Breach of Contract in Sales of Goods act,1930
Author: Shrankhala Parwar, School of Law, DAVV, Indore.
● Describe the History and Development of the law of Sale and Goods in India.
The whole object of sales of goods is to transfer property from one person to another. According to section 4(1) of the sales of Goods Act, 1930, a contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. The law of sale of goods seeks to balance the rights, duties, claims, and expectations of the sellers and buyers of the goods.
Prior to the enactment of the Indian Sale of Goods Act, 1930 the law of sale of goods was contained in section 76 to 123 of chapter 7 of the Indian Contract Act, 1872. Section 65 of the sales of goods act, 1930 repealed the said section 76 to 123 of the Indian Contract Act, 1872. Subsequently, section 65 of the sales of goods act, 1930 was repealed by the Repealing Act, 1938. As the business and trade expanded it was realized that there should be a separate enactment on the law relating to the sale of goods as the law contained in chapter 7 of the Indian Contract Act, 1872 was not adequate to cope with new trends and situations.
● Write the Definition and Essentials of Sale.
A contract of sale is defined in section 4(1) of the Sale of Goods Act, 1930. It provides: “A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.”
Essential elements (1) Two –parties – a seller and a buyer For constituting a sale there must be at least two parties- a seller and a buyer and they must be a different person for a person who cannot buy his own goods. This rule is, however, subject to the following exceptions:
(a) Auction sale- In a sale by auction law permits the seller to reserve a right of making a bid. This is expressly provided by section 64(3) of Sales of Goods Act, 1930. Thus in such a situation, a seller may purchase his own goods. This exception has been provided to protect the seller from an upset price in an auction.
(b) Execution of decree- Where goods of a person are being sold in execution of a decree against him, he may come forward and purchase his own goods. This opportunity has been provided to the said person to save his property because at the time of passing of the decree against him for non-payment of debts he might not behave been in position to pay his debt but subsequently his financial position may improve and he may be in a position to pay the money to save his property.
(c) Between part owners-section 4(1) of the sales of goods act,1930 itself provides that there may be a contract of sale between part owners and another. Similarly, there can be a contract of sale between one partner and another or between a partner and a partnership firm.
(2)Goods- the subject matter of the contract- The word Goods has been defined in section 2(7) of the sale of the goods act, 1930. According to it “goods” means every kind of movable property other than actionable claims and money; and includes stocks and shares, growing crops, grass, and things attached to are forming part of the land which is agreed to be severed before sale or under the contract for sale.
The term ‘goods’ has been defined as meaning every kind of movable property except actionable claims and money. By ‘money’ here we mean current or recognized currency. But old coins that are no more recognized as legal tender or currency can be the subject matter of goods. Goods such as water, electricity, gas, trademark, patents, shares, stocks, etc are covered within the definition of goods giving in section 2(7).
(3)Agreement-To constitutes a transaction of the sale there should be an agreement express or implied, relating to goods to be completed by passing of title in those goods. There must be an agreement between the parties for the sale of the very goods in which eventually property passes.
(4)Transfer of property- One of the most essential elements of the contract of sales is the transfer of the property in goods to the buyer. Indeed, it is the essence of the contract of sale. But the transfer of property in goods has to be distinguished from “ a mere transfer of goods by the owner from one place to another which does not amount to sale.
(5) Price- In case of a contract of sale, the consideration must be some price that is, consideration in terms of money. It is the special feature that distinguishes a contract of sale from a barter or exchange. What is required is that there must be some consideration in money, or for exchange of goods or alternatively the price, it will still constitute a contract of sale.
● What are the remedies available to the seller against the buyer?
Suits for the price- Section 55 (1) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.
(2) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the Goods has not passed and the goods have not been appropriated to the contract
From the above section, it can be said that the seller can sue for the price only after the property in goods has passed to the buyer. For example, In the case of Colley V. Overseas Exporter, there was a contract for the sale of some unascertained leather goods to the buyer f.o.b Liverpool. In this case, though the seller sent the goods, yet they could not be put on board as no definite ship had been named by the buyer. When the action was brought by the buyer against the seller, it was held that the seller was not entitled to pay the price as the goods had not yet moved into the possession of the buyer. In the absence of an agreement relating to the payment of price on a certain day, irrespective of the delivery, the seller is not entitled to sue the buyer for a payment, but can bring about an action for damage.
