OR.ATTAEN' J.—Jafferjee v. Subbiah Pillai,
1953Present: Gratiaen J. and Gunasekara J.
A. A. JABBER JEE ei al., Appellants, and P. R. SUBBIAHPILLAI et al., Respondents
S. C. 319—D. C. Colombo, 17,563
Contract—Sale of goods— Executory contract—Price in excess of statutorymaximum—Illegality—Refund of part payment of price.
Where, in a contract for sale of goods, the price agreed upon exceeded thestatutory maximum permitted by a Price Control Order which was in operationat the time when the contract was entered into—
Held, (i) that the contract was contrary to public policy and, therefore, void.The supervening circumstance that the control was lifted, and the price chargedbecame legal, during what remained of the period fixed for delivery of the goodscould not have the effect of removing the taint of illegality which vitiated thecontract at its very inception.
(ii) that the defaulting seller could not, in the circumstances of the case,be ordered to refund any payment made to him under the illegal contract.
A w .
iAPPEAL from a judgment of the District Court, Colombo.
N. E. Weerasooria, Q.G., with V. A. Kandiah, W. D. Ounasekera andIvan Perera, for the defendants appellants.
H. V. Perera, Q.C., with H. W. Tambiah, C. Renganaihan, and V.Arulambalam, for the plaintiffs respondents.
Cur. adv. vult.
March 25, 1953. Gratiaen J..—
The plaintiffs who are a firm of dealers in Colombo sued the defendantsin this action for the recovery of an aggregate sum of Rs. 38,500 alleged tobe due to them for failure to deliver certain goods in terms of two separatecontracts.-
As to the first cause of action, they pleaded that the defendants had on31st October, 1946, agreed to sell to them 500 bags (each containing 2 cwt.)of graiif known as “ vallai chelam ” or “ juwari ” at Rs. 31 per cwt. to bedelivered in Colombo on or before 30th November, 1946 ; that theyhad paid to the defendants a sum of Rs. 1,000 in part payment of the pur-chase price ; but that the defendants had failed to deliver any part of thegoods within the stipulated period.
As to the second cause of action, they pleaded that the defendants hadon 2nd November, 1946, agreed to sell to them 500 bags (each containing
2J. N. B 27310—1,592 (6/53)
GJtATIAEN J.—Jafferjee v. Stibbiah Filial
200 lb.) of “ kambu arisi ” or “ bajiri ” at Its. 35 per bag to be deliveredto them in Colombo on or before 30th. November, 1946 ; that they had paidto the defendants a sum of Its. 5,000 in part-payment of the purchase price ;but that on this occasion too the defendants had failed to deliver any partof the goods within the stipulated period. The defendants admitted thatthey had contracted to sell 500 bags of “ juwari ” and 500 bags of “ bajiri ”to the plaintiffs, that the contract price of the consignment of “ juwari ”was Rs. 31 per cwt. and that they had received Rs. 1,000 and Rs. 5,000respectively as advances against these transactions. They fixed the dateof each contract, however, at 1st November, 1946, and the contract pricefor the consignment of “ bajiri ” at Rs. 43 per cwt.; they also alleged thatthe date fixed for delivery in each case was not “on or before 30thNovember, 1946 ” but “ against November/December shipment ”. Theycounterclaimed a sum of Rs. 15,096 • 69 as damages on the ground that theplaintiffs had refused to accept the goods which were duly tendered tothem on their arrival in Colombo in January and ^February, 1947,respectively.
