Patna High Court
Hindustan Construction Company vs The State Of Bihar on 23 January, 1963
Equivalent citations: AIR1963PAT254
JUDGMENT Anant Singh, J.
1. The plaintiff is the appellant, it is a registered firm known as "Hindustan Construction Company" with the head quarter at Sarayaganj in the town of Muzaffarpur. It was doing business at the relevant time in the manufacture and supply of bricks. The defendant-respondent is the State of Bihar.
2. The suit, giving rise to this appeal, was instituted by the plaintiff for recovery of a sum of Rs. 3,14,756/14/2 including interest from the defendant as damages and compensation for breach of contracts.
3. The State of Bihar, acting through the Public Works Department, required several lakhs of bricks, brickbats ana Jhamas, hereinafter to be referred to only as "the bricks", for some projects in the Muzaffarpur Division and Champaran Division, both controlled by one Superintending Engineer in the North Bihar Circle. The bricks were required in connection with the constructions of (1) Muzaffarpur-Hajipur Road, (2). Muzaffarpur Border Champaran-sagauli Road, (3) Buildings at Muzaffarpur, (4) Buildings at Darbhanga and (5) Buildings at Lohata in Motihari during the seasons of 1945-46 and 1946-47. Tenders were called for on behalf of the defendant through the proper authorities of the Public Works Department (P.W.D.) for the supply of bricks, and the plaintiff's tenders were accepted. Two separate written agreements, Exts. B and B-1, were executed in connection with the two Road projects, but no written agreement was entered in respect of the building projects. The contracts about them were created only by acceptance of tenders and exchange of letters.
4. One of the terms of ail the agreements, according to the plaintiff's case, was that the defendant, through the P.W.D., would arrange for the supply of requisite quantity of coal necessary for the burning of bricks at the various sites. The plaintiff started laying bricks in huge quantity in the hope that necessary quantity of coal would be supplied by the defendant in due time. The defendant, no doubt, arranged for some of the required quantity of coal, but it failed to arrange for all the necessary quantity. The result was that a huge quantity of moulded bricks remained unburnt and got destroyed by rains and other causes putting the plaintiff to heavy losses, for which the responsibility was of the defendant, it further failed to take supply of some burnt bricks which the plaintiff had to sell to others, though at no loss, but the plaintiff had to incur some loss for the carting of such undelivered bricks, and it had claimed some damages on this head as well. The plaintiff put up a claim for an the losses sustained by it, but the defendant did not agree to pay the whole of it. The plaintiff was then obliged to serve a notice under Section 80 of the Code of Civil Procedure on the proper authorities of the defendant; out when the defendant failed to settle the plaintiffs claim, the present suit was filed for recovery of the aforesaid amount including interest.
5. The defendant in paragraph 4 of its written statement submitted that there was a contract between the parties for the supply of bricks, but the other averments of the plaintiff, as made out in the plaint, were not admitted. The main defence taken was the absence of any valid contract. In regard to the contracts for supply of bricks in connection with the three building projects, all liability was denied on the ground that they were altogether void, not being converted into written agreements by the proper authorities authorised by the defendant to execute the same. The validity of the two agreements, Exts. B and B-1, for the two road projects was admitted, but it was said in paragraph 6 of the written statement that "the supply of bricks for road works was to be completed by 31-7-46 as per agreement No. 5 of 1945-46", which is Ext. B, nothing having been said about the time limit of the completion of the supply under the other agreement bearing No. 2 of 1946-47, Ext. B1. Thus, an the liability for damages and compensations seems to have been denied mainly for want of any valid written contract even for the two road projects for 1946-47.
6. The condition alleged for the various contracts that the defendant had undertaken to arrange for the supply of necessary quantity of coal was also denied, it was, however, said that the P.W.D. had only undertaken the responsibility "for supply, as far as possible, the necessary permit for wagons, but did not guarantee the supply of wagons", and that it did everything possible to arrange for such permits. If there had been any failure in the supply of coal, it was due to the plaintiff's own laches in arranging for wagons on the basis of the permits arranged by the Department. The various items of claims made by the plaintiff were also disputed, and it was said that, in fact, the plaintiff had been paid more that what was due to it. A plea of limitation had also been taken.
7. The learned Subordinate Judge, who tried the suit, framed the following issues:
1. Is the suit as framed maintainable?
2. Is the suit barred by Limitation?
3. Has there been any breach of contract as alleged by the plaintiff? Is the plaintiff entitled to damages for breach of contract, if any, for season 1946-47, when there was no executed contract for that period? Is the plaintiff entitled to a decree as claimed? If so, for what amount? Except for Issue No. 1, which he answered in the affirmative, he decided the other issues against the plaintiff, holding that the suit was barred by limitation, and that there was no valid contract so as to entitle the plaintiff to claim any damages for breach thereof, and he has accordingly dismissed the suit. The plaintiff has since come up in appeal.