Where there is a contract for sale wherein the price is payable on a certain date, irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price the seller may sue for the price even though the property has not been passed and the goods have not been appropriated to the contract.
Damages for non-acceptance- According to section 56, where the buyer wrongfully neglects or refuses to accept and pay for goods, the seller may sue him for damages for non-acceptance.
The damages are assessed on the basis of the principles contained in sections 73 and 74 of the Indian Contract Act, 1872. According to section 73 of the Indian Contract Act, when a contract has been broken, the party who suffers by the breach is entitled to receive, from the party who has broken the contract, compensation for any loss caused to him thereby, which naturally arose, in the usual course of things from such a breach, or which the parties knew when they entered into the contract, to be likely to result from the breach of it.
Furthermore, in estimating the loss or damage caused by a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.
The date at which the market price is to be ascertained is the day on which the contract ought to have been performed by delivery and acceptance as fixed by the contract or, where no time is fixed, at the time of the refusal to perform.
By virtue of the provisions of sections 55 and 63 of the Indian Contract Act, where the time for the performance is fixed by the contract but it is extended and another date substituted for it by agreement between the parties, the substituted date must be taken as the date for ascertaining the measure of damages.
In the case of Suresh Kumar Rajendra Kumar v K Assan Koya & sons, the plaintiff sold, through the commission agents, the goods and claimed compensation from the buyer who had rejected them. While doing so the plaintiff had taken all the measures necessary to sell the goods urgently in the ordinary course of business. In the absence of any records to show that the sale was conducted in an improper manner, it was held by the court that the plaintiff was entitled to claim the difference between the price at which the rice was supposed to be sold to the defendants, and the price at which it was finally sold.
Where the goods are deliverable by installments and the buyer has to accept one or the other or all the installments, the difference in prices is to be reckoned with on the day that a particular installment was to be delivered. Where the military authorities refused to accept further supplies of cots in breach of their contract, the J&K High court allowed Rs. 4 per cot as the damages to the supplies as the profit which the supplier would have earned under his contract of supply.
● What are the remedies available to the buyer against the seller?
Damages for non-delivery
According to section 57 of Sale of Goods Act, Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. When the property has passed, the buyer, provided that he is entitled to the immediate possession, has all the remedies of an owner against those that deal with the goods in a manner inconsistent with his rights. If therefore, the seller wrongfully re-sells them, he may sue the seller in trover, and also against the second buyer, though as against him the rights may be cut down by the provisions in sections 30 and 54.
In the case of non-delivery, the true measure of damages will be the difference between the contract price and the market price at the time of the breach. The market value of the goods means “the value in the market, independently of any circumstances peculiar to the plaintiff (The buyer)”. Where he, the seller, is guilty of breach of an agreement to sell, the following remedies may be available to the buyer.
(i) The buyer may sue for damages for non-delivery under section 57 of the Sale of Goods Act,
(ii) In case the price has been paid by the buyer, he may recover it in a suit for money had and received for a consideration which has totally failed.
Where however the buyer has failed to prove the alleged damages caused due to short supply of goods by the seller and has also not served to the seller a notice under Section 55 of the Indian Contracts Act, the buyer cannot claim damages.
Remedies for breach of warranty
Section 59 of the Sales of Goods Act which deals with the remedy for the breach of warranty provides the following:
(1) 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, the buyer is not by reason only of such breach of warranty entitled to reject the goods he may.
(a) Set up against the seller the Brach of warranty in diminution or extinction of the price; or
(b) Sue the seller for damages for breach of warranty.
(2) The fact that a buyer has set up a breach of the warranty in diminution or extinction of the price does not prevent him from suing for the same breach of warranty if he has suffered further damage.
