Judgement Briefs

Contract Law

Murlidhar Chiranjilal v. Harishchandra Dwarkadas

AIR 1962 SC 366; [1962] 1 SCR 653

Citation
AIR 1962 SC 366; [1962] 1 SCR 653
Court
Supreme Court of India
Date
1961
Bench
Supreme Court Bench

Facts

  • The parties entered into a contract for the sale and delivery of canvas.
  • The seller failed to deliver the agreed goods.
  • The buyer claimed compensation for breach.
  • The dispute concerned the correct method of calculating damages under Section 73 of the Indian Contract Act.
  • The buyer sought recovery based on the loss allegedly suffered because the goods were not supplied.

Issue

  • What is the correct measure of damages for failure to deliver goods?
  • Whether damages should be based upon the difference between the contractual price and market price at the time of breach.

Rule

  • Section 73 incorporates the principles stated in Hadley v. Baxendale.
  • Compensation is available for loss that:
  • naturally arose in the usual course from the breach; or
  • was within the parties’ contemplation when they contracted.
  • Remote or indirect loss is not recoverable.
  • In an ordinary sale of goods, the usual measure is:
  • Market price on the date of breach − contract price.
  • The claimant must also take reasonable steps to mitigate loss.

Application

  • The object of damages was not to punish the defaulting seller.
  • The buyer was entitled only to the actual financial difference produced by non-delivery.
  • If substitute goods could have been purchased in the market, the buyer should ordinarily have purchased them.
  • The loss would then be represented by the additional amount reasonably required to obtain replacement goods.
  • The relevant market price was the price at the contractual place and time for delivery.
  • A later rise in prices could not automatically be charged to the seller because the buyer could have reduced that loss by purchasing promptly after breach.
  • The Court also emphasised that Section 73 contains two connected principles:
  • remoteness, determining which kinds of loss are recoverable;
  • mitigation, preventing recovery of avoidable loss.
  • The buyer had to prove the relevant market rate and could not obtain speculative or unsupported compensation.
  • Where no market existed, another reasonable method could be used, but the underlying purpose remained compensation for actual loss.

Conclusion

  • The Supreme Court held that the ordinary measure was the difference between the contract price and the market price on the date of breach.
  • Loss that could reasonably have been avoided was not recoverable.
  • Use this case for: Section 73 follows Hadley v. Baxendale and ordinarily measures non-delivery damages by the market-price differential.