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Petitioner: HUSSAIN BHAI VS Respondent: MESSRS FARIDSONS LTD.
P L D 1960 (W
P L D 1960 (W. P.) Karachi 291
Before Wahiduddin Ahmad, J
HUSSAIN BHAI‑Plaintiff
versus
MESSRS FARIDSONS LTD.‑Defendants
Suit No. 600 of 1952, decided on 11th January 1960.
(a) Contract Act (IX of 1872), S.17‑Fraud‑Contract for sale of goods by agent‑Price not fixed in good faith‑Agent entering into contract on behalf of principal with other person on clear understanding of getting secret commission‑Contract based on fraud‑Void.
When a bribe or secret commission is given or a promise to pay it is made to an agent of an employer by a person who has entered into a contract for sale or purchase of property in order to induce the agent to act otherwise than with loyalty and fidelity to his employer, such a contract being based on fraud is void and not enforceable in law.
When a contract is found to be based on fraud, it becomes a voidable transaction and the affected party can repudiate it. The result of repudiation is that the aggrieved party will be restored to the original position and the party at fault can be compelled either to return the property or to compensate the aggrieved party.
Held, that the plaintiff paid the price of the goods and obtain ed the delivery of the goods will not make such a contract valid. It does not amount to estoppel in law.
Indra Nath Banerjee v. Rooke I L R 37 Cal. 81 ; Harrington v. The Victoria Graving Dock Company (1878) L R 3 Q B D 549 and Shipway v. Broadwood (1899) 1 Q B D 369 ref.
(b) Contract Act (IX of 1872), S. 238‑Contract for sale of goods‑Person obtaining goods at low rate under secret contract with agent of employer‑Bound to pay amount of profit actually received by him from sale of goods to owner of goods.
Hafaz Ahsan for Plaintiff.
M. A. I. Lakhani for Defendant.
Date of hearing : 11th January, 1960.
JUDGMENT
The plaintiff has filed this suit for the recovery of Rs. 81,787‑8 against the defendants.
Briefly, the facts which have led to the litigation between the parties are that on 4th of October, 1951, the plaintiff entered into an oral contract with the defendants through one S. Athar Hussain Zaidi, an employee in the Cotton and Yarn Department of the defendant company, for the purchase of 100 bales of Camel Brand Cotton Yarn, at Rs. 34‑4 per bundle of 10lbs. each and 200 bales of Double line or Double loin cotton yarn, at the rate of Rs. 29 per bundle of 10 lbs. each. He paid a sum of Rs. 10,000 as advance towards the fulfilment of the said contract and agreed to pay the balance of the price on the delivery of the goods. The plaintiff further paid on 5‑10‑1951, a sum of Rs. 1,25,000 towards the price of 100 bales of Camel Brand Cotton yarn and on 9‑10‑1951, obtained their delivery from the defendant company. The plaintiff paid on 11‑10‑1951, a sum of Rs. 1,16,000 and on 16‑10‑1951, another sum of Rs. 1,06,000 for the supply of 200 bales of Double loin cotton yarn to the defendant company, but it is alleged that by that time the market rate of the goods in dispute had considerably gone up and the defendants refused to perform the rest of the contract. According to the plaintiff a large sum of money belonging to him was already with the defendants and in order to avoid litigation he agreed to pay the price of the goods already purchased and the goods that were still to be supplied at an enhanced rate of annas six per bale of 10 lbs. each by Exh. 8/31, a letter dated 27th October, 1951, along with a cheque of Rs. 4,500 to cover the difference. In-spite of this the defendants failed to deliver the remaining goods of the contract. On 2nd November 1951, by letter Exh. 7/1 the plaintiff called up the defendants to perform the rest of the contract. On 5th November, 1951, Mr. Rafique, Bar‑at‑Law on behalf of the defendant company in reply by Exh. 7/2 challenged the validity of the contract on the ground that it was not secured at the rate that had been specified in the notice but was procured by fraud and misrepresentation as well as by bribery and corruption of the defendant employee, and informed the plaintiff that they were not entitled to take the delivery of 200 bales of Double Yarn Brand at the rate specified in the notice, and described the contract as void being based on fraud and misrepresentation. The defendants' counsel's letter further called upon the plaintiff to return the goods already supplied to them. On 19th November, 1951, the defendants' advocate finally repudiated the contract and after deducting the price of 10,) bales of cotton yarn of Camel Brand at Rs. 39‑8 per bundle of 10 lbs. at the then market rate amounting to Rs. 1,58,000 sent the balance of the amount of Rs: 1,99,000 by cheque No. 159202 on the Netherlands Trading Society. He also informed the plaintiff that the cheque sent by him along with letter dated 27th October, 1951, for a sum of Rs. 4,500 was not cashed and has not been credited in their account. On the 26th of November, 1951 by letter Fxh. 8/36, the plaintiff denied the allegations made by the defendants in their advocate's letters and called upon them to withdraw the allegation of fraud. He also threatened to prosecute them in a Criminal Court. As a result of these disputes the plaintiff filed this suit on 16th May, 1952, for the recovery of Rs. 45,000 on account of damages for failure to supply 200 bales of Double loin cotton yarn and for the refund of Rs. 36,000 deducted by the defendants through their advocate's letter Exh. 7/3, dated 19th November, 1951.
