sale by one person to himself without any independent bargain".
To the same effect are the decisions in National Bank of Australasia v. The United Hand-in-Hand and Baud of Hope Co (1879) 4 AC 391 (D) and Henderson v. Astwood 1894 AC 150 (E). Mr. Sinha has also contended that the question of undervaluation is immaterial it the mortgagee purchases himself.
18. The principles, which apply to a mortgagee, or to a trustee, as enshrined in the abovementioned decisions, have absolutely no application to the present case. As 1 shall show hereafter, in the present case the common partner is not the person who has purchased the property individually in his own right and for himself. The person purchasing is a firm, and the person selling is also a firm. In such circumstances, if one of the partners of the two firms is a common person, and he has no personal interest, apart from his interest as a partner, in the property of the firm, it cannot be said that the sale in such a case would be invalid.
19. Mr. Untwalia has relied on Rattan Lal Sultan Singh v. Tekchand Chunui Lal, 1930 Lah 379 (AIR V 17j (F) and Nathu Mal Ram Das v. B. D. Ram Sarup & Co 1932 Lah 169 (AIR V 19) (G) in which it has been held that the mere fact that at the resale the seller himself was the last bidder and purchased the goods does not render the resale void.
20. In the present case at the bid there were several bidders at the auction sale, as will appear from exhibit 1, the bidsheet. But as the purchasing firm offered the highest bid, the goods were resold to the firm at Rs. 2/8/- per lb. in some cases, & in other cases at Rs. 2/9/- per lb. This resale was justified and was in compliance with the terms of Section 54(2) Sale of Goods Act. The resale was held at a public auction by a pleader, although appointed by the plaintiffs, openly, and, therefore, there can be no doubt that the resale was justified, and being conducted in a valid and lawful manner. The plaintiffs were entitled to the difference between the contract price and the receipts.
21. Under Section 14, Partnership Act, 1932, subject to contract between the partners, the general rule applies, and the property of the firm is the property of the firm, and not of the partners individually. Under Section 15 of the Act, such property of the firm shall be held and used by the partners exclusively for the purposes of the business. Property of the firm is property of all the partners, and it can be held and used only on account of and for the common benefit of all the partners. One partner cannot directly, or indirectly use the partnership assets for his own private benefit.
Section 16 provides that personal profits earned by partners have to be accounted for by them. It is a very well-founded principle of great importance to the commercial world that a partner must make no profit out of his possession without the knowledge of his partners; the fact that the partner who made such profit had no-knowledge or that there was total absence of bad faith on his part will make no difference. A partner, therefore, cannot purchase for himself partnership property without disclosing the true position and his own interest in the matter.
The liability of a partner to account to the firm extends to any benefit derived by him from any trans-action affecting the partnership. Section 18 of the Act provides that a partner is the agent of the firm for the purposes of the business of the firm. Section, 19 defines the general extent of the implied authority of a partner to bind the firm. A review of these Sections would make it clear that a partner is the agent of a firm and of his other partners for the purpose of the business of the partnership. The fundamental duty of every partner is to show the utmost good faith in his dealings with the other partners. He cannot make any personal profit out of the property belonging to the firm, or obtain a private benefit at the expense of the firm.
22. Co-ownership simpliciter must be distinguished from partnership. The distinction between co-owners and partners is that in the case of co-ownership the co-owners do not intend to carry on a business, still less do they intend to share the profits realised. On the other hand, in case of partnership the partners intend to carry on business with money, or property which belongs to both of them, and they intend to realise profits, and share the same.
Co-ownership does not, of itself, create a partnership as to anything so owned, even though the owners agree to share any profits made by the use thereof; it is necessary that there should be consent of all to trade as partners before there can be a partnership. Section 5 says that partnership is not created by status. Section 6 provides the mode of determining existence of partnership. Therefore, the rights, of a co-owner, to deal with a joint property, are not the same as those of a partner to deal with the partnership property. This will be clear from Section 29 of the Act also, which deals with rights of a transferee of a partner's interest.
23. In the present case, it is not contended by Mr. Sinha that the common partner sold the property to himself, and therefore, because a man cannot sell to himself, the sale is invalid- As such the mere fact, that one of the partners of the vendor and vendee firms is common, that is, one and the same person, will not in the least make the sale by one firm to another firm invalid, on the ground of there being a common partner. I would, therefore, overrule the contention of Mr. Sinha, and accept the second contention of Mr. Untwalia as correct.
24. There is great force also in the first contention of Mr. Untwalia that the question that the sale is bad never having been taken, or even hinted at, either in the written statement, or, in any of the courts before the present occasion, it should not be allowed to be agitated for the first time now. But, as I have shown before, even if the point is allowed to be taken, there is no substance in it.
25. The third contention of Mr. Untwalia is also substantial, Even if it is assumed that the sale held on 5-8-1943, is a bad sale, that does not at all affect the plaintiffs' claim. The court of appeal below has found that 4-8-1943 would be the date of the breach of contract, it is well established that when a contract has been broken, the party, who breaks the contract, is liable to pay to the injured person such damages as may accrue within a reasonable time after the breach has occurred. The measure of damages should, therefore, he determined by the rate prevailing on the date of the breach, or, within a reasonable time thereafter, 'see Madnn Mohan Lal v. N. N. Mukherji, 1917 Pat 178 (AIR V 4) (H).
26. Mr. Untwalia has relied on the following passage at page 668 in Chitty on Contracts, 21st edition.
"Where there is an available market for the goods in question the measure of damages is prima facie to be ascertained by the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or if no time was fixed for acceptance, them at the time of the refusal to accept".
27. A reliance was also placed on A. K. A. S. Jamal v. Moola Dawood Sons & Co 1915 PC 48 (AIR V 2) (I) for the proposition that the plaintiffs were not bound to resale. In this case their Lordships have laid down that the loss to be ascertained is the loss at the date of the breach. The seller's loss at the date of the breach was and remained the difference between contract price and market price at that date. Lord Wrenbury in delivering the judgment of the Board observed:
"If the seller holds on to the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer, the seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market rises. It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and can-not claim as damages any sum which is "due to his own neglect.
But the loss to be ascertained is the loss at that date of the breach. If at the date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it. But the fact that by reason of the loss of the contract which the defendant has failed to perform the plaintiff obtains the benefit of another contract which is of value to him, does not entitle the defendant to the benefit of the latter contract". It is well established, therefore, that the market value at the date of the breach is the decisive element, whether the breach is by the seller to deliver, or whether the breach is committed by the buyer himself.
28. Apart from the sale price fetched at the resale, there is the evidence of P. W. 4, Chiranji Lal, who was one of the partners of the firm Hari Prasad Chiranji Lal, which purchased the six bales of long cloths sold at the public auction on 5-8-1943, that on that date the sale rate was Rs. 2/8/- or Rs. 2/9/-per lb.
29. For the reasons given above, in any view of the matter, the appeal must fail, and is accordingly dismissed with costs.