CHAPTER 9

Suits for Breach of Contract

In this Chapter

1. Introduction

2. Suit for Price (Section 55)

3. Damages for non-acceptance (Section 56)

4. Damages for non-delivery (Section 57)

5. Specific Performance (Section 58)

6. Remedy for Breach of Warranty (Section 59)

6.1 Notice to Seller of Defective Condition

6.2 Resale by Buyer

6.3 Acceptance of Goods without Inspection

7. Repudiation of Contract before Due Date (Section 60)

7.1 Measure of Damages

7.2 Measure of Damages when Goods are to be Delivered by Instalments

8. Interest by way of Damages and Special Damages (Section 61)

Relevant Cases

1.Gordon v. Whitehouse, (1856) 4 WR 231.

2.Bilasiram Thakurdas v. Gubbay, (1915) ILR 43 Cal 305.

3.Union of India v. Kesar Singh, AIR 1978 J&K 102.

4.Lazenby Garages Ltd. v. Wright, (1976) 2 All ER 770.

5.Jamal, A.K.A.S. v. Moola Dawood Sons & Co., (1916) 43 IA 6: ILR (1916) 43 Cal 493.

6.Stoozina Gdanska SA v. Latvian Shipping Co., (1998) 1 All ER 883 HL.

7.Sitaram Srigopal v. Daulati Devi, MANU/SC/0035/1979: (1979) 4 SCC 351.

9.A.P. Tobacco Growers Coop. Union Ltd. v. Anjaneya Tobacco Co., (1998) 5 Andh LT.

10.Mason v. Burningham, (1949) 2 All ER 134.

11.Lexmead (Basingstoke) Ltd. v. Lewis, (1981) 55 Aust LJ 753.

12.Kotu Mal v. Bihari Lal, AIR 1921 Lah 355.

13.National Traders v. Hindustan Soap Works, MANU/TN/0137/1959: AIR 1959 Mad 112.

14.Bradley v. H. Newson Sons & Co., (1919) AC 16 (53).

15.Garnac Gain Co. Inc. v. HMF Faure and Fairclough Ltd., (1968) AC 1130 (1140).

16.Millett v. Van Heek & Co., (1921) 2 KB 369 CA.

17.Marwar Tent Factory v. Union of India, MANU/SC/0354/1989: (1990) 1 SCC 71: AIR 1990 SC 1753.

18.Seedaln Suppliers Syndicates v. H.P. State Co-op. Marketing and Development Federation Ltd., (1995) AIAC 373 (All).

19.Andhra Cotton Mills Ltd. v. Sri Lakshmi Ganesh Cotton Ginning Mill, (1996) 1 ALT 537 AP.

20.Alco Chem. Ltd. v. Hyderabad Chemical and Pharmaceutical Works Ltd., (2003) 3 Banking Cases 508 (AP).

1. Introduction

CHAPTER VI (Sections 55 to 61) of the Sale of Goods Act, 1930 mainly talks about the suits and damages in case of breach of contract. Section 55 deal with suit for price. Section 56 and 57 deals with Damages for non-acceptance and non-delivery respectively. Section 58 talks about specific performance and section 59 about the remedy for breach of warranty. Repudiation of contract before due date is covered under section 60 and interest by way of damages and special damages are discussed in section 61.

2. Suit for Price (Section 55)

If a buyer wrongfully neglects or refuses to pay for goods then the seller may sue him. This section says-

"(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 certain day 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."

2(i) If the passing of the property depends upon the fulfilment of some condition and that condition is not fulfilled, the seller cannot sue for the price, even if the non-fulfilment of the condition is due to the default of the buyer, he can bring an action for damages under the next section i.e. section 56. But, if the property has passed and the payment of the price is subjected to fulfilling of some condition and that condition is not fulfilled owing to the default of the buyer, then the seller may sue for the price and that too even if by the terms of the contract the non-fulfilment of the condition revests the property in the seller.

2(ii) Breach of agreement to pay by Bill.-If, as per terms of the contract, the price is to be paid by a bill payable at a future day, and the buyer does not give the bill, the seller can only sue for the price when the bill if given would have matured, in the meantime, he can only sue for damages for breach of the buyer's agreement; Gordon v. Whitehouse, (1856) 4 WR 231.

If, the payment is to be done through negotiable instrument and which covers only a part of price of the goods then the seller could not obtain judgment for the whole price unless the instrument has been dishonoured.

3. Damages for non-acceptance [Section 56]

If, the buyer wrongfully neglects or refuses to accept and pay for the goods then the seller may sue him for his wrongful conduct. Section 56 says-

"Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance".

We can understand the above section with the help of some cases-

(a)In the case; Bilasiram Thakurdas v. Gubbay, (1915) ILR 43 Cal 305, the goods were deliverable by instalments and the buyer refuses to accept one or other insalments. It was held that the differences in prices to be reckoned on the day a particular instalment was to be delivered.