A breach of warranty does not entitle the buyer to reject the goods and his only remedy would be those provided in s. 59 namely, to set up against the seller the breach of the warranty in diminution or extinction of the price or to sue the seller for damages for breach of warranty. From the definition of warranty given ins. 12(3) it is clear that a breach of it gives rise to a claim for damages only on the part of the buyer. It is also laid down by s. 13 that, even in the case of a breach of condition, if the buyer has accepted the goods, or, in the case of entire contracts, part of them, either voluntarily, or by acting in such a way as to preclude himself from exercising his right to reject them, he must fall back upon his claim for damages as if the breach of the condition was a breach of warranty.
This section declares the methods by which a buyer who has a claim for damages, in either case, may avail himself of it. It does not deal with the cases of fraudulent misrepresentation, which may enable the buyer to set aside the contract nor with cases whereby the express terms of the contract the buyer may return the goods in case of a breach of warranty. Also, in cases where the buyer has lawfully rejected the goods, he must proceed not under this section, but under s. 57, and if necessary under s. 61, to recover the purchase price and interest.
Specific performance: Section 57 of the Act states that subject to provisions mentioned under Specific Relief Act, 1877, in a case of breach of contract, the Court may, on an application by the plaintiff direct the defendant that the contract should be performed specifically. The decree passed by the court may be unconditional or s to terms and conditions as to price, amount of damages, etc. As stated above, previously the provision related to the sale of goods was governed by the Contracts Act. The Contracts Act did not provide for this kind of remedy. The Specific Relief Act was introduced in 1877 so that equitable remedy could be made available to the aggrieved party. This section provides a solution only to the buyer. The seller cannot file an application under Section 58 to enforce specific performance, because this section provides no rights to the seller, and only on request of the buyer can specific relief be provided.
● What are the Remedies available to both sellers and buyers?
Suit for repudiation of the contract before date or anticipatory breach
In Hochster v De la Tour it was held that where one of the parties repudiates the contract 14 before the time of the performance under the contract, the other party becomes entitled to sue for damages for the breach before the date of performance of the contract was due. In this case, the defendant had employed the services of the plaintiff, to go with him on tour. The service of the plaintiff was to begin from the 1st of June, but on 11th May the defendant informed him that his services were no longer required. The plaintiff filed the suit to recover damages for breach of contract before the arrival of the time of performance of the contract.
In India, the principle has been incorporated in section 39 of the Indian Contract Act, 1872. So far as the sale of goods is concerned, this principle finds mention in section 60 of the Sales of Goods Act, 1930. Section 60 provides:
Where either party to contract f sale, repudiates the contract before the date of delivery the other party may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
Interest by way of damages and special damages
(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case where by law interest or special damages may be recoverable or to recover the money paid where the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the Court may award interest at such rate it thinks fit one the amount of the price-
(a) to the seller in a suit by him for the amount of the price.- from the date of the tender of the goods or from the date on which the price was payable.
(b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller- from the date on which the payment was made.
This section preserves the right of a party to a contract of sale to recover special damages, that is to say, compensation for any loss or damage caused to him by either party’s breach ‘which the parties knew when they made the contract to be likely to result from the breach of it’.
In M/s. J. Patel & Co. v. National Federation of Industrial Co-operatives Ltd, the contract 15 was for the supply of tea of agreed specification. The goods supplied were not of standard and specification agreed upon. The goods were rejected by the ultimate recipient which terminated the contract with the buyer. The buyer suffered losses on account of termination of the contract by the ultimate recipient. The payment of the price was delayed. The seller sued the buyer for damages and also claimed penal interest. It was held that the plaintiff(seller) cannot charge interest for the delayed payment. Where payment is delayed for no fault of the defendant, the question of paying penal interest by the defendant, the question of paying penal interest by the defendant cannot also arise.
The Interest Act, which was introduced in 1839, states that interest also shall be paid by 16 way of damages in certain cases. The point is to be noted here that the seller can only claim interest when he is entitled to recover the price. When the seller issuing only for damages for breach of contract, he cannot claim any interest. The same principle applies in the case of the buyer also. He cannot claim interest if he is suing the buyer for breach of warranty.