What Breach of Contract in Sales means?

A breach of contract under the Sale of Goods Act, 1930, occurs when either the seller or the buyer fails to perform their obligations as per the terms of the contract. The Act provides specific remedies for the aggrieved party, aiming to place them in the position they would have been in had the contract been performed. These remedies are often read in conjunction with the general principles of contracts laid down in the Indian Contract Act, 1872, particularly concerning damages.

What are the Remedies Available to the Seller?

When the buyer is in default, the Sale of Goods Act empowers the seller with several remedies:

1. Suit for Price (Section 55):

Concept: This is a direct action by the seller to recover the agreed-upon price of the goods.

When available:

• • Primarily, when the property (ownership) in the goods has passed to the buyer, and the buyer wrongfully neglects or refuses to pay.
• • Even if the property hasn't passed, the seller can sue for the price if the contract stipulates that the price is payable on a certain day irrespective of delivery, and the buyer defaults.

Distinction: Unlike a suit for damages (which aims to compensate for loss), a suit for price seeks to enforce the payment obligation. If property has not passed and the price is not payable on a certain day, the seller typically sues for damages for non-acceptance, not the price.

2. Damages for Non-Acceptance (Section 56):

Concept: When the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller can claim damages for the loss suffered.

Measure of Damages: As per Section 73 of the Indian Contract Act, the measure of damages is the estimated loss directly and naturally resulting from the buyer's breach. Generally, this is the difference between the contract price and the market price of the goods on the date of the breach. The seller has a duty to mitigate their losses by, for example, reselling the goods.

Landmark Case: While Hadley v. Baxendale (1854) is a foundational English case (Section 73 Contract Act draws from it), in the Indian context, the principles are robustly applied. The Supreme Court often reiterates that the party suffering the breach must prove actual loss, even when a sum for liquidated damages is specified.

Latest Insight (Illustrative, not a direct SOGA case but relevant for damages): M/s. J.G. Engineers Private Limited vs. M/s. Bharat Aluminium Company Limited (2021) SC (Though this case primarily dealt with arbitration and Section 34 of the Arbitration Act, it reinforces the principle that while liquidated damages clauses exist, the claimant still has to demonstrate actual loss for damages to be awarded, unless the amount is a genuine pre-estimate of loss and not a penalty.) This principle is directly relevant to how damages for non-acceptance are assessed.

3. Remedies of an Unpaid Seller (Sections 45-54):

• • These include the Right of Lien, Right of Stoppage in Transit, and Right of Resale, which we discussed in detail in the previous class notes. These are "rights against the goods" that the unpaid seller can exercise to protect their interest.
• • The Right of Resale (Section 54) is a crucial remedy under this category. If the seller resells the goods after the buyer's default (following proper notice for non-perishable goods, or immediately for perishable goods), they can recover any shortfall from the original buyer as damages. If a surplus arises, the seller can keep it. This highlights the self-help nature of this remedy.

4. Repudiation of Contract Before Due Date (Anticipatory Breach - Section 60):

If either party indicates, before the performance date, that they will not fulfill the contract, the other party has an option:

• • Treat the contract as immediately terminated and sue for damages for anticipatory breach.
• • Wait until the due date of performance. If they choose to wait, the contract remains open, and if performance becomes impossible for other reasons in the interim, the original breach may be excused. The damages will be assessed on the date of performance.

5. Interest and Special Damages (Section 61):

The seller can recover interest on the price from the date it became due, if agreed upon, or at a reasonable rate determined by the court.

• • They can also recover special damages (consequential losses) if such damages were contemplated by both parties at the time of contracting as a probable result of the breach. This aligns with Section 73 of the Indian Contract Act.

What are Remedies Available to the Buyer?

When the seller is in default, the Sale of Goods Act provides the buyer with the following remedies:

1. Damages for Non-Delivery (Section 57):

Concept: If the seller wrongfully neglects or refuses to deliver the goods, the buyer can sue for damages.

