Damages-Sale 0./ 'goods-Failure to deliver goods 0/ merchantable quality-
Measure 0/ damages-Loss of profit-No available market-Contract for
resale as evidence of loss

Sale of Goods-Merchantable quality-Failure to deliver cotton of certain grade

. 1. Where a dealer in unginned cotton had a contract to purchase 100
kantars from one party at .£ E.20 per kantar, and subsequently contracted
to sell 100 kantars to another party at £E.28 per kantar, the failure of th~
first party to deliver cotton of merchantable quality, and his refusal to al-
low inspection of the' cotton before delivery, entitled the dealer to reject
the cotton which was tendered, and entitled the dealer to the return of
his earnest money plus a reasonable sum for loss of profits. Since the first
party did not know of the dealer's contract with the second party, and
could not have anticipated such an unusual profit as £E.8 per kantar, the
lower damages were approved by the appellate court.

2. Where a dealer has an obligation to supply 100 kantars of cotton, he
'is not required, in mitigation of losses of his supplier who has failed to
make a delivery as agreed, to avail himself of an opportunity to purchase
only 20 kantars in the market as that would not satisfy his obligation,

Hadley v. Baxendale (1854) 9 Ex.D. 341 followed.

ThaI v. Henderson (1881) 8 Q.B.D. 457 approved.

Grebert-Borgnis v. Nugent (1885) 15 Q.B.D. 85 approved.

English Sale of Goods Act 1893, SS. 51, 54.

• Court: Dun C.J., Peacock anti Williamson n.

. Appeal

Dun C.J.: By an agreement dated February, 12, 1920, the de-
fendant agreed to sell to the plaintiff 100 kantars of 315 retls each of
Sakellaridis cotton in sacks to be delivered at Juba railway station dur-
ing June orJuly 1920 at £E.20 per kantar and the plaintiff paid to the
defendant £E.500 as earnest money.

On February 27, 1920, the plaintiff sold to the Societe Commer-
dale Arabe of Cairo 100 kantars of 315 rotls each of Sakellaridis cotton
to be delivered at Juba Station during June and July 1920 at £E.28
per kantar.

On July 14, 1920, the defendant tendered to the plaintiff a quan- .
tity of cotton at Juba Station in alleged performance of his contract
with the plaintiff, but the plaintiff refused to accept delivery on the
ground that the cotton was not Sakellaridis cotton of merchantable
quality, that it was unduly wet and that the defendant's representative
refused to allow the plaintiff and his friends to make a sufficient inspec-

  tion of the cotton.                                                                .

. . It has been assumed on both sides that the cotton intended by the
parties was unginned cotton and that the cotton intended to be sold by
. the plaintiff to the Societe· Commerciale Arabe was also unginned
Cotton.

It is admitted that the price of cotton had fallen so much between
February and July that the Societe Commerciale Arabe did not press
for performance by the plaintiff of his contract to sell to them 100
kantars of Sakellaridis cotton.

It is not alleged that the plaintiff at any time before the tender. of
the cotton informed the defendant of the existence of any sale by the
plaintiff of the cotton agreed to be sold by the defendant, but it is clear
that the cotton was bought for the purpose of a resale at a profit, and
whether the -defendant realised this or not it is obvious that he would
have realised it if he had given the matter a moment's thought.

Ia this state of facts the plaintiff instituted this action to recover
the £E.SOO earnest money and interest and £E.800 damages for the
fiUlure to deliver cotton in accordance with the contract.

With the consent of the parties the learned judge of the . High
Court submitted samples of the cotton tendered by the defendant to
Mr. Hewison, Director of Agriculture, who reported that if tho. bulk

was similar to the samples it would not answer the description ''fully
and fair" Sakellaridis.

The judge of the High Court held that the defendant did nof de-
liver cotton in accordance with the contract; he found also that at the
time of the tender of the cotton there was no-available market in which
the plaintiff could have bought 100 kantars of unginned Sakellaridis
cotton but he could have bought 20 kantars from Mr. Law at.Juba sta-
tion at the contract price and could have bought 80 kantars of ginned
Sakellaridis cotton at Port Sudan for £E.25 per kantar, and that he
ought to have availed himself of these opportunities of replacing the
cotton which the defendant should have delivered, and gave judgement
for the plaintiff for £E.500 earnest money with interest and for £E.360 .
damages on the basis of £EAlh per kantar on the 80 kantars of ginned
cotton which he might have bought at Port Sudan, allowing PT.50 per
.kantar off the difference between the contract price and the price of the
ginned cotton for the facts that it had already been ginned and was at
Port Sudan ready for shipment.

