Kerala High Court
C.T. Xavier And Ors. vs P.V. Joseph And Anr. on 4 August, 1994
Equivalent citations: AIR1995KER140, AIR 1995 KERALA 140, ILR(KER) 1995 (1) KER 664 (1994) 2 KER LJ 482, (1994) 2 KER LJ 482
Author: K.T. Thomas
Bench: K.T. Thomas
JUDGMENT Kamat, J.
1. These two appeals require consideration of various implications and application of the basic Common Law Rule of contract that a man is bound to perform the obligation which he has undertaken and cannot claim to be excused by the mere fact that performance has subsequently become impossible. The law cannot regard a promise to do something obviously impossible as of any value, and such a promise is therefore no consideration. A man who promises without qualification is bound by the terms of his promise if he is found at all. If the parties do not mean their agreement to be unconditional, it is for them to qualify it by such conditions as they think fit. But a condition need not always be expressed in words; there are conditions which may be implied from the nature of the contract, and in certain cases where an event making performance impossible is of such nature and character that it cannot reasonably be supposed to have been in contemplation, if the contracting parties when the contract was made agreed that such performance of the promise is excused (sic). On this principle a contract is discharged if there is no fault of the promisor; if the performance is rendered impossible by law; if the subject matter assured by the parties to exist or continue is destroyed or an event assured as the foundation of the contract does not happen or fail to exist, although the performance may be literally possible and finally if the promisor dies or is disabled.
2. Doctrine of frustration or as is otherwise known as of impossibility is based on the legal provision for the discharge of a contract, subsequent to its formation, in the event of change of circumstances rendering the contract illegal or physically impossible of performance. It is also called a situation leading, to frustration of the adventure, covering all cases of contract. This is emerged out of the necessity of various occasions making it necessary to consider the situation due to subseqeunt changes creating difficulties in performance. Such occasions requiring a situation of discharge or excuse of performance had to be dealt with by the courts.
3. Illustratively such instances are: (i) Destruction of the subject matter.
(ii) Non-occurrence of a particular state of things.
(iii) Death or incapacity for personal service.
(iv) Cancellation of charter -- parties on certain shutations.
(v) Relating to the work of building contracts.
4. The doctrine is based on certain juridical reasons. There is always an implied term in every contract. There are unforeseen contingencies to be looked into in the objective sense. Sometimes the very foundation of the contract is (sic) On many occasions discharge is the only just and reasonable solution. On many occasions situation demands a change in the original obligation.
5. The contract that becomes impossible of performance is governed by the provisions of Section 56 of the Indian Contract Act. At the other end there are contracts which are dependent on certain contingencies that are governed by the provisions of Section 32 of the Indian Contract Act.
6. The principles relating thereto are that normally a contract is not frustrated merely because a supervening event has prevented one party from putting the subject matter to the use intended by him, even though that use was also contemplated by the other. A contract is not frustrated merely because the original purpose becomes difficult or even sometimes impossible. Illustratively a contract for the purchase of property for redevelopment cannot be said to be frustrated even when the structural standing originaly gets listed as of special architectural or historical value rendering the original redevelopment difficult or even impossible.
7. The law in the context came up for consideration and consequent declaration by the Supreme Court in Satyabrata v. Mugneeram, AIR 1954 SC 44. It is observed that the word "impossible" has not been used in the sense of physical or literal impossibility. The performance of an act may not be literally impossible, but it may become impracticable and useless from the point of view of the object and purpose which the parties had in view; and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor find it impossible to do the act which he promised to do. It is further observed that the essential idea upon which the doctrine of frustration is based is that of impossibility of performance of the contract; in fact impossibility and frustration are often used as interchangeable expressions. The doctrine of frustration is really an aspect or part of the law of discharge of contract by reasons of supervening impossibility or illegality of the act agreed to be done and hence comes within the purview of Section 56 of the Indian Contract Act.