8. The appeal came up for hearing before us when by our order dated the 24th May 1960, we referred certain questions for decision by a larger Bench. The questions were as follows:
(a) Whether a contract with the Union Government or the State Government made without complying with the formalities of Section 175(3) of the Government of India Act, 1935, or Article 299 (1) of the Constitution of India, is void or merely unenforceable?
(b) Whether such a contract could be ratified at a subsequent stage by the Government? And
(c) Whether the Government can be made liable to compensate the person delivering any goods or rendering any service in pursuance of such a contract the benefit of which has been enjoyed by the Government? The questions have since been answered by a Full Bench of this Court consisting of Ramaswami, C, J. and Sahai and Kanhaiya Singh, JJ. by their judgment, dated the 5th March 1962.
9. The Full Bench, in considering the three questions referred to by us, slightly modified the third question in the following terms with a view to bring out the real point in controversy:
"if the contract is void and not merely unenforceable, is the Government liable under Section 70 of the Indian Contract Act to compensate the person delivering any goods or rendering any service in pursuance of such a void contract the benefit of which has been enjoyed by the Government?".
The Full Bench, in answering the questions, nave relied on three decisions of the Supreme Court which came after the reference was made by us. They are State of Bihar v. Karam Chand Thapar and Bros. Ltd., AIR 1962 SC 110, Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113 and State of West Bengal v. B. K. Mondal and Sons (an unreported decision of the Supreme Court in Civil Appeal No. 286 of 1958, D/- 5-12-1961 (since reported in AIR 1962 SC 779), In answering the three questions formulated the Full Bench have held as follows:
"(1) A contract with the Union Government or the state Government made without complying with the formalities or Section 175 (3) of the Government of India Act, 1935, or Article 299(1) of the Constitution of India, is a void contract and not merely unenforceable.
(2) Such a void contract cannot be ratified at a subsequent stage by the Government. There is no question of estoppel or ratification with regard to a contract of this description.
(3) If the goods have been delivered or services nave been rendered to the Government in pursuance of such a void contract, then an obligation is imposed upon the State Government under Section 70 of the Indian Contract ACT to make compensation to the person delivering the goods or rendering the services, provided the conditions imposed under Section 70 of the Indian Contract Act are satisfied, as pointed out by the Supreme Court in civil Appeal No. 286 of 1958, D/- 5-124961: (AIR 1962 SC 779)."
10. It is an admitted position in this appeal that there was no written contract, except for certain correspondence between the plaintiff on the one hand and the Executive Engineer or the Superintending Engineer of the P.W.D. on the other, in respect of any of the three Building projects, and therefore, such oral contracts were completely void, and not enforceable at all. The plaintiff cannot therefore, claim any damages for breach of any condition of any such contract. It is only when it can he found that any bricks have been actually delivered by the plaintiff to the defendant that an obligation can be imposed upon the latter, in view of the provisions of Section 70 of the Indian Contract Act to compensate the plaintiff for the bricks appropriated by it. The defendant has admitted having received several lakhs of bricks under the aforesaid void contracts in connection with the building projects, but has averred at the same time that it has already made payments for the same to the plaintiff. It bears no dispute on behalf of the plaintiff, but it is said that all the money due on account of the price of the bricks appropriated by the State, has not been paid in full, it is also said that some earnest money deposited by the plaintiff at the Time or taking the contracts, has not as yet been paid by the defendant.
The position was conceded on behalf of the defendant that the earnest money and the price of the bricks appropriated by the defendant would, indeed, be payable to the plaintiff as compensation, in view of the provisions of Section 70 of the Indian Contract Act, as held by the Fun Bench, if these amounts have not already been received by the plaintiff. There is, however, some controversy about the plaintiff's outstanding dues. In the statements of accounts furnished with the written statement, it has been stated that the defendant made various payments towards the plaintiff's claims by way of damages for the bricks destroyed, for bricks not burnt or moulded etc, as per rates fixed by the then Superintending Engineer Mr. K. Dayal, according to the order of Government and that calculated according to those rates, the defendant paid Rs. 50,894/-in excess of the plaintiff's claims for damages towards an the three buildings and the two road projects taken together. And now it would claim an adjustment of such excess payments towards the plaintiff's remaining dues of any kind under the three building projects, referred to above.
