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Suit No. 127 of 1961, decided on 12th January 1966.
S. 20‑Partnership‑Public have right to assume act of every partner to be binding on whole firm ‑ Clause in partnership deed restricting authority of partner to act on behalf of other copartners‑Act done by such partner, notwithstanding restriction, binds whole firm unless third person dealing with firm had knowledge about such restriction.
Moti Lal Manucha v. The Unao Commercial Bank 32 B L R 1571 and Moti Lal Manucha v. The Unao Commercial Bank A I R 1930 P C 238 ref.
S. 73‑‑Breach of contract Damages‑Quantum: difference between contracted rate and that prevailing on date of breach‑No evidence available as regards rate on date of breach‑Rate prevailing on next nearest date to be taken into consideration for purpose of assessing damages.
A. K. A. S. Jamal v. Moola Dawood Sons & Co. A I R 1915 P C 48 held not applicable.
Fakhruddin for Plaintiff.
M. M. Mahmoodi, Z. C. Valliani and M. A. I. Lakhani for Respondents.
Dates of hearing: 10th, 11th , 17th and 24th November 1865.
This is a suit for specific performance and injunction. The relevant facts are that on 13th July 1961 defendant No. 1 agreed to sell and the plaintiffs agreed to purchase 34 bales of imported fents comprising of 22 bales of velvet and 12 bales of mixed suiting weighing 11,900 lbs. for Rs. 1,21,975 at the rate of Rs. 10.25 per pound. The contract was confirmed by a writing dated the 15th of July 1961 by which defendants agreed, to take delivery within a week and abide by the undertakings and assurances given by them. f he plaintiff' case is that from the 22nd July onwards and in spite of repeated requests the defendants failed to give them delivery on some pretext or the other. On 22nd of August 1961, the plaintiffs again asked for delivery in writing. This letter was neither acknowledged nor replied to. According to the plaintiffs, therefore, the defendants had committed breach of the contract. The contracted goods were not easily available in the market as they were all foreign manufactured and their impor, had been banned by the Government of Pakistan on account of which rate per pound had considerably increased in the market. The plaintiffs, also claim pecuniary compensation for non‑delivery of these goods which are of very superior duality as compared with fents locally manufactured. In para. 13 of the plaint it is stated that the contracted goods were lying in the custody of the Mercantile Bank of India with whom they had been hypothecated. One of the prayers in the suit was for an injunction to restrain the defendants from disposing of the contracted goods in the local market. The cause of action according to the plaintiffs, accrued to them on the 22nd of August 1961 whom the defendants failed to make delivery to them,
2. At the initial stages of the case the plaintiffs were allowed to amend para, 3 of the plaint by substituting 16th July for 22nd July. The suit was originally filed against Messrs Eastern Rice Syndicate defendant No. 1. By an order dated the 25th of September 1961, Qadeeruddin Ahmed, J, on an application m de by and on behalf of defendant No. 2 impleaded him as an additional defendant, on the contention that the contract in suit was made by his other partners v6thout his consent necessary under the terms of the partnership. On the same day in dealing with the application made by the plaintiffs for an injunction against the defendants to restrain them from dealing with or disposing of 34 bales of fents mentioned in the plaint, Qadeerud din Ahmed, J., ordered:‑
.. that the defendants may sell the goods subject to the conditions that before doing so they should notify to the plaintiffs directly or through Court their intention to do so along with the rate at which the sale is proposed to be made, and give an option to the plaintiffs to purchase them at the price."
3. Since the goods had been hypothecated with the Mercantile Bank of India, this order was passed after hearing the counsel for the Bank on which the interim order of injunction had also been served. Thereafter the bank has taken no further part in these proceedings not being a party to it.
4. On behalf of defendant No, 1 it was admitted that the contract of sale was entered into between the parties through defendants' partners Muhammad Bashir, Mian Manzoor Hussain and Choudhry Chiraghdin, it being also admitted that the plaintiffs agreed to lift the goods after paying the price or depositing the same with the Mercantile Bank of India in the account of defendant No. 1. The case of defendant No. 1 is that the plaintiffs failed to pay the price and lift the goods and therefore committed the breach of the contract.