8. In fact Section 56 of the Contract Act clearly lays down that an agreement to do an impossible act is void, if the act becomes impossible subsequently which the promisor could not prevent becomes void when such act becomes impossible. In such a situation things are to be viewed with reasonable diligence and in that event a liability to make compensation arises only with regard to the loss.
9. The Supreme Court in Sushila Devi v. Hari Singh, AIR 1971 SC 1756 has further declared that the supervening events should be such as capable enough to take away the basis of the contract and they should be of such a character having the capacity of striking at the root of the contract itself.
10. It is in the light of these principles, the proceedings that are brought before us in these appeals would require appreciation. They arise out of O.S. No. 114 of 1980 of the court of the learned Principal Subordinate Judge, Ernakulam. A.S. 82/1985 is preferred by the defendants. A.S. No. 239/1985 is preferred by the plaintiffs. Thus both parties to O.S. No. 114/1980 are aggrieved. This is because the learned Judge, holding that the defendants are not liable for breach of contract, has passed a decree for part of the claim for Rs. 2,49,611/- with interest and proportionate costs. Therefore hereafter the parties would be referred to as the plaintiffs and the defendants respectively for the sake of convenience. It has to be stated at the outset that as far as the appeal of the defendants (A.S. No. 82/1985) is concerned, the learned counsel for the defendants found it more than difficult to effectively challenge the decree under appeal. These appeals therefore are by both the parties against the decree in O.S. No. 114/1980 and O.S. 15/1979 is left intact by the parties and is unchallenged. Still, for the purpose of completion of the judgment, we will refer to the proceedings of the two suits and by this judgment would dispose of both these appeals.
11. Both the suits relate to an agreement dated 3-2-1978 between the plaintiffs and the defendants. The plaintiffs are working in partnership under the name and style "J and J Construction Company". They are engaged in the business of construction. On the other hand, the defendants also are in partnership. Under the agreement the parties agreed in regard to the construction of five godowns in a parcel of land belonging to the defendants in Thrikkakara South village. The construction work commenced immediately on February 6, 1978. The suit relates to certain transactions between the plaintiffs and the defendants from February 6, 1978 upto February 24, 1978. It is alleged that during this period the defendants borrowed some amounts from the plaintiffs. The particualrs are that on 27-2-1978 apart from Rs.800/- obtained during the earlier period, Rs. 3300/- by cheque and Rs. 25/- in cash was obtained by the defendants. Further on March 10, 1978 and on March 13, 1978 Rs. 700/- and Rs. 800/-respectively were accepted by cheques. Further on March 18, 1978, Rs. 300/- was obtained in cash. As pleaded in the suit the total amount claimed comes to Rs. 8700/-including the interest thereon. These amounts were paid independently of and over and above the agreement for construction. With regard to this claim the defence of the defendants in the written statement filed jointly was of denial and it was contended that these amounts were obtained for the plaintiffs' own purpose and were not taken as loan, and therefore, there was no agreement for repayment. It was contended that as the work could not be completed on or before 31-5-1978, the entire contract frustrated. It is in these circumstances on evidence the learned Subordinate Judge decreed the suit in full for Rs.8700/- with interest and costs by the impugned judgment.
12. As far as O.S. 114/1980 is concerned, the case is that towards the end of January, 1978 the defendants approached the plaintiffs representing that there was an agreement with the Food Corporation of India for construction of five godowns in their land -- Sy. Nos. 658/1, 2 and 3 and 655/2 of Thrikkakara -- for letting them to the said Corporation. The Food Corporation of India had agreed to take the godown when completed on rent. It was also represented that the State Bank of India had sanctioned a loan of Rupees 15,00,000/- at convenient rate of interest. It was further represented that the first instalment of the loan towards the cost of construction of the said godowns, amounting to Rs. 1,25,000/- was already sanctioned to them, with an assurance of further instalments on the basis of the rate of progress, to such an extent that the construction should be completed on or before the end of May, 1978.