The parties had not taken the elementary precaution of having theterms of either contract reduced to writing, and each side in turn allegedthat the other had deliberately presented a false version of the facts withthe aid of documents fabricated for the purpose. The manner in which thelitigation developed at the trial left no room for a decision that therepossibly might have been a genuine misunderstanding as to the terms ofeither transaction in respect of date, price or the time for performance. Atthe close of the evidence, senior Counsel for the parties each addressedthe Court for three days, during which period, I have no doubt, all the oraland documentary evidence was subjected to the most detailed scrutiny.Twelve days later the learned District Judge pronounced judgmentaccepting the plaintiffs’ version, and holding that the defendantswere the defaulting parties in respect of each contract. "With regard to thefirst cause of action, he awarded the plaintiffs a sum of Rs. 2,000 asdamages and also ordered the defendants to repay the sum of Rs. 1,000advanced to them. With regard to the second, he awarded Rs. 27,500as damages and ordered the return of the advance of Rs. 5,000. Thepresent appeal is from this judgment. Mr. Weerasuriya does not complainthat, if his clients were liable on either cause of action, the quantumof damages was excessive.
We ourselves have had the advantage of a critical analysis of theevidence led at the trial. Mr. Weerasuriya submitted inter alia that thelearned Judge was in error in that, more particularly in respect of the“ bajiri ” contract, he had (a) declined to give consideration to tihe rele-vancy of certain admissible evidence which the defendants had led insupport of their case, (b) ruled out other items of evidence which wererelevant and which, if admitted, might well have turned the scalesagainst the plaintiffs, and (c) failed to take into account certain othermatters which vitally affected the credibility of the 4th plaintiff. Mr.Weerasuriya also argued, as a matter of law, that the transactionin respect of the consignment of “ bajiri ” was in any event anillegal contract which was ab initio void and unenforceable.
GRATIAEN" J.—Jofferjee v. Subbiah PiUai
It will be convenient if I first dispose of the “ bajiri ” contract. I havearrived at the conclusion that, whichever version of the transaction betaken as true, the contract between the parties was unenforceable. Thefollowing additional issues were framed in the course of the trial :—
22a. Is the alleged contract price referred to in issue 6 in excess of the“ control price ” of “ bajiri ” at the relevant date %
22b. If so, is the alleged contract in issue 5 contrary to public policyand/or illegal and therefore void ?
23. If issue 22 is answered in the affirmative, can the plaintiffs have andmaintain their claim for damages even if issues 5 and 6 areanswered in the plaintiffs’ favour ?
It is common ground that the learned Judge correctly answered issue 22 ain the affirmative. In my opinion he should, on the basis of that finding,have answered issue 22b in the affirmative and issue 23 in the negative.For the same reasons, the defendants’ claim in reconvention in respect ofthe “ bajiri ” contract should also have been dismissed ex me.ro motu bythe learned Judge.
The facts relating to these three issues are beyond controversy. Atthe time when the contract was entered into, there was in operation astatutory order, made by the Controller of Prices under section 3 of theControl of Prices Ordinance, 3STo. 39 of 1939, as amended by Defence(Control of Prices, Supplementary Provisions No. 2) Regulations, fixingRs. 32 ■ 50 per bag of 200 lb. as the maximum wholesale price beyond which“ bajiri ” could not be sold within the Municipal limits of the town ofColombo. On either the plaintiffs’ or the defendants’ version, therefore,the contract price, which was admittedly a wholesale price, exceeded thisstatutory maximum. The 4th plaintiff, who had negotiated the transactionon behalf of the partnership and was well aware of this circumstance,explained that his firm’s intention was to buy “ wholesale ” in order to sellthe goods at the ruling retail rate of 36 cts. a measure in order to make asmall profit and also, in view of the prevailing scarcity of “ bajiri ”in the local market, to attract custom generally to their business.
The Price Control Order in question (P66) came into operation on7th July, 1943, and remained continuously in force until 13th November,1946, when the control was lifted altogether. It is true that, after thatdate, and during what remained of the period fixed for delivery by thesellers, there was no longer any legal objection to a sale of “ bajiri ” atthe original contract price. The question is whether this superveningeircunistance had the effect of removing the taint of illegality whichvitiated the contract at its very inception."