(b)In the case; Union of India v. Kesar Singh, AIR 1978 J&K 102, the military authorities were to receive the supply of cots as per the contract but when it reached to them, they refused to accept some supplies. In breach of their contract, the J&K High Court allowed

Rs. 4 per cot to supplier as damages being the profit which the supplier would have earned under his contract of supply.

There is a case; Jamal, A.K.A.S. v. Moola Dawood Sons & Co., (1916) 43 IA 6: ILR (1916) 43 Cal 493, where it was held that, "if a seller does not resell the goods and his loss is aggravated by the falling market, he cannot recover the enhanced loss. Here, the plaintiff contracted to sell to the defendants 23,500 shares to be delivered and paid for on December 30, 1911. The shares were tendered on the stipulated date, but the defendants declined to take delivery or to pay for them. The shares could have fetched a sum of Rs. 1,09,218 less than their price under the contract. But the plaintiff sold the shares only after February when the Market was again rising and he realized only Rs. 79,862 less than the price under the contract."

The defendants contended that they should be held liable to pay the loss of only Rs. 79,862. But, he was held liable for Rs. 1,09,218. Lord Wrenbury explained the principles of law as follows-

It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss subsequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained in the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.

Q. Discuss `damages for breach of contract' and cite some cases relevant to it.

In the case; Stoczina Gdanska SA v. Latvian Shipping Co., (1998) 1 All ER 883 HL, the question arose before the House of Lords whether damages for breach of contract can be recovered and also unpaid instalments upto the date of breach.

Here, the contract was to design and build a number of ships. The contract was so designed that the payment was to be done in four instalments-first 5% of total payment at the outset, second 20% when the keel was laid, third 25% on successful launching and 50% on delivery.

The property was to pass on delivery. The supplier had the right to rescind the contract on default in payment of instalments. The buyer failed to pay the second instalment. The supplier terminated the contract and brought an action to recover the unpaid second instalment and also damages for breach of contract. The House of Lords accepted the proposition that the seller had the right to recover damages and that did not affect the right to the unpaid instalment. The fact that the buyers got nothing was not the same thing as a total failure of consideration. Their Lordships held that the contract between both the parties was not simply to require the sellers to deliver the vessels, but rather the sellers were obliged to design and build the vessels. If the contract was to an end before the passing of property, the consideration provided by the sellers would not have totally failed, and they would remain entitled to claim instalments and also damages for breach. The fact that the buyers had not received any benefit under the contract did not mean that the consideration provided by the sellers had totally failed.

4. Damages for non-delivery (Section 57)

Q. What are the remedies available for a buyer if he doesn't get delivery of goods from the seller.

It says-

"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."

The Supreme Court in the case; Sitaram Srigopal v. Daulati Devi, MANU/SC/0035/1979: (1979) 4 SCC 351 laid down that if the buyer wants to recover damages with showing the difference between the contract price and market price, the onus is on the buyer to prove the difference otherwise he won't have a decree beyond refund of price. Here, the goods were purchased at an auction and sold to the appellant for which the sale price was received but delivery of goods was not given. The buyer besides refund of the sale price also claimed the difference between the market and contract price on the date of breach. But, in the absence of convincing and reliable evidence to establish either that the goods were in brand-new condition at the time of the sale or of the market price of goods of similar specifications, it was held that the buyer was entitled only for the refund paid by him and not to the damages.

If the original contract does not by its terms make any provision for sub-sales, the seller can't be charged with liability in respect of the sub-sale if there is likelihood or probability of sub-sales. Mangham LJ in the Arpad (1934) p. 189, 230 said in this regard as-

"I suppose that most vendors of goods and most carriers might be taken to know that if the purchaser or consignee is a trader the goods will probably be sold, or be bought for sub-sale; but the authorities seem to show conclusively that something more than necessary to enable the damages to be assessed by reference to a contract of sub-sale entered into before the date of delivery."

In the same case Lord Haldane^*observed-

"I think that the contract and the conditions which it incorporates show that it was contemplated that the cargo might be passed on by way of sub-sale if the buyer did not choose to keep it for himself, and that the seller in such a case contracted to put the buyer in a position to fulfil his sub-contracts if he entered into them. They were regarded by the terms of the original contract as sub-contracts which the original buyer was to be in a position to enter into, with stipulations which bound the original seller to enable the original buyer to fulfil them. Whether the latter was likely to enter into sub-contracts and pass the cargo down a chain of a resales is not material. It is enough that the contract contemplated by its terms that he should have the right to do so if he chose."