13. Therefore, the plaintiffs and the defendants entered into an agreement dated Feb. 3, 1978 agreeing to contract the building required for the defendants at the rates specified in the schedule attached to the agreement. In the agreement defendants also agreed for arrangement of supply of electricity as well as for the allotment of necessary cement at Rs.21/- per bag. It was agreed that in the event of elevation in the price of cement, the difference in regard thereto would be paid by the defendants. It was also agreed that in the event of any delay in getting the allotment of cement, corresponding delay in the execution of the work would have to be understood. The supply of asbestos roofing sheets at Rs. 21.60 per sq. metre with sales-tax was also agreed. With regard to the payment relating to the progress of work, it was agreed that the plaintiffs can submit a part bill, entitling themselves to 9% thereof within seven days, to be supplied every week with regard to the work done. It is averred that it was also agreed that the construction should be completed on or before May 31, 1978, unless prevented by unforeseen events and major disturbances.
14. As per the agreement the work commenced on February 6, 1978. However, the necessary materials were collected and labour was arranged by the plaintiffs, no efforts were made by the defendants to obtain allotment of cement to enable the work to be carried in the right time after the completion of the earth work. However, on Feb. 18, 1978 the defendants requested the to obtain cement on temporary accommodation from other contractors and started the work involving use of cement. It was agreed that the cement obtained from such other contractors could be returned when the defendants were able to procure allotment of cement. Acting on these representations on Feb. 27, 1978 plaintiffs obtained 20 tons of cement promising to return on receipt of the allotment of cement by the defendants. This was done by depositing Rs. 20/- per bag in addition to the price of the same. The construction of foundation concrete work started on the basis of this. The plaintiffs also obtained cement from other contractors to the extent of 30 tons under similar temporary accommodation promising to return it in a short time and giving deposit in the same manner. Total 50 tons of cement was taken under this situation.
15. With regard to the supply of electric current in the execution of the work, the defendants also failed in their promise. The plaintiffs had to get it by paying huge amounts. When the construction which was in progress reached the amount of expenditure at more than Rs. 1,25,000/-, measurements were taken by the defendants' supervisor maintianing a measurement book signed by the plaintiffs and the defendants. Quoting out the particulars of the measurements, when it was found that the work of Rs. 1,26,047.25/- was done, there was a demand on the basis of the initial understanding for payment of 9% of the amount of the bill. This was not paid. In addition defendants had taken a loan of Rs. 7650/- from the plaintiffs themselves.
16. Even thereafter on May 15, 1978 the super-structure of the building was also completed, measurements were taken and entered in the measurement book by the site supervisor. The measurements were signed by the plaintiffs, the site supervisor keeping a duplicate copy. The bill was prepared. At this time Rs. 370/- which was taken as a loan by the defendants was also added in addition to the part bill of the work at Rs. 11,640.77. It is averred that although it was agreed that 95% of the bill amount has to be paid on presentation within seven days thereof, the amount was not paid.
17. It is averred that a situation arose that the plaintiffs could not expect payment for that work also. They requested the defendants several times orally and in writing with regard to the work already done to make arrangement for the payment of the remaining work so that the construction could be completed. The plaintiffs also brought to the notice of the defendants that the material at the site also are likely to be damaged if not used earlier for the construction work. The plaintiffs also placed on record that they would forfeit the deposit amounts paid to the contractors. It was also placed on record that the plaintiffs would also incur liability to pay interest on the loans taken by them from the South Indian Bank Ltd. and from other similar financing agencies. In spite of these representations, the defendants did not do anything to pay for the work already done or to ensure that the payments would be made if the plaintiffs resume the work and complete it. The plaintiffs suffered heavy loss. Therefore they claim their legal right for compensation for the loss caused to them.
