' ZAFFAR. HUSSAIN MIRZA, J.-This is a Letters Patent Appeal challenging the judgment dated 23-1- 1967 passed by a learned Single Judge of the erstwhile High Court of West Pakistan (Karachi Bench) in Suit No. 69 of 1960, whereby the learned Single Judge dismissed the suit of the appellant.
2. The case of the appellant in the suit, out of which the present appeal arises, was that by a forward contract dated 20-4-1957, the appellant purchased from the respondent No. 1 Rayon bona fide Fents out of import licence No. H-001043 at the rate of Rs. 360 for Rs. 100 value of the licence. In terms of the stipulations of the contract, the appellant alleged to have paid Rs. 26,000 out of the total consideration of Rs. 36,000 to the respondent on condition that the said sum would remain in trust with the respondent and in case the goods to be imported by the respondent under the said licence were not delivered to the appellant for any reason whatsoever the respondent would refund the said sum of Rs. 26,000 to the appellant. Besides the appellant also paid Rs. 10,000 by cheque at the time of execution of the contract by way of advance. The contract goods arrived at Chittagong on 3-7-1975 by s. s. Warora. According to the appellant, the goods were to be cleared from the customs by the respondent and delivery given to the appellant from the defendants' godown against payment or the documents were to be handed over to the appellant against payment for clearing the goods through defendants' B' clearing agents, but the respondent in spite of repeated demands neither cleared the goods nor tendered the documents to the appellant for clearance. After waiting up to 22-10-1958, all along being ready and willing to perform his part of the contract, when the respondent neglected to perform their part of the contract and committed breach thereof, the appellant served the respondent with a notice of the same date demanding back the amount of Rs. 36,000 and interest thereon. On the failure of the respondent to reply to the said notice or return the sum demanded the appellant filed Suit No. 69 of 1960 claiming a decree for Rs. 42,480 which included the principal amount due amounting to Rs. 36,000 and interest at Rs.
6%.
3. The respondents in their written statement resisted the claim of the appellant and pleaded that they had never orally sold the portion of the imported goods. Their case was that on 20-4-1957, the appellant had purchased from respondent No. 1 by two forward contracts in writing goods covered by two letters-of-credit bearing Nos. 281 and 282. The respondent also denied the allegation regarding trust and alleged that the payments received by them were on account of and towards the said two contracts to cover the value of goods, profits of the respondents and expenses, duty etc., and clearance of the goods. It was, accordingly, their case that the expenses, duty etc., for clearance of the goods was the sole liability of the appellant. However, in the events that had happened, namely that a penalty had been imposed for under-valuation of the goods for the purposes of duty and at the request of the appellant, the respondent instructed their clearing agents at Chittagong to complete the customs formalities on behalf of the appellant, which were accordingly done. Thus, it was the contention of the respondent that a sum of Rs. 76,483 was payable on this account which the appellant had avoided to pay resulting in the accumulation of extra wharfage and demurrage. It was further contended by the respondent that although they were asking the appellant to pay the amount due and payable and take the delivery of the goods from the clearing agents, the appellant avoided to do so as the prices of goods had gone down, and thus committed breach of contract.
4. It may be stated that the two contracts for the supply of the goods of the same description namely Rayon Fents, on identical terms were entered into by the parties. The terms of these two contracts were reduced into writing and the written contracts have been produced in evidence, vide Exh. 6 and Exh.
8. The two separate payments of Rs. 26,000 in cash for each contract and Rs. 10,000 by cheque as advance were made by the appellant to the defendants. The dispute in the present appeal concerns contract Exh.
8. So far as the goods covered by contract Exh. 6 are concerned there is no dispute between the parties with regard to the delivery of the goods but the dispute in connection with that contract related only to the payment of demurrage which was paid by the appellant. Thus in connection with the other contract the appellant brought a suit for recovery of sum of Rs. 6,858.50 against the respondent herein which was pending in the Court of the First Additional District Judge Karachi vide Suit No. 611 of 1959, when in pursuance of an order passed by this Court it was transferred to the Original Side of this Court and registered as Suit No. 151 of 1962. The same learned Single Judge heard both the suits together and by separate judgments dismissed the same. This appeal pertains to one of the contracts which related to the goods which were not delivered to the appellants.
