TEAM CODE : TC49 P

1ST VIRTUAL NATIONAL MOOT COURT COMPETITION, 2021

BEFORE THE HON’BLE CITY CIVIL COURT, MUMBAI

IN THE MATTER BETWEEN

M/S DEF HOSPITALITY (PETITIONER)

V.

ABC TEXTILES PRIVATE LIMITED (RESPONDENT)

-MEMORANDUM FOR PETITIONER-

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MEMORANDUM for PETITIONER [TABLE OF CONTENTS]

TABLE OF CONTENTS
TABLE OF CONTENTS ................................................................................................................... I

INDEX OF AUTHORITIES ............................................................................................................. III

STATEMENT OF JURISDICTION ...................................................................................................VI

STATEMENT OF FACTS ............................................................................................................. VII

ISSUES RAISED ..........................................................................................................................IX

SUMMARY OF ARGUMENTS ........................................................................................................ X

PLEADINGS ................................................................................................................................. 1

ISSUE I: WHETHER OR NOT ABC TEXTILES IS BOUND TO PAY RS 25 LACS AS DAMAGES ON

ACCOUNT OF NON-DELIVERY OF THE SECOND LOT ?............................................................. 1

[1.1] THE DELIVERY OF GOODS DID NOT BECOME IMPOSSIBLE ............................................. 1

[1.2] ABC BREACHED THE TIME ESSENCE OF THE CONTRACT .............................................. 2

[1.3] ABC TEXTILES COMMITTED THE MATERIAL BREACH OF OBLIGATIONS ....................... 4

[1.3.1] DAMAGES WERE FORESEEABLE TOWARDS NON-DELIVERY OF THE SECOND LOT ... 4

ISSUE II: WHETHER ABC TEXTILES IS LIABLE TO PAY 16 LACS ON ACCOUNT OF THE POOR
QUALITY OF THE FIRST CONSIGNMENT LOT .......................................................................... 5

[2.1] ABC TEXTILES GOES AGAINST THE STIPULATED CLAUSE ............................................ 5

[2.2] ABC TEXTILES BREACHED THE WARRANTY................................................................ 6

[2.3] ABC COMMITTED THE MATERIAL BREACH OF OBLIGATIONS ....................................... 7

ISSUE 3: WHETHER ABC TEXTILES IS NOT LIABLE TO PAY TEN LACS AS DAMAGES FOR THE
LOSS OF REVENUE, AND LOSS OF GOODWILL OF DEF HOSPITALITY ................................... 8

[3.1]THE DAMAGE WAS DIRECT AND CONSEQUENTIAL ........................................................ 9

[3.1.1] THE DAMAGE PASSED THE “BUT-FOR TEST.”...................................................... 10

[3.1.2] DEF SUFFERED FUTURE LOSSES ALSO ................................................................ 10

[3.2] DEF SUFFERED DAMAGES AS LOSS OF PROFIT ........................................................... 11

[3.3] DAMAGES ARE RECOVERABLE IN THE CONTRACT FOR DAMAGE TO OR LOSS OF AN

EXISTING REPUTATION ....................................................................................................... 12

[3.3.1] THE DAMAGE WAS REASONABLY FORESEEN ....................................................... 13

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MEMORANDUM for PETITIONER [TABLE OF CONTENTS]

PRAYER................................................................................................................................... XII

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MEMORANDUM for PETITIONER [INDEX OF AUTHORITIES]

INDEX OF AUTHORITIES

INDIAN CASES

B.V. Gururaj and etc. v. M.R. Rathindran and Anr ................................................................. 25

Bhuley Singh vs. Khazan Singh and Ors ................................................................................. 20

China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd ......................................... 17

Dwarka Dass v. State of Madhya Pradesh ............................................................................... 25

Forward Foundation& Ors. Vs. State of Karnataka & Ors ...................................................... 23

Herbicides (India) Ltd. vs. Shashank Pesticides Pvt. Ltd ........................................................ 20

M/s A.T. Brij Paul Singh & Ors. vs. the State of Gujarat ........................................................ 25

Mahanagar Gas Ltd. Mumbai v. Babulal Uttamchand & Co., Mumbai .................................. 25

Malik v BCCI........................................................................................................................... 26

Mcdermott International Inc. v. Burn Standard Co. Ltd .......................................................... 23

Naihati Jute Mills Ltd. v. Hyaliram Jagannath ........................................................................ 16

National Highways Authority of India v. Hindustan Construction Company ......................... 25

Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd ......................................................... 20

ONGC Ltd. v. SAW Pipes Ltd................................................................................................. 20

Pravudayal Agarwala v. Ram Kumar Agarwala ...................................................................... 23

Reliance General Insurance Co. Ltd. vs. Anish Sebastian ....................................................... 23

Sardar Mohar Singh v. Mangilal .............................................................................................. 25

Satyabrata Ghose vs Mugneeram Bangur and Co ................................................................... 16

Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors., Commercial Arbitration Petition 15

OTHER CASES

Addis v Gramophone Co Ltd ................................................................................................... 26

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MEMORANDUM for PETITIONER [INDEX OF AUTHORITIES]

Bunge Corporation v Tradax Export SA ................................................................................. 17

Chicago Coliseum v. Dempsey ................................................................................................ 27

Clydebank Engineering & Shipping Co. v. Don Jose Ramos Yzquierdoy Castaneda ............ 20

Galoo v. Bright Grahame Murray ............................................................................................ 24

Groom v Crocker ..................................................................................................................... 27

Hadley v. Baxendale ................................................................................................................ 27

Hadley v. Baxendale & Ors ..................................................................................................... 23