18. Particularly it is averred that the total cost of five godowns was Rs. 9,29,379/-. It is averred that the total expenses incurred by them amounted to Rs. 3,64,434.68. The plaintiffs issued notice dated Dec. 21, 1978 recording the relevant facts and claiming damage. They had to dispose of the materials at site to save further loss and in doing so suffered loss of Rs. 62,989.80/-.
19. On account of accommodation of 50 tons of cement, the plaintiffs pleaded that they were unable to return the cement because it was not supplied by the defendants in time. They suffered loss of Rs. 21,258/- and lost a claim in regard to the same item.
20. They also claimed Rs. 59,900/- for other materials such as shutting and scaffolding. On these counts Rs. 22,600/- has been claimed.
21. They claimed the loss of net profit in regard to the work remaining to be executed and an amount of Rs. 7,92,633/- had been claimed on that count. It is pleaded that the total construction cost was Rs. 9,29,759/ - and claiming 10% net profit to be reckoned on the balance of the remaining work, the loss of net profit is calculated as above. It is on these averments together with the claim for interest, that the suit was filed with a claim for Rs. 4,76,014/ -. This claim includes Rs.4,43,019/- towards the amount of damages and Rs. 32,995/- with regard to interest as particualised in the plaint dated October 6, 1979.
22. The learned Judge has applied the doctrine of impossibility, with which as we do not agree, we will have to consider the pleadings of the defendants. In view of the fact that by the application of doctrine of impossibility the learned Judge has held that the contract was impossible of performance and in regard thereto, it cannot be said that the defendants have committed breach of contract.
23. To be precise, the learned Judge has observed that the godowns were being constructed specifically for the Food Corporation of India and unless there was another prospective tenant in need of these godowns, the construction would have been useless. In fact the learned Judge had even observed that there was some such possibility which was also examined and pursued. But the defendants were not agreeable and ultimately the learned Judge observed that the conduct of the defendants shows that they were not prepared to invest funds from other sources for the project. Actually the funds for the Delhi trips of defence witness D.W. 1 were even made available by the plaintiffs. It is observed that the lapse of the agreement to let the godowns on rent to the Food Corporation of India, in spite of their efforts, led to the abandonment of the project. The learned Judge therefore held that it is not possible to say that the contract was broken by the defendants.
24. This is also necessary because the learned counsel for the defendants made submissions on the basis of the application of the doctrine of impossibility, assuming it to be applicable with regard to the question of interest and arrears in regard thereto by referring to the provisions of Section 56 of the Contract Act submitting that what the plaintiffs are entitled to is only the compensation.
25. We will have to consider this aspect with reference to the pleadings of the parties and evidence on record, because on hearing the counsel for the parties, in our judgment, the position is crystal clear otherwise, and the discussion would lead us to hold that the doctrine of impossibility cannot be said to be applicable to the contract in question.
26. The defendants contended in their written statement that they proposed to construct five godowns on the property for giving them to the Food Corporation of India. Land was prepared as per the specifications of the Corporation, pursuant to approval by the Corporation. The defendants applied for bank loan and that was sanctioned. When this was done, the plaintiffs agreed to carry out the construction of the building as per the plan. It is specifically pleaded in the written statement that defendant No. 2 told plaintiff No. 1 that even though the period of the agreement with the -Food Corporation of India had expired, the Corporation had agreed to take the building on rent if the construction of the building was completed before May 31, 1978. The defendants had no funds with them for making the construction. The entire amount received as loan from the bank would be entrusted with plaintiff No. 1 and the agreement referred to was arrived at on the said basis on Feruary 3, 1978. It is further averred in the witten statementthat plaintiff No. 1 asked defendant No. 2 to go to Delhi to exert pressure on the Central Government to extend the time limit, on agreeing to meet the expenses for the Delhi trip. It is in this context, we read further, that the agreement was arrived at only after the plaintiff understood the full particulars of the agreement between the Food Corporation of India and the defendants within three days thereof, the agreement between the plaintiff and the defendants happened to be cancelled since the construction of the building was not completed within the time limit specified by the Food Corporation of India.
