2003 JTR(SC) 624
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2003(5) Supreme 55
SUPREME COURT OF INDIA
(From Kerala High Court)
V.N. Khare, CJI., Brijesh Kumar & S.B. Sinha, JJ.
A. Mohammed Basheer -Appellant
versus
State of Kerala & Ors. -Respondents
Civil Appeal No. 3948 of 1994
Decided on 17-7-2003
Counsel for the Parties :
For the Appellant : Ms. Malini Poduval, Advocate.
For the Respondent No. 2 : Ms. Karthika Sukumaran, N.R. Shonker and N. Sudhakaran, Advocates.
For the State : K.R. Sasiprabhu, Advocate (N.P.).
Act Referred :CONTRACT ACT : S.79
(A) The Contract Act, Section 79, which excuses performance of a contract due to impossibility or illegality, was engaged in this case where a public auction bid for forest produce was accepted, but a subsequent fire destroyed the subject matter before execution of the agreement, rendering performance impossible. The sections principle that a party is not liable for non-performance of a contract when the subject matter is destroyed by vismajor directly informed the courts analysis of whether a binding contract had arisen or whether damages were payable.
(B) A partys bid at a public auction does not, in itself, create a binding contract; a valid contract arises only upon confirmation and acceptance by the auction authority. Where the subject matter of the auction is destroyed by fire before such confirmation and the bidder seeks reduction or cancellation, Section 79 applies to discharge the bidder from performance. Quantification of damages for breach of a notyetformed contract is not permissible, and the matter must be decided by the competent authority in accordance with relevant rules.
Facts of the case:
The Forest Department auctioned the right to collect residual tree growth and firewood in a specified coupe. The appellant bid and offered a sum, but before confirmation a fire destroyed the forest produce. The appellant requested cancellation or reduction of the bid, but the authority confirmed the bid and directed deposit of the amount and execution of an agreement. On nondeposit, the authority reauctioned the residue at a lower sum and sought the shortfall as damages. The appellant approached the High Court under Article 226.
Findings of Court:
The High Courts earlier decision in Abdul Rahiman was distinguished on the ground that there the breach of contract was admitted and the claim was for recovery of an amount due under an existing contract. Here, no concluded contract existed, and the matter fell within Section 79 on impossibility of performance due to fire. The appellants request for reduction or cancellation was thus tenable, and the quantification of damages was not applicable.
Issues:
Whether a bid at a public auction, not yet confirmed, gives rise to a contract when the subject matter is destroyed by fire; whether Section 79 of the Contract Act applies to discharge the bidder; whether damages can be claimed for a breach of a notyetformed contract.
Ratio Decidendi:
A bid at a public auction is not a contract; where the subject matter is destroyed by vismajor before confirmation, Section 79 of the Contract Act discharges the bidder from performance, and no damages lie for a breach that never materialized.
Result:
The appeal is allowed, the judgment under challenge is set aside, and no costs are ordered.
(A) The Contract Act, Section 79, which excuses performance of a contract due to impossibility or illegality, was engaged in this case where a public auction bid for forest produce was accepted, but a subsequent fire destroyed the subject matter before execution of the agreement, rendering performance impossible. The sections principle that a party is not liable for non-performance of a contract when the subject matter is destroyed by vismajor directly informed the courts analysis of whether a binding contract had arisen or whether damages were payable.
(B) A partys bid at a public auction does not, in itself, create a binding contract; a valid contract arises only upon confirmation and acceptance by the auction authority. Where the subject matter of the auction is destroyed by fire before such confirmation and the bidder seeks reduction or cancellation, Section 79 applies to discharge the bidder from performance. Quantification of damages for breach of a notyetformed contract is not permissible, and the matter must be decided by the competent authority in accordance with relevant rules.
Facts of the case:
The Forest Department auctioned the right to collect residual tree growth and firewood in a specified coupe. The appellant bid and offered a sum, but before confirmation a fire destroyed the forest produce. The appellant requested cancellation or reduction of the bid, but the authority confirmed the bid and directed deposit of the amount and execution of an agreement. On nondeposit, the authority reauctioned the residue at a lower sum and sought the shortfall as damages. The appellant approached the High Court under Article 226.