Hartley v Hymans .................................................................................................................... 17

Herron v Hunting Chase Inc .................................................................................................... 17

Heskell v. Continental Express ................................................................................................ 24

Kidston & Co v Monceau Iron-works Co ........................................................................ 17

Lombard North Central plc v Butterworth............................................................................... 17

Malik & anr. v. Bank of Credit and Commerce International ................................................. 27

Mirant Asia-Pacific v. Ove Arup and Partners ........................................................................ 24

Reg Glass Pty Ltd v. Rivers Locking Systems Ltd .................................................................. 24

Robophone Facilities Ltd. V. Blank ........................................................................................ 20

Shabani Rashidi v. Republic .................................................................................................... 19

Wallis v. Smith......................................................................................................................... 19

Wallis, Son and Wells v Pratt and Haynes .............................................................................. 17

STATUTES

Indian Contract Act, 1872, § 55. .............................................................................................. 16

Indian Contract Act, 1872, § 73 ............................................................................................... 18

Sale of Goods Act, 1930, § 12, cl. 2 ........................................................................................ 21

Sale of Goods Act, 1930, § 12, cl. 3. ....................................................................................... 21

Sale of Goods Act, 1930, § 13, cl. 1 ........................................................................................ 21

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MEMORANDUM for PETITIONER [INDEX OF AUTHORITIES]

Sale of Goods Act, 1930, § 38, cl. 2 ........................................................................................ 15

Sale of Goods Act, 1930, § 59, cl. 1 ........................................................................................ 21

BOOKS

H.G. BEALE, CHITTY ON CONTRACTS 342 (28TH ED. SWEET & MAXWELL 1999).

KIM LEWISON, THE INTERPRETATION OF CONTRACTS 294 (4TH ED. SWEET & MAXWELL 2007).

FREDRICK POLLOCK ET., THE INDIAN CONTRACT ACT WITH A COMMENTARY, CRITICAL AND

EXEMPLARY, (2ND ED. 1909).

HUGH BEALE, CHITTY ON CONTRACTS, (23RD ED. 1968)

JACK BEATSON, ANSON’S LAW OF CONTRACT, (27TH ED. 1998)

AVTAR SINGH, CONTRACT AND SPECIAL RELIEF, (12TH ED. 2017)

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MEMORANDUM for PETITIONER [STATEMENT OF JURISDICTION]

STATEMENT OF JURISDICTION

The petitioner has approached the Hon’ble City Civil Court under Section 9 of the Bombay
City Civil Court (Amendment) Act, 2012.

Section 9 of the Bombay City Civil Court (Amendment) Act, 2012 reads:
Save as otherwise provided in this Act all questions which arise in suits or other proceedings
under this Act in the City Court shall be dealt with and determined according to the law for
the time being administered by the High Court in the exercise of its ordinary original civil
jurisdiction.

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MEMORANDUM for PETITIONER [STATEMENT OF FACTS]

STATEMENT OF FACTS

PARTIES
ABC Textiles Pvt. Ltd. is a major manufacturer of bed sheets, hand towels, and bath towels
with a registered office in Mumbai entered into a contract with M/s DEF hospitality for a yearly
bulk order of bed sheets, hand towels, and bath towels totalling INR 1 crore. The order was to
be delivered in two lots. The first lot comprising 80 per cent of the order was to be delivered
in February 2020, and the rest was to be delivered in June 2020.

CRUCIAL CLAUSES IN THE CONTRACT

The contract had no clause disclaiming the liability of either party for indirect or consequential
losses or damage. It had a penalty of INR 10,000/- for every week of delay in consignment and
a 20 per cent penalty of the relevant consignment lot if the quality was substandard and did not
meet contractual requirements. The contract also had a force majeure clause in which pandemic
wasn't explicitly mentioned and a termination clause if a party commits a material breach of its
obligations. Further, it had a clause specifying timely delivery of the consignment as the
essence of the contract.

MAJOR HAPPENINGS
ABC Textiles delivered the first lot on time, which was appreciated by DEF hospitality, and
the payment was made in 15 days. Around Mid-February, local news media and newspapers
reported poor quality of towels and the pictures were uploaded by customers on social media.
Further, around the last week of March, the lockdown was imposed in India due to the
pandemic due to which ABC textiles couldn't import fabric and requested an extension to
perform the contract. But, DEF hospitality did not reply to any mail. In June, DEF sent a letter
and canceled the contract with immediate effect.

DISPUTE
DEF claimed a 20% penalty based on the poor quality of the first consignment and Rs 25 lacs
for non-delivery of the second lot. Further, they claimed Rs 10 lacs for loss of business,
reputation, and goodwill due to the circulation of pictures and videos. ABC textiles challenged

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MEMORANDUM for PETITIONER [STATEMENT OF FACTS]

the claim by stating that they accepted the delivery and the delay in the second lot was caused
due to a force majure event. They also stated that the procurement price of cotton fell by 20 per
cent, and DEF had not suffered any loss due to its inability to deliver the second lot

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MEMORANDUM for PETITIONER [ISSUES RAISED]

ISSUES RAISED

ISSUE I:

WHETHER OR NOT ABC TEXTILES IS BOUND TO PAY RS 25 LACS AS DAMAGES ON

ACCOUNT OF NON-DELIVERY OF THE SECOND LOT?

ISSUE II:

WHETHER ABC TEXTILES IS LIABLE TO PAY 16 LACS ON ACCOUNT OF THE POOR

QUALITY OF THE FIRST CONSIGNMENT LOT?