The fact of any excess payments by way of damages by the defendant to the plaintiff is again not accepted by the plaintiff. The claim of excess payments, if any, is all lumped together for all the contracts including the road projects. Each contract was separate with separate accounts. Damages had been claimed separately and paid separately, though not according to the plaintiff's demands, but according to the defendant's own estimates, which were tar less. Thus, it is not possible to hold what was the excess payment by way of damages towards any particular project. The claims for damages for the three building contracts were not enforceable, these contracts being void, and if the defendant made any payment as damages for such void contracts, the defendant is also debarred from claiming any refund of such payments, or having the matter reopened. Neither party can agitate about the amount of damages payable and actually paid as such by the defendant. Besides, apart from the mere general statements furnished with the written statement and some general statements made by the defendant's witnesses, no satisfactory evidence has been brought on the record to snow what was really paid on behalf of the defendant on account of damages as such towards the building projects. But the position is accepted on the plaintiff's behalf that the defendant did make some payments by way of damages, besides making some payments towards the price of bricks in respect of the building projects, and since the claim for damages was non-existent and not payable in the eye of law, all the payments made as payable in the eye of law, all the payments made as damages might well cover the price of bricks, including the earnest money deposited as such by the plaintiff.
I shall return to this aspect of the matter hereafter when I shall have to deal with the actual amount of compensation. It will suffice at this stage to say that the plaintiff is entitled to receive, by way of compensation, the price of goods delivered to the defendant within the meaning of Section 70 or/and is also entitled to be restored back any advantage received by the defendant, as provided in Section 65 of the Indian Contract Act.
11. Next, I may consider the plaintiff's claim for damages and compensation in respect of the two road projects (1) Muzaffarpur-Hajipur Road, and (2) Muzaffarpur Border Champaran-Sasauli Road. The plaintiffs case, as originally made out in paragraphs 5 and 6 of its plaint in respect of these two road projects, was that it "gave its tender in the month of November 1945 for supply or bricks at kiln or road side for the purpose of the two roads. . . . ." and that "the first tender for bricks for roads was meant to be for supply in 1945-46 season and later on second tender was also given for supply of bricks in 194647 season. . . . ." It further said in paragraph 7 of the plaint that "the tenders of the plaintiff were accepted by the proper authorities of the department. . . ." But at the trial, the position became admitted that there was no second tender called for by the department for the supply of bricks during the season of 1946-47, and that tenders had been called for and accepted for the two road projects only for the season 1945-46. There were two separate written statements, Exts. B and B1, executed in respect of the same. These agreements are admittedly valid and proper, having been taken on proper form and signed by the proper authorities appointed on behalf of the defendant as envisaged under Section 30(3) of the Government of India Act, 1915, as also under Section 175(3) or the Government of India Act, 1935, and under Article 299 (1) of the Constitution.
A case was, however, made out at the trial on the plaintiff's behalf that under the two agreements although there was a time limit fixed for the completion of the supply of the agreed quantity of the bricks during 1945-46, this time limit was not of the essence of any of the two contracts. They were never rescinded by notice or otherwise, but on the other hand, the same agreements were continued during 1946-47 season when bricks were supplied and accepted on the defendant's behalf under the same terms and "conditions. This plea, however, was controverted on behalf of the defendant with an averment that the period for execution of the work under these two agreements was limited to the season of 1945-46; and that they lapsed end became inoperative after the expiry of the term. The bricks which were supplied by the plaintiff during 1946-47 season were under fresh oral contracts. Since they remained oral, they were void'. The plaintiff, therefore, could, not get any damages for the oral contracts for the period 1946-47. This contention of the defendant found favour with the learned trial Judge, mainly because he thought that the plaintiff was making a new case at the trial which the defendant had no full opportunity to meet.
12. The learned Subordinate Judge has said;
"The plaintiff has not pleaded in the plaint that it had applied for the extension of time for supply of bricks nor has adduced any evidence on this point. This assertion was made for the first time during the course of argument by the learned lawyer for the plaintiff. It is not at all mentioned in the plaint nor asserted clearly in the evidence that the contracts for supply of bricks in the two road projects were merely an extension, of the contracts (Exts. B and B1) for supply of bricks in 1945-46. This was a matter which should have been raised in the pleading itself and if not raised would be likely to take the defendant by surprise. It was urged on behalf of the defendant, in my opinion, rightly, that this point involved investigation into certain facts for which evidence was necessary out due to absence of any such assertion in the plaint or in the evidence, the defendant had no opportunity or reason to adduce necessary evidence during trial. It is, however, not alleged by any party that any fresh\tender had been called by the defendant (P.W. D.) for supply of bricks in the two road projects for the seasons 1946-47."
