Court allows breach of contract claim against supplier but dismisses agency claim against agent.

[*170] 1981 Oct. 31

( PAPADOPOULOS, P.D. G.& S.NICOLAIDES,D. J. )

IN THE. DISTRICT COURT OF NICOSIA

P. Ioannides Plastics Ltd.,

Plaintiffs,

v.

1.Dow: Chemical Europe S.A.

2.D., Shukiouroglou Ltd.,

Defendants.

(Action No. 3151/79).

Contract - Sale of goods - Formation of contract - Offer and acceptance - Principles applicable - Parties in this case intended to reach and actually reached conclusive agreement.

Agency - Agent acting on behalf of disclosed principal -Answerable only if he is in breach of warranty of authority or in case of negligence. Damages - Breach of contract for sale of goods- Measure of damages - Duty of plaintiff to take steps to mitigate damages - Section 73(1) and (2) of the Contract Law, Cap. 149

M. Papapetrou for the plaintiff.

I. Loizidou for Mrs. L..Demetriades, for the defendants.

JUDGMENT

The following judgment was delivered by:

PAPADOPOULOS,P.D.C.: The plaintiffs in [*171] the present action claim against the defendants I damages for breach of contract. They also claim against defendants 2 damages for breach of warranty and of authority. They claim against both interest and costs.

The plaintiffs allege that the defendants are in breach of a contract that was concluded between them and defendants I through defendants 2, for the supply to them of 800 metric tons of plastic raw material called styron 457, at the price of US dollars 830 per metric ton for the first 400 tons and US dollars 850 for the balance. This raw material had to be delivered by instalments of two hundred metric tons per month as from the 1.3.79 to June 1979.

It is the allegation of the plaintiffs that after continuous and strenuous negotiations and the exchange of a number of telexes between them and defendants I, through defendants 2, a contract was concluded between them for the supply of the above described raw material. It is the allegation of the plaintiffs that the contract was unconditional and final and conclusive. On the other hand the defendants allege that the contract was not concluded. There was, according to their allegation an implied condition that before the contract was concluded an order form ought to have been signed by the plaintiff’s and forwarded to the defendants subject to their acceptance. They allege that this is the system which was followed in the previous contracts between the parties.

Regarding defendants 2, it is the allegation of the plaintiffs that defendants 2 were at all material times agents of defendants I with authority to conclude contracts and sign [ *172] Invoices. Therefore, they are liable to the plaintiff’s for damages. It has been further submitted by plaintiff’s that if defendants 2 had no such authority they were in breach of warranty of authority as they wrongly represented themselves as having such authority, in which case the plaintiffs are entitled to damages for breach of warranty. It is the allegation of the defendants that defendants 2 were working for their disclosed principals and were acting at all material times on behalf of defendants I whose business and name were well-known to the plaintiffs. Therefore, they are not liable as they acted reasonably and without any negligence in the course of their duty or authority.

Advocates on both sides. have been extremely helpful in this difficult case. They have prepared and produce in Court a number of documents which are of great assistance. In particular they have filed the copies of telexes exchanged between the parties, concerning this case, as well as a number of other telexes and documents which were exchanged between the parties in the course of their co-operation and which according to the allegation of the defendants have formed a system which ought to have been followed in the present case.

Oral evidence was given in court and the witnesses testified at length and were extensively cross-examined in an effort to elucitate all aspects of the case. It is a fact that the litigants had three similar dealings previous up to the sub-judice one and none other. The following procedure was followed in those dealings. Exchange of [*173] telexes and when the situation crystalised a written order form was signed by the plaintiff’s, and submitted through defendants 2 to defendants I and an acceptrance form followed

The negotiations for the first order started on the 1.3.75 by a telex where the plaintiff’s enquired about the products and quoted prices for the goods of defendants 1. On the 4.3.75 defendants 2 forwarded to plaintiff’s the reply of defendants 1. On the 18.6.75 plaintiff confirmed a conversation with defendants 2 for an order of 8 tons of the products of defendants 1. On the same day an order form was forwarded by defendants 2 to plaintiff’s for signature together with a covering letter of the same date. On the 1.7.75 an acceptance of the order was received by the plaintiff’s. This acceptance originated from defenants 1. These documents marked 01-04b are part of exh. 2.