5. The case of defendant No. 2 is that if the contract was entered into by any of the partners of defendant No. 1 it was fraudulent, collusive and unauthorised and not binding upon him. The terms of the partnership made it necessary for the approval of this defendant or his representative to be obtained before the contract could bind him and was valid and operative and binding upon the firm. Those entering into the alleged agreement had done so behind his back and acted in collusion with the plaintiffs. In para. 14 of the written statement it was admitted that the goods had been lying in the custody of the Mercantile Bank of India.
6. Initially the following consent issues were framed:
(1) Are the plaintiffs a registered firm of partnership If not, its effect on the suit
(2) whether by writing dated 15th July 1961, the parties contracted for sale and purchase of fents for Rs. 1,21,975.00. If so,
(a) whether the persons entering the contract on behalf of defendant No. 1 had no authority to do so without the approval or consent of defendant No. 2;
(b) whether the contr. et was made behind the back of defendant No. 2 without approval or knowledge
(c) whether the contract is fraudulent, collusive, invalid and inoperative, and is not binding on defendant No. 2;
(d) whether in the terms of the contract, the plaintiffs were to lift the goods after payment within a week of the date of the contract and the defendant No. 1 was accordingly to deliver the goods within the said period; and
(e) whether the said stipulated period was the essence of the contract
(4) Which party committed breach of contract
(5) To what relief, if any, are the plaintiffs entitled to
7. By a consent order dated the 24th of November 1965 issue No. 1 was not pressed, it being agreed that the plaintiffs' firm is a registered partnership firm.
8. On issue No. 2 it was agreed that there was a contract of sale and purchase of fonts for a sum of Rs. 1,21,975. Issues 2(c), (d) and (e) were not pressed. Only issues 2(a) and 2(b) were contested. Issue No. 3 was pressed, issues 4, 5 and 6 having to be decided in consequence of a finding on issue No. 3. At that stage the counsel for the plaintiffs stated at the bar that the plaintiffs did not press their claim for specific performance of the contract as the goods had been sold and only urged the plaintiffs alternate claim for damages.
9. It is conceded that by their letter dated the 1st of November 1961, the Mercantile Bank of India offered the contracted goods consisting of 34 bales of fents to Messrs Badruddin H. Mavani of which concern defendant No. 2 is the proprietor. The offer of the Mercantile Bank was accepted by defendant No. 2 for Messrs Badruddin H. Mavani & Co. on the same date. This is indicated in Exh. 9‑D and the sale was effected at the rate of Rs. 12‑3‑0 per lb., Badurddin H. Mavani & Co. having stood surety with the Mercantile Bank in respect of the contracted goods on behalf of defendant No. 1.
10. My finding on the issues contested is as follows:‑--
11. Issue No. 2(a).‑Messrs Mian Manzoor Hussain and Mian Bashir entered into the contract on behalf of the firm of defendant No. 1.
12. Issue No. 2(b).‑It was with the knowledge of defendant No. 2.
13. Issue No. 3.‑Defendant No. 1 failed to deliver the goods.
14. Issue No. 4.‑Defendant No. I committed breach.
15. Issues Nos. 5 and 6 as below.
16. Issue No. 2(a).‑The case of defendant No. 2 is principally based upon para. 10 of the deed of partnership dated the 22nd of November 1954 entered into between the four parties to this partnership. It was agreed that the bank accounts with the National Bank of India would be operated by such partners as may be unanimously agreed upon by the three partners, namely, Hussainbhai R. Gowala, his son Badruddin H Mavani of the first part, Mian Manzoor Hussain or Mian Muhammad Akhtar of the second part and Muhammad Bashir or Muhammad Iqbal of fourth part. It was also agreed that the bank accounts unless otherwise altered shall be operated by the two partners jointly one of whom must be free amongst Hussain Bhai R. Gowala or his son Badruddin H. Mavani or Mian Manzoor Hussain or Mian Muhammad Akhtar and the other from amongst Muhammad Bashir or Muhammad Iqbal. The partners of Part No. 3 should sign the counterfoils of the cheque for the purposes of their satisfaction. Para. 10 of the partnership reads as under:‑
"That the business of the partnership including the sale, purchase and all other transactions connected with and incidental thereto shall be conducted, managed and supervised by the 4 partners with their approval from amongst the partners named and in the manner given below, who are hereinafter referred to as the Working Team:
(1) Hussainbhai R. Gowala and
(2) Manzoor Hussain or Muhammad Akhtar and
(3) Ch. Wali Muhammad or Ch. Chiraghdin.