The Privy Council in the case; Jamal v. Moala Dawood Sons & Co., (1916) 1 AC 175 laid down this principle. It said that the duty of mitigation requires that the buyer's loss should be calculated on the basis of the prevailing prices on the day of breach. At the same time the buyer should also keep his loss to the minimum by purchasing his requirements on the day of breach from alternative sources. The dealing buyer in a fluctuating market will gain, 

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if the market falls and lose if it rises. It is not essential that he should actually effect the purchase.

5. Specific Performance (Section 58)

Q. What is specific performance? Describe it under the provision of section 58 of the Sale of Goods Act.

Section 58 of the Sale of Goods Act provides a remedy for the buyer and gives no correlative right to the seller. It says-

"Subject to the provisions of Chapter II of the Specific Relief Act, 1877, in any suit for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on the application of the plaintiff, by its decree direct that the contract shall be performed specifically, without giving the defendant the option of retaining the goods on payment of damages. The decree may be unconditional, or upon such terms and condition as to damages, payment of the price, or otherwise, as the Court may deem just, and the application of the plaintiff may be made at any time before the decree."

Where the contract is for the sale of specific or ascertained goods and the seller refuses to deliver them the court may order him to supply the goods as per the terms of contract instead of permitting him to retain them on payment of damages.

We may cite here the illustration of Wait, (in re:) (1927) 1 Ch 606: (1926) All ER Rep 433-

The seller had a consignment of 1000 tonnes of wheat out of which he sold 500 tonnes to the buyers. The buyer paid for it. Then, the seller became bankrupt. On the arrival of the ship, the 500 tonnes sold were not separated from the rest and the trustee refused to deliver.

It was held that the buyers were not entitled to recover the goods by a decree of specific performance. Here, the goods were neither "specific" at the time of contract, nor subsequently ascertained.

In the case; A.P. Tobacco Growers Coop. Union Ltd. v. Anjaneya Tobacco Co., (1998) 5 Andh LT, a certain quantity of tobacco was sold but the buyer failed in taking it away and further time was allowed to him to take away his purchase but even then no response came from the buyer's side. It was held that the time of performance was the essence of the contract. The buyer's failure disentitled from claiming specific delivery of the goods. Here, the seller could not be prevented from reselling and recovering his loss from the buyer on resale. The seller was also allowed 6% interest from the date of the suit till reaslisation of the decree amount.

6. Remedy for Breach of Warranty (Section 59)

A breach of warranty does not entitle a buyer to reject the goods and his only remedy is available under section 59 of the Sale of Goods Act, 1930. It says-

"(1) Where there is a breach of warranty by 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; but he may-

(a)set up against the seller the breach 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 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."

So, this section clearly speaks that if, a seller breaches the warranty terms then the buyer is not only entitled to reject the goods but he may also set up against the seller the breach of warranty in diminution or extinction of the price or may also sue the seller for damages for breach of warranty.

In the case; Mason v. Burningham, (1949) 2 All ER 314 a lady purchased a second hand typewriter and spent some money on getting it overhauled. After sometime, police seized the typewriter as it was a stolen property. This was a breach on the part of the seller of the warranty of quiet possession.

The Court held that she is entitled to recover damages including the cost of repair. She did the natural thing in having the typewriter repaired and the amount she had spent was a loss directly and naturally resulting from the breach.

In the case; Lexmead (Basingstoke) Ltd. v. Lewis, (1981) 55 Aust LJ 753, the House of Lords explained about the limitations of seller's liability. Here a farmer purchased a trailer and used it even after knowing the fact that there is a fault in the coupling mechanism. After few months of use when the trailer was passing through it got separated from the towing vehicle and stood on the road in the way of oncoming car. The accident caused the death of too passengers of car and two other got injured. The farmer and manufacturer of trailer, both were held liable for negligence. The farmer sought to recover his indemnity from the dealer on the ground that he suffered this loss on account of the dealer's breach of the warranty of fitness. But the court did not allow this plea. Their Lordships held that the implied warranty on the coupling continued only until the time when the farmer discovered that the handle of the locking mechanism was missing. Thereafter the warranty ceased and at the time of accident there was no warranty, either express or implied, in existence and the farmer could not claim that the accident was linked to the retailer's breach.

6.1 Notice to Seller of Defective Condition

The right enshrined in this section cannot be exercised where the buyer has waived the condition.

The remedy under this section is not absolute. Its benefit can't be extended at the point suitable to the buyer. The buyer is duty-bound to give notice of his intention to the seller in what respect the goods are defective and whether he is electing to treat the condition as a condition or as a warranty. Proper time, form and manner of notice will depend on facts and circumstances of each case.

6.2 Resale by Buyer

In the case; Kotu Mal v. Bihari Lal, AIR 1921 Lah 355, there was a resale by the buyer, in order to recover damages for breach of a warranty, it is necessary that the buyer should not have been negligent in failing to detect the inferior quality of the goods before he resells or otherwise deals with them.