ISSUE III:

WHETHER ABC TEXTILES IS NOT LIABLE TO PAY 10 LACS AS DAMAGES FOR THE LOSS
OF REVENUE, AND LOSS OF GOODWILL OF DEF HOSPITALITY?

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MEMORANDUM for PETITIONER [SUMMARY OF ARGUMENTS]

SUMMARY OF ARGUMENTS

ISSUE I: WHETHER OR NOT ABC TEXTILES IS BOUND TO PAY RS 25 LACS AS DAMAGES

ON ACCOUNT OF NON-DELIVERY OF THE SECOND LOT?

ABC textiles is bound to pay 25 lacs as damages on account of non-delivery of the second lot.
The delivery of the goods did not become impossible to be delivered by June 2020 because of
the orders Ministry of Home Affairs allowing the buying, manufacturing, and transportation.
ABC textiles breached the time essence of the contract, undertaken in by not delivering the
second lot of goods by June 2020, which was the stipulated time in the contract to be delivered.
ABC committed the material breach of obligations a per Section 38(2) of the Sales of Goods
Act, 1930 by not delivering the second lot of the goods by June 2020. Damages were
foreseeable towards non-delivery of the second lot.

ISSUE II: WHETHER ABC TEXTILES IS LIABLE TO PAY 16 LACS ON ACCOUNT OF THE
POOR QUALITY OF THE FIRST CONSIGNMENT LOT?

ABC textiles is bound to pay 16 lacs toward 20% penalty on account of non-delivery of the
second lot of goods.ABC textiles goes against the stipulated clause of the contract undertaken
by them in January 2020 because of delivering the poor quality of goods. ABC breached the
warranty of delivering the quality of the goods specified in the contract undertaken by them by
delivering substandard quality goods. ABC textiles committed the material breach of
obligations by delivering defective or substandard goods against the agreed quality of the goods
in the contract.

ISSUE III: WHETHER ABC TEXTILES IS NOT LIABLE TO PAY 10 LACS AS DAMAGES FOR
THE LOSS OF REVENUE, AND LOSS OF GOODWILL OF DEF HOSPITALITY?

ABC textiles is bound to pay Rs. Ten lacs to DEF as damages for loss of business, revenue,
and goodwill due to the circulation of videos and posts of poor towel quality in the news and
social media.The damage suffered by DEF was direct and consequential. DEF suffered
damages as loss of profit because of the delivering the poor quality of the goods as the first lot
of goods as reported by media. The damage passed the “but for test” because of the non-
happening of the damage if there would not have been the quality of the first lot of goods poor.

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MEMORANDUM for PETITIONER [SUMMARY OF ARGUMENTS]

Damages may also be claimed for future losses which are not in existence at the time of the
trial, and such damages shall be quantified separately wherever possible. Damages suffered by
DEF as loss of goodwill due to the circulation of videos and posts of poor towel quality in the
news and social media is recoverable because it is recoverable in the contract for damage to or
loss of an existing reputation. At the time of making the contract, both the parties could
reasonably force that damage as in loss of goodwill and subsequently the revenue and profit
can occur due to the delivery of the poor quality of goods.

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MEMORANDUM for PETITIONER [PLEADINGS]

PLEADINGS

ISSUE I: WHETHER OR NOT ABC TEXTILES IS BOUND TO PAY RS 25 LACS AS

DAMAGES ON ACCOUNT OF NON-DELIVERY OF THE SECOND LOT?

[1]. It is most humbly contended that ABC textiles is bound to pay 25 lacs as damages on
account of non-delivery of the second lot. The delivery of the goods did not become impossible
to be delivered by June 2020 because of the orders Ministry of Home Affairs allowing the
buying, manufacturing, and transportation. (1.1) ABC textiles breached the time essence of the
contract, undertaken in by not delivering the second lot of goods by June 2020, which was the
stipulated time in the contract to be delivered.1 (1.2) ABC committed the material breach of
obligations a per Section 38(2) of the Sales of Goods Act, 19302 by not delivering the second
lot of the goods by June 2020. (1.3)

[1.1] THE DELIVERY OF GOODS DID NOT BECOME IMPOSSIBLE

[2]. The delivery of the goods did not become impossible to be delivered by June 2020 as per
the contract because of the order Ministry of Home Affairs allowing opening of the textiles
shops from the 25th April 20203 and manufacturing companies from 4th May 20204 and
movement of all trucks other goods carrier vehicles from 20th April 2020.5

[3]. The High Court of Bombay in Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors.,6
recently dismissed a plea invoking the Force Majeure exemption, in a contract involving steel
importers. While dismissing, it observed that the distribution of steel has been declared as an
essential service, and there have been no significant restrictions on the movement of vehicles
and manpower in the context of the steel industry, or operations of container freight stations
and warehouses for steel.7 It further noted that the lockdown would be for a limited period and

1
¶ 3, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
2
Sale of Goods Act, 1930, § 38, cl. 2.
3
Ministry of Home Affairs, Order No. 40-3/2020-DM-I(A) (April 24, 2020).
4
Ministry of Home Affairs, Order No. 40-3/2020-DM-I(A) (May 1, 2020).
5
Ministry of Home Affairs, Order No. 40-3/2020-DM-I(A) (April 15, 2020).
6
Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors., Commercial Arbitration Petition (L) No 404 of
2020
7
Id.

