LexSTATE OF KERALA versus COCHIN CHEMICAL REFINERIES LTD.
Open in Lexace · Ask the AI about this caseJudgment (excerpt)
STATE OF KERALA
v,
COCHIN CHEMICAL REFINERIES LTD.
March 26, 1968
[J. C. SHAH, V. RAMASWAMI AND G. K. MITTER, JJ.]
8
Contract-Mor{f:age deed providing for loan to company and for sup-
ply of goods by company to mortgagee-Sale price to be adiusted against
loan and interest-Mortgagee not cdvancing loon-I/ relieved of obliga-
tion to purchase goods-Whether liable for da1nages for .'lot advancing
loan and for bre(1ch of contract to buJ goods,
A mdrtgagc deed was executed by the respondent company and one
of its directors in favour of the State of Keral::i. It was provided inter alia
by the terms of the deed that in consideration of the State granting a loan
of a sum of lls. 2.5 lakhs to the company, the laUer wou1U supply lo the
State 3.000 tons of ground-nut cake Yyjthin a specified pe'riod and make
deliveries in accordance 'Nith instructions ·to be given by the State, and
the account fo·r this supplv will be adjusted again·st the loan amount and
the interest thereon.
It Was comn1on ground
however that the loan
amount, though acknowledged in the mortgage deed as received by the
company, was never in fact
advanced by the State. The respondent
company arranged for the supply of goods as agreed and sought
the
necessary instructions for d·~livery, but these we're never given.
The company instit\Ited a suit in 1Iarch 1953 against the appellant
State for dumages for failure to advance the loan an1ount and for breach
of contract to purchase the ground-nut cake. The trial court decTecd the
suit for R.;;. 36,000 being damages for failure to advance the loan and for
Rs. 1,23,000 as damages for breach of contract. An appeal to the High
Court chaUenging the liability of the State to compensate the company
for failure to take delivc'ry of the goods v.·as dismissed.
It was contended on behalf of the State that the obligation to take
delivery of the good_s agreed to be purchased was contingent upon the
Government's advancing the loan amount, so long as the amount was not
atlvanced by the State~ the mortgage \vas not in Jaw effective
and the
Company could
not
enforce the contract relating to ground-nut cake
~1i;:recd to be purchased by the State.
HELD :
Dismissin.q the appeal.
A transaction of mortgage formally executed docs not become void or
ineffective merely because the mortgagee fails to advance the amount of
money undertaken to be advanced by him.
Under the terms of the
mortgage deed liability of the State to purchase the ~roundnut cake from
the Company was not n1adc conllitional upon the State advancing the
1oan.
By failing to advance the loan an1ount the State could. not avoid
liability to carry out the obligation to purchase the goods contracted to
be purchased. Even if it be assumed thJ.t the indenture incorporated re-
ciprocal promises, in the absence of anv express provision to that effect the
contract could not be t~rn1inatcd by the default of the State. Breach of
contract by one party does not auton1atica1ly terminate the obligation
under the contract: the injured party has the option either to treat the
cnntract as still in existence. or to regard himself as discharged. If he
~ccepts the discharge of the contract by the other party, the contract i"
c
D
E
F
G
H
KllRALA V. COCHIN REFINERIES (Shah, J.)
557
A
at an end. If he does not accept the discharge, he may insist on perfor-
mance. (560 C-D; 561 DJ.
B
c
D
E
F
G
H
Tatia v. Babaji, I.L.R. 22 Bom. 176, Rashik Lal v. Ram Narain end
Others, I.LR. 34 All. 273, Dip Narain Singh v. Nageshcr Prasad and
Others. I.L.R. 52 All. 338, White and Cart., (Councils) Ltd, v.
Mc-
Gregor, [1962] A.C. 413. referred to.
There was no substance in the contention that the State was by its
default liable to compensate the Company only for loss arising out of its
failure to advance the money, and not out of its failure lo purchase the
goods. The State's undertakings to advance the loan and to take delivery
of ground-nut cake were two independent, though inter-related transac-
tions; and by committing a breach of its own obligation to advance the
loan, the State did not absolve itself from liability for the breach arising
from its refusal to take delivery of the goods offered. [561 F-H].
Civn. APPELLATE JURISDICTION : Civil Appeal No. 741 of
1965.
Appeal by special leave from the judgment and decree dated
April 1, 1963 of the Kerala High Court in Appeal Suit No. 480
of 1958.
Sarjoo Prasad and M. R. K. PillaiExcerpt shown. Read the full judgment & AI analysis in Lexace.