On 11.8.77 plaintiff’s started negotiations for another order with defendants 2. On 5-9.77 a telex was sent by defendants 2 promoting the

conclusion of a contract. On the following day another telex was sent by plaintiff’s to defendants 2. They, defendants 2, replied to this telex on the same day. Another telex by plaintiff’s to defendants 2 followed on the 7.9.77 to which certain clarifications were asked. On the

9.9.77 certain clarifications were made by defendants 2. After this telex on the same day an order form was signed by the plaintiff’s to defendants 2. Copy of this form was forwarded by defendants 2 to the plaintiff’s in a letter dated 9.9.77. On the 20.9.77 a letter of defendants 2 was forwarded to the plaintiff’s enclosing therewith the [*174] acceptance form that order. These are the documents marked 1-8 A of Exh. 2.

The third transaction between the parties started on the 23.5.78 when the plaintiff’s enquired for quotations of the defendants' 1 goods. On 8.6.70 another telex was sent by the plaintiff’s to defendants 1 to which defendants 2 replied on 9.6.78 by telex. Various other documents were exchanged between the parties until the 23.6.78 when defendants 2 sent a telex to plaintiff’s where they say "Thanks your today's telex to plantiff’s where they telex confirming your order for 380 MT. Styron 457 NAT GRAN. 7. This has been immediately booked through Dow by telex".

On the 26th June 78 a letter together with an order form was forwarded to the plaintiffs by defendants 2 for signature. It was signed and forwarded by the plaintiff’s to defendants 2 on the 29.6.78. On the 7.7.78 acceptances of the above order were received by defendants 2 for defendants 1 which were forwarded to the plaintiff’s together with covering letter dated 8.7.78.

From the above three previous transactions it is evident that certain procedure was followed between the parties. We shall examine the weight of this procedure at a later stage. Before we do that, we consider it pertinent to examine the sub-judice transaction and try to find out if a contract was concluded between the parties having in mind the way things were done in the past between them as well as the circumstances surrounding the present case. [*175]

On the

26.1.79 defendants 2 sent a telex to the plaintiff’s which apparently followed a conversation between them, regarding a prospective order of 1,000 metric tons of styron 457 Granutation 7. In that telex defendants 2 stated among other things.

"In view of very tidy situation offer will remain valid until Feb. 3".

On the

31.1.79 plaintiff’s sent a telex to defendants 2 regarding this prospective offer stating therein certain conditions and asking for some clarifications. On 3.2.79 plaintiff’s sent the following telex to defendants 2

"Re your quotation of 26.1.79 valid until today and following our views unreplied as per our telex No.115/31.1.79. Please note:

We confirm our order for 400 MT Styron 457, At US dol. 830 C.I.F. Delivery Late February, Usual terms.

- 5 ton Lot to be shipped promptly from actual origin for trials specimen purposes.

Re balance 600 MT we are expecting your principals' reply to our telex No.115/31.1.79".

To this telex the defendants 2 sent the following telex to the plaintiff’s:

"Re our this mornings conversation we confirm following offer from Dow which replaces any previous ones:

Styron 457 200 MT in March and 200 MT in April, [*176] Both at US dol. 830 MT C.I.F. 200 MT. in May and 200 MT in June. Both at US dol. 850 C.I.F. Supply point: Livorno, Italy Shipment: In containers. Payment terms: 90 days from Bill of Lading.

Material is Dow's prime and any technical information requested will be furnished. In order that you get a reference to quality 5 MT will be immediately supplied at CAD terms. Awaiting your confirmation this morning."

The plaintiffs sent a telex to the defendants 2 at 12.55 the same day stating.

"Re your telex 147/79 we confirm as per. contents except of packing which you have confirmed just now by phone to be in shrinked one-ton pallets. Kindly arrange for the prompt despatch of the 5 ton consignment."

On the

7.2.79 the following telex was sent by defendants 2 to the plaintiffs:

"Please transmit to Mr. P. Ioannides following message: Have received following telex from Dow which we quote: Dimi rush contact Panos Ioannides inform him we are unable to accept his last order because platts Naphta price has suddenly been increased to Dollars 275 MT representing for the time being A 35 PCT increase. You realize we are [*177] not ready to absorb such a loss. Hence either he places his order with Mondedison or he keeps waiting until we come back with a definite answer.

Unquote

Sorry Panos for this situation but it is beyond Dow's control yet we shall press for a preferential treatment.

Re: Order No.AG/37/78 - Dow Ref. 44-10330-3 90 MY Styron 457 Nat Gran 7.

Shipment will be effected February 1 - 13/79.”

It is admitted by both sides that no order form or acceptance form were-ever signed, for this transaction.

