Suits for Breach of the Contract | Law of Contracts - CLAT PG PDF Download

Suits for Breach of Contract 

Sections 55 and 56 of the Sale of Goods Act, 1930 delineate the remedies available to sellers and buyers in cases of breach of contract.

Seller's Remedies against Buyer — Sections 55 and 56 

•  Section 55:  Allows the seller to sue the buyer for the price of the goods if the buyer wrongfully neglects or refuses to pay for them.
•  Section 56:  Permits the seller to claim damages for non-performance of the contract, which includes loss suffered due to the buyer's failure to fulfill the terms of the agreement.

Buyer's Remedies against Seller — Sections 57, 58, and 59 

•  Section 57:  Enables the buyer to seek damages for non-delivery of goods, compensating for the loss incurred due to the seller's failure to deliver the agreed-upon goods.
•  Section 58:  Allows the buyer to claim damages for breach of warranty, which pertains to a seller's failure to meet specific contractual guarantees regarding the quality or condition of the goods.
•  Section 59:  Gives the buyer the right to seek specific performance of the contract, compelling the seller to fulfill their obligations as stipulated in the agreement.

Remedies Available to Both Buyer and Seller — Sections 60 and 61 

•  Section 60:  Outlines situations where both parties may have remedies for breach, highlighting the reciprocal nature of obligations in a contract.
•  Section 61:  Further elaborates on special circumstances where remedies are accessible to both the buyer and seller in the event of a breach.

 Reciprocal Promises in Sale of Goods 

• In every contract of sale, the seller is obliged to deliver the goods, while the buyer is required to pay the agreed-upon amount. This mutual obligation is known as reciprocal promise as per Section 2(f) of the Indian Contract Act.
• Reciprocal promises refer to a set of promises that form the consideration for each other in a contract. In a sale of goods contract, both parties make promises that are interdependent.

Seller's Rights as Unpaid Seller 

• When a buyer fails to pay the agreed amount, the seller becomes an unpaid seller and can exercise certain rights against the buyer. These rights are known as seller's remedies in cases of breach of contract.
• Seller's remedies can be directed against the buyer or the goods involved in the transaction.
• According to Section 45(1) of the Sale of Goods Act, 1930, a seller is considered an unpaid seller in the following situations:
• When the entire price has not been paid, and the seller has the immediate right to claim the price.
• When Bills of Exchange or other negotiable instruments have been received as conditional payment, and the conditions have not been fulfilled due to dishonor of the instrument or other reasons. For example, if a seller receives a cheque as payment, and the cheque bounces, the seller becomes an unpaid seller.

Position of Seller 

• A seller also includes individuals in positions similar to that of a seller, such as agents or consignors who have paid or are responsible for the price of the goods.

Rights Against Buyer

The seller has certain rights against the buyer in case of breach of contract. These rights include:

1. Suit for the Price 

• If the buyer wrongfully neglects or refuses to pay for goods that have been passed on to him, the seller can sue him for the price as per Section 55(1) of the Sale of Goods Act.
• Once the property in the goods has passed to the buyer, he is bound to pay the price. If the due date for payment has passed and the goods have not been delivered, the seller can sue the buyer for his wrongful neglect or refusal under Section 55(2).
• In cases where the price is due in foreign currency, damages should be calculated at the rate of exchange prevailing at the time the price was due, not at the time of the judgment.

2. Suit for Damages 

• If the buyer wrongfully refuses to accept goods and make payment, the seller can sue him for damages for non-acceptance under Section 56. The calculation of damages is governed by Sections 73 and 74 of the Indian Contract Act.
• If the goods have a ready market, the seller should resell the goods, and the buyer will be liable for any losses incurred. If the seller does not resell the goods, the measure of damages is the difference between the contract price and the market price on the day of the breach. If there is no difference, the seller is entitled to a nominal value.
• The seller has a duty to mitigate losses, meaning he must make reasonable efforts to minimize the loss arising from the breach. For example, if the seller can resell the goods, the difference in price between the contract and the resale price is recoverable. However, if the seller deliberately refuses to resell and the market value decreases, the buyer will not be liable for the excessive loss.
• The duty of mitigation was explained by the Supreme Court in the case of M. Lachia Shetty v. Coffee Board, where a dealer who refused to carry out a bid at an auction of coffee had to compensate the board for the difference in loss when the coffee was reauctioned at a lower price.