The learned Subordinate Judge has referred to a series of correspondence and letters like Ext. 52 of January 1947, 52 (25) dated 12-7-46, 5z (27) dated 2-12-46, 52 (64) dated 18-1-47, 52 (65) dated 11-4-47, C2 dated 11-7-46 with its reply Ext. 52(1) and so on, to indicate that instead of asking for extension of time, negotiations were being made by the plaintiff itself for fresh terms for the supply or bricks to be made during 1946-47. In Ext. 52 (25), the plaintiff had written to the department "Now unless terms and conditions are settled for taking up the work next season, i.e., after the rains for manufacture of bricks for road works we are unable to accept any coal at present, as per your offer in your letter under reference". In Ext. 52 (65) dated 11th April 1947, which was written by the plaintiff to the Superintending Engineer, some new rates were quoted, said to have been in pursuance of the direction of the Executive Engineer on the 26th September 1946, for 1946-47. The plaintiff had also stopped taking coal after the expiry of the period of the contract of 1945-46 and began to take coal after some further correspondence as in Exts. C22, C64 and C88.
One of the Managing partners of the plaintiff (P. W. 21) had also deposed: "In 1946-47 as well, we were asked 10 manufacture and supply bricks for the aforesaid two roads, for which contracts had been made in 194546". It was on the basis of the aforesaid evidence that the learned Judge thought that the plaintiff could not be allowed to say that "the very contracts of 1945-46 were, extended to include the period of 1946-47.....Rather the plaintiff began to manufacture bricks in 1946-47 on some other terms and conditions after it got certain kind of assurance about the same from the E.E. (Ext. C64 shows that work started after some kind of assurance was given). Exts. C51 and C64 aforesaid show that the plaintiff had given in writing that contract would end by end of the month (June 1946) in which Ext. C51 was written and that it was not, willing to abide by the terms after the expiry of the periled. Thus, on a review of the subsequent conduct of the plaintiff and the authorities acting on behalf of the defendant, he held that the agreements, Exts. Band B1, were valid and proper only for the season 1945-46, and were not extended to cover the period of 1946-47 so as to entitle the plaintiff to any damages.
13. The whole question appears to have been approached from entirely a wrong angle. Once the two agreements were held to be valid, the question for determination would be not whether they had been extended for the next season also, but whether under the terms of the contracts they came to an end after the efflux of time, or they were otherwise terminated by the mutual consent of the parties. The answer to the first question will depend on the true construction of the terms if the two agreements, whether time was of the essence of the contracts so as to be avoided by proper notice after the expiry of the time limit. The interpretation of the terms of a document is a question of law, and could be raised at the trial even in absence of any pleading. The plaintiff, therefore, could well raise the question at the trial without any averment in the plaint that under the very terms of the two agreements, the same contracts were subsisting also for the season 1946-47. There was no question of the defendant having been taken by surprise, when the position bore no dispute that the contracts had not been otherwise terminated by the mutual consent of the parties, rather it was admitted that bricks had been supplied and accepted on the defendant's behalf during the following season of 1946-47 without any new contract
14. The law on time being of the essence of the contract is to be found in Section 55 of the Indian Contract Act, which is as follows :-
"When a party to a contract promises to do a certain thing at or before a specified time, or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed, becomes voidable at the option of the promises, if the intention of the parties was that time should be of the essence of the contract.".
It will be noticed, even such a contract, when time is of the essence of the contract, is only voidable at the option of the promisee and does not come to an end ay itself after the expiry of the period. The promisee has to terminate it by proper notice, as provided in Section 66 of the Act, otherwise the option to avoid the contract will be deemed to have been waived and the contract subsisting.
15. Such an intention to make time of the essence of the contract must be expressed in explicit and unmistakable language in the agreement itself. If, by any means, such an intention is not explicit, it may be inferred from the antecedent conduct of the parties and surrounding circumstances, but not from the subsequent conduct of the parties after the contract was made.
16. In Jamshed Kodaram Irani v. Burjorji Dhunjbhai, 43 Ind App 26: (AIR 1915 PC 83), their Lordships of the Judicial Committee, while dealing with a case regarding the execution of a sale deed by a given date in the agreement, which was covered by Section 55 of the Indian Contract Act, laid down:--
"Their Lordships do not think that this section (referring to Section 55 of the Indian Contract Act) lays down any principle which differs from those which obtain under the law of England as regards contracts to sell land, under that law equity, which governs the rights of the parties in cases of specific performance of contracts to sell real estate, looks not at the letter but at the substance of the agreement in order to ascertain whether the parties, notwithstanding that their named a specific time within which completion was to take place, really and in substance intended more than that it should take place within a reasonable time."