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MEMORANDUM for PETITIONER [PLEADINGS]

the lockdown cannot come to the rescue of the petitioners so as to resile from its contractual
obligations to the respondent of making payments.8 In Naihati Jute Mills Ltd. v. Hyaliram
Jagannath,9 the Supreme Court went into the English law on frustration in some detail, and
then cited the celebrated judgment of Satyabrata Ghose v. Mugneeram Bangur & Co.10 and
concluded that a contract is not frustrated merely because the circumstances in which it was
made are altered. The Courts have no general power to absolve a party from the performance
of its part of the contract merely because its performance has become onerous on account of
an unforeseen turn of events.11

[4]. It is to be noted that in the instant case, ABC textiles did not deliver the goods by June
2020, which was the stipulated month for the delivery.12 But the order of the Ministry of Home
Affairs had allowed to open textiles shops from the 25th April 2020 and manufacturing
companies from 4th May 2020, and movement of all trucks other goods carrier vehicles from
20th April 2020. So, ABC textiles could buy the cotton of the requisite fabric and manufacture
the towels which were required to be delivered. Since the Ministry of Home Affairs order dated
15th April had allowed all goods traffic be allowed to ply and movement of all trucks and other
goods/carriers. Hence, it can easily be concluded that the delivery of the second lot of the goods
did not become impossible.

[1.2] ABC BREACHED THE TIME ESSENCE OF THE CONTRACT

[5]. ABC textiles breached the time essence of the contract, as per Sec. 55 of the Indian
Contract Act, 1872, undertaken in January 202013 by not delivering the second lot of goods by
June 2020, which was the stipulated time in the contract to be delivered.

[6]. Section 55 of the Indian Contract Act, 187214 reads:

When a party to a contract promises to do a certain thing at or before a specified time, or certain
things at or before specified times, and fails to do any such thing at or before the specified time,

8
Standard Retail Pvt. Ltd. v. M/s G.S. Global Corp & Ors. Commercial Arbitration Petition (L) No. 404 of
2020
9
Naihati Jute Mills Ltd. v. Hyaliram Jagannath, 1968 AIR 522
10
Id.
11
Satyabrata Ghose vs Mugneeram Bangur and Co., AIR 1954 SC 44.
12
Id.
13
¶ 9, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
14
Indian Contract Act, 1872, § 55.

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MEMORANDUM for PETITIONER [PLEADINGS]

the contract, or so much of it as has not been performed, becomes voidable at the option of the
promisee, if the intention of the parties was that time should be of the essence of the contract.

[7]. In the case of commercial contracts, although occasionally stipulations as to time may
not be of the essence,15 the usual rule is that they are, and, as regards such contracts.16 In
commercial contracts time is ordinarily of the essence of the contract.17 Where the parties have
expressly stipulated in their contract that the time fixed for performance must be exactly
complied with.18 If time is of the essence, termination is possible in the event of any undue
delay in the performance by the promisor, however slight;19 as well as this, the promisee can
recover damages on the basis that the contract has been repudiated by the promisor.20

[8]. Where time is made of the essence by agreement, the effect is to elevate the term in
question to the status of a “condition,” with the consequences that a failure to perform by the
stipulated time will entitle the innocent party: (1) to terminate performance of the contract and
thereby put an end to all the primary obligations of both parties remaining unperformed, and
(2) to claim damages from the contract breaker on the basis that he or she has committed a
fundamental breach depriving the innocent party of the benefit of the contract.21 Conditions are
terms of the contract “so essential to its very nature that their non-performance may fairly be
considered by the other party as a substantial failure to perform the contract at all,” so that the
innocent party can treat the contract as being “completely broken,” and can sue the other party
for “total failure to perform the contract.”22

[9]. It is to be noted that, in the contract between ABC Textiles and DEF Hospitality, it was
specifically mentioned that Timely delivery of the consignment lots was the essence of the
contract.23 So, it can be concluded that the contract is voidable at the option of DEF Hospitality
as ABC Textiles failed to deliver the goods before the stipulated time.

15
Kidston & Co v Monceau Iron-works Co, (1902) 86 LT 556
16
Hartley v Hymans, [1920] 3 KB 475.
17
China Cotton Exporters v. Beharilal Ramcharan Cotton Mills Ltd., 1961 AIR 1295.
18
Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and Specific Relief Acts, vol 2 (updated
14th edn, LexisNexis Butterworths Wadhwa).
19
Bunge Corporation v Tradax Export SA, [1981] 1 WLR 711
20
Lombard North Central plc v Butterworth, [1987] QB 527
21
Herron v Hunting Chase Inc., (2003) 124 ACWS (3d) 487
22
Wallis, Son and Wells v Pratt and Haynes, [1910] 2 KB 1003.
23
¶ 4, Moot Problem, 1st Virtual National Moot Court Competition, 2021.

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MEMORANDUM for PETITIONER [PLEADINGS]

[1.3] ABC TEXTILES COMMITTED THE MATERIAL BREACH OF OBLIGATIONS

[10]. ABC committed the material breach of obligations a per Section 38(2) of the Sales of
Goods Act, 193024 by not delivering the second lot of the goods by June 2020,25 which was the
material element of the contract undertaken by them.

[11]. Section 38(2) of the Sales of Goods Act, 193026 reads:

Where there is a contract for the sale of goods to be delivered by stated installments which are
to be separately paid for, and the seller makes no delivery or defective delivery in respect of
one or more instalments, or the buyer neglects or refuses to take delivery of or pay for one or
more installments, it is a question in each case depending on the terms of the contract and the
circumstances of the case, whether the breach of contract is a repudiation of the whole contract,
or whether it is a severable breach giving rise to a claim for compensation, but not to a right to
treat the whole contract as repudiated.

[12]. It is to be noted that in the instant case, the second lot of the goods was required to be
delivered ABC in June 2020, but they did not deliver the goods by June 2020. Hence, ABC
committed the material breach of obligations by not delivering the second lot of the goods by
June 2020,27 which was the material element of the contract undertaken by them.