From this judgement the defendant, appealed and the plaintiff
presented a cross appeal.

The defendant contended before the Court of Appeal that the' cot-
ton tendered by him did in fact answer the description of Sakellaridis .
cotton in the contract.

There are seven grades of Sakellaridis cotton recognised on the
Alexandria market of which' "fully good fair" is the middle grade and
"fair" the lowest and I feel bound to hold that fair Sakellaridis is suf-
ficient to answer the description of Sakellaridis cotton in the contract.

With the consent of the parties the samples have been submitted
to Mr. Hewison and I am satisfied by his answers that the cotton did
not answer the description of "fair Sakellaridis" and I hold that it was
not Sakellaridis cotton of merchantable quality unless it was equal to
"fair Sakellaridis."

I further agree with the learned judge that the refusal of the de-
fendant's representative to allow the opening up of several sacks for in-
spection and the excessive quantity of moisture in the C<}ttOD justified
the plaintiff in refusing to accept the cotton tendered to him by the de-
fendant, therefore the defendant's first contention must be rejected.

The defendant further contended that in any case no damage had
been suffered by the plaintiff because the price had fallen 80 much in

the interval between the date of the contract and the date of tender of
delivery that at the latter date the real value of cotton such as was de-
scribed in the contract did not exceed the contract price and he relied
in support of this contention on the fact that Mr. Law offered to sell to
the plaintiff 20 kantars at the same price a little later: for reasons to be
.stated later I think this contention also must fail.

The plaintiff contended in the Court of Appeal first that having
proved a resale of the subject matter of the contract at an advance of
£E.8 a kantar, and having proved that there was no available market
at the time when the defendant failed to deliver the cotton in which the
plaintiff could buy 100 kantars unginned Sakellaridis cotton to supply
to his sub-purchasers, he was entitled to damages based on the differ-
ence in price between the two contracts, namely £E.800.

In the alternative he contended that the learned judge was wrong
in holding that he ought to have bought 20 kantars of unginned cotton
from Mr. Law at the contract price in mitigation of his loss.

With this latter contention I agree: the tender of 20 kantars to the
Societe Commerciale Arabe would not have satisfied the contract to
deliver 100 and might properly have been refused by those purchasers:
neither do I think that the tender of ginned cotton would have satisfied
that contract which was for unginned cotton.

But I do not agree with the former contention; the principles upon
which damages should be assessed in such cases as these have been laid
down for ever for English lawyers in the case of Hadley v. Baxendale
(1854) 9 Ex. D. 341, and the later cases in which the rule laid down in
that case has been explained or applied, and as I do not consider that I
am qualified to consider what would be the measure of damages under
any other system of law, I intend to seek in the principles of English
law for guidance to a conclusion agreeable with justice equity and good
conscience according to which the courts of the Sudan are directed to
act in cases not otherwise provided for.

In Thol v. Henderson (1881) 8 Q.B.D. 457. Grove J. refused to
accept a subsale at an enhanced price as the measure of damages
where there was no available market in which similar goods could be
bought and defendant had no special knowledge of the subsale, but
only as here a general knowledge that the goods were bought for resale.

In Grebert-Borgnis v. Nugent (1885) 15 Q.B.D. 85 the defend-
ant did in fact know all about the subs ale at the time when he made his

contract and the subsale or rather the damage resulting from the plain-
tiff's failure to perform the contract of subs ale was accepted as to the
measure of the defendant's liability: in this case Brett M.R. (at page
89) referring to cases in which a plaintiff was "seeking to recover for
some liability which he has incurred under a contract made by him
with a third person" said, "If there be no market for the goods, then the
subcontract by the plaintiff, although not brought to the. knowledge of
defendant, the original vendor, may be put in' evidence in order to
show what was the real value of the goods, and so enable the plaintiff
to recover the difference between the contract price and the real value."

In this case it is to be noted that the plaintiff has not incurred any
liability to a third party and the damage which he says he has suffered
is the loss of the profit which he would have made if he had been in a
position to compel his subpurchaser to take delivery of and' pay for the

        cotton the latter had agreed to buy.                                                    .

The damages must be "either such as may fairly and reasonably
.be considered arising naturally, i.e., according to the usual course of
things from such breach of contract itself, or such as may reasonably
be supposed to have been in the contemplation of both parties at the
time they made the contract as the probable result of the breach of it."!