27. Thereafter it it urged that it is the plaintiff who committed the breach of the agreement dated February 3, 1978 because had the construction been completed before May 31, 1978, the Food Corporation of India would have taken them on lease. In this context the relevant question for consideration is as to whether the doctrine of impossibility has been specifically pleaded by the defendants in the written statement. It is for this reason that necessary pleadings are required to be specifically stated which we have done hereinbefore. The question is as to whether, as far as the Food Corporation of India is concerned, the agreement with the defendants to take the premises on rent could be said to have come to an end. Even if it is true that the premises were required by May 31, 1978, nothing is mentioned in the pleadings that the construction even if it had been completed little thereafter because of unforeseen eventualities, the Food Corporation would have taken them on lease or not. The legal principle with reference to the doctrine of impossibility on the facts which appear for consideration and the pleadings which we have referred to hereinbefore would not go to show that the Food Corporation would never have considered the construction for taking on lease, had it been under certain justifiable circumstances completed after the date fixed i.e. May 31, 1978. Apart from the absence of pleadings in regard thereto as aforesaid, it appears from the evidence clearly by way of an assurance from the Food Coporation of India, that even thereafter the premises would have been taken by the Corporation on lease. Additionally the question as to whether some other party would have come forward to take the premises on rent was also not explored. There is evident creating possibility in regard to that aspect also. This aspect will be considered hereafter.
28. In this context reference to the cross-examinations of D.W. I is necessary. It appears from the cross-examination with regard to the agreement (Ext. A 32) that the plaintiff was told that the Food Corporation of India would accept the constructed premises only if the Work was completed before May 31, 1978. Reference to the agreement would show that this aspect is not present. Further cross-examination reveals that the defendant did not remember what was the time limite agreed between them and the Food Corporation of India. The crossexamination further states that the plaintiffs were never informed that the Food Corporation of India had cancelled the agreement at any time. The evidence further shows that even after May 31, 1978, the defendant had actually made four trips to Delhi and had called upon the Minister. It must be stated that in regard to it there are two letters (Exts., A 15 and A 16) addressed to the plaintiffs by the defendants.
29. With regard to the second aspect, as to the availability of any person agreeing to occupy the constructed godowns, although there is no pleading whatsoever in regard thereto, there is evidence to show that persons were available and were ready to accept the godowns even thereafter. As far as the evidence of plaintiff No. 1 is concerned, he has categorically stated although the godowns were to be constructed for the Food Corporation of India, neither the time was the essence of the contract, nor was it even contemplated that the contract would be impossible of performance in the event of the construction not being completed within the time fixed (May 31, 1978). The evidence of plaintiff No. 2 also is to the effect that he entrusted the defendants, if loan was not available pursuant to the agreement with the Food Corporation of India, in anticipation the plaintiffs would raise the funds by other means and pay all the bill amounts and get the work done. In fact in pursuance to this understanding, plaintiff No. 2 even talked to the officers of the South Indian Bank which had sanctioned the loan for and on behalf of the Food Corporation of India to the defendants. These aspects would show that there was no element of impossibility or of frustration in regard to the performance of agreement in time.
30. In this context it is not possible to accept the reasoning of the learned Judge that the defendants cannot be said to have committed breach of contract or that the contract got frustrated by reason of the backing out by the Food Corporation of India. It cannot be said that the godowns would have been constructed spacifically for the Food Corporation of India and in the absence of the Food Corporation of India's backing out the contract could be said to have been impossible. The learned Judge proceeded to consider the matter thus on an erroneous, unfounded and unacceptable hypothesis of the above reason.