[1.3.1] Damages were foreseeable towards non-delivery of the second lot

[13]. Under Section 73, when a contract has been broken, the party who suffers by such
breach is entitled to receive compensation for any loss caused to him, which the parties knew
when they made the contract to be likely to result from the breach of it.28 Since DEF hospitality
was one of the largest hotel chains in the country and they placed a bulk order which means
that requirement for good was pretty high.29 So, it was foreseeable that failure to deliver on
time would amount to loss. Thus, it can be concluded that ABC Textiles is liable to pay 16 lacs
towards the non-delivery of the second lot.

24
Sale of Goods Act, 1930, § 38, cl. 2.
25
¶ 3, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
26
Supra note 2
27
Supra note 1.
28
Indian Contract Act, 1872, § 73.
29
¶ 9, Moot Problem, 1st Virtual National Moot Court Competition, 2021.

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MEMORANDUM for PETITIONER [PLEADINGS]

ISSUE II: WHETHER ABC TEXTILES IS LIABLE TO PAY 16 LACS ON ACCOUNT OF

THE POOR QUALITY OF THE FIRST CONSIGNMENT LOT

[14]. It is most humbly contented that ABC textiles is bound to pay 16 lacs toward 20%
penalty on account of non-delivery of the second lot of goods. ABC textiles goes against the
stipulated clause of the contract undertaken by them in January 2020 because of delivering the
poor quality of goods.30 (2.1) ABC breached the warranty of delivering the quality of the goods
specified in the contract undertaken by them by delivering substandard quality goods. (2.2)
ABC textiles committed the material breach of obligations by delivering defective or
substandard goods31 against the agreed quality of the goods in the contract. (2.3)

[2.1] ABC TEXTILES GOES AGAINST THE STIPULATED CLAUSE

[15]. ABC textiles goes against the stipulated clause of the contract undertaken by them in
January 2020 as per Sec. 74 of the Indian Contract Act, 1872 because of delivering the poor
quality of goods.32

[16]. Section 74 of the Indian Contract Act, 1872 reads as:33

When a contract has been broken, if a sum is named in the contract as the amount to be paid in
case of such breach, or if the contract contains any other stipulation by way of penalty, the
party complaining of the breach is entitled, whether or not actual damage or loss is proved to
have been caused thereby, to receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named or, as the case may be, the penalty stipulated
for.

[17]. If the sum fixed represents a genuine pre-estimate of the probable damages that are
likely to result from the breach, it is liquidated damages.34 It means that it shall be taken as the
sum which the parties have by contract assessed as damages to be paid whatever may be the
actual damage.35 A fixed figure of damages, which is not assessed for all circumstances, but is
graduated to correspond with the passage of time between the making of the contract and its

30
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
31
Id.
32
Supra note 30.
33
Indian Contract Act, 1872, § 74.
34
Shabani Rashidi v. Republic, [1995] TLR 25
35
Wallis v. Smith, (1882) 21 Ch D 243.

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MEMORANDUM for PETITIONER [PLEADINGS]

breach, is a proper estimate of the damage to be anticipated from the breach recoverable as
liquidated damages.36 The essence of a penalty is a payment of money stipulated as in terrorem
of the offending party, the essence of liquidated damages a genuine covenanted pre-estimate
of damages.37 In ONGC Ltd. v. SAW Pipes Ltd.,38 it has been held with regards to damages
and penalty that the stipulation providing for damages is by way of penalty, it can grant
reasonable compensation upon proof of damages. The Court would be empowered to grant the
full amount of Liquidated Damages provided it is of the view that the same are fair and
reasonable pre-estimate of damages agreed between the parties.39 If the terms are clear and
unambiguous stipulating liquidated damages in case of the breach of the contract unless it is
held that such estimate of damages/compensation is unreasonable or is by way of penalty, the
party who has committed the breach is required to pay such compensation.40 In Bhuley Singh
v. Khazan Singh and Ors, the Supreme Court held that Section 74 declares the law as to liability
upon breach of contract where compensation is by agreement of the parties predetermined, or
where there is a stipulation by way of penalty.41

[18]. It is to be noted that in the instant case the contract had a clause mentioning penalty of
20% of the relevant consignment lot value if the quality was substandard and did not meet the
specific quality requirements mentioned in the contract42 , and ABC delivered the poor quality
of the hand towels and bath towels as reported by media channels and new papers.43 So, it
implies that ABC goes against the stipulated clause of the contract undertaken by them. Hence,
it can easily be concluded that ABC must be penalized 20% as mentioned in one of the clauses
of the contract.

[2.2] ABC TEXTILES BREACHED THE WARRANTY

36
Robophone Facilities Ltd. V. Blank, [1966] 3 All ER 128.
37
Clydebank Engineering & Shipping Co. v. Don Jose Ramos Yzquierdoy Castaneda, (1905) AC 6.
38
ONGC Ltd. v. SAW Pipes Ltd., AIR 2003 SC 2629
39
Herbicides (India) Ltd. vs. Shashank Pesticides Pvt. Ltd., 180 (2011) DLT 243
40
Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629
41
Bhuley Singh vs. Khazan Singh and Ors., MANU/DE/4391/2011
42
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
43
Supra note 30.