The defendants resisted the claim. They have denied their liability to pay any damages and also contended that they validly deducted the sum of Rs. 36,000 as it was due from them, being the difference between the price paid and the market rate prevalent on 19th November, 1951. They also raised the plea that the alleged contract dated 4th October, 1951, was void as it was obtained by the plaintiff with the connivance of the defendants' employee, Mr. Athar Hussain Zaidi to defraud the defendants. This suit was decreed ex parte on 22‑4‑1955, but it was set aside on 15‑10‑1956.
On these pleadings the following issues were framed
(1) Whether the commitment made by an employee of the defendants, as stated in para. (1) of the plaint, was in furtherance of the conspiracy pleaded by the defendants, and therefore not a contract ?
(2) What is the effect of the payments made by the plaintiff and of the delivery of goods made by the defendants ?
(3) Whether the defendants were entitled to deduct Rs. 33,000 towards the recovery of any price of bales which had been delivered to the plaintiff ?
(4) How much money, if any, is refundable to the plaintiff ?
(5) To how much damages, if any, is the plaintiff entitled ?
(6) To how much interest, if any, is the plaintiff entitled ?
(7) General.
The plaintiff, in support of this claim, examined himself (Exh. 8), Muhammad Siddik (Exh. 9), delivery clerk in Ismail Haji Suleman's firm and Mirza Ahmad Alam (Exh. 10), Record Keeper of Textiles Merchants Association. The defendants on the other hand have examined Mr. Shahid Ullah (Exh. 11), Clerk, Jinnah Hospital, to prove that D. W. Muhammad Latif was lying ill in Jinnah Hospital from 12th September, 1951, besides D W. Muhammad Latif (Exh. 12) in support of their defence.
Issue No. 1.‑This is the most important issue in this case. It is contended on behalf of the defendants that the contract for the supply of 100 bales of Camel Brand cotton yarn and 200 bales of Double Loin brand cotton yarn entered into on 4th October, 1951, between the parties was obtained by fraud. According to them the contract was concluded between the plaintiff and one S. Athar Hussain Zaidi, an employee of the defendant company. Both of them represented that Camel Brand and Double Loin cotton yarn was agreed to be sold at Rs. 31‑4 and Rs. 29 per bundle respectively, but in fact the rates agreed upon were Rs. 31‑10 and Rs. 29‑6 respectively and the plaintiff had agreed to pay annas six, the difference of the two rates, privately to Mr. Zaidi without the knowledge of the defendants. defendant contends that this fact was admitted by the plaintiff in his letter (Exh. 8/31) dated 27‑10‑1951, and amounts to fraud. This letter is in Gujarati and its translation reads as under
"Messrs Faridsons Limited, Karachi. After Salams,
We entered into a transaction for 300 bales with your firm on 6‑10‑1951, out of which the transaction of 100 bales No. 20, Camel brand, Hong Kong, at the rate of Rs. 31‑10 per bundle, and 200 bales No. 10, Double Loin, Hong Kong, at the rate of Rs. 29‑6 per bundle. And your man Zaidi had agreed to give the bill for Camel at Rs. 31‑4 and bill for Double Loin 29, and he said that he would take separately at the rate of six annas per bundle on the total of 300 bales, totalling to Rs. 4,500. We are prepared to pay the said rupees to you. So out of 300 bales, 100 bales have been delivered and please deliver the balance of 200 bales, and give delivery soon. We hope so. That is all.