5. The evidence of Haji Suleman, the plaintiff in both suits and appellant herein, was first recorded in Suit No. 151 of 1962 pertaining to the other contract which by agreement of parties was read in this case (Suit No. 69 of 1960).
6. The learned Single Judge, by the impugned judgment came to a finding that the suit was premature and dismissed the same. He mainly based his findings on two documents namely a letter dated 1-1-1958 (Exh. 13) addressed by the appellant to the respondent agreeing not to ask and not to take delivery of the goods under the present contract till the final decision of the Valuation Department. The other document taken into consideration by the learned Single Judge was the indemnity bond (Exh. 12) whereby the appellant undertook to pay additional amount towards the customs duty or penalty if imposed by the customs authorities and authorising the respondent to make payment on the appellant's behalf if demanded. On the basis of the said documents the learned Single Judge came to the conclusion that the evidence established the fact that the appellant had no legal right to cancel the contract in October 1958 as the date of delivery of the goods was extended with the agreement of both the parties. Accordingly, the learned Single Judge held the appellant guilty of breach of contract and the suit premature.
7. In support of this appeal, Mr. Jan Muhammad Daud, learned counsel for the appellant contended that the appellant has established on evidence, that it was the obligation of the respondent to clear the goods from the customs authorities and pay the charges on account of customs duty, sales tax, penalty etc., which of course they could have had reimbursed by the appellant. It is urged by the learned counsel that the evidence on record established the claim of the appellant that they were ready and willing to make payment as stipulated in the above-said manner and, therefore, on the failure of the respondents to perform the contra It in the above terms, they were guilty of breach which justified the appellant's cancellation of the contract. On the other hand, Mr. Z.
C. Valiani learned counsel for the respondent supported the findings of the learned Single Judge and contended that the appellant's letter agreeing not to demand or take the delivery of the goods until final decision on the question of valuation, coupled with the indemnity bond constitute sufficient evidence that the appellant had taken over the responsibility for the consequences of postponement of delivery after the decision of the question of valuation in appeal. He further urged that the matter of appeal was finalised during the pendency of the suit and consequently in cancelling the contract by his notice dated 22-10-1958 wherein he asked for refund of advance payment under the contract, the appellant was guilty of breach. He therefore argued that the appellant was not entitled to the refund of the contract amounts.
8. There is no controversy that the appellant paid a total sum of Rs. 36,000 to the respondent in connection with the contract in question. The controversy with regard to the nature of the payments of Rs. 26,000 is, in my view, immaterial. The fact remains that both the payments were made by way of security deposit for the performance of the contract and had to be adjusted towards the price of the contracted goods. In the case of Trustees of the Port of Karachi v. Ghulam All Habib (1), it was held that :- "There is no charm in the expression 'earnest money' and whether the amount is described as deposit, the true import of both of them is that it is a part of the purchase price and is at the same time intended to be a guarantee for the performance by the purchaser and liable to forfeiture in case of breach by him."
' The nature of the payment in this case fulfils the conditions laid down in the above case and therefore I hold that the sum of Rs. 36,000 constituted the earnest money for the due performance of the contract. The suit of the appellant was, therefore, in substance a %Lift for recovery of the earnest, money.
7. There is another way of looking at the controversy in this appeal that is, that the question essentially is as to which of the two parties to the {{FOOT NOTE}}
(1) PLD 1961 Kar. 623 {{FOOT NOTE}} ' contract was guilty of breach. If the respondent who was the seller is held guilty of breach of contract, obviously, the appellant who was the buyer would be entitled to recover the money paid to the seller as purchase price, on account of the failure of consideration. Thus, the buyer has a quasi-contractual right to claim the recovery of the price, which is paid to the seller, for the seller, in breach of his obligation, failed to pats a good title to the goods sold. The buyer in such case has a right to sue in restitution to recover the price on the ground of total failure of consideration.
Similarly, if the seller failed to deliver the goods the buyer may recover the B deposit he paid to the seller. But in that case the buyer must terminate the contract. On the other hand, even if the buyer was in default he can in certain circumstances, which I shall consider later in reference to the facts of the present case, may be able to claim restitution of the advance payment made to the seller, even if the seller justifiably terminates the contract. Benjamin, in his book on the Sale of Goods (1974 Edition) says in para. 1341 at page 674 : "Where the seller justifiably terminates the contract after the buyer has paid him the price, the buyer may, in absence of a forfeiture clause in the contract, recover the price or pre-payment from the seller, subject to a right of set-off or counter-claim by the seller for damages. Secondly, the buyer may possibly be entitled to same relief despite the fact that the contract expressly provides that sums already paid to the seller ought to be forfeited upon default by the buyer."