The learned District Judge took the view that, as the Control of PricesOrdinance directly penalised only a seller, but not a purchaser, in a trans-action where the contract price exceeds the controlled price, “ the plain-tiffs could insist on specific performance of the contract and the defendantsare liable for breach of contract ”. Mr. H. V. Perera did not associatehimself with this line of reasoning, and, with respect, it is unsound.
GRATIAEN J.—Jafferjee v. Subbiah Pillai
Even though the Ordinance does not in terms prohibit contracts for saleat prices exceeding the controlled price, it authorises the Controller tomake statutory orders from time to time fixing the maximum permissibleprice for any particular commodity “ if it appears to (him) that thereis, or is likely to arise, in any part of Ceylon, any shortage of (that) articleor any unreasonable increase in (its) price Sec. 5 prescribes the punish-ment for a contravention of such an order. The object ot the legislatureis clearly to protect the public from the sinister activities of dealers inessential commodities which are in short supply, and, by imposing apenalty on the seller, it prohibits by implication all contracts which aredesigned to contravene the statute. A dealer who enters-into a contractto sell controlled commodities at a prohibited price undertakes, in effect,to commit a criminal offence, and the purchaser cannot seek the assistanceof the law for the enforcement of a bargain of that kind. The decisionin Hull Blythe & Co. v. Valliappa Chetty 1 is distinguishable because itwas based on the interpretation of an Ordinance which was designed, inthe opinion of the Court, to achieve a different object.
Mr. H. V. Perera based his argument on the ratio decidendi of Mischeffv. Springett 2. In that case, A had agreed to sell to B, for delivery ata future date, a quantity of sardines at an agreed price. Before the timefor performance had arrived, however, legislation had been introducedprohibiting the sale of sardines at a price exceeding that prescribed by astatutory order. In the result, the original contract price exceeded thecontrolled price. The Court held that A, by implementing his earliercontract, was guilty of an offence. Although the agreement was perfectlylegitimate at the time when it was entered into, the performance of theseller’s obligation after the statutory order came into force contravenedthe statute. This decision is based on the well-recognised doctrine that“ if the subject matter of a contract is in commercio at the time when theagreement is concluded, but ceases to be in commercio before the contractis carried out, then the contract has no binding force ”. Wessels onContract, Vol. 1, para 682, citing Justinian 3.19.2.
We are here concerned with the converse case, and Mr. Perera arguedthat, by parity of reasoning, the contract being for the sale ofunascertained goods, there was no concluded sale until the goods wereappropriated to the contract, i.e., in this instance, until the time camefor delivery to the buyer. He conceded that the defendants could not havelawfully fulfilled their contractual obligation before November13th, but pointed out that there still remained 17 days within whichdelivery could ha ve been effected without contravening the law.
I confess that I was much attracted by the argument that, in thecase of a forward contract, the proper time for testing the legality of thetransaction is the date fixed for performance, i.e., when the agreement“ matures into a sale Since we reserved judgment, however, I find thatthe Court of Appeal in England pronounced judgment in a case whichin all essentials corresponds precisely to that which now arises for ourdecision—David Taylor and Sons Ltd. v. Barnett Trading Company(The “ Times ” Newspaper of 5.3.53).
(1937) 39 N. L. B. 97.
(1942) 2 K. B. 331.
'GRATIA-EN' J.—Jafferjee v. Subbiah Pillai
Tn Taylor’s case (supra) the defendants had agreed on 27th February,1952, to sell to the plaintiffs 10,000 eases of Irish stewed steak at a priceof 2s. 5d. a pound, delivery April, May, June, July, 1952. At the dateof the contract the sale of goods of this description was subject to controlunder statutory regulations and the contract price in fact exceeded thecontrolled price. Two months later, however, the regulations werealtered, and a higher maximum price was sanctioned, so that the originalcontract price was no longer prohibited. The defendants refused todeliver the goods in terms of the contract, and the plaintiffs claimeddamages. Goddard X.C.J. had ruled at the trial that the contract wasnot illegal, but Singleton L.J. held in appeal (Denning X. J. and HodsonX.J. agreeing) that “ the contract at the date when it was made was illegal,and the fact that the price charged had become legal by the date of deliverydid not affect the matter ”. The full report of the judgment is unfortunatelynot yet available to us.