(Sd.) (In Gujarati) Hussain ".
A perusal of this letter clearly shows that the plaintiff had agreed to pay six annas per bundle on 300 bales secretly to the defendants' employee and thereby caused loss to the defendant company and gained an undue advantage over them. The arrangement entered into between the plaintiff and the defendants' employee support the defendants' contention and cannot be described as anything else but a fraud played by the plaintiff on the defendant company. It was, however, urged by Mr. Hafiz Ahsan, the learned counsel for the plaintiff, that this letter was written under coercion as the plaintiff had a large amount lying with the defendant company and wrote letter Exh. 8/31 under pressure. Except the bare statement of the plaintiff this allegation is not supported by any other circumstance on the record. The letter dated 27th October, 1951, speaks for itself. It does not at all show that it was written under any pressure or coercion. It shows that the plaintiff disclosed the private arrangement between him and the defendants' employee with the object of persuading the defendant to perform the rest of the contract Towards this end he also sent a cheque of Rs. 4,500 along with the said letter.
The Managing Director of the defendant company Mr. Latif (Exh. 12) was also examined on oath. He has flatly denied the alleged pressure on the plaintiff and stated that the letter Ex. 8/31 was received by the defendants after he had instructed his Manager Muhammad Sharif, who had scented the mischief, not to make delivery of the remaining goods to the plaintiff. On the evidence led in this case, I am satisfied that no undue pressure or coercion or duress was exercised by the defendants.
About this time Mr. Latif, the Managing Director of the defendants, met with an accident and was lying ill in the hospital and had no knowledge of the transaction in dispute. The plaintiff wrote this letter out of his own free will to show his bona fides and his admission that he agreed to pay six annas per bundle to the employee of the defendant company secretly, in my opinion, makes this contract fraudulent. Such a contract in law cannot be accepted as binding on the parties and the party affected is entitled to repudiate it. There is ample evidence on the record to show that in the first instance the defendant repudiated the contract on 5th November, 1951, and formally on 19‑10‑1951, repudiated it through his counsel.
It was hotly contested by Mr. Hafiz Ahsan that the arrangement in question cannot be considered as a fraud played by the plaintiff on the defendant company. According to him if the plaintiff wanted to play fraud on the defendants he would not have admitted it in his letter Exh. 8/31. There is no force in this contention. The letter on this point is absolutely clear. The learned counsel for the defendants has placed before me three decisions of the Indian Courts on this aspect of the question. In Indra Nath Banerjee v. Rooke (I L R 37 Cal. 81) a person obtained a lease deed from the owner of the property and paid a sum of Rs. 500 as bribe or secret commission to his servant for the services rendered by him in making arrangement for the execution of the lease. It was held that
"payment in question bad a corrupt taint and that the under standing, express or tacit, which existed in regard to it during the negotiations, placed Bejoy in a position in which his personal interests conflicted with his duty to his employer. A bribe is nevertheless a bribe, because its payment is postponed and the expectation of a bribe or reward from the appellant gave Bejoy a motive or incentive for acting contrary to his duty."
The learned Judges of the Calcutta High Court treated such payment as amounting to fraud. The other two decisions are not relevant to this case.
To a similar effect are the observations made in two English cases : Harrington v. The Victoria Graving Dock Company ((1878) L R 3 Q B D 549) and Shipway v. Broadwood ((1899) 1 Q B D 369). It appears to me that when al bribe or secret commission is given or a promise to pay it is made to an agent of an employer by a person who has entered into a contract for sale or purchase of property in order to induce the agent to act otherwise than with loyalty and fidelity' to his employer, such a contract being based on fraud is void and not enforceable in law.