31. In fact, the learned counsel for the defendants approached the appeal on the basis of this finding of the learned Judge that the defendants cannot be said to have committed any breach of the contract. Based on this situation the learned counsel submitted that the subsequent reasoning of the learned Judge with regard to the award of interest and compensation is erroneous. The learned counsel placed reliance on certain provisions and decisions. However, if the very basis that the defendants are not guilty of any breaches gets knocked down, the subsequent submissions will assume a different character. If there is no fault on the part of the plaintiffs and if there is every fault on the part of the defendants to back out from the contract and-the contract cannot be said to have suffered either from the element of impossibility or frustration, it will have to be said that the plaintiffs would be entitled to practically all the reliefs asked for because they have suffered by reason of unjustifiable abandonment of the contractual liability by the defendants under unjustifiable circumstances and pretences.
32. Additionally, one aspect which had appeared in the evidence also requires to be mentioned. This aspect is in regard to the finding out some other occupant for the godowns. D.W. I has deposed in his evidence that consideration about completing the godowns constructed by the plaintiffs and letting them to others was also done, the matter was discussed with an agent, the agent agreed to give Re. 1/- per sq. foot as rent. The Food Corporation of India had agreed to a rent of 60 paise per sq. foot. This aspect also rules out application of doctrine of frustration or impossibility when other persons were prepared to accept.
33. In the context of the application of the doctrine of impossibility, it is necessary also to consider the agreement (Ext. A 32). The agreement records that the owner decided to have the construction of five-godowns to be given on rent to the Food Corporation of India as agreed by the said Corporation. The condition that arc enumerated in the said agreement relate to the modes of construction and particulars regarding payments. As far as the agreement is concerned, it is necessary to reproduce Clause 4 thereof in the context of the question under consideration. Clause 4 is in the following terms :
"The said contractor shall build and completely finish the said godowns on or before 31st May, 1978, unless prevented by any labour strike, accident or any other major disturbances."
This would at once make it clear that the condition of completion of the construction on or before May 31, 1978 had no relation of any kind to the situation of impossibility or frustation. The condition itself makes it clear that if the plaintiffs are prevented by any labour strike, accident or any major disturbances, relaxation of the condition to complete the construction on or before May 31, 1978, would not be fatal to the performance of the contract as is available from the said condition. Thus the agreement itself cannot be said to be containing any element of frsutra-tion or impossibility.
34. As far as the merits are concerned, the plaintiffs, as stated above, have claimed in their suit for Rs. 4,43,019/-. There is an addition of interest Rs. 32,995/- as specified making the total claim to Rs. 4,76,014/-. This claim is specified in paragraph 14 of the plaint. The total cost of construction was Rs. 9,29,739/-. Out of the total cost the expenses incurred by the plaintiffs amounted to Rs. 3,64,434.68, in regard to which the plaintiffs issued a notice dated December 21, 1978 specifying the relevant facts. They had to dispose of the materials at the best price available and in that suffered a loss of Rs. 62,989.80.
35. On the second count, with regard to the cement the plaintiffs paid Rs. 20,000/- as loss of security as the cement had to be procured on deposit of Rs. 20/- per bag.
Additionally there is also a claim for excess amounts paid on purchase of cement at higher rates. This count is the claim for Rs. 21,258/-.
36. The third count is as regards the money paid to the labour contractor amounting to Rs. 59,900/- and out of the said amount, deducting the amount for the value of the work executed (Rs. 37,300/-), Rs. 22600/- is claimed.
37. The fourth count is with regard to the loss caused to the plaintiffs in regard to temporary constructions such as shed, water tank, payment of loan amount, blocking of the investment by reasons of the suspension of the work and loss of interest, claiming Rs. 85,836/-.
38. The fifth count is the loss of not profit which is averred in paragraph 18 of the plaint. It is to the effect of the loss of profit which the plaintiff would have earned in regard to the work amounting to Rs. 9,29,739/-. This is calculated at 10% on the balance of the amount, with a claim for Rs. 79,263/-.
39. The sixth count is with regard to the value of the work executed amounting to Rs. 1,26,047.25 and Rs. 11,640.77, on the second part of the bill.