Findings of Court:
The High Courts earlier decision in Abdul Rahiman was distinguished on the ground that there the breach of contract was admitted and the claim was for recovery of an amount due under an existing contract. Here, no concluded contract existed, and the matter fell within Section 79 on impossibility of performance due to fire. The appellants request for reduction or cancellation was thus tenable, and the quantification of damages was not applicable.
Issues:
Whether a bid at a public auction, not yet confirmed, gives rise to a contract when the subject matter is destroyed by fire; whether Section 79 of the Contract Act applies to discharge the bidder; whether damages can be claimed for a breach of a notyetformed contract.
Ratio Decidendi:
A bid at a public auction is not a contract; where the subject matter is destroyed by vismajor before confirmation, Section 79 of the Contract Act discharges the bidder from performance, and no damages lie for a breach that never materialized.
Result:
The appeal is allowed, the judgment under challenge is set aside, and no costs are ordered.
ORDER
The Forest Department in the State of Kerala decided to auction the right to collect and remove the residual of the tree growth and fire wood in sub-coupe No. 9 in Coupe No. 3, Pathanamthitta Range by means of public auction and the auction was fixed on 8th February, 1979. On that day, the appellant offered a bid for a sum of Rs. 3,00,100/-. Before the bid was confirmed, it is alleged that a fire had broken out in the forest, with the result the residual tree growth and fire wood was destroyed. The appellant herein wrote a letter to the respondents demanding reduction in the money offered by him. Despite that letter, the Managing Director confirmed the bid of the appellant and called upon him to produce the stamp paper for executing the necessary agreement and further to deposit Rs. 3,00,100/- over and above the deposit already made by the appellant. Since the appellant did not deposit the money as directed by the Managing Director, the respondent re-auctioned the remaining residual tree growth and fire wood for a sum of Rs. 2,00,400/-. Since there was a shortfall of Rs. 1,21,439/- the Managing Director wrote to the appellant to deposit the said amount by way of damages. It is under such circumstances, the appellant filed a petition under Article 226 of the Constitution before the Kerala High Court.
2. The Kerala High Court in view of its Full Bench decision in the case of Abdul Rahiman vs. Divisional Forest Officer, reported in 1988(2) K.L.T. 290, dismissed the writ petition. It is against the said judgment of the High Court, the appellant is in appeal before us.
3. Ms. Malini Poduval, learned counsel urged that the view taken by the High Court that the matter is covered by a Full Bench decision of the Kerala High Court is erroneous. She urged that the said decision is distinguishable and has no bearing in the present case.
4. We find substance in the argument. In the present case we find that there was only a bid for removal of residual tree growth and fire wood, a substantial part of which was destroyed in fire. It is under such circumstances, the appellant wrote to the Divisional Forest Officer for cancellation of his bid or reduction of the bid amount. In the case of Abdul Rahiman s case (supra) the breach of contract stood admitted. In Abdul Rahiman (supra), the Full Bench referred to an earlier decision reported in 1980 K.L.T. 850 and distinguished the same on the ground that what was sought to be recovered therein was not an amount due on account of or in respect of timber under any contract thereof and, thus, Section 79 could not be invoked. The case of the appellant, however, appears to be squarely covered by the decision of the Kerala High Court reported in 1980 K.L.T. 850.
5. It is trite that the question as to whether there is a breach of terms of the notice inviting tender or not should be adjudicated by an authority declared to be competent therefor. In a case where there is a dispute as to whether a damage has occurred, a finding of fact in that behalf must be arrived at by the competent authority, whereafter the amount of damages should be quantified. Such quantification of damages must also be in consonance with the terms of the relevant rules.
6. As indicated hereinbefore, the appellant herein sought reduction in money offered by him as a result of a subsequent event which was a vis-major . No concluded contract, thus, could come into effect and under such circumstances, the question of realisation of shortfall in the form of damages does not arise.
7. In that view of the matter, the appeal deserves to be allowed. We, therefore, allow the writ petition and set aside the judgment and order under challenge.
8. The appeal is allowed. There shall be no order as to costs.
Appeal allowed.
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Parallel Citations of other Journals :
A. Mohammed Basheer v. State of Kerala, 2003(5) Supreme 55 : (2003) 6 SCC 159 : 2003(6) JT 318 : 2003(8) SBR 9.
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