3. Suit for Interest 

• As per Section 61 of the Sale of Goods Act, if there is a specific agreement between the buyer and seller regarding interest on the price of goods from the due date of payment, the seller can recover interest from the buyer.
• If no such agreement exists, the seller may charge interest from the day he notifies the buyer. In the absence of a contractual provision, the court may award interest to the seller at a reasonable rate on the payable amount from the due date.

4. Repudiation of the Contract Before the Due Date 

• According to Section 60 of the Sale of Goods Act, if the buyer repudiates the contract before the delivery date, the seller can treat the contract as rescinded and claim damages for the breach. This principle is known as anticipatory breach of contract.
• When one party repudiates the contract before the due date, the other party has two options:
•  Accept the Breach:  If the aggrieved party chooses to accept the breach immediately, they can bring a claim for damages. In this case, the contract is considered rescinded, and damages will be calculated based on the prevailing prices at the time of the breach.
•  Wait for Delivery:  The aggrieved party can also choose to wait until the delivery date. In this scenario, the contract remains open and carries risks and benefits for both parties. There is a possibility that the party who initially repudiated may change their mind and decide to perform the contract. Damages, in this case, will be assessed based on the prices on the day of delivery.

Rights Against Goods 

The rights against goods are the rights that a seller has over the goods sold or the goods in possession of the seller. These rights are available to the seller in case the buyer has not paid the price of goods sold.

The seller has the following rights over the goods sold:

1. Lien 

It is the right of a seller to retain the possession of goods sold until the price is paid. The seller can exercise this right of lien in the following circumstances:

• When the buyer is insolvent.
• When the term of credit for the goods sold has expired.
• When the goods are sold without any stipulation as to credit.

When the goods are sold on credit, the right to lien is suspended during the term of credit and exists only for the price of goods, not for any additional charges.

2. Stoppage In Transit 

It is the right of the unpaid seller to stop the goods in transit when the buyer becomes insolvent. The seller can exercise this right under the following conditions:

• The seller is unpaid.
• The buyer is insolvent.
• Property has passed to the buyer.
• Property is in the course of transit.

3. Resale 

The unpaid seller has the right to resell the goods under certain conditions:

• The seller must send a notice to the buyer, except in the case of perishable goods, giving the buyer a last chance to pay the price and take back the goods within a reasonable time.
• If there is a loss in the resale of goods, the seller can claim the loss from the buyer.
• The seller gives rightful ownership to the buyer after the resale, regardless of whether notice of resale is given to the defaulting buyer.

Rights Against Seller 

1. Damages for Non-Delivery 

• If a seller refuses to deliver goods, the buyer can sue for non-delivery.
• If the buyer has paid any amount, they are entitled to recover it.
• Damages are determined by market forces, considering the contract and market price on the day of the breach.
• The buyer must prove damages in court; otherwise, they can only get a refund of what they paid.
• The buyer should minimize losses by purchasing goods from other sources instead of waiting for market fluctuations.

2. Suit for Specific Performance 

• When specific goods are involved and the seller breaches the contract, the buyer can seek specific performance in court.
• The seller is obligated to fulfill the contract without the option to retain the goods by paying damages.
• The court's power to order specific performance is governed by the Specific Relief Act, 1963.
• In cases like  Behnke v. Bede Shipping  , buyers were allowed to recover specific ships due to unique circumstances.

3. Suit for Breach of Warranty 

• Buyers cannot reject goods solely based on a breach of warranty but can sue for damages or set off the breach against the price.
• Damages are measured by the direct and natural loss resulting from the breach of warranty.
• In  Mason v. Burningham  , the buyer was entitled to damages for repairs made to a stolen typewriter due to the seller's breach of warranty.

4. Suit for Anticipatory Breach 

• In cases of anticipatory breach, if one party repudiates the contract before delivery, the other party can consider the contract rescinded and sue for damages.
• The aggrieved party has two options: accept the breach immediately and claim damages or wait until the delivery date.
• If waiting, the contract remains open, and damages will be assessed based on prices at delivery.

Conclusion 

• A seller becomes an unpaid seller when not fully paid or when the buyer fails to meet the terms of a negotiable instrument.
• In such cases, the seller can resell goods after exercising the right of lien or stoppage in transit, giving notice to the buyer.
• The new buyer will have good title over the goods.
• The seller can sue the buyer for non-payment and exercise a lien.
• If the seller fails to deliver goods, the buyer can sue for non-performance and claim damages or specific performance.