On this view of the matter I find no force in the plaintiff's case that the defendants committed the breach of the contract in respect of the sale of 200 bales of Double Loin brand cotton yarn. The defendants were perfectly justified to repudiate such a contract. As the contract was obtained by fraud with the connivance of the plaintiff and the employee of the defendant company, it cannot be enforced. I therefore reject the plaintiff's claim for damages and hold that in law he is not entitled to any damages.
Issue No. 2.‑It was next urged on behalf of the plaintiff that the defendants had already received the price of 10.J bales of Camel brand cotton yarn and they are not entitled to deduct any further amount towards the price of the said goods. This contention is not well‑founded. It seems to me that when a contract is found to be based on fraud, it becomes a voidable transaction and the affected party can repudiate it. The result B of repudiation is that the aggrieved party will be restored to the original position and the party at fault can be compelled either to return the property or to compensate the aggrieved party. In this case the defendant company repudiated the contract on 5th November, 1951, and on account of this the contract as a whole became void. The fact that the plaintiff paid the price of the goods and obtained the delivery of the goods will not make such a contract valid. It does not amount to estoppel in law. The defendant company received the payment of the price and c delivered the goods in ignorance of the secret arrangement entered into between the plaintiff and their employee. I therefore decide this issue against the plaintiff.
Issue No. 3.‑The plaintiff has claimed the refund of Rs. 36,C00 deducted by the defendant company towards the price of 100 bales of Camel brand cotton yarn at the rate of Rs. 39‑8. But it is agreed between the counsel of the parties that the defendant company has only deducted Rs. 33,000. The evidence in this case shows that the plaintiff sold Camel brand goods purchased by him between 11th October, 1951, and 15th October, 1951. In these circumstances it was not possible for the defendant company to file a suit for the restoration of the goods. In law they are only entitled to claim compensation. Mr. Hafiz Ahsan, the learned counsel for the plaintiff has however contended that the defendant company cannot claim compensation at the market rate prevalent on 19th November, 1951. There is much substance in this contention. In law the defendant company is only entitled to get the same benefit which [D the plaintiff enjoyed from the sale of the goods in dispute. They evidence in this case proves that the plaintiff out of the said goods sold 36 bales to Ahmed Commercial Corporation at the rate of Rs: 32‑7 and received a total sum of Rs. 46,890 vide Exh. 8/2. They further sold a lot of 25 bales on 11th October, 1951, to Abdul Rehman‑Abdul Ghani, Karachi at the rate of Rs. 32‑10 per bundle vide Exh. 8/3 and received a total sum of Rs. 32,625. 10 bales were sold on 11th October, 1951, vide Exh. 8/4 to Rehmania Trading Company at the rate of Rs. 32‑11 for a sum of Rs. 13,075. 25 bales were sold to Noor Ally Company on 15th October, 1951, at the rate of Rs. 32‑4 vide Exh. 8/5 for a sum of Rs. 32,250. There is no proof about the sale of the balance of 4 bales, but I will calculate its price at the maximum market rate prevalent between 11th October and 15th October namely Rs. 32‑10. Thus the evidence proves beyond doubt that the plaintiff in this way earned a profit of Rs. 5,425. There is no other evidence on the record to establish that the plaintiff has earned any other profit on the above‑mentioned transaction. I am therefore of the opinion that the defendants are not entitled to claim more than Rs. 5,425 in this respect from the plaintiff. Under the circumstances the defendants are entitled to deduct the said amount from the money of the plaintiff lying with them. After deducting this amount a sum of Rs. 27,575 remains as balance due to the plaintiff with the defendants, which they are not justified in retaining with them and the plaintiff can legitimately claim its refund.
Issue No. 4.‑As stated above, the plaintiff is entitled to the refund of Rs. 27,575.
Issue No. 5.‑The plaintiff is not entitled to claim any damages from the defendant company as the contract entered into by him has been found to be fraudulent and not enforceable in law.
Issue No. 6.‑The plaintiff has not proved that he gave any notice for the payment of interest to the defendants. I therefore disallow this claim.
Issue No. 7.‑For the reasons given above I grant the plaintiff a decree for Rs. 27,575 with interest at 6% per annum from the date of the suit till its realization. In the circumstances of the present case the parties are left to bear their own costs.
K. M. A.
Suit decreed.