After discussing various other authorities, their Lordships quoted Lord Cairns, with approval, in Tilley v. Thomas, (1867) 3 Ch. 61;
'A Court of equity will indeed relieve against and enforce specific performance, notwithstanding a failure to keep the dates assigned by the contract; either for completion or for the steps towards completion, if it can do Justice, between the parties, and if (as Lord Justice Turner said in Roberts v. Berry, (1853) 3 De G. M. and G. 284 at p. 289) there is nothing in the 'express stipulations between the parties, the nature of the property, or the surrounding circumstances,' which would make it inequitable to interfere with and modify the legal right. That is what is meant, and all that is meant, when it is said that in equity time is not of the essence of the contract. Of the three grounds mentioned by Lord Justice Turner 'express stipulations' requires no comment.........."
The basic principle laid down was that the Court of Equity will disregard the letter for the substance. Their Lordships further observed:
"But in such a case the intention must appear from what has passed prior to the contract, the construction of which cannot be affected in the completion of equity by what takes place after it has once been entered into."
17. In Madan Mohan v. Jawala Parshad, AIR 1950 EP 278, which was a case for contract of sale within a given time, it was pointed out by their Lordships, following the principle laid down by the Judicial Committee referred to above:
"We have to see the contract as it was entered into In September 1944 and the subsequent conduct of the parries is. . . .not relevant to find out whether the time was the essence of the contract."
18. In Arun Prokash v. Tulsi Charan, AIR 1949 Cal 510 his Lordship following the aforesaid principle, laid down by the Judicial Committee, also emphasised. In relation to a case for specific contract of sale within the given time that:--
"the specific performance of a contract will be granted although there has been a failure to keep the dates assigned by it, if justice can be done between the parties and if nothing in (a) the expressed stipulation of the parties, (b) the nature of the property or (c), the surrounding circumstances makes it inequitable to grant the relief. An intention to make time of the essence of the contract must be expressed in unmistakable language; it may be inferred from what passed between the parties before but not after the contract is made."
19. In Shambhulal Panalal v. Secy. of State, AIR 1940 Sind 1, quoting from the placitum which gives in a nut shell the whole case, it was held as follows:
"The question whether or not time is of the essence of a contract is a question of the intention of the parties to be gathered from the terms of the contract. Where there is an express provision that time is of the essence of the contract and at the same time provisions for extension of time in certain contingencies, and for the payment of a fine or penalty for every day or week the worn undertaken under the contract remains unfinished on the expiry of the time provided in the contract, such provision is inconsistent with time being of the essence of a contract, and would be calculated to render ineffective an express provision in a contract to that effect. In such a case it cannot be said that it was intended that time should be of the essence of the contract. This principle applies to P.W.D. contracts."
In this case, the contract had been even terminated by the promisee unilaterally after the time limit, and it was held to be bad.
20. Now, coming to the relevant terms of the agreements before us: The date of delivery of the several lakhs of bricks in Ext. B was 31st July 1946, and 30th June 1946 in Ext. B/1. On behalf of the plaintiff, Ext. B was signed on 15-4-46, and Ext. B/1 on 26-1-46, and on behalf of the defendant, they were signed on 16-5-46 and 18-5-46, respectively, by the Superintending Engineer, who was the person authorised. Under Clauses 2, 3 and 4 in each agreement, some penalty was provided, if the supply was not completed within the period prescribed.
21. The agreements do not provide that on failure to complete the work by the given dates, the contracts would stand terminated without any further act on the part of the parties. Each of the two agreements provided for certain penalty in case the contract was not completed in time, and this would clearly indicate that time was not of the essence of the contracts, but it was merely a warranty, and never a condition precedent, so as to entail an automatic forfeiture of the contracts on account of any breach in keeping up to the time limit. An extension of the time was obviously in contemplation of the parties in each of the agreement itself. Such an intention is also Reducible from the nature of the work. Some over 45 lakhs of bricks were to be supplied under Ext. B by 31-7-46, and over 70 lakhs under Ext. B/1 by 30-6-46. These agreements became ready for execution of the work by the plaintiff when they had been signed finally by the Superintending Engineer on 10-5-46 in one case and on 18-5-46 in the other. It is a common ground that there was great scarcity of coal, and wagons for the supply of coal had to be arranged by the P.W.D. In these circumstances, neither party would have possibly intended that so many lakhs of bricks could he supplied within such a short time, being only 11/2 months in one case and 21/2 months in the other. It is manifest, therefore, that the intention of the parties must have been that the time would be extended for the supply of the bricks in the next season. It is true that the plaintiff did not apply for extension of the time for the completion of the contract, but for that, it would have been only liable to penalty, which, however, was not levied by the defendant. This is also a circumstance to indicate that the defendant had not expected the supply to be completed by the given dates. The failure to apply for the extension of time would not determine any of the two contracts, when, as it has been seen above, time was not of the essence of the contracts. Even if time had been of the essence of the contracts, the defendant, as the promisee, could only avoid them by proper notice, but it did not avail itself of the option, and hence the contracts remained subsisting. Each party could be able to enforce its rights under the agreements unless they had been rescinded by mutual consent or by other legal means, and admittedly it was not so done by either party to the acceptance of the other.
