Short Delivery of Maize, Advance, and Remote Loss
On 10 Magh 2080, Sagarmatha Agro Pvt. Ltd. contracted with Chitwan Farmers' Cooperative to buy 20,000 kg of maize at Rs 52 per kg, delivery at Bharatpur within 60 days. The cooperative took a 10% advance of Rs 104,000. The contract said 'time is of the essence' and that the buyer would use the maize for a fixed-price supply to a feed mill. The cooperative delivered only 12,000 kg by the deadline. Sagarmatha bought the shortfall at Rs 64 per kg from a local trader and also lost its supply contract with the feed mill, which would have earned it Rs 1,50,000 profit. The cooperative says it was hit by unseasonal rain, a force majeure event, and that the buyer's sub-contract loss is too remote. Sagarmatha had not disclosed the feed-mill contract terms to the cooperative. The contract has no arbitration clause. Sagarmatha sues in the District Court, Chitwan.
1. Was the cooperative's failure a breach, and does the unseasonal rain excuse it under the Contract Act, 2056?
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Breach. The cooperative promised 20,000 kg by the deadline. It delivered 12,000 kg. That is short delivery, and because time was of the essence and the buyer had a fixed-price on-sale, the breach is material. Force majeure. The Contract Act, 2056 excuses performance only when an unforeseeable, unavoidable event makes performance impossible, not merely more difficult or costly. Unseasonal rain in Chitwan during maize harvest is not per se an act of God; the cooperative must prove the specific crop loss, that no alternative supply was available, and that it notified the buyer. A bare plea of rain does not discharge the contract. No clause. The contract has no force majeure clause, so the statutory doctrine applies narrowly. Conclusion. The cooperative breached; the rain defence fails on the facts as stated. Caveat. If the cooperative can show that the rain destroyed the entire crop and that it gave prompt notice, the court may excuse the shortfall to that extent; but it still must account for the advance.
2. Calculate Sagarmatha's recoverable damages, distinguishing direct loss from remote loss, and explain the effect of mitigation and the advance.
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Direct loss. Sagarmatha mitigated by buying 8,000 kg at Rs 64 instead of Rs 52. The market-difference loss is 8,000 × (64 − 52) = Rs 96,000. This is the natural consequence of short delivery and is recoverable under the Contract Act, 2056. Advance. The 10% advance was Rs 104,000 for 20,000 kg, i.e. Rs 5.20/kg. The cooperative delivered 12,000 kg, so the advance attributable to the undelivered 8,000 kg is 8,000 × 5.20 = Rs 41,600. That amount must be refunded or adjusted. Sub-contract loss. The Rs 1,50,000 feed-mill profit is not recoverable because Sagarmatha did not disclose the sub-contract at formation. The loss was not foreseeable to the cooperative and does not arise naturally from a maize sale. The result would differ if the contract or pre-contract correspondence had disclosed the fixed-price on-sale. Mitigation. Buying at the prevailing market rate was reasonable; if the market price was actually lower, the court will reduce the award. Total. Prima facie Rs 1,37,600 plus interest and costs, not the sub-contract profit.
3. Would an arbitration clause have changed the forum and the available relief? Explain.
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Forum. An arbitration clause would not change the substantive law; it would change the forum. Under the Arbitration Act, 2058, a dispute arising from a contract with an arbitration agreement must be referred to arbitration unless the clause is invalid, inoperative, or incapable of being performed. The District Court, Chitwan, would have to stay the suit and refer the parties to arbitration on the defendant's application before submitting a defence on the merits. Advantages. Confidentiality, speed, and party-selected expertise-useful in a commodity dispute. Limits. An arbitral tribunal can award the same direct damages and refund of advance, but it cannot grant coercive interim relief without court assistance; the court may still grant interim protection under the Arbitration Act. Drafting point. The clause should specify seat, language, number of arbitrators, and applicable law. Conclusion. The absence of an arbitration clause is why the District Court has jurisdiction; with a valid clause, the suit would be stayed and the dispute sent to arbitration.