The crucial and vital question in this case is whether the contract is concluded between the parties by the exchange of telexes as described above or whether the contract was conditional on the signing of a form Which had to be accepted by the defendants as it was done in the pre­vious three transactions between the parties.

Mr. Ioannides in giving evidence stated that he signed the previous order forms not because they were essential to the conclusions of the contract but because he was asked to do so by the defendants 2 who might need them for their own purposes and. records. He always believed that the contract was unconditionally concluded before those forms were signed. On the other hand Mr. Shioukiouroglou has admitted in court when giving evidence that the acceptance [*178] form on occasions. was .sent by the defendants I to them, though no order form was ;signed.

We have given careful consideration to this matter and we have examined the possibility as to whether in the previous cases the contract concluded prior to the signing of the order form. We have no doubt that even in those cases a contract was concluded between the parties prior; to the signing of the order form and the acceptance form. We consider that these two documents-were superfluous. If no contract was concluded between the parties we do not see the reason why so may exchanges orally or by telex would be necessary before the conclusion of the contract.

Mr, Demetriades had submitted that it was merely to crystallise the terms of the contracts. We do not agree that it was mere crystalisation. The crystalisation was made in the process of the exchange of telex and the finalisation of the contract was reached by the acceptance stated in the telex. If we accepted otherwise then what would the value of the telexes be? We consider that the telex is a letter which is instantly transmitted to the other side and once the offer and the stipulation of the contract contained therein are accepted by the other side then there is a binding contract; unless there is of course a condition that the contents of the telexes will be reduced in writing or some other condition which negatives the finalisation of contract as for instance is the condition that an order and acceptance form should be exchanged before the conclusion of the contract as alleged in present case.

We have studied the authorities in this matter as. submitted by Mr. Demetriades (see Chitty on Contracts. 24th ed. p.73, para 74-75. "Method must generally [*179] be complied with. An offer which requires the acceptance to. he expressed or communicated in a certain way can generally be accepted only in that way. Thus if the offer or asks for the acceptance to be sent to a particular place one sent elsewhere will not bind; him; nor will he be bound by an oral acceptance if he has asked for it to be expressed in writing. This rule is particularly strict where the offer is contained in an option").

"Other equally efficacious mode. Stipulations as to the mode-of acceptance are usually made by the offer or with some particular object in view, eg. to obtain a speedy acceptance, or one expressed in a particular form. lt seems that an acceptance which actually accomplishes that object just as well may bind the offer or. For this purpose, the Court must first decide, as a matter of construction, what object it was that the offer or had in view. For example, a requirement that the acceptance must be sent by letter by return of post may ‘fix the time for acceptance and not the manner of accepting'. In that case an acceptance by telegram would suffice. But such an acceptance would not be effective if the offeror's object (on the true construction of the offer) was to have a .full and signed record of the acceptance.").

It was also stated in case of Henry Kendall etc.v. William Lillico etc.

(1968) 2 All E.R. p. 444, as well as the case of Mc Gurcheoh v. David MacBrayne„ Ltd. (1964) 1 All E.R. 430. We do not think that the

principles laid down in the [*180] above cases applied in the case before us. We are of the opinion that the rooting transaction must always be included and following any similar transactions and that all circumstances surrounding and transactions would be taken into consideration when deciding as to whether the contract has been completed but the case before us must be distinguished.

In Pollock & Mulla Indian Contract and Specific Relief Acts, 9th ed., p. 14. it is stated:-

“Principles of construction of contracts. A person is only entitled to enforce his contractual rights in a reasonable way and a court will not support an attempt to enforce them in an unreasonable way. The courts should not, in commercial transactions be astute to defeat the efficacy of documents which parties have acted on by seeking to apply to their construction rules such as the ‘subject to contract rule’. Such rules are but guides. They must not become tyrants, compelling a construction which in the circumstances of a particular case, produces a wholly artificial and unreal result. The court should put itself in a frame of mind which would make itself possible to understand how commercial minds work. The house of Lords in Adamastos Shinning Co. Ltd. v. Anglo-Saxon petroleum Co. Ltd. (H.L) summarising the rules applicable to construction of commercial documents laid down that effort should be made to construe commercial agreements broadly and one must not be astute to find [*181] defects in. them or reject them as meaningless. The dealings of men should, as far as possible, be treated as effective and the law may not incur the reproach of being the destroyer of bargains.

