Karsandas H Thacker vs Saran Engineering Co Ltd case expounded the rule that loss of profits arising from the resale of goods cannot be recovered unless the other party is informed that the goods are for resale under a special contract and deemed loss of profits as a special loss. Section 73 of the Indian Contract Act, 1872 provides that the party who suffers because of the breach of contract is entitled to compensation from the party who breached for the loss or damage he suffered because of the breach, which naturally arose in the normal course of things from the breach and it states such compensation is not to be awarded for any loss or damage suffered because of the breach in the distant or indirect sense.
BENCH: Justice Raghubar Dayal, Justice J.R. Mudholkar
Indian Contract Act: Section 73 and Section 74
- The appellant, Mr. Karsandas H Thacker, entered into a contract with the respondent company in July 1952, for the supply of 200 tonnes of scrap. The respondent company failed to deliver the scrap iron and notified the appellant, his inability to fulfil the terms of the contract in a letter dated January 30, 1953.
- In the meantime, the appellant had signed a contract with M/s. Export Corporation of Calcutta to supply them with 200 tonnes of scrap iron. The appellant could not fulfil his contract with M/s. Export Corporation because of the respondent’s breach of contract. M/s. Export Corporation purchased the scrap iron on the open market and got from the appellant the difference between the amount they had to pay and what they would have paid to the appellant under the contract.
- The appellant sued the respondent for breach of contract and sought Rs. 20,700 in damages for the losses suffered by him because of the breach.
Whether a claim for forfeiture of the amount can be considered as compensation regarding Sections 73 and/or 74 of the Indian Contract Act,1872?
- The appellant claimed the parties had a completed contract which the respondent had breached. Therefore, the appellant was entitled to the damages sought.
- The respondent contended the parties did not have a completed contract between them and that the appellant had suffered no damages. The respondent argued it was not liable to compensate for the damages the appellant had to pay the Export Corporation because the appellant had entered the contract on a principal-to-principal basis and had not disclosed that he was buying scrap iron for the Export Corporation or for export.
Justice Raghubar Dayal: Because it did not require the appellant to pay a higher price than the respondent, he could not have suffered any consequential loss because of the breach. The actual loss suffered by the appellant because of the breach of contract resulted from his contracting to sell 200 tonnes of scrap iron for export to the Export Corporation. Since the respondent was unaware of this contract, he had no way of knowing the likelihood of the actual loss.
The Honorable Supreme Court observed that when a party breaches a contract, the other party is entitled to compensation for any loss resulting from the damage caused to him that naturally arose in the ordinary course of business because of the breach or that the parties knew would likely result from the breach when they made the contract. The Court held the appellant suffered no such damage which he could recover from the respondent. The apex court ruled in favor of the respondent by stating that a party who suffers a remote or indirect loss or damage because of the breach is not entitled to any compensation.
According to Section 73 of the Indian Contract Act, 1872, a person who breaches a contract must pay the other party the difference between the contract price of the goods agreed to be sold and the amount paid by the other party for purchasing another good because of the first party’s breach. However, the first party is not liable for the compensation that the second party owed to third parties because he was not informed at the time of the contract that the second party was purchasing the article for delivery to third parties. The judgment in Karsandas H. Thacker vs. The Saran Engineering Co. Ltd. relies on the above principle and is referred to by different courts in cases pertaining to special losses arising out of a breach of contract.