The plaintiff, when it tried to negotiate for better rates for 1946-47, could not get out of the obligations unilaterally by pleading the termination of the contracts, and similarly, the defendant could not get out of its own obligations merely for the failure of the plaintiff to nave completed the work in 1945-46. In point of fact also, the plaintiff was not allowed by the defendant to rescind the two contracts by asking for better rates on the plea of their termination after the expiry of the given dates, for, the plaintiff continued to make the supply of bricks on the same rates as had been already stipulated under the two contracts, which were valid, and the defendant accepted the same. D.W. 9, the S.D.O., P.W.D. has admitted that for preparing the bill for 1946-47, he took the rate according to the agreement of 1945-46 and that 75% of the bill was paid to the plaintiff and 25% kept back for final checking of the bill by the Executive Engineer. The contracts had not been at all terminated by either party to the acceptance of the other.
22. It is true that at one time the plaintiff was under an impression, obviously a mistaken one, that It could treat the contracts as terminated after the lapse of the given period so as to enable it to negotiate with the defendant for the better terms by substituting these contracts, but this unilateral act of the plaintiff will not have the effect of terminating the existing contracts. The interpretation of the terms of the agreements will not depend upon how the parties have understood them, but will depend upon their true import, if the terms are explicit.
23. It has been held by the House of Lords in North Eastern Ry. Co. v. Lord Hastings, 1900 AC 260 In the matter of a document relating to a grant, quoting from the placitum, which summarises the principle hearing on the point:
"The words in the deed were plain and unambiguous; that the fact that the parties had interpreted the words in a sense different from that which the words themselves plainly bore could not affect the construction;"
To quote the exact words of His Lordship, Earl of Halsbury, L.C.:
"The words of a written Instrument must be construed according to their natural meaning, and it appears to me that no amount of acting by the parties can alter or qualify words which are plain and unambiguous."
24. It has also been held by the Federal court in Jainarain Ram v. Surajmull Sagarmull, AIR 1949 FC 211 at p. 216 as follows:
"If after a contract is concluded and its terms settled further negotiations are started with regard to new matters, that would not prevent full effect being given to the contract already existing, unless it is established as a fact that the contract was rescinded or varied with the consent of both the parties or that both parties treated it as incomplete and inconclusive. Once completed, the contract can be got rid of only with the concurrence or both parties."
As to the observations of Kay, J. in Bristol Cardiff and Swansea Aerated Bread Co. v. Maggs, (1890) 44 Ch. D 616, that-
"If after a contract is concluded, one of the parties starts fresh negotiations with a view to introduce new terms, then even if the subsequent negotiations tail, it would be inequitable to allow the party, who attempted to reopen the contract, to enforce it specifically,"
their Lordships of the Federal Court said "This view (of Kay, J.) seems manifestly unsound and has been expressly dissented from in later cases;"
and their Lordships have given reference of such later cases.
25. It follows that after a contract has been concluded, if one of the parties repudiates it and starts fresh negotiations with a view to securing new terms under some mistaken notion, but fails in bringing about any alteration with the consent of the other party, he can still enforce his rights arising out of it. Thus, nothing turns upon the plaintiff's repudiation of the two contracts and its unsuccessful attempts at introducing some new terms in them, such subsequent attempts being an outcome of some mistaken notion. The plaintiff is entitled to enforce its rights under the two contracts, when it has been seen that time was not of the essence of any of the two contracts, and even If it was so, they had not been terminated by any notice. On the other hand, they had been allowed by the defendant to continue on the same terms.