In construing a contract the court must look at the words used in the contract unless they are such that one may suspect that they do not convey the intention correctly.

It would be legitimate to take into account the surrounding circumstances for ascertaining the intention of parties and therefore the absence of a specific clause against transferability is not conclusive. What has to be seen is whether it would be held on a reasonable interpretation of the contract aided by such considerations as can legitimately be taken into account that the agreement was not to be transferred. In the construction of written instruments, it is legitimate in order to ascertain the true meaning of the words used and if that be doubtful then to have regard to the circumstances surrounding their creation and the subject-matter to which it was designed and intended they should apply. Even a formal antecedent contract cannot be looked at to control the terms of, the conveyance much less mere communings which would only show what they Intended to do but cannot show what they did do" [*182]

In the words of Lord Wrigh in Luxor Ltd. v. Cooper (1941) A.C. 108;(1941) 1 All E.R. 33.

"However similar the contracts may appear, the decision as to each must depend on the consideration of the language of the particular contract and in the light of material circumstances of the parties in view of which the contract is made. To compare one contract with another is not a profitable task. But an agreement to sell may be used to clear an ambiguity in the sale deed. The courts have sometimes been ready to read an earlier oral statement and a later formal document forming together a single comprehensive contract, i.e. the parties have made their contract partly in writing and partly by word of month."

It has been further submitted by learned counsel for the defendants that it was an implied term of this con­tract, it would not be concluded before the signing of the order form and the acceptance form. Even if, we accepted that in the previous transactions between the parties which in any event were only three in a number of few years there was no contract before the order form and the acceptance form were signed yet we consider the case before us to be an entirely different transaction with many peculiarities.

The one and paramount peculiarity is that there was a firm offer for a specific period of time which ought to have been replied to. Time was pressing; there was undoub­tedly a feeling of urgency to both sides to come to an [*183] agreement . Few days indeed were given in the first instance and in the last telex which is above quoted only few hours were granted. The language used in this telex is clear, lucid and unambiguous. The acceptance is clear and unambiguous. Having in mind, the particular and exceptional situation regarding time, the urgency and eagerness of the parties to come to an agreement or disagreement within a specific period of time lead us to the conclusion that the parties with the mere exchange of telex have intended to reach and actually reached conclusive agreement. The time limitations stated in the relevant telexes will be destroyed if one would consider the time necessary for the filling signing and prosting of the order form and acceptance forms. We cannot accept the submission that after all this communication between the parties and finalisation of the transaction it would be merely an invitation by the defendants to the plaintiffs to make offer by way of signing an order form which had to be considered and acted upon by the defendants by signing and sending an acceptance form. Therefore, we find that there was not an implied term as submitted. We do not attach an importance on documents which were exchanged between the parties to the transaction and where the word "quotation" was used instead of "offer". This word was used in any case after the conclusion of the contract. In our opinion it does not alter the situation at all and it can be interpre­ted as "offer" in the light of what has been exchanged between the parties. (See Halsbury's Laws of England 3rd ed., Vol. 11, p. 399; "nor is the construction of a written instrument varied by the subsequent declaration or conduct of [*184] the parties. The instrument .is to be construed as at the time of its execution".)

In the result we are of the opinion that defendants 1 are in breach of a contract entered into between them and plaintiffs and they are liable to pay damages. The next question that comes up for consideration is the liability of defendants 2.

It has been suggested by Mr. Skordis that defendants2.were at all material times acting as agents with authority not only to solicite orders but also to conclude contracts and issue invoices. Mr. Demetriades submitted that in respect of the words used to describe the status of defendants 2, their job was merely to solicite orders for the defendants I. However, under any circumstances they acted for disclosed principals and therefore are not liable. We have gone through he evidence before us both oral and documentary to find out exactly the status of defendants 2. We have found nowhere any authority by the defendants I to defendants 2 to conclude contracts on their behalf. On the contrary all messages and negotiations were made with defendants I. Defendants 2 appear only to convey all the messages and orders and invoices which had to be exchanged between the parties. They did not appear anywhere to have had any more authority to bind the defendants 2 in any way. On occasions various descriptions were attached to defendants 2 but we agree with Mr. Demetriades that the names did not actually represent the legal status of defendants 2. What really matters is what they, were doing and what their authority. On the other hand there is no doubt [*185] whatsoever that defendants 2 were acting for disclosed principals.

