CASE ANALYSIS
“KARSANDAS H. THACKER V. M/S. THE SARAN
ENGINEERING CO. LTD.,
AIR 1965 SC 1981”
TABLE OF CONTENTS
INTRODUCTION ........................................................................................... 1
FACTUAL BACKDROP ................................................................................. 1
ISSUES AND ARGUMENTS RAISED ......................................................... 2
VERDICT ......................................................................................................... 3
CASE ANALYSIS ............................................................................................ 4
CONCLUSION ................................................................................................ 6
INTRODUCTION
This case deals with the contention of when should the damages be rewarded
to the parties against whom the contract is breached. It explores the
applicability of “sections 73 and 74 of the Indian Contract Act” for
determining the liability to pay the damages. The trial court admitted the
appellant’s plea and held the respondent liable. Then the respondent took it to
the high court which overturned the decree and held the respondent not liable.
FACTUAL BACKDROP
i.
In this, the appellant Karsandas H. Thacker sued the respondent for
breaching their contract and claimed damages of INR 20,700.
ii.
The appellant contended that he entered into a contract with the
respondent for purchasing 200 tons of scrap iron in July 1952 and after
that the respondent expressed his inability to perform the contract in
January 1953.
iii.
In the meantime, the appellant entered into a contract with another
company named m/s. exportation based in Calcutta to supply them
with 200 tons of scrap iron.
iv.
Due to the breach of contract by the respondent, the appellant couldn’t
supply the company with the scrap iron, so the company had to buy the
scrap iron from the open market, and they claimed the balance amount
they had to incur for purchasing it from the open market.
ISSUES AND ARGUMENTS RAISED
Arguments from the appellant's side:
i.
He sought to claim the damages that he suffered due to the breach of
contract by the respondent.
ii.
He stated that if the respondent had fulfilled the contract, he would not
have been liable to reimburse the exportation company.
iii.
He alleged that there was a completed contract between both the
parties and the loss incurred to him was due to the breach of contract
by the respondent.
iv.
He argued that he stated in his letter that he was purchasing the goods
at a very fancy price and that when the goods are purchased from a
controlled market by paying a very fancy price it is deemed that the
purchase must be made for the intention to export.
Arguments from the respondent’s side:
i.
He argued that the appellant didn’t inform him before that there was an
involvement of the third party and that the appellant would sell the
scrap iron to them.
ii.
The mere statement of fancy price in the letter is not sufficient to
convey the fact that the appellant has to sell it to the export
corporation.
iii.
The market price at the time of the scrap iron at the time of January
1953 was the same as the price at which the respondent was supplying
him.
iv.
The contract with the exportation company was made after the
negotiations of this contract ended in July 1952. As a result, there was
no way in which he could have known about the contract with the
exportation company.
VERDICT
The court stated that the respondent is not liable to pay the damages because
under section 73 of the contract act the party is entitled to receive damages due
to breach of contract when the damage suffered due to breach of contract is in
the usual course of business and not some indirect loss. Because in this case,
the respondent can by no means know about the purpose of the purchase of the
iron scrap and his contract with the exportation company he cannot be thus
held liable. So the court held that the contract was completed among the
parties on October 1952 but reversed the decree of the trial court and
exempted the respondent from paying any damages.
CASE ANALYSIS
The first issue addressed by the court was whether the respondent was liable
to pay damages under section 73 or 74. “Section 73 of the Indian Contract”
Act states that a person is liable to pay the difference in the amount paid by the
other party to purchase the same amount of goods and the amount he had to
pay to the first party for the purchase of the same quantity which does not
happen due to the breach of contract. In this case, it was held that the
respondent is not liable because the losses incurred by the appellant were not
directly a result of the breach of contract.
Section 74 of the contract deals with the liability of the party who breaches the
contract, for paying damages that are pre-determined in the contract and are a
part of the agreement between the parties. The respondent was not held liable
for this because there existed no damages as a part of the agreement decided
between them. It was also stated by the court that it is not necessary to note
whether the contract was completed or not or if it was breached or not.
Because it does not affect the judgment as the respondent is not liable to pay
damages to the appellant if the damages are incurred due to some indirect loss
The second contention raised was whether the respondent knew about the
obligations of the appellant for the supply of iron scrap to the export
corporation. During cross-examination, the appellant stated that he entered
into a contract with the export corporation after the negotiations with the
respondent ended in July 1962. This implies that the respondent couldn’t have
possibly known that the respondent was purchasing scraps from him to sell to
the export corporation.
It was also evident that the respondent had no knowledge when the appellant
stated during cross-examination that he had no plans of entering into a contract
with the export corporation and made the purchase on his own accord.
The third contention was whether stating the term fancy price aptly
suggests that the purchase was made for the exportation of the iron scrap.
The appellant also argued that when he first wrote a letter to the respondent,
he stated that he was purchasing 200 tons of scrap iron at a very “fancy price”.
He said that when someone purchases a good from a controlled market at a
very fancy price it is assumed that the said purchase was made for exportation.
However, this assumption is too remote and it cannot be inferred from this that
the said purchase was made to export because the prices are fixed by the
controller to control the price of the goods and help the buyers so when an
appellant asked for a fancy price it could mean a higher price than the lowest
quotation but well within the controlled price.
The fourth argument was whether the appellant incurred any damages
arising due to the breach in the ordinary course of business. In this case, it
was held that when the scrap iron was not delivered by the respondent the
appellant could have easily purchased the same amount of scrap iron from the
open market by paying the controlled price. because the market price of the
scrap iron in January 1953 was the same as the appellant had to pay to the
respondent. It means that he didn’t have to pay any higher price for the
purchase, and he could have by no means occurred any losses in the ordinary
course of business.
The fifth contention was whether the export of goods came under the scrap
control order of 1943 or not. The appellant urged that the controlled price of
the scrap iron applied to the use of the goods within the country and didn’t
apply for the export. The court thereby found nothing to support this claim
because rule 81 of the Defense of India Rules 1939 authorized the government
to control prices of the essential commodities and there was nothing to suggest
in this that it can’t be applied for export.
CONCLUSION
In this case, the court relied on the principle that to be held liable for paying
damages to a party the damage should have occurred due to the breach of the
contract, since the respondent had no clue about the obligations of the
appellant, he could not foresee the damages and hence he is not liable to
reimburse. This case is referred to, in many other cases for determining the
special losses arising out of the breach of contract.1
1
Karsandas H. Thacker vs The Saran Engineering Co. Ltd. on 14 February, 1965,
hBps://indiankanoon.org/doc/804591/ (last visited Oct 9, 2023).
India Code: SecOon Details, hBps://www.indiacode.nic.in/showdata?acOd=AC_CEN_3_20_00035_187209_1523268996428&orderno=74 (last visited Oct 9,
2023).