26. The change in the year of the two contracts is also significant. The agreement, Ext. B1, was at first Styled on the title page as "Tender No. 2 of 1945-46 and Ext. B as "Tender No. 5 of 1945-46". These very tenders were subsequently converted into the aforesaid agreements. The year "1945-46" in both of them is penned through, and on the right hand side of each "1946-47" is substituted in red ink. These two agreements in their present state have been filed on the defendant's behalf, and It was never suggested that the change of the year from "1945-46" to 1946-47" was not genuine, made under the orders of the Superintending Engineer. The change, therefore, must be deemed to have been made in the ordinary course by the office of the Superintending Engineer, when its genuineness was not challenged at any stage before the learned Subordinate Judge, who also could see the change. He, however, was not impressed by it that the change had been made with a view to renewing the same contracts also for the year 1946-47.
The learned Subordinate Judge thought, that, if the substitution of the year in the two separate agreements had been made with a view to extending them, "an endorsement would have been made that the contracts were extended to 1946-47". It was only a matter of form, an extension could as well have been made by substituting the year, and indeed it appears to have been so done, regard being had to the series of correspondence carried on by the departmental authorities including the superintending Engineer. The latter was the competent authority to enter into the agreement on behalf of the Governor, and he was equally competent to have permitted the continuance of the validly executed agreements, Exts. B and B1, when, as it has been seen above, time was not of the essence of the contracts. In fact, no such author of the Superintending Engineer was needed for the continuance of the two agreements, when they could continue, as they did, under the terms of the two contracts. The view taken by the learned Subordinate Judge to the contrary is wrong.
27. It must be held that the contracts created by Exts. B and B1 were good and valid for both the seasons of 1945-46 and 1946-47, and the parties are entitled to enforce their rights and obligations arising therefrom.
28-46. The plaintiff's case is that under the terms of these two contracts, the defendant had undertaken to arrange for the supply of requisite quantity of coal necessary for burning of the bricks at the various sites in respect of the two road projects, and since the defendant failed to arrange for the supply of coal, plaintiff suffered huge damages, inasmuch as several lakhs of unburnt bricks got destroyed. The defence case, on the other hand, is that there was no such guarantee for the supply of coal, but that the defendant had only undertaken to arrange for permits for wagons as far as possible, and that the plaintiff was to have made its own arrangements for taking coal supplies from different collieries. The coal was a controlled commodity in those days, and movements of coal from collieries in wagons were regulated by permits issued by the State Government to the Deputy Controller of Coal at Calcutta, and it was the latter's job to distribute wagons to different persons. The defendant, it is said, had arranged for necessary permits as far as possible, and if there was any shortage in coal supply, it was for the plaintiff's own laches. (After considering the terms of the agreements Ext. B1 and Ext. B and the conduct or the P.W.D. his Lordship held that the defendant did nothing to arrange for permits and allotments of wagons in the plaintiff's own name, and thereby it altogether tailed to discharge its obligation. His Lordship then considered the claim of the plaintiff by way of damages and held that in respect of the road projects it would be Rs. 37,442/4/-and that in respect of the three buildings project it would come to Rs. 31,546/10/2.)
47. I have already held in respect of the three buildings projects that the plaintiff is not entitled to receive any damages, but can only recover the price of bricks including the earnest money deposited in respect of the same, unless these amounts have not already been received by the plaintiff.
48. The moot question for consideration, however, is whether the defendant can claim a set off or adjustment of the amount already paid to the plaintiff towards the damages which the plaintiff was not entitled under the law to recover on account of the contracts having been void. If the defendant is so entitled nothing will De left due to the plaintiff on account of the price of bricks and earnest money under the Darbhanga building and Muzaffarpur building projects, for, in respect of both of them, more money had been received by the plaintiff than was due to it on account of the price of bricks and the earnest money. It was only in respect of the Motihari (Lohata) building project that there was no payment on account of damages and therefore, the plaintiff is entitled to recover its unpaid price of bricks of Rs. 4597/- and the earnest money being Rs. 2200/-, totalling Rs. 6797/-.
49. The controversy, therefore, is now confined only to the plaintiff's claim for the Darbhanga Building and Muzaffarpur building projects. It bears no controversy mat neither party can enforce in Court its claim for damages on these projects since they were ab initio void. But the question arises, if any party under a void contract has accepted its liability for damages and also paid such damages, it can claim a set off or adjustment in any action by the other party, if it cannot itself sue for a refund of such an amount wrongly paid. The answer, in my opinion, must be in the negative. No party to a void contract can enforce the obligations of the other party through the agency of the Court of law either by suit or by pleading set off or adjustment of any amount paid out of Court. It is not the defendant's case that amounts already paid on the defendant's behalf were specifically paid towards the price of bricks and earnest money as such; the amounts had been paid generally; and therefore, the plaintiff was entitled to have appropriated the money so paid to its advantage towards the admitted damages even if not legally recoverable through Court, for, after all the claim for damages had been admitted by the defendant's authorised agent, namely, the Superintending Engineer, against whom nothing was alleged that he had, in admitting the plaintiff's claims for damages, acted in collusion with the plaintiff in any manner. The plaintiff had suffered losses, and the claim for such losses was not enforceable only for technical defects, and therefore, although not legal, it was just and equitable.