The test of legality laid down by Singleton X.J. is certainly inaccordance with the principles of Roman-Dutch law which, in thisrespect, governs all contracts including those for the sale of goods.Wessels (Vol. 1, para 683) declares that if a contract was illegal whenentered into, it remains illegal, and even though a new law should makesuch contracts legal, no action could be brought on it. He cites asauthority for this proposition the rule laid down in the Digest (50.17.29)“ quod initio vitiosum est non potest tractu temporis convalescere ” whichmeans that “ what is bad from its inception cannot be cured by passageof time Certain earlier English decisions indicate that the law inEngland is identical. “ No contract ”, said Xord Ellenborough inAtkinson v. Ritchie 1, “ can properly be carried into effect which wasoriginally contrary to the provisions of law, or which, being madeconsistently with the rules of law, has become illegal in virtue of somesubsequent law ”, In other words an unconditional executory contractis not enforceable unless the act to be performed would have been legalnot only at the date of the contract but also at the date fixed forperformance.
It was contended on behalf of the plaintiffs that the present case can inany event be distinguished because, at the time when the contract was made,it was well-known in the trade that price control in respect of “ bajiri ”would shortly be lifted. I do not think that, in principle, this circum-stance concludes the argument. It is true that the Director of Food Sup-plies, who gave evidence at the trial, stated that he had informed a numberof traders about the end of October, 1946, of his decision to recommendto the Controller of Prices the revocation of the ruling price fixed by theearliei*6r<22ette notification P66. His intention in releasing this informa-tion was, apparently, to persuade dealers to bring back into the marketlarge quantities of “ bajiri ” which, in his belief, had been taken under-ground owing to dissatisfaction over the terms of the price order. Butthe Director admitted that the ultimate decision rested not with him butwith the Controller of Prices, and there was no guarantee that hisrecommendation would be adopted.
.1 10 East 330 ( = 103 E. R. 877).
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GRATIAEaST J.—Jafferjee v. Subbiah Pillcti
In any event, tlie present contract is unambiguously a contract wherebythe sellers undertook to do something which contravened the law obtaining•at the time when they made their bargain. Pollock on Contracts (10thffSdn.) p. 314 points out that the conflicting judgments in Mayor of Nor-wich v. Norfolk Railway Company1 “ gives this practical warning thatwhenever it is desired to contract for the doing of something which is notcertainly lawful at the time, or the lawfulness of which depends on someevent not within the control of the parties, the terms of the contract shouldmake it clear that the thing is not to be done unless it becomes or is ascertainedto be lawful ”.
The plaintiffs do not allege that the present contract was intended to beconditional upon the anticipated adoption by the Controller of Prices ofthe rumoured recommendation of the Director of Pood Supplies. On the•contrary the 4th plaintiff does not even claim to have shared the 1st■defendant’s knowledge that such a recommendation had in fact been made.Indeed, as I have already pointed out, he admitted in re-examination,after the issue of illegality had expressly been raised, that he contracted,for the purposes of his retail business, to buy the goods at a wholesaleprice which exceeded the statutory rate.“ People in general must always
he considered as contracting with reference to the laws as existing at thetime of the contract, and the words showing a contrary intention ought to beperfectly clear to rebut that presumption.”—Bailey v. de Crespigny 2.There is nothing in the pleadings or in the evidence of the 4th plaintiffwhich rebuts this presumption.
It is interesting to note that in Taylor’s case (supra) the plaintiffs hadalso argued, but without success, that the contract was not illegal becausethe parties knew that the ruling price order would shortly be varied. Thetrue principle, I think, is laid down in Mahmoud v. Ispahani 3. Where acontract is ab initio illegal, there is no room for applying the rulethat where a contract can be performed either in a lawful or in an unlaw-ful manner, a party cannot avoid his obligations by seeking to adopt thelatter alternative.