Now' I do not think that this loss of profit can be regarded as aris-
ing naturally from the breach of contract nor as having been in the
contemplation of both parties at the time they made it.

I think it was within the contemplation of the defendant that the
cotton would be sold if possible at a profit, but not at this enormous
profit: a reasonable profit to the plaintiff on the transaction must I think
have been within his contemplation: I estimate such profit at anything
from 15 to 20%; I find that the damages given in the High Court work
out at 18% and I consider this-is fair and therefore although I arrive at
same result by a different course of reasoning I think the judgment of
the High Court should be affirmed and that the appeal and the cross
appeal must both be dismissed.

Subject to any observations to be made by the parties the defend-
ant must pay to the plaintiff, in addition to the judgment and costs in
the court below, £E.14 in respect of the advocates fees of the plaintiff

        in this Court.                                                                      

1 Per Baron Alderson in Hadley v. Baxendale.

Peacock J.: . In this action the respondent Krikor contracted to
supply the appellant Fawaz with Sakellaridis cotton; and it was ad-
mitted by Fawaz that the terms of the contract would have been com-
plied with if Krikor had supplied any, even the poorest, type of Sakel-
laridis, provided only it was saleable as Sakellaridis, This point, viz.,
whether the cotton was saleable as Sakellaridis, was referred by consent
of both parties to Mr. Hewison; samples produced in court were with
consent of both parties sent to Mr. Hewison and both parties agreed to
accept his opinion formed on an examination of these samples. Mr.
Hewison's final opinion is contained in his letter to the Chief Justice
dated January 22, 1922, and I think the only conclusion the court
can form from that letter is that the consignment offered by the re-
spondent was not saleable as Sakellaridis cotton, and \ that the respond-
ent failed to carry out his contract.

As regards damages, it has not been suggested that the court
should depart from its practice of applying' generally the principles of
English law in questions of contracts, and I therefore think we must go.
to English law in order to find out themeasure of damages. Until 1893
English law was based entirely on decided cases, in particular on the
principles laid down in the leading case of Hadley v,. Baxendale. These
principles were more or less embodied in the Sale of Goods, Act 1893
and it is in sections 51 and 54 of that Act that we must in the first
place seek for an answer. Section 51 (II) says the measure is to be
the "estimated loss directly and' naturally resulting, in the ordinary
course of events," from the breach. That section, however, must be
read in conjunction with section 54 which says that nothing in the 'Act
shall affect the right to recover special damages in any case where by
law special damages may be recoverable. Section 51 (III) provides a '
criterion where there is an available market, but as, for, the reasons
stated by/the learned Chief Justice, I am of opinion that in this case
there ,is no available market, I propose to consider only the bearing of
sections 51 (II) and 54 upon the arguments that have been put forward.,

It is argued for appellant Fawaz that as there was no available

, market the court should accept the price in a subsale effected by- him as
the measure of damages. Under that subsale Fawaz was to receive a .
profit of no less than £E.800 on a contract of the value of £E.2000.
I do not think it was seriously argued that the loss of such a profit was,
to use the words of section 51 (II), "loss directly and naturally result-
ing, in the ordinary course of events," from the seller's breach.' To con-
strue the subsection in that sense would be to depart from the most ele-

mentary principles of construction of the English language, . and if this
appellant is to derive any profit from the existence of the subsale it
must be under section 54 of the Act and not under section 51 (IT), that
is to say, he must claim loss' of profit under the subsale as special
damages.

The Act does 110t in its terms give the court any assistance' in de-
termining the circumstances under which special damages can by law
be recovered nor the measure of such damages, and. recourse must
therefore be had to the rule enunciated by Baron Alderson in Hadley v.
Baxendale and followed in similar subsequent cases. The rule has
been quoted by the Chief Justice. The first part of it which says that
the damages should be such as may be considered as arising natu,rally
from the breach has been adopted in the Act and . I have already indi-
cated my view of its relation to the argument founded on the subs ale.
Where, however, it is special damages that are claimed, we must look
for our standard to the second part of the rule, the part which says that
the damages should be such as may reasonably be supposed to have
been in the contemplation of both parties at the time of the contract, as
the probable result of the breach of 'it. With that criterion in view 1
ask, Was it within the contemplation of both parties at the time they
made this £E.2000 contract that the probable result of the breach of
it would be that the purchaser would lose a profit of £E.800? To that
there can be but one answer. The seller was not aware of the subsale
at the time of the contract, and all he can be supposed in the absence of
evidence to the contrary to have contemplated is that the purchaser
would derive from the contract the ordinary commercial profit associ-
ated with such transaction. The purchaser is entitled' to be compen-
sated for the loss of such commercial profit, but not in my opinion for
anything more.