(4) Muhammad Bashir of Muhammad Iqbal.
(Provided that Hussain R. Gowala may be represented by his son Badruddin H. Mavani as his attorney).
And it is agreed that all acts done by the above‑mentioned partners in the manner given above being the Working Team shall be binding on all partners and shall not be questioned in any way. It is further agreed that except the above 7 partners no other partner shall be entitled to deal with the partnership directly or to question the working thereof.
The said remaining partners shall be deemed to be represented by the partners above‑named belonging to their respective parts who shall alone be responsible and bound to the said remaining partners of their respective parts for each and every thing including their shares in profit and loss, and the partnership shall not be responsible in any way to the said remaining partners directly."
It was thus sought to be made out that whatever the other partners of defendant No. 1 may have done is not in accordance with the terms of partnership between the partners of defendant No. 1 and as the approval of defendant No. 2 or his attorney had not been obtained the contract was not binding on him. It is the case of the plaintiffs that the contract was the result of their partner Muhammad Ibrahim negotiating with Mian Manzoor Hussain and Muhammad Bashir two of the partners of the defendants' firm. The contract is Exh. 6‑B and is signed by Mian Manzoor Hussain and Muhammad Bashir and this, according to Muhammad Ibrahim, was done after he had inspected and seen the contracted goods and had them actually weighed. Exhibit 6‑A is a note of the approximate weight of these goods. Muhammad Ibrahim has further stated that according to Exh. 6‑B the delivery was to be effected within a week. He asked for delivery immediately from Mian Manzoor Hussain who said that lie would arrange delivery from the bank within a day or two. In the meantime, Muhammad Ibrahim had gone of the godown of the Mercantile Bank of India with whom the goods were hypothecated on two or three occasions and taken the intending purchasers to the bank's godown situated in Barafwala Godown. Some of the purchases were Muhammad Bhai of Maya Cut piece Stores and Ismail Bhai of A. Issac Sons. The offers were at Rs. 14 and Rs. 15 per lb. respectively. Muhammad Ibrahim has also stated that he had no knowledge that the transaction could not be entered into by defendant No. 1 without the express consent of defendant No. 2. Exhibit 6‑B was addressed to the plaintiffs in precise terms on behalf of the Eastern Rice Syndicate and is signed by Manzoor Hussain and Muhammad Bashir. In cross‑examination Muhammad Ibrahim has stated that Moosa Bhai used to sit in the office of defendant No. 1 and he used to take and give delivery and receive money, on their behalf. The terms of the contract were discussed in the office of Gujrat Transport Co. of which Mian Manzoor Hussain is one of the partners, the written contract being always signed there. Muhammad Ibrahim has denied that Mian Manzoor Hussain and Muhammad Bashir and he on the other have collusively involved defendant No. 2 by entering into this contract. Mossa Bhai D. V. 1 has stated that in July 1961 Mian Manzur Hussain had called him in the office of Gujrat Transport Co. where he saw Bashir, Chiraghdin and Mian Manzur sitting together and told him that they had entered into a contract of sale with the plaintiff Muhammad Ibrahim who was also present and that the goods should be shown to Moosa Bhai and their arranged. The next day after obtaining permission from the Mercantile Bank he showed the goods in the godown of the bank to the plaintiffs, who told him that he was bringing the money the next day and should be given delivery. On two or three occasions Muhammad Ibrahim came to see the goods accompanied by some merchants. According to Moosa Bhai, the plaintiffs failed to lift the goods within seven days whereafter he informed Mian Manzur Hussain who in turn told him that the contract had been cancelled as the plaintifis had failed to appear. In cross‑examination he states that he had personally informed defendant No. 2 Hussain Bhai Gowala of the contract of sale in suit and that Hussain Bhai Gowala had told him that the price was low and he did not agree to the sale. In further cross‑examination he stated that he was aware that without the signature of defendant No. 2 the contract could not be entered into by defendant No. 1. In those days Hussainbhai used to come to the office of defendant No. 1. Defendant No. 2 as the proprietor of Badruddin H. Mavani & Co. had stood surety to the bank in respect of these goods. It is further clear from Exh. 9‑D dated the 1st