' In Pakistan the law with regard to the forfeiture of recovery of earnest money was succinctly laid down by their Lcrdships of Supreme Court in the case of Province of West Pakistan v. Messrs Mistree Patel & Co. (2). In that case Messrs Mistree Patel & Co., had agreed to purchase from the Government 4000 tons of rice and in pursuance of one of the terms of contract furnished a bank guarantee to pay a sum of money at their failure to fulfil his obligation under the terms of the contract. On the failure of the firm to lift the goods within the stipulated time the government sold the goods to the third party and by that transaction instead of suffering a loss, made a profit of Rs.
10,000. Thereafter, the government filed a suit against the firm for recovery of the amount of earnest money on the basis of Bank Guarantee. On behalf of the Government it was argued that it was entitled to claim the amount of earnest money irrespective of the fact whether it suffered loss or not in the transaction in question. It was held, disapproving a part of the view taken in the case of Trustees of Port of Karachi referred to above as under:- "Section 74 of the Contract Act does not recognise the difference that exists in the English Law between liquidated damages and penalty. Under the common Law the genuine pre-estimate of the damages agreed upon by the parties is regarded as liquidated damages but a stipulation in the contract in terrorem is a penalty. In the case of liquidated damages the contract is binding upon the parties. In the case of penalty, however, the Court refuses to enforce it and awards the aggrieved party reasonable compensation."
"The argument that section 74 of the Contract Act deals only with a right to receive from the party who has broken the contract reasonable {{FOOT NOTE}}
(1) PLD 1969 SC 80 {{FOOT NOTE}} compensation and not a right to forfeit what has already been received by the aggrieved party cannot be accepted in view of the terms of the section. The cases in which such a view has been taken appear to have ignored the expression "the contract contains no other stipulation by way of penalty" in the section. This expression is comprehensive enough to include cases of forfeiture of money or any property already delivered as well as the cases of recovery of money or any property on the basis of any promise to pay."
' Further it was held :- "It is true that the aggrieved party is entitled to recover compensation from the party who is guilty of breach of the contract whether or not actual damage or loss is proved to have been caused thereby.
' In the present case, we are, therefore, to see whether the Province of West Pakistan can claim the whole or any part of the amount that the firm was to deposit by way of earnest money. It will be wrong to argue that since the firm had agreed to doposit a sum of earnest money and in lieu thereof furnished bank guarantee for the said amount the government would be entitled to claim the whole of this amount simply because there was a breach of the contract by the firm. Such a contention does not even receive support from the cases where the view taken was that the forfeiture clause of a deposit in the contract does not come within the purview of section 74 of the Contract Act. In these cases also forfeiture was held to be justified if the amount were found to be reasonable.
"In the present case we have already seen that the plaintiff instead of suffering any loss for the failure of the Firm made a profit of Rs. 10,500 We are of the view that the plaintiff is not entitled to any part of its claim whether the terms of the Contract regarding forfeiture come within the purview of the section 74 of the Contract Act or not."
5. Having regard to the above enunciation of law, if the present case is looked at from any angle the mere fact, if at all proved, of the appellant being guilty of default does not ipso facto give the respondent a right to retain the money paid by way of advance. He would be entitled to reasonable compensation up to the maximum amount of the money, thus paid and would, therefore, be liable to refund the money in excess thereof. The important point to note in this connection is that there is no counter-claim on the part of the respondent. Coming now to the facts of the present case the respondent has denied the allegation of the appellant that there was an oral contract with regard to the initial payment of Rs. 26,000. The payment of Rs. 10,000 is of course expressly mentioned in the contract as advance payment. The case of respondent in his written statement is that the amount was received in the account of and towards the contract. Oral evidence as to the interpretation of the terms of written contract is not ordinarily admissible. We are, therefore, left with the written contract (Exh. 8) as the evidence of the terms of the contract.
There is no stipulation in this document with regard to the forfeiture of the amount paid by way of advance or deposit. Consequently I hold that the rules enunciated in the Supreme Court case of the Province of West Pakistan v. Mistree Patel & Co., is fully attracted in this case. However, the first point to consider is as to which of the parties is guilty of breach of the contract,.