As this criterion of damages was not expressly advocated by either
party, no evidence was led as to what ordinary commercial profit in a
case like this should be held to be. Had the price in the subsale ap-
peared to represent a more normal profit it might have been of consid-
erable use as evidence on this point and I do not think that we can,

_. even as it is, leave it altogether out of view. I might. in fact, but for
the subsale, have been inclined to take a slightly less liberal view as to
what constitutes a reasonable profit than that adopted by the Chief
Justice, but I think that on such data as we have before 118 the course
which he proposes is the course we should adopt.

Williamson J.: I concur.

Appeal and cross appeal dismiSsed --

ELIAS KHALIL, Plaintiff v. C. L. HAWKES, Defendant
HC-CS-51-1922

Landlord and Tenant-Ejectment-Breach by tenant-PossibiUty 0/ remedy 0/
breach-a-Notice required from landlord-s-Unorthorized sub-letting-Mean-
ing 0/ sub-letting-Failure to pay rent

1. If a breach of a condition of a lease by the tenant is one which is
capable of remedy the landlord will not be granted an order of reentry ~-
less he has first served notice of the breach on the tenant and the tenant
has failed to remedy, the breach within a reasonable time.

2. A landlord is "'not entitled to an order of possession of leased pre-
mises merely on the grounds of failure of the tenant to pay the stipulated
rent. The court will "lean against forfeiture" and give the tenant an op-
portunity to bring his rent payments up to date without forfeiting the lease.

Rent Restriction Ordinance 1920, s. 3 (2).

English Common Law Procedure Act 1852.

Action

Advocate: Mr. Francodis ... for plaintiff.

March 19, 1922. F. P. Osborne J.: As I have already intimated,
the defendant in this -action must be held to be in occupation of the
plaintiff's house under the same conditions as these' which governed
the tenancy of Drew, except in so far as they may-have been modified
by the letter of the plaintiff to the defendant dated June 5, 1921.

Under the lease contract between the plaintiff and Drew the rent
was payable monthly in advance. It is probable that the plaintiff
did not seek to enforce this stipulation very exactly at first, but on
December 1, 1921, he wrote a letter to the defendant demanding
payment of the rent for December and informing him that if payment
in advance were not made action would be taken to enforce the con-
tract or to have it cancelled.

The defendant seems to have taken no notice of this and at the
beginning of March 1922 matters seem to have come to a head. On
that day plaintiff sent a messenger with a receipt for the February

. rent contained in a letter which also contained a~o ice that the ten-
ancy would not be renewed upon expiry and giv' g reasons. This
method 'of collecting the rent was not, as defe dant admits, a de-
parture from the usual arrangement. Defendant on perceiving the

• Court: F. P. Osborne J.

contents of the letter, took back the cheque for the February rent
which he had given the messenger and neither the February nor the
March rent was paid up to the institution of this action on March 7th-
nor was any payment made into court thereafter.

The defendant's contention is, first, that he was not in occupation
of the house under the same terms as those of Drew's tenancy, but
was in fact in the house without any agreement or upon. any conditions
whatsoever and, secondly, even if he was a tenant under similar condi-
tions. to those governing Drew's contract there was, in fact, no breach
of the contract which would entitle the plaintiff to an order for pos-
session.

I have held that the defendant's first contention cannot be upheld
and I do not think that it is one that should have been put forward.
I further hold that the defendant was not entitled to refuse payment
of the February rent as he did. He seems to have been under some
impression that the inclusion of a notice to terminate the tenancy in
the letter containing the receipt entitled him to refuse the receipt and
retain the money. The receipt was a perfectly good receipt for the

, February rent and I hold that there was failure to pay on the part of
the defendant. The March rent was due on March 1st and there has
also been failure to pay this, for no payment has 'been made either
into court or to the plaintiff since action was started. r hold that there
has been a breach of the contract by non-payment of the rent for
February and March.

A further breach of the contract is also alleged by the plaintiff,
who says that the defendant has assigned or sub-let part of the premises
to three other individuals contrary to clause 3 (e) of the lease.
Clause 3 (e) stipulates that the tenant shall not assign or under-let
the premises or any part thereof without . the consent in writing of the
landlord. The assignment or subletting as alleged by the plaintiff is the
maintenance by the defendant and three of his friends of a joint estab-
lishment or mess in the plaintiff's house. The arrangement was that
all expenses, including the rent, should be lumped together and divided
equally between the four.