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MEMORANDUM for PETITIONER [PLEADINGS]

[19]. ABC breached the warranty of delivering the quality of the goods specified in the
contract undertaken by them as per Sec. 12(2) of the Sales of Goods Act, 193044 by delivering
the goods of substandard quality.45

[20]. Section 12(3) in The Sale of Goods Act, 193046 reads:

A warranty is a stipulation collateral to the main purpose of the contract, the breach of which
gives rise to a claim for damages but not to a right to reject the goods and treat the contract as
repudiated.

[21]. Section 59(1) of the Sales of Goods Act, 193047 reads:

Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to
treat any breach of a condition on the part of the seller as a breach of warranty, then the buyer
may sue the seller for damages for breach of warranty.

[22]. Section 13(1) of the Sales of Goods Act, 193048 reads:

When condition to be treated as a warranty. Where a contract of sale is subject to any condition
to be fulfilled by the seller, the buyer may waive the condition or elect to treat the breach of
the condition as a breach of warranty and not as a ground for treating the contract as repudiated.

[23]. It is to be noted that in the instant case, DEF had the specific quality requirements,
which was one of the conditions of the contract according to the contract undertaken by them,
but ABC did not deliver the goods of the specific quality as mentioned in the contract and that
was one of the conditions of the contract. Hence, ABC breached the warrant by not following
the conditions as specified in the contract.

[2.3] ABC COMMITTED THE MATERIAL BREACH OF OBLIGATIONS

[24]. ABC textiles committed the material breach of obligations as per Section 38(2) of the
Sales of Goods Act, 1930 by delivering the defective or substandard goods against the agreed
quality of the goods in the contract.49

44
Sale of Goods Act, 1930, § 12, cl. 2.
45
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
46
Sale of Goods Act, 1930, § 12, cl. 3.
47
Sale of Goods Act, 1930, § 59, cl. 1
48
Sale of Goods Act, 1930, § 13, cl. 1
49
¶ 2, Moot Problem, 1st Virtual National Moot Court Competition, 2021.

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MEMORANDUM for PETITIONER [PLEADINGS]

[25]. Section 38(2) of the Sales of Goods Act, 193050 reads:

Where there is a contract for the sale of goods to be delivered by stated installments which are
to be separately paid for, and the seller makes no delivery or defective delivery in respect of
one or more installments, or the buyer neglects or refuses to take delivery of or pay for one or
more installments, it is a question in each case depending on the terms of the contract and the
circumstances of the case, whether the breach of contract is a repudiation of the whole contract,
or whether it is a severable breach giving rise to a claim for compensation, but not to a right to
treat the whole contract as repudiated.

[26]. It is to be noted that in the instant case, ABC textiles also was supposed to deliver the
goods in two installments51 and delivered the first lot of the goods as defective or poor quality,
and there is a clause in the contract which specifies that there would a penalty of 20% of the
relevant consignment lot value if the quality was substandard and did not meet the specific
quality requirements mentioned in the contract.52 It implies that ABC textiles committed
material breach of obligations by delivering substandard goods against the goods which were
supposed to be delivered.

ISSUE 3: WHETHER ABC TEXTILES IS NOT LIABLE TO PAY TEN LACS AS DAMAGES
FOR THE LOSS OF REVENUE, AND LOSS OF GOODWILL OF DEF HOSPITALITY

[27]. It is most humbly contented that ABC textiles is bound to pay Rs. Ten lacs to DEF as
damages for loss of business, revenue, and goodwill due to the circulation of videos and posts
of poor towel quality in the news and social media. The damage suffered by DEF was direct
and consequential. (3.1) DEF suffered damages as loss of profit because of the delivering the
poor quality of the goods as the first lot of goods as reported by media.53 (3.2) Damages
suffered by DEF as loss of goodwill due to the circulation of videos and posts of poor towel
quality in the news and social media54 is recoverable because it is recoverable in the contract
for damage to or loss of an existing reputation. (3.3)

50
Sale of Goods Act, 1930, § 38, cl. 2.
51
Supra note 1.
52
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
53
Id.
54
Supra note 45.

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MEMORANDUM for PETITIONER [PLEADINGS]

[3.1]THE DAMAGE WAS DIRECT AND CONSEQUENTIAL

[28]. The damage was direct and consequential as per the judgment of Pravudayal Agarwala
v. Ram Kumar Agarwala55 because of the delivering the first lot of the goods of poor quality
in February 2020 being the actual cause of the loss of goodwill, business, and revenue.56

[29]. On breach of a contract, apart from the compensation payable “due to the loss or damage
caused,” the defendant is liable to compensate for the losses and damage “consequent on such
loss or damage.” For example, in a contract for construction of a building, where the builder
has assured the building and erection to be complete on time so that it can be let out on rent, if
the construction is so bad that it falls down and is immediately rebuilt, subsequent to which, it
could not be let out for earning house rent, the defendant builder is liable to compensate for the
expenses incurred in rebuilding the house, for rent lost, and for the compensation paid to the
potential lessee to whom the house would have been rented out.57 Consequential losses include
those that are covered under special damages; that is, such losses are 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.58 The rules enunciated in the landmark case of Hadley v.
Baxendale59 were that a party injured by a breach of contract can recover only those damages
that either should “reasonably be considered as arising naturally, i.e., according to the usual
course of things” from the breach or might “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.” The Court has held that losses are of two types; one which is general damage
arising out of breach of terms of the agreement, and the other one is the apparent profit loss
and expenditure incurred as the consequence of the breach.60 Suppose such loss for which the
consequential damages are claimed was genuinely contemplated by both the parties. In that
case, the defendant party cannot evade liability to pay consequential damages by saying that
such loss was remote or indirect.61 Overhead costs, decreased profits come within the ambit of
direct losses.62 In the instant case, DEF suffered damage as loss of business, revenue, and
goodwill due to the circulation of videos of poor quality of goods delivered by ABC textiles in

