Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors

Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors is a landmark case decided by the Supreme Court of India on 29 March 1961. The matter arose from a dispute concerning a contract for the sale of canvas, where the contractual obligations and the appropriate measure of damages under Section 73 of the Indian Contract Act, 1872 were critically examined. 

The bench, headed by Justice K.N. Wanchoo with Justice P.B. Gajendragadkar, delivered a judgement that has since been cited in numerous cases dealing with breach of contract and the calculation of damages. This brief sets out the factual background, legal issues, arguments of the parties, judicial reasoning, and the significance of the decision in clarifying the principles of damages for breach of contract.

Facts of Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors

In Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors, the dispute originated from a contract entered into between two commercial parties. The appellant, M/S. Murlidhar Chiranjilal, contracted with the respondent, M/S. Harishchandra Dwarkadas (along with another party), for the sale of canvas at the rate of Re. 1 per yard. 

Under the terms of the agreement, the delivery of the canvas was to be effected through a railway receipt. The transaction was structured such that the goods were to be sent from Kanpur, with the understanding that they would eventually be delivered for sale in Calcutta.

Key details of the contract include:

• Delivery Method: The canvas was to be dispatched by means of a railway receipt, with the delivery term stated as “free on rail” (f.o.r.) Kanpur.
• Additional Costs: The respondent was responsible for the costs of transporting the canvas from Kanpur to Calcutta, including labour charges.
• Time of Delivery: It was agreed that the railway receipt would be delivered by 5 August 1947.

The contractual arrangement assumed that the railway bookings from Kanpur to Calcutta would be available to ensure timely delivery. However, the appellant failed to deliver the railway receipt on the stipulated date, citing the closure of railway bookings between Kanpur and Calcutta. As a result, the appellant cancelled the contract, prompting the respondent to initiate a suit for damages on the grounds of breach of contract.

Issues Presented

The primary legal questions in Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors were twofold:

1. Impossibility of Performance: Was the contract rendered impossible to perform due to the unavailability of railway booking between Kanpur and Calcutta?
2. Measure of Damages: What constitutes an appropriate measure of damages under Section 73 of the Indian Contract Act, 1872 in cases where the contract is breached? Specifically, should damages be calculated based on the market price difference in Calcutta or at the place of delivery, namely Kanpur?

Arguments of the Parties

Respondent’s Position

The respondent contended that the appellant’s failure to deliver the railway receipt amounted to a clear breach of contract. They argued that:

• Knowledge of Destination: Since the contract stipulated that the canvas was ultimately meant for sale in Calcutta, it was to be presumed that the appellant was aware that the goods would be sold in Calcutta.
• Loss of Profit: The respondent maintained that the loss incurred could be quantified by the difference between the market rate in Calcutta on the date of breach and the contracted price. In their view, this differential represented the natural loss of profit resulting from non-performance.
• Measure of Damages: They further argued that under Section 73 of the Indian Contract Act, 1872, the damages should reflect the foreseeable consequence of the breach, which in this case was the loss of the expected margin of profit.

Appellant’s Defence

On the other hand, the appellant put forward a defence based on the specifics of the contractual arrangement:

• Delivery Location: The contract was clearly for delivery at Kanpur, not Calcutta. The fact that the goods were destined for Calcutta was only incidental and did not alter the agreed delivery location.
• Impossibility of Performance: The appellant argued that the closure of railway booking between Kanpur and Calcutta made it impossible to perform the contract as stipulated. This practical impossibility was beyond their control and thus justified the cancellation of the contract.
• Proof of Market Price: Crucially, the appellant pointed out that the respondent failed to substantiate the claim for damages by providing evidence of the prevailing market rate for canvas in Kanpur on the date of the breach. Without such evidence, it was impossible to ascertain the quantum of damages.
• Mitigation of Loss: The appellant also emphasised the respondent’s duty to mitigate their loss, as required under the principles enshrined in Section 73 of the Indian Contract Act, 1872.

Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors Judgement

The Supreme Court, in delivering its judgement in Murlidhar Chiranjilal v Harishchandra Dwarkadas & Ors, meticulously examined the contractual terms, the factual matrix, and the legal provisions governing breach of contract.

Nature of the Contract

The Court observed that the contract was expressly for delivery at Kanpur, with the respondent bearing the cost of transporting the canvas to Calcutta. 

The arrangement allowed the buyer to sell the canvas in any market of their choosing, and the mere fact that the booking was made for Calcutta did not imply that the seller had any special knowledge that the goods would be sold exclusively in Calcutta. 

Thus, the contractual obligation was strictly limited to the delivery at Kanpur.

Measure of Damages

The Court elaborated that the appropriate measure of damages under Section 73 of the Indian Contract Act, 1872 should be the difference between the market price at the place of delivery (Kanpur) on the date of breach and the contract price. 

In the absence of concrete evidence establishing the market rate in Kanpur, the respondent’s claim for damages could not be quantified. 

The Court stressed that in cases of breach, the aggrieved party must prove the exact quantum of loss, which includes demonstrating the market conditions at the location specified in the contract.

Duty to Mitigate

The Court further reiterated the well-established principle that the injured party has a duty to take all reasonable steps to mitigate their loss. 

This principle, drawn from both statutory interpretation and relevant case law such as British Westinghouse Electric and Manufacturing Company, Limited v Underground Electric Railway Company of London [1912] A.C. 673, implies that any failure on the part of the claimant to mitigate their losses would preclude them from recovering the full quantum of damages.

Final Judgement

Based on these observations, the Supreme Court ruled in favour of the appellant. It held that because the respondent failed to prove the market rate in Kanpur on the date of breach, no measurable damages could be ascertained. Therefore, the respondent was not entitled to recover any damages for the breach of contract.