Mr. Perera suggested at one stage of his argument that, even if the ori-ginal contract was illegal, the defendants had, according to the evidenceof the 4th plaintiff, repeated their undertaking at the end of November,1946—i.e., after the control had lifted—to deliver the “ bajiri ” two weekslater. He submitted that the acceptance of this offer constituted a fresh■contract, not tainted with illegality, which could be enforced against the■defendants. When it was pointed out, however, that no such substituted•contract was either pleaded or suggested in the form of an issue,Mr. Perera very properly abandoned thisline ofargument. Indeed, h think•that the 4th plaintiff’s evidence, even if true, does not go beyond suggestingthat the defendants had merely asked for and obtained an extension oftime within which to implement the original undertaking which they had•already broken.
1 4 E. dk B. 397 (= 119 E. R. 143).2 (1869) L. R. 4 Q. B. 180.
(1921) 2 K. B. 731.
GRATIAEN J.—Jajferjee v. Subbiah Pillai
1 For the reasons which I have given, I am satisfied that, whicheverversion of the “ bajiri ” contract be true, neither the defendants nor theplaintiffs can invoke the assistance of the Court to enforce a bargain whichwas ab initio tainted with illegality. It is therefore unnecessary to con-sider whether the learned Judge’s findings of fact in respect of the “ bajiri”contract should be disturbed. The plaintiffs’ claim and the defendants’claim in reconvention on their respective second causes of action must"therefore both be dismissed.
This is not a case in which the plaintiffs can properly claim even a decreefor the refund of the sum of Us. 5,000 paid by them in part-payment of thecontract price under the illegal contract. The general rule in pari delictopotior est conditio defendentis must be applied, and justice does not requirethat, in the circumstances of this case, the Court should assist a party torecover what he has voluntarily paid in terms of an illegal contract whichhe has subsequently sought so strenuously to enforce. Both parties to thetransaction were dealers in the controlled commodity, and were equallyaware of the price control order P66 at the time of their bargain. Themoney was paid for what the law regards as a “ dishonourable purpose ”.The Roman-Dutch law recognises that the general rule may be relaxedonly in exceptional cases, “ where it is necessary to prevent injustice orto promote public policy ”— Jajbhay v. Cassim x. To grant relief toeither party in this case would, I fancy, achieve just the oppositeresult.
There remains for consideration the judgment in favour of the plaintiffsin respect of the “ juwari ” contract which was not affected by illegality.I find it quite impossible to say that the learned Judge’s finding of facton that issue should be disturbed. The only substantial controversywith regard to this particular transaction relates to the time fixed fordelivery, and to a lesser degree, the date of the contract. The learned"trial Judge had the advantage, which we lack, of having seen and heard"the witnesses, and most of Mr. Weerasuriya’s criticisms of the judgment"touchedupon issues which directly affected only the terms of the “ bajiri ”contract. The judgment under appeal in respect of the plaintiffs’ firstcause of action must therefore be affirmed. •
In the result, I would substitute for the decree passed by the learnedJudge a decree ordering the defendants to pay to the plaintiffs a sum ofRs. 3,000 together with (a) legal interest thereon from the date of theinstitution of the action until payment in full, and (6) costs in the Courtbelow, to be taxed on the basis that the action was instituted for the re-covery of Rs. 3,000 only. The defendants have substantially succeededin this Court, and are therefore entitled to their costs of appeal.
‘Gbhasekaba J.—I agree.
Appeal partly allowed.
(1939) S. A. A. D. 537.
A. A. JAFFERJEE et al , Appellant , and P. R. SUBBIAH PILLAI et al , Respondents
OR.ATTAEN' J.—Jafferjee v. Subbiah Pillai,