55
Pravudayal Agarwala v. Ram Kumar Agarwala, AIR 1956 Cal 41
56
¶ 8, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
57
Indian Contract Act 1872, § 73 (illustration l)
58
Pravudayal Agarwala v. Ram Kumar Agarwala, AIR 1956 Cal 41
59
Hadley v. Baxendale & Ors [1854] EWHC J70
60
Forward Foundation& Ors. Vs. State of Karnataka & Ors., LQ 2016 NGT 14352.
61
Reliance General Insurance Co. Ltd. vs. Anish Sebastian, MANU/CF/0466/2015.
62
Mcdermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181

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MEMORANDUM for PETITIONER [PLEADINGS]

the first lot of the goods.63 Hence, the damage was caused due to the poor quality of the goods
delivered by ABC textiles. So, it can easily be concluded that the damages suffered by DEF
were direct and consequential.

[3.1.1] The damage passed the “But-For test.”

[30]. The damage passed the “but for test” because of the non-happening of the damage if
there would not have been the quality of the first lot of goods poor. To establish the connection
between default committed and loss is suffered is the necessary concomitant for claiming
damages, the breach has to have the real and effective cause for the loss.64 Basically, the impact
of the breach, which transcends actual loss and causes other ancillary damages closely related
to the subject matter of the contract, can be recovered in the name of consequential damages.
To ascertain the link between breach and injury, the English Courts introduced the “But For”
test.65 In this test, the Court discerns on a simple question, whether the loss would have taken
place if it weren’t for the wrongful acts/omission by the defendant.66 The test was first applied
in Reg Glass Pty Ltd v. Rivers Locking Systems Ltd;67 the defendant did not insert the locks
on the doors in accordance with the terms of the agreement; later, a robbery took place in the
house of the plaintiff. The Court held that if it weren’t for the defendant’s failure in putting
locks in accordance with the agreement, the robbery could have been precluded.

[31]. It is to be noted that in the instant case, DEF would not suffer damage if there would
not have been the quality of the first lot of goods poor by ABC textiles. Hence, the damages
suffered by DEF passed the “but-for test.”

[3.1.2] DEF suffered future losses also

[32]. Damages may also be claimed for future losses which are not in existence at the time
of the trial, and such damages shall be quantified separately wherever possible.68 It is to be
noted that DEF suffered the loss of goodwill due to the circulation of videos and posts of poor

63
¶ 8, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
64
Galoo v. Bright Grahame Murray, [1994] 1 WLR 1360
65
Heskell v. Continental Express, [1950] 1 All ER 1033
66
Mirant Asia-Pacific v. Ove Arup and Partners, [2007] EWHC 918
67
Reg Glass Pty Ltd v. Rivers Locking Systems Ltd, (1968) 120 CLR 516
68
Nilima Bhadbhade (ed.), Pollock & Mulla, The Indian Contract Act and Specific Relief Acts, vol 2 (updated
14th edn, LexisNexis Butterworths Wadhwa) 1169

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MEMORANDUM for PETITIONER [PLEADINGS]

towel quality in the news and social media69 and it is well established that the future profits
indeed depend on the goodwill of any company.

[3.2] DEF SUFFERED DAMAGES AS LOSS OF PROFIT

[33]. DEF suffered damages as loss of profit as per the judgment of M/s A.T. Brij Paul Singh
& Ors. vs. the State of Gujarat,70 because of the delivering the poor quality of the goods in the
first lot of goods as reported by media.71

[34]. Generally, the defendant would be accountable for the loss of profits directly emerging
from the contractual breach,72 for example, loss of normal profits due to delay in delivery of
relevant material by the defendant. Most importantly, there must be a reasonable expectation
of profit.73

[35]. For example, in cases where unreasonable delays in delivery of machinery lead to loss
of profitable contracts which were dependent on such machinery and was known to the party
expected to supply the machinery, damages can be claimed for such loss of profits that could
have been made but not for the loss of the contract that could have been procured.74 Further, a
party may also claim for loss of opportunities or loss of chance of gaining something, which
results from a contractual breach. This is to compensate the innocent party, who is deprived of
the chance to receive a particular benefit or avoid a particular risk due to a contractual breach.
It must be noted that the claim for loss of business opportunities and loss of profits are usually
not granted simultaneously as they are principally the same.75

[36]. Compensation for loss of enjoyment of money can also be claimed by a party who was
entitled to the use of a certain sum of money under a contract or award. 76 Judicial precedents
have settled that damages for loss of enjoyment of money can be granted over and above the
basic damages or relief granted upon breach of a contract. In B.V. Gururaj and etc. v. M.R.
Rathindran and Anr.,77 the Madras High Court, while passing a decree for a specific

69
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
70
M/s A.T. Brij Paul Singh & Ors. vs. the State of Gujarat, (1984) 4 SCC 59
71
Supra note 45.
72
National Highways Authority of India v. Hindustan Construction Company, (2016) 155 DRJ 646 (DB)
73
Dwarka Dass v. State of Madhya Pradesh, AIR 1999 SC 1031
74
Supra note 70.
75
Mahanagar Gas Ltd. Mumbai v. Babulal Uttamchand & Co., Mumbai, (2012) 4 Mh.L.J 344
76
Sardar Mohar Singh v. Mangilal, (1997) 9 SCC 217
77
B.V. Gururaj and etc. v. M.R. Rathindran and Anr., AIR 2010 Mad 129