As I am able to arrive at a decision in this case without doing so,
I do not propose to make any definite pronouncement on the point as
to whether or not this joint establishment constituted an assignment or
subletting-more than to say that I am extremely doubtful whether I
could accept plaintiff's view on the point. But even if this is a breach

. of the contract between Drew and the defendant that contract has
been varied by the plaintiff's letter of June 5. in that letter plaintiff
set forth his view of the meaning of clause 3 ( e ); whether his. View is
correct or not, as I have said, I do not feel called upon to decide.
But plaintiff continued: "to oblige you however I am prepared to give
my consent to the maximum number of three other persons to live
with you provided their names are notified to me in writing three
months from date of this letter." The defendant admits that he re-
ceived this letter, did not answer it and continued to live in the house.
Therefore he should have complied with the stipulation that written
notification of the names of the persons living with him should have
been given on or before September 3. No such noitfication was made,
but defendant continued to live in the house on the terms above out-
lined with his three friends. This arrangement was undoubtedly known
by December if not earlier to the plaintiff who does not seem to have
demurred and must, I think, be taken to have acquiesced in the con-
tinuance of the arrangement for the time at least.

As I have said I am extremely doubtful whether there was a
breach of clause - 3 (e) of the contract at all, though there has un-·
doubtedly been breach of the condition as .to notification of names
propounded by the plaintiff in his letter of June 5, which condition I
consider the defendant must be taken to have accepted for the reasons
I have already stated. But I think I am bound to take into considera-
tion the nature of the breach of the condition as to notification of
names in considering whether the plaintiff's claim to forfeit the lease
and re-enter upon the premises should be allowed.

The principle which seems to underlie the equitable treatment of
claims to forfeit or re-enter for breach of condition of a lease; as I
apprehend it, is this: if the particular breach complained of is one
which is capable of remedy, and if compensation for the breach can be
made by a payment of money, the right to re-enter or to forfeit the
lease under any proviso thereof will not be enforced unless or until
the lessor serves on the lessee a notice specifying the breach and re-
quiring the lessee to remedy the breach and to make compensation
in money therefor and the lessee fails, within a reasonable time there-

  ;{ore, to comply with the demands contained in the notice.                           .

Such an arrangement as subsisted in the house between the de-
fendant and his friends is obviously one which lent itself perfectly _ to
remedy upon notice to. the defendant. It was, at any rate, very far
removed from a formal subletting Or assignment by deed, perhaps fol-

lowed by occupation on the part of the sublessee or assignee when the
. enforcement of the right to forfeit - or re-enter without previous'. notice
to remedy may be the appropriate relief .

. In this case no such notice has been given and I hold .that the
plaintiff is not entitled on the ground of breach of the condition set
forth in th~ letter of J une 5 to the order for which he prays.

I have now to consider the effect of the breach of the contract
involved in the non-payment of the rent for February and March and
whether on that ground the plaintiff is entitled to an order for pos-
session of the premises.

The history of the English law in relation to forfeiture for non-
payment of rent would appear to have been '~t first a gradual restric-
tion of a very wide common law right in the tenant to relief against
the effect of the mere non-payment of rent, and subsequently a some-
what reactionary tendency in the courts described as a "leaning against
forfeiture." The present law on the subject is contained in the Com-
mon Law Procedure Act. (1852) which allows the lessee to apply to the
courts for relief within six months after suffering judgment and execu-
tion in an action for ejectment but, if he so applies, he must within
a certain time pay into court the rent and taxed costs of the action of
ejectment.

This principle, this "leaning against forfeiture" appears to me to be
a sound one and I see no valid reason why it should not be applied
in a general manner in this country. Counsel for the plaintiff has
urged that the practice in this court has been to grant an order en-
forcing the right of re-entry upon proof of the breach of conditions
as set forth in the lease contract, but he agrees that there is no de-
cision of the Court of Appeal upon the point. I am myself unac-
quainted with the practice to which he refers and even if I were ac-
quainted with it, should not consider myself necessarily bound to fol-
,low it so long as the Court of Appeal has made no pronouncement on
the subject.

There may perhaps have been some confusion of thought in re-
gard to the right to re-enter for non-payment of rent occasioned by
failure to interpret section 3 (2) of the Rents Restriction Ordinance
(1920) correctly. I mention this because my impression is that counsel
made the point tentatively in this case although mentioning that the
amount of the rent 'made the Ordinance inapplicable, and because I
have noticed a very distinct tendency among litigants to fall into a