50. The case of Arnold v. Poole Corporation, (1842) 134 ER 354 may be cited in support of the view, in that case, an Attorney of a Municipal Corporation of London had been improperly appointed by the Mayor and town council to conduct suits, but under the corporate seal, and therefore, his appointment was held to be void. He was, therefore, debarred from maintaining an action to recover his costs against the corporation. He had, however, some other claims in respect of costs quite enforceable, and it was held at page 368 as follows:
"With respect to the appropriation of a portion of the money received by the plaintiff to the discharge of the bills Nos. 2 and 3, it appears to us, that, although the plaintiff could not have maintained an action to recover the amount of those bills, yet, as the money was paid generally on account of all the bills after these two bills were delivered, the appropriation of the money made by him at the time cannot now be questioned. The claim of the plaintiff on these two bills was a just and equitable claim, although from the absence of a contract under seal, it could not be made the subject of an action in a Court of law."
51. The plaintiff, as per details given above, is entitled ed to recover Rs. 31,546/10/2 on account of the price of bricks and earnest money in respect of these three buildings projects. 1 have previously held that in respect of the two road projects, the plaintiff is entitled to recover Rs. 37,442/4/-. The total would come to Rs. 68,988/14/2. The plaintiff has further admitted that the defendant had paid on the plaintiff's behalf to the Income-tax Department a sum of Rs. 7193/1/-, and that sum might be deducted from its total claim. Thus, the net amount due to the plaintiff would come to Rs. 61,795/13/2.
52. The learned Subordinate Judge has non-suited the plaintiff also on the ground of limitation. The suit was filed on the 2nd January 1951. He has applied the three years rule under Article 115 of the Limitation Act, counting the period from the date of the breach of the contracts, which according to him, occurred in June and July 1946, in respect of the two valid contracts. As for the claims under the void contracts, he has held that the period or limitation would run from the date when the bricks had been supplied and the security money deposited or deducted. He has taken an entirely wrong view in the matter. It should be noticed that even in respect of the void contracts, the defendant had not repudiated the plaintiffs claims for compensation for the goods delivered. The Plaintiff's claims, on the other hand, were being considered by the Superintending Engineer as also by the Secretary of the Government in the Public Works Department. Measurements regarding the plaintiff's claims, in respect of all the projects, were being made under the orders of the Superintending Engineer in the various measurement books. One of the entries in the measurement book for the Muzaffarpur Hajipur Road is Ext. 17(a) which is dated 10-12-48, another entry in respect of the Champaran Saugauli Road is Ext. 17(k) dated 12-1-49, and another entry in Ext. 17(m) is dated 25-4-49.
It was not until 24-549, when the plaintiffs claims were repudiated by the Executive Engineer in his letter Ext. C(115), in which he had asked his S. D. O. to withhold payments to the contractors on the ground of over payments. In every contract including the three void contracts, it was a case of running accounts with credits and debits being adjusted from time to time. Under the void projects also, the price of bricks was being paid from time to time and security money was also being held back in deposit by the defendant on the plaintiff's account. The earnest money had been deposited by way of security. A cause of action, in such circumstances, could arise only after refusal to pay the amounts, me accounts were under the process of checking. Thus, limitation would run from the date when the plaintiffs claims had been repudiated, and as it has been seen above, they had not been so repudiated until 25th April 1947. The suit has been filed within three years from the date of repudiation. As a matter of fact, in spite of a formal plea of limitation, in paragraph 14 of the written statement, it is stated - "This defendant is always willing to pay the genuine and just demands of the plaintiff although the just dues according to the defendant would be otherwise as based on "the final bill as prepared by the S.D.O. (P.W.D.)", as given in Schedule A of its written statement. It would appear that the defendant is yet willing to pay the plaintiff's genuine and just demands, which, of course, would be otherwise than what the defendant would contend. The question of limitation, therefore, does not arise, and the plea was only formal and ornamental, and was never raised specifically. In any event, the cause is not barred by time.
53. In the result, the judgment and decree of the Court below are set aside, and the plaintiff's suit is decreed in part for a sum of Rs. 61,795/13/2 with proportionate costs and interest pendente lite and future till realisation at the rate of three per cent per annum.
Misra, J.
54.I agree.