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MEMORANDUM for PETITIONER [PLEADINGS]

performance, directed the defendants to refund the earnest money to the plaintiff. However, the
defendants challenged the decree, depriving the plaintiff of the use of the earnest money during
the pendency of the proceedings. On appeal, the Court, while upholding the decree for specific
performance and refund of earnest money on merits, also enhanced the quantum of damages to
include damages for loss of enjoyment of the earnest money.78

[37]. It is to be noted that in the instant case, As per the terms of the contract, DEF paid for
the first lot in full within fifteen (15) days of receipt of the delivery.79 However, around mid-
February 2020, some of the local news media and local newspapers in Mumbai reported that
guests in DEF’s flagship hotel in Mumbai had reported about the poor quality of the hand
towels and bath towels.80 Some of the customers had also uploaded pics and videos on social
media platforms highlighting the poor quality of the hand towels and bath towels.81 This
affected the revenue of the hotel DEF and suffered the damage as loss of profit.

[3.3] DAMAGES ARE RECOVERABLE IN THE CONTRACT FOR DAMAGE TO OR LOSS OF AN

EXISTING REPUTATION

[38]. Damages suffered by DEF, as loss of goodwill due to the circulation of videos and posts
of poor towel quality in the news and social media,82 is recoverable because it is recoverable
in the contract for damage to or loss of an existing reputation as per the judgment of Malik v
BCCI.83

[39]. After reviewing the cases in this field, Morritt L.J., who delivered the main judgment of
Malik v BCCI,84 concluded that these cases show that there are ‘three well-established
principles.85 One of the principles is that damages are not recoverable in the contract for
damage to or loss of an existing reputation. Before arriving at his principles, the learned Lord
Justice went through a number of cases, at the core of which is the decision of the House of
Lords in Addis v Gramophone Co Ltd.86 It is true that this case is generally regarded87 as the

78
Id.
79
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
80
Id.
81
Supra note 45.
82
Supra note 79.
83
Malik v BCCI, [I995]3 All ER 545.
84
Id.
85
Supra note 58.
86
Addis v Gramophone Co Ltd., [1909] AC 488.
87
Burrows, Remedies for Torts and Breach of Contract (London: Buttenvorths, 2nd ed, 1994) p. 221

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MEMORANDUM for PETITIONER [PLEADINGS]

leading authority for the proposition that damages are not recoverable in the contract for loss
of reputation.88 There is an exception to this principle that if the pecuniary loss has been caused
by a breach of contract, damages are ‘recoverable on ordinary principles, notwithstanding that
it [the loss] might also be described as an injury to an existing reputation.89 The injured party
has a right to damages for any breach by a party against whom the contract is enforceable
unless the claim for damages has been suspended or discharged.90 It is to be noted that in the
instant case, DEF was one of the largest chains of hotels in the country. It implies that DEF has
existing goodwill, which can help in making profits, and it got affected because of its hotel
being highlighted for the poor quality of towels which were delivered by ABC as the first lot
in February 2020. As applying the above principles, it can easily be concluded that the damages
suffered by DEF is recoverable.

[3.3.1] The damage was reasonably foreseen

[40]. Promisor is only liable for damages foreseen or which could have been reasonably
foreseen (by both parties) at the time when the agreement was made.91 Loss may be foreseeable
as a probable result of a breach because it follows from the breach (a) in the ordinary course of
events, or (b) as a result of special circumstances, beyond the ordinary course of events, that
the party in breach had reason to know.92

[41]. It is to be noted that DEF suffered damages for loss of business, revenue and goodwill
due to the circulation of videos and posts of poor towel quality in the news and social media.93
The contract was signed between ABC textiles and DEF in January 2020.94 It is known to both
parties that DEF was one of the largest chains of hotels in the country, and it implies that they
can reasonably foresee at that time that anything that affects the image or goodwill of the hotel
can definitely affect the revenue and loss of the hotel. Hence, it can easily be concluded that at
the time of making the contract, both the parties could reasonably force that damage as in loss
of goodwill and subsequently the revenue and profit can occur due to the delivery of the poor
quality of goods.

88
Groom v Crocker, [1939] 1 KB 194
89
Malik & anr. v. Bank of Credit and Commerce International, [1995] 3 All ER 545, 558.
90
Chicago Coliseum v. Dempsey (105) (IL 1932) p. 346
91
Hadley v. Baxendale, 86 UK 1854.
92
Id.
93
¶ 5, Moot Problem, 1st Virtual National Moot Court Competition, 2021.
94
¶ 1, Moot Problem, 1st Virtual National Moot Court Competition, 2021.

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MEMORANDUM for PETITIONER [PRAYER]

PRAYER
WHEREFORE IN THE LIGHT OF ISSUES RAISED, ARGUMENTS ADVANCED, AND AUTHORITIES
CITED, IT IS HUMBLY PRAYED THAT THIS HON’BLE CITY CIVIL COURT OF MUMBAI THAT IT MAY BE

GRACIOUSLY PLEASED TO ADJUDGE AND DECLARE THAT

I. ABC Textiles Private Limited is bound to pay 25 lacs as damages on account of

non-delivery of the second lot;
II. ABC textiles is liable to pay 16 lacs on account of the poor quality of the first
consignment lot; and
III. ABC textiles is liable to pay 10 lacs as damages for loss of business, loss of revenue
and loss of goodwill of DEF.

AND PASS ANY OTHER ORDER, DIRECTION, OR RELIEF THAT THIS HON’BLE COURT MAY DEEM FIT
IN THE INTERESTS OF JUSTICE, EQUITY, AND GOOD CONSCIENCE.

All which is humbly prayed

TC 49

Counsels for the Petitioner

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