40. By the impugned judgment the learned Judge granted firstly Rs. 1,38,013/- as the cost of the work actually carried out (Issue No. 4). Rs. 2390/- was also granted in regard to the temporary constructions of shed and water tank, (issue No. 6). The learned Judge also granted the difference in the price of cement Rs. 1258/- (issue No. 9) rejecting the claim of Rs. 20,000/- towards loss of security. The learned Judge has totally rejected the" claim of Rs. 59,900/- (issue No. 8) in regard to payment to sub-contractor Sri Varghese (issue No. 8). However, the learned Judge had granted Rs. 62,990/- as regards the loss on account of the sale of materials (issue No. 7). The learned Judge has also granted Rs. 21,500/- (issue No. 10) with regard to the loss suffered towards requirement of payment of interest at extra rate. The learned Judge also awarded Rs. 23,460/- (issue No. 11) with regard to interest on the bills for non-payment of the said bills for more than six years. Additionally interest at the rate of 12% is awarded instead of 17% as claimed by issue No. 12. Thus a decree for Rs. 2,49,611/- is passed. However, holding the doctrine of frustration or impossibility is applicable, the other part of the claim is rejected by the impugned judgment.
41. As stated above, the learned counsel for the defendants mainly based his submissions on the finding that the defendants did not commit any breach of the contract. On the basis of this foundation it was urged, by relying on the provisions of Section 56 of the Contract Act, that the defendants would be liable to make compensation to the plaintiffs for any loss which such promisee sustains through the mal performance of the promise.
42. The court below granted interest on Exts. B1 and B2 amounts till the date of suit which was worked to Rs. 22,600/-. The said award was made on the premises that the Interest Act, 1978 has provided for it. It is settled law that interest can be allowed only if it is supported by law of contract. There is no case that as per the terms of the contract plaintiffs are entitled to get interest on Exts. B1 and B2 claims. Interest on the suit claim can be granted under Section 34 of the Code of Civil Procedure only from the date of suit. Asfor the interregnum, the only law which plaintiffs could rely on is the Interest Act, 1978. But that Act was brought into force to Travancore-Cochin area only on 19-8-1981. This fact is not disputed. The suit was filed in 1979. It must be remembered that the earlier Interest Act, 1839 (it was repeated by the 1978 Act) had never been brought into force in the Travancore-Cochin area. The consequence is that the plaintiffs cannot be granted interest on the strength of law and terms of contract, nor can they be awarded interest by way of damages (vide Mahabir Prasad Rungta v. Durga Dutta. AIR 1961 SC 990).
43. Sri K. N. Narayan Pillai, learned counsel for the plaintiff, contended that interest was not claimed by the plaintiffs by way of damages, but it was claimed only as the loss suffered by the plaintiffs on account of the breach of the contract. They had taken loan from the bank and on the said loan amount the bank had charged interest and it was the said interest which the plaintiffs claimed as the loss sustained by them. We do not think that the interest which the bank charged on the plaintiffs can be attributed directly to the breach of contract committed by the defendants. Interest has accrued on the loan amount only because the plaintiffs had taken loan from the bank, and that is not the concern of the plaintiff while they entered into the contract with the defendants.
44. For the aforesaid reasons we are not in agreement with the trial court in the matter of granting interest on Exts. B1 and B2 claims till the date of suit.