6. The case of the appellant, as argued by his learned counsel is that he repeatedly demanded delivery of the goods through several letters which are on the record (Exh. 9). The respondent has denied having received the first 4 letters, last of which was written on 26-3-1958. The appellant attempted to prove the delivery of these letters by means of the Peon Book for the years 1957,1958 and 1959, maintained by his firm. But the alleged signatures in token of receipt of the letters purporting to have been addressed to the respondent were denied by respondent's witness Moosa Bhai. There is no other evidence produced in proof of these letters. Accordingly, it is not possible to hold that the demand for the delivery of goods was made through these for letters, as the remaining evidence consists of oral assertion by the appellant which is obviously interested evidence. However, the further relevant facts are that the goods covered by this contract were under-valued which resulted in the imposition of enhanced customs duty and penalty. In this connection it may be stated that on 29-11-1975 the appellant executed an indemnity bond (Exh. 12) whereby the appellant indemnified the respondent against payment of any amount on account of customs duty or penalty. On the other hand by the same document, the respondent undertook to file Daclaration under the 'Valuation Imports Rules, 1957' and to file an appeal against any order passed thereon levying higher duty or imposing penalty. The respondent also undertook to clear the goods immediately. The first two conditions of the Indemnity Bond may be reproduced as under- "(1) That the Indemnified shall immediately file a Declaration Form as has been filed in, seen and approved of by the indemnifier, with the Customs Authorities at Chittagong and take any other steps that may be required, to enable the indemnifier to clear the same.
(2) That if at any time hereafter the Customs Authorities claim any additional amount of customs duty in respect of the said goods and levy any penalty, for any reasons whatsoever under the provision of Sea Customs Act and the Valuation Imports Rules, 1957 the same shall immediately be paid on demand, by the Indemnified, whether the same have been paid by them or not, in such a manner that the Indemnifier shall keep the Indemnified harmless and secured against any payment that may be required to be made in respect of the above mentioned goods in such a manner that the indemnified shall not be exposed to any loss whatsoever."
' It is also admitted that on 13-1-1958 the appellant wrote to the respondent a letter containing the following stipulations:- "We hereby also abide and agree not to ask and not to take delivery of the rest consignment covered under L/C No. 95/281 till final decision of the valuation Department for both consignments.
We also agree to pay all the necessary charges which may arise in the decision of the valuation board."
' The appellant in his evidence (Exh. 5) has categorically stated that duty, Sales Tax and Clearance was his liability but no penalty or demurrage. It is not, however possible to hold that he was not liable for payment of penalty, in the face of clear stipulations of the indemnity bond (Exh 12). But so far as the demurrage charges are concerned there is nothing in the documents in record placing the liability upon the appellant. Nor has the respondent denied this assertion in the evidence of the appellant. On the contrary respondent's witness Moosa Bhai (Exh. 10) has stated that "the contract does not mention particularly that the buyer would pay the demurrage.
7. Now the question that arises for consideration is as to what, in the changed circumstances in the light of further agreements contained in the two documents, namely the indemnity bond (Exh. 12) and letter dated 1-10-1958 (Exh. 13) were the obligations of the parties. Section 31 of the Sale of Goods Act provides that it is the duty of the seller to deliver the goods and of the buyer to accept and pay for them, in accordance with the terms of the contract of sale. There can be no measure of doubt, in view of the terms of the indemnity bond that the customs duty and penalty were to be eventually paid by the appellant. But this does not mean that the respondent had to keep quiet and not clear the goods, which inevitably resulted in accumulation of demurrage. The clear obligation undertaken by the respondent, arising from the stipulations of the bond, particularly from the terms reproduced above, was to clear the goods immediately. Therefore, it has to be seen whether the respondent discharged his obligations under the indemnity bond which is to be read as an integral part of the contract. It is an admitted position that until the filing of the suit the respondent did not attempt to have the goods cleared by making payment of the enhanced customs duty and penalty imposed by the customs authorities. However, in obvious compliance with the stipulations contained in the indemnity bond he preferred an appeal which was pending and was eventually decided during the pendency of the suit. The case of the appellant is that after the execution of the indemnity bond on 29-11-1957 the appellant called upon the respondent specifically with reference to the heavy penalty imposed requesting the latter to pay under protest the same and have the goods cleared from the customs. But the respondent failed to do so. In this connection, the appellant relied on letters dated 13-5-1958, 15.5-19 13-5-1958, 26-5-1958 and 1-10- 1958. In these letters the appellant not