In Halsbury's Laws of England, 3rd ed., vol.1, p. 5I4, para. 855 it is stated:

"Where an agent in making a contract discloses both the existence and the name of a principal on whose behalf he purports to make it the agent is not, as a general rule, liable on the contract to the other contracting party whether he had in fact authority to make it or not; but a personal liability may be imposed upon him by the express terms of the contract, by the ordinary course of business, or by usage, and he will be liable for breach of warranty of authority in cases where he had no authority."

In the case of Andreou v. Cyprus Travel (London) Ltd. & Others, (1976) I C.L.R.

185 at P. 191, Loizou J. stated:-

"In my view, they have acted all along as agents for disclosed principals who cannot be held themselves liable for the loss of the trunk, particularly so, in view of the fact that the said trunk, was indeed loaded on S/S ‘ENOTRI A.’, as already concluded in this judgment and its carriage there from to Limassol was undertaken for reward by defendants 3."

So if the defendants 2 would be held liable they would be answerable only if they were in breach of warranty [*186] or negligence. The evidence of Mr. p. Ioannides is before us and describes in detail the various transactions with defen­dants and produced quite a bulky bundle of documents We have gone through them carefully We have found no shred of negligence on behalf of defendants 2. We have found no breach whatsoever of any warranty. In fact

no such breach was pointed out to us by plaintiffs. On the contrary we may say that the defendants 2 acted all along diligently

and properly throughout the co-operation of defendants I

with the plaintiffs. They have forwarded all the messages with out most diligence precision and on many occasions such

messages were transmitted to the plaintiffs verbatim. We could not trace any initiative taken by defendants 2 which can justify a finding of breach of warranty or authority. For the above reasons we are of the opinion that the action against defendants 2 must fail.

DAMAGES

We now come to the Question of damages.

Section 73 of the Contract Law, Gap. 149 reads as follows:-

(1)“When a contract has been broken, the party who suffers by such breach, is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. [*187]

(2)…………………………………………………………………………………

…………………………………………………………………………………….

(3)"In estimating the loss or damage arising from a breach of contract, the mens which exist of remedying the inconvenience caused by the non - performance of the contract must be taken into account."

Our law and in particular s.73 (1) embodies the principle enunciated in the leading case of Hadley v. Baxendale, (1854) 9 Ech. 341.

However, the law-maker has imposed a duty in the plaintiff to take all necessary steps to mitigate his damages. This is the object of s. 73(3) •

In the Law of Contract, Cheshire and Fifoot, 4th ed, p. 509 it is stated:-

"A particular instructive case is that of Payzu,Ltd. v. Saunders,(1919) 2 K.B. 581 where the plaintiff had been the victim of a wrongful repudiation by the defendant. Under a contract to deliver goods by instalments, payment to be made within one month of each delivery, less 2 1/2 per cent, discount, the buyers failed to make punctual payment for the first instalment. The seller treated this as sufficient to repudiate the contract, but offered to continue deliveries at the contract price if the buyers would pay cash at the time of each order. This offer was rejected. The price of the [*188] goods having risen the buyers sued for breach of contract.

It was held in the first, place that the seller was liable in damages, since the circumstances did not warrant his repudiation of the contract. On the other hand, it was held that the buyers should have mitigated their loss by accepting the seller's offer, and that the damages recoverable were not to be measured by the difference between the contract and market price, but by the loss that would have suffered had the offer been accepted. 'In commercial contracts', said Scrutton, L.J.'it is generally reasonable to accept an offer from the party in default.’”

On the basis of the above principles and the evidence before us it is evident that the plaintiffs had ample opportunity to buy at 1,250 dol. per ton.

This comes out from the evidence given in Court Mr. P.Ioannides himself, as well from the telex, exh.1(61).

We feel that the calculation for damages would be at that price and not the price given by Mr. Procopiou or the prices admitted as prevailing at the time of delivery, C.I.F. Limassol. So we proceed to calculate the damages:-

400 tons difference between the contract prices at 830 dols. and the price at which plaintiffs would have bought at £I,250 dols. is 420 dols. per ton equal I68,000 dols. and for 400 tons the difference [*189] between contract price of 850 dols. and prices at which the plaintiffs could buy at £1,250 dols. equals 160,000 dols. Total of estimated damages 328,000 dols.

In the result we givejudgment for the plaintiffs for 328,000 dols. against defendants I with costs to be assessed by the Registrar at the appropriate scale.

Action against defendants 2 is dismissed with no order as to costs.

Judgment against defendants 1 for

328,000 dols. Action against

defendants 2 dismissed. Order

for costs as above.