of November 1961 that defendant No. 2 had purchased the goods in dispute from the Mercantile Bank at the rate of Rs. 12‑3‑0 per pound. It is argued that in view of this evidence the liability of defendant No. 2 nevertheless persists whatever the terms of the deed of partnership. There is no doubt that Respondent No. 2 had knowledge of the transaction as Moosa Bhai had informed him of it as he attended the office of defendant No. 1 every day. The learned counsel for the plaintiffs argued on the basis of section 20 of the Partnership Act that notwithstanding any restriction as may be contained in clause (d) of the deed of partnership the contract was entered into by three of the four parties to the partnership within the implied authority of the partners and thus binds the entire firm especially as the plaintiffs did not know of the restriction contained in the partnership. This section 20 of the Partnership Act refers to a restriction on the implied authority of a partner and of any act done by the partner or the partners with restricted implied authority which would not be binding on the firm unless the person who has dealt with the firm does not know of the restriction. On the question of implied authority it has been argued that every person dealing with the firm is entitled to sue and that all the parties wield the same implied authority subject only to such restrictions as have been brought within his knowledge and when such a restriction has been placed upon the implied authority of a partner it has no effect upon the third party dealing with the firm since such third party has had no notice of the restriction. Moti Lal Manucha v. The Unao Commercial Bank (32 B L R 1571), Moti Lal Manucha v. The Unao Commercial Bank (126 A C 428) and Moti Lal Manucha v. The Unao Commercial Bank (AIR 1930 P C 238). It was observed that the public have a right to assume that every partner has authority from his co partners to bind the whole firm in contracts made according to the ordinary usages of the trade. In a trading concern a partner has implied authority to accept and draw bills on behalf of the A firm. Even if the authority to do so has been cancelled and such cancellation has not been brought to the notice or knowledge of a discounting bank, the bank is entitled to recover as against the other partners also. Muhammad Iqbal one of the partners mentioned in the deed of partnership Exh. 11‑A has supported the contention of defendant No. 2 that one partner each of the four groups mentioned in the partnership deed had to sign to mate a contract binding on the Eastern Rice Syndicate. I am convinced that the contract in suit was made on behalf of the Eastern Rice Syndicate with the knowledge of defendant No. 2, Muhammad Ibrahim of the plaintiffs' party not being aware that the transaction with him by the other three partners of the firm was & being entered into without the express consent of defendant No. 2. In the circumstances I hold on issues Nos. 2(a) and 2(b) that the contract was entered into on behalf of defendant No. 1 and is binding on all of its partners.
17. Issue No. 3.‑There is sufficient evidence that the plaintiffs made every possible effort to take delivery of the contracted goods. There is a clear admission made on behalf of defendant No. 1 in the letter dated 23rd October 1961 written to the Mercantile Bank stating that even though the bank was aware that 34 bales of fents had been sold to the plaintiffs the bank had refused to accept payment for the contracted goods and had failed to give delivery. Defendant No. 1 further levelled the charge of non‑delivery of the goods with the Mercantile Bank. Apart from the evidence of Muhammad Ibrahim of the plaintiffs' party there are the admissions by Moosa Bhai, the Manager of defendant No. 1 that after obtaining the permission from the Mercantile Bank he had shown the plaintiffs the goods in the godown and started their weighment that on the following day the plaintiffs had brought prospective buyers to see the goods and he had accompanied them. It is, therefore, established that the plaintiffs were ready and willing to lift the goods but owing to the complications of their goods being hypothecated with the Mercantile Bank and of a disagreement between the parties indicated in Exh. 9‑H dated the 4th of November 1961 and the anxiety of defendant No. 2 as a partner to obtain security for himself the delivery of the goods was not given to the plaintiffs within the stipulated period. It is conceded that the stipulated period was not the essence of the contract. My finding accordingly is that the defendants failed to deliver the goods and are responsible for the breach of the contract.