6.3 Acceptance of Goods without Inspection

In the case; National Traders v. Hindustan Soap Works, MANU/TN/0137/1959: AIR 1959 Mad 112, there was a sale of specific goods by description in the circumstances in which it was not possible for the buyer to inspect the goods. It was held that the mere acceptance of the goods and payment of price did not disentitle the buyer from availing his remedy under section 59.

7. Repudiation of Contract before Due date (Section 60)

Section 60 - Speaks about the anticipatory breach.

"Where either party to a contract of sale repudiates the contract before the date of delivery, the other 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."

This section deals with the case, also known as an anticipatory breach of contract.

"An anticipatory breach has also been defined as follows by Lord Wrenbury in the case; Bradley v. H. Newson Sons & Co., (1919) AC 16 (53)-

"There can be no breach of an obligation in anticipation. It is no breach not to do an act at a time when its performance is not yet contractually due. If there be a contract to do an act at a future time and the promisor, before that time arrives, says that when the time does arrive he will not do it, he is repudiating his promise which binds him in the present, but is in no default in not doing an act which is only to be done in the future. He is recalling or repudiating his promise, and that is wrongful. His breach is a breach of a presently binding promise, not anticipatory breach of an act to be done in the future."

This section reflects a much wider principle which give a much needed right of action to the party who faces damages due to second party non-commitment towards the terms of contract.

7.1 Measure of Damages

Measure of damages is fixed, it is not affected by the defaulting party's repudiation if there is a market for that goods. In the case; Garnac Grain Co. Inc. v. HMF Faure and Fairclough Ltd., (1968) AC 1130 (1140) the plaintiff has treated the defendant's refusal as immediate breach of the contract. The relevant date for ascertaining the market price is prima facie and subject to the plaintiff's duty to mitigate the loss, is date fixed for delivery and not the date of repudiation or the date of the acceptance of repudiation.

7.2 Measure of Damages when Goods are to be Delivered by Instalments

In the case; Millett v. Van Heek & Co., (1921) 2 KB 369 CA, the contract was for the sale of cotton to be delivered by instalments when the government removed the embargo which was at the time of making the contract when this would be. The seller repudiated the contract and the same was accepted by the buyer before the removal of the embargo. The buyer claimed that the damages should be fixed by reference to the market price at the date of rescission, but the court did not find this contention justified.

Lord Atkin has also elaborated this concept in following words-

"It is admitted that, if a contract is made for the sale of goods deliverable in the future by specified instalments at specified dates, and before the time has arrived for performance the contract is repudiated and the repudiation is accepted, the damages have to be measured in reference to the dates on which the contract ought to have been performed. That is beyond controversy.....But it is said that, if no time have been expressed in the contract, and the contract would be construed by law as one for delivery by reasonable instalments over a reasonable time, even though those times might be ascertained as a question of fact by the jury, the plaintiff suing may not merely have an option, but is compelled, to fix his damages in reference to the market price at the time when the repudiation takes place. That, it seems to me, would introduce an anomaly entirely without any kind of principle to justify it. I am satisfied that the code never intended to make distinction, or to vary what was the rule of law at the time when it was passed......namely, that the damages are to be fixed in reference to the time for performance of the contract subject to questions of mitigation."

8. Interest by way of Damages and Special Damages (Section 61)

It has provision about recovery of interest-

"(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 rates as it thinks fit on 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."

There are cases where the court allowed recovery of interest from a period before the suit for the price was filed that is, from the date of delivery of the goods. In the case; Marwar Tent Factory v. Union of India, MANU/SC/0354/1989: (1990) 1 SCC 71, the Supreme Court held that the award of interest to unpaid seller if the price is not offered within reasonable time cannot be denied merely because in the notice served on the Government under section 80 of the Civil Procedure Code (a requisite for filing cases against the Government) the seller had not mentioned his claim as to interest.

In another case; Seedaln Suppliers Syndicate v. H.P. State Coop. Marketing and Development Federation Ltd., (1995) AIHC 373 (HP), the buyer had paid the price in advance and the seller handed over the material to another buyer at a higher price and whatever material he attempted to supply was inferior, the buyer was allowed to recover back his price with 8% interest by way of damages for the seller's breach.

In Andhra Cotton Mills Ltd. v. Sri Lakshmi Ganesh Cotton Ginning Mills, (1966) 1 ALT 537 AP, the seller demanded only interest without claiming the unpaid portion of the goods supplied by him, the court granted it. The court said that the intention of the legislature in enacting section 61(2) seems to be that where there is no provision in the contract for interest on the unpaid price, the seller should not be put to loss by the buyer's default in paying the price.