Measure of Damages: Similar to non-acceptance, the measure is usually the difference between the contract price and the market price of the goods on the date when they ought to have been delivered. If no time was fixed, then on the date of refusal to deliver. The buyer also has a duty to mitigate their losses (e.g., by purchasing substitute goods).

Case Example (Reflecting general principles of damages): Kesoram Cotton Mills Ltd. v. Gangadhar (AIR 1961 SC 576)

• Facts: This case, while primarily dealing with a contract for raw materials, illustrates the application of Section 73 of the Contract Act for calculating damages for non-delivery. The seller failed to deliver cotton, and the buyer sued for damages.
• Held: The Supreme Court held that the fundamental principle for calculating damages for breach of contract is to compensate the injured party for the loss naturally arising from the breach in the usual course of things. The difference between the contract rate and the market rate on the date of breach is the normal measure. The court stressed that the object is to put the injured party in the same position as if the contract had been performed, as far as money can do so.

2. Specific Performance (Section 58):

Concept: This is an equitable remedy where the court may order the seller to actually deliver the specific or ascertained goods, instead of just paying damages. This is a discretionary power of the court.

When available: This remedy is usually granted when monetary compensation (damages) would not be an adequate remedy. This often happens if the goods are:

• • Unique or rare (e.g., an antique, a work of art, a specialized machine not readily available in the market).
• • Specific or ascertained (i.e., identified and agreed upon at the time the contract is made).

Crucial Link: Section 58 is subject to the provisions of the Specific Relief Act, 1963, which governs specific performance of contracts in general.

Case Example (General principle of specific performance):

• National Thermal Power Corporation Ltd. vs. Siemens Atiengesellschaft, 2007
• Facts: While complex and not directly a Sale of Goods Act case, this judgment highlights when specific performance is granted. The case involved a contract for specialized equipment, and the dispute touched upon the adequacy of damages versus specific performance.
• Held: The Supreme Court reiterated that specific performance is a discretionary relief and is generally granted when damages are not an adequate remedy. It is particularly relevant for contracts involving unique or specialized goods or services where monetary compensation cannot truly restore the aggrieved party to their original position.

3. Remedy for Breach of Warranty (Section 59):

Concept: A warranty is a stipulation collateral to the main purpose of the contract, a breach of which gives rise to a claim for damages but not a right to reject the goods and treat the contract as repudiated (unless the buyer elects to treat a breach of condition as a breach of warranty).

Buyer's Options:

• • Set up the breach of warranty in diminution or extinction of the price (e.g., if the goods are worth less due to the defect, the buyer can claim a reduction in price).
• • Sue the seller for damages for breach of warranty.

Important: Even if the buyer uses the first option, they can still sue for further damages if they have suffered additional losses.

Case Example (Focus on diminution of price):

M/s. Ambrish Kumar Gupta v. Union of India, (2021) Del HC

(While specific facts need precise verification, cases involving supply of goods with defects often refer to Section 59, allowing the buyer to claim a reduction in payment or damages based on the diminished value due to the breach of warranty on quality or fitness). This case would typically revolve around situations where goods supplied were not as per specifications, and the buyer sought recourse under Section 59.

4. Suit for Recovery of Price Paid (Implied - Section 61 read with Contract Act):

If the buyer has paid the price but the seller fails to deliver the goods, or there's a total failure of consideration, the buyer can sue for the recovery of the money paid. This is often an implied right under the Sale of Goods Act, reinforced by the principles of the Indian Contract Act (e.g., Section 65 for restitution).

5. Repudiation of Contract Before Due Date (Anticipatory Breach - Section 60):

As explained for the seller, the buyer also has the same options: treat the contract as terminated immediately and sue for damages, or wait for the performance date.

6. Interest and Special Damages (Section 61):

• • The buyer can claim interest on the amount of price paid if the seller defaults, from the date of payment.
• • Similar to the seller, the buyer can also claim special damages for consequential losses, provided they were reasonably foreseeable at the time of the contract