AKAS Jamal vs Moolla Dawood Sons and Co Case is a landmark case that lays down the principle that in contracts for sale and purchase of goods, the injured party in a contract must make reasonable efforts to avoid the losses resulting out of the breach to keep his losses to the minimum. It reflected this principle in Section 73 of the Indian Contract Act, 1872, which provides for compensation for loss or damage caused by the breach of contract.
COURT: The Privy Council
BENCH: Viscount Haldane, Lord Wrenbury, Sir John Edge & Mr. Ameer Ali
Indian Contract Act, 1872: Section 73
- The plaintiff and the defendant agreed to sell 23,500 shares on December 30, 1911, with delivery and payment due on that date. The defendants refused to accept delivery or pay for the shares when they were offered on this date. Shares would have sold for Rs. 1,09,218 less than the contract price if they had been sold at the market price on that day. However, the plaintiff only sold the shares after February, when the market was rising, and he only made Rs. 79,862 less than the price fixed by the contract.
- On 22nd March, 1912, the plaintiff sued the defendant for breach of contract and sought damages worth Rs. 1,09,218 from the defendant.
- The defendants argued they should only be held liable for Rs. 79,862 in damages, but they were found liable for Rs. 1,09,218.
- Whether the difference between the contract price and the market price at the time of the breach is the measure of damages for breach in a contract for the sale of negotiable securities?
- Whether the seller must mitigate the damages by making subsequent sales at a higher price?
The difference between the contract price and the market price at the time of the breach was and remained the seller’s loss at the time of the breach. When the buyer breached the contract, the seller kept ownership of the shares and became entitled to damages as allowed by law. He kept the first of these two properties, namely the shares, for a while before selling them in a rising market. His pocket was enriched, but his loss at the time of the breach was unaffected.
The Privy Council observed that damages for breach of contract, such as a sale contract, are usually calculated as of the breach. The profit earned should not be deducted from damages because of non-acceptance. Privy Council thus held that since the loss is to be found out at the date of the breach if at that date the plaintiff did something which mitigated the damage, the defendant is entitled to the benefit of it. It further stated that if the seller keeps the shares after the breach, he cannot recover from the buyer for any losses suffered thereon if the market falls nor can he have the damages reduced if the market rises.
The decision in AKAS Jamal vs Moolla Dawood Sons and Co Case is a prominent authority for the proposition that in a contract for the sale of negotiable securities if the seller does not resell the goods after the breach of the contract and his loss is aggravated by the falling market, then he cannot recover the enhanced loss. This is a leading case which explicates the concept of duty to mitigate damages.