18. In the context of the case of the plaintiffs not pressing for specific performance but only claiming damages it is necessary in view of my finding that the defendants were responsible for the breach of the contract to assess the quantum of damages the plaintiffs will be entitled to. The contracted goods were sold at Rs. 10‑2‑0 per lb. and in paragraph 15 of the plaint damages are claimed at the rate of Rs. 15.26 per lb. said to have been offered by other merchants in the market. Plaintiffs' witness Muhammad Ibrahim has stated that Muhammad Bhai and Muhammad Ismail offered Rs. 15 and Rs. 14 per lb. respectively. The Mercantile Bank on the 25th of October 1961 invited offers for the sale of the contracted goods. Two offers were received dated the 26th of October 1961 and 28th of October 1961, the former from A. C. Yousuf & Co. and latter from Burjor Ardeshir & Sons. The first offer was at Rs. 12 per pound and the latter was at Rs. 10 per lb. Messrs Taiyab Hussain & Co. per Exh. 9‑G dated the 28th of October 1961 offered Rs. 9.06 per lb. for suitings and Rs. 10.06 per lb. for velvet. Messrs A. C. Yusuf & Company reminded the Mercantile Bank of India of their offer by their letter dated the 15th of November 1961. The goods were offered to and accepted by defendant No. 2 on behalf of Badruddin H. Mavani & Co. at Rs. 12‑3‑0 per lb. The claim on behalf of the plaintiffs is that this was the price at which the damages ought to be assessed. The date of the breach of the contract is 22nd July 1961 and it has not been possible to ascertain the market value of the goods as they were of foreign manufacture, licences for which were not being granted. They were also considered to be of superior quality. However, the plaintiffs have examined Muhammad, son of Haji Tayab P. W. 3 who states that he had been taken by Muhammad Ibrahim of the plaintiffs' firm and shown 34 bales of the contracted goods. Ismail, Allahrakhia and Ishaq were the other intending purchasers with them. The plaintiff demanded Rs. 16 per lb. and witness Muhammad offered Rs. 14 per lb. Ibrahim did not agree because he had a previous offer of Rs. 14. Besides there is the letter from A. Sattar Yusuf of A. C. Yousuf & Co. making a written offer of Rs. 12 per lb. There are also letters Exhs. 9‑F and 9‑G making offers at Rs. 10 and Rs. 10.06 per lb. of the contracted goods. Since there is no evidence in regard to the rate nearest to the date of the breach (22nd July 1961) I take the 26th on October 1961 as the next nearest date for the purpose of ascertaining the damages due to the plaintiffs as there is evidence as to the rate on that day Rs. 12 per lb. offered by Messrs A. C. Yusuf & Co. and that was the lowest offer given so far.
19. Mr. Vellianj counsel for defendant No. 2 has relied upon A. K. A. S. Jamal v. Moola Dawood Sons & Co. (AIR 1915PC48) and contended that the plaintiffs must take reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect. Their Lordships observed as under:‑
"But the loss to be ascertained is the loss at the 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."
There is ample evidence to establish that the plaintiffs did their utmost to obtain delivery of the goods but that the contracted goods could not be delivered as they were with the bank and possibly due to obduracy or the reluctance of defendant No. 2.
20. I, therefore, assess the damages due to the plaintiffs at Rs. 12 per lb., the difference between the contracted rate and the approximate rate on the date of the breach being Rs. 1.75 per lb. for an approximate weighment, according to Moosa Bhai's own admission of 12,000 lbs. There will, therefore, be a decree for Rs. 21,000 and costs thereon against the defendants.
K. B. A. Suit decreed.
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