45. This takes us to consider other questions involved in the suit. Under issue No. 8 the trial court has decided against the plaintiffs with regard to the damages on account of excess payments made to sub-contractors. The entire claim is rejected and the discussion in regard thereto is available in paragraph 20 of the impugned judgment. The evidence on records shows that sub-contractors were employed. In fact there are two agreements _ (Exts. A4 and A5) to that effect. The evidence shows that certain payments were made. Illustratively Rs. 45,000/- was paid to Sri P. V. George. The learned Judge found that Ext. A6 is doubtful on the basis of some scoring of letter 'M' to letter 'V' relating to the signature of P. M. Varghese. The relevant entries in the account books are Exts. A19 and A22. The learned Judge found that not very convincing. However, there are no reasons as to why the learned Judge did not find them very convincing. The plaintiffs have paid Rs. 59,900/-to one P. M. Vargese who was sub-contractor for the contract work. It is averred in the plaint that Rs. 37,300/- could be specified and loss is claimed to Rs. 22,600/- with regard to this item. Reliance is placed on the entries (Exts. A20 and A21) in the account book and ledger. The evidence on record shows that sub-contractors were engaged and the work was done. The learned Judge has not given any reason as to why the testimony on oath of the plaintiffs should be rejected. In the process of this work of the magnitude of Rs. 10 lakhs, there is no reason to reject the testimony of the plaintiffs only because, after a passage of time, they appeared to be doubtful to a doubting mind. In our judgment the evidence of the plaintiffs, which is not considered, ought not to have been rejected on the reasons that are given by the learned Judge. When it is established that there was a contract, when it is established that several things were performed by the plaintiffs in accordance with the contract, they were all by the plaintiffs on oath should have assured of its truth to the learned Judge. The learned Judge has committed an error in doubting this aspect and not considering the evidence of the plaintiffs in this connection. Taking an over all view of the situation in the matter of surrounding circumstances, in our judgment, the claim of the plaintiffs with regard to Rs. 22,600/- becomes acceptable and to that extent the plaintiffs appeal will have to be allowed. However, taking into consideration all aspects, we do not award , interest on this amount.
46. Once when the conclusion is reached that the defendants are liable because they have committed breaches of the contract by abandonment without justification, the plaintiffs would be entitled to the award of damages. The averments of the plaintiffs show that on account of the breach of contract committed by the defendants, the plaintiffs have suffered heavy loss and are entitled to damages in regard thereto. It is averred that the entire contract was for Rs. 9,29,379/-. Out of this amount, deducting the amount covered by the bills, the balance of Rs. 7,92,633/- is in regard to the work which was abandoned. The plaintiffs have suffered damages for loss of profit at 10% in regard thereto and therefore have claimed Rs. 79,263/- in regard thereto. This demand is more than reasonable because any contractor expecting ten per cent profit and claiming damages in regard thereto on the basis of loss should be considered reasonable in regard thereto. Ten per cent profits should be held to to justifiable. On this count we grant the claim of Rs. 79, 250/- (rounded off) which has not been awarded by the learned Judge and this was clearly on the genuine basis reaching the Conclusion that the plaintiffs are not guilty of any breach.
47. However, it must be made clear that with regard to this amount of damages of Rs. 79,250/-, in view of the decision of the Supreme Court in Mahabir Prasad v. Durga Datta, AIR 1961 SC 990 interest cannot be granted up to the date of the suit as it is well settled.
48. In the result, for the foregoing reasons, the impugned judgment and decree in O.S. No. 114/1980 requires modification.
49. Apart from the decree passed by the learned Judge with regard to Rs. 1,38,013/-(issue No. 4), Rs. 2390/- (issue No. 6), Rs. 63,000/- (rounded off -- issue No. 7), Rs. 1258/- (issue No. 9) and Rs. 21,500/-(issue No. 10), additionally a decree is passed for Rs. 79,250/- (regarding damages) and Rupees 22,600/- (as regards issue No. 8 --allowed in this appeal). However, it is made clear that there shall be no interest up to the date of the suit with regard to the amounts of Rupees 79,250/- awarded as damages and Rupees 22,600/- as loss, in these appeals.
The result therefore is that the decree is substituted and is hereby passed for Rupees 3,28,000/-. On this amount of Rs. 3,28,000/-, the plaintiffs would be entitled to interest at the rate of 6% per annum on and from January 8, 1979 (the date of the suit) till realisation. The plaintiffs shall be entitled to costs of both the suits proportionately. The appeals are decided accordingly and decree be drawn up.