only requested the respondent to pay up the customs duty but also offered to pay the same by himself and warned the respondent that heavy demurrage charges were increasing day by day. But the respondent paid no heed to these requests. Now as stated above, the respondent has only denied the first for letters and thus there is no specific denial with regard to the above-said letters. In the circumstances I am of the view that the appellant has proved the service of these letters. I have given anxious consideration to the facts and circumstances of this case. To me, there appears to be no doubt that the appellant must have written these letters. The circumstances are that a huge sum of Rs. 36,000 which not only included the purchase value of the goods but also profit to the extent of 260%of the value of the goods and accordingly, it is but natural that the appellant would anxiously protect the goods from damages or deterioration. The whole scheme of things appears to be that a guarantee had to be given to protect the respondent against the disputed question of customs duty and penaly, before the latter could act in the matter and have the goods cleared. Obviously, it is preposterous to think that the appellant would agree to allow the goods to lie in the port unreleased and pay the mounting demurrages apart from the risk of exposure to deterioration. The necessity to have the indemnity bond executed quite obviously arose to enable the respondent to act in the matter without risk of further financial obligation. These are the circumstances which have weighed with me to come to the conclusion that the respondent was clearly guilty of breach of the contract in failing to have the goods released in terms of the contract. Mr. Valliani, has however strongly relied upon letter dated 1-1-1958 (Exh. 13) and has contended that the breach of the contract on the part of the respondent would occur only at the extended date, that is, on the decision of the matter relating to valuation of goods and consequent imposition of enhanced duty and penalty. In this connection section 35 of the Sale of Goods Act may be relevant which is in the following terms:- "Apart from any express contract, the seller of goods is not bound to deliver them until the buyer applies for delivery."
' It may be argued on behalf of the respondent, therefore, that before the extended date of delivery of goods he was not under obligation to deliver them until the appellant applied for the same. I have already held that in the letters mentioned above the appellant requested the respondent to have the goods immediately cleared. But I would make particular reference to the letter dated 26- 5-1958 wherein the appellant requested the respondent to hand over the shipping documents to him to enable him to have the goods released after making the necessary payment. Apart from this the opening part of section 35 of the of Sale Goods Act provides that the duty to apply on part of the buyer is subject to any express contract. In this case the respondent had taken over the responsibility to pay the customs duty and penalty for the purpose of having the goods released. It was therefore his obligation to inform the appellant after doing so to shift the responsibility to the latter to apply for the delivery of the goods. But in this, the respondent clearly made a default. Be that as it may, the fact remains that on his failure to fulfil his obligation to pay up the dues as undertaken by him under the indemnity bond, the respondent clearly committed breach of contract which entitled the appellant to terminate the contract. It is not only on the failur to deliver the goods that a breach of contract can take place. The breach of any term of contrant would give the other side a justification to terminate the contract. I am, therefore, of the confirmed opinion that the respondent must be held responsible for the breach of contract.
9. Be that as it may, even if it is assumed that the appellant was the defaulting party, in view of the legal position explained above, in my consideration, the respondent could forfeit the earnest money or advance payment only on proof of loss sustained by him. Taking the rule laid down by their Lordships in the above referred Supreme Court case as a guide, it would only be permissible, in the facts and circumstances of the case, to award reasonable compensation subject to the limit of the amount pail under the contract by way of advance. But as stated above, there is no counter- claim set up by the respondent nor is there evidence worth the name brought on the record to indicate as to what should be the reasonable compensation in the circumstances of this case. The respondent has not brought any evidence on the record to indicate at what price the goods were subsequently sold in the market on their release from the custom, authorities. Nor is there any evidence to show that any loss was sustained on this account. In the absence of such evidence it is not possible to determine such compensation. To dismiss the suit of the appellant would obviously amount to allow the respondent to forfeit the advance merely on account of the alleged breach of contract on part of the appellant, which is contrary to the rule laid down by their Lordships of the Supreme Court The respondent is, thus, not entitled to retain or forfeit the advance payment ,even if the breach on the part of the appellant is established.
10. In the result, I would allow the appeal and set aside the judgment of the learned Single Judge and decree the suit as prayed with costs.