SALE OF GOODS ACT (ACT III OF 1930)
The remedies under the Indian sale of Goods Act are devised for the protection of the interest of both buyer and seller. ‘Buyer’, as defined in Section 2(1) of the Act, means a person who buys or agrees to buy goods, and ‘Seller’ means, according to Section 2(13), a person who sells or agrees to sell goods.
The term ‘goods’ has been defined in Section 2(7) of the Act: ‘goods’ means every kind of movable property other than actionable claims and money and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under contract of sale.
REMEDIES OF SELLER
The remedies available to the seller under the Sale of Goods Act may be classified into two categories
(A) Remedies against buyer personally.
(B) Remedies against the goods sold.
(A) REMEDIES AGAINST BUYER PERSONALLY
A seller has the following remedies against the buyer personally:
(1) Suit for price.
(2) Suit for damages for non-acceptance.
1. Suit for Price
The unpaid seller has a remedy under Section 55 by way of suit for price against the purchaser, when:
(1) (a) there is a contract of sale of goods, and
(b) the property in the goods has passed to the buyer, and
(c) the buyer wrongfully neglects or refuses to pay for the goods according to the contract.
(2) Even if the property in the goods has not passed to the buyer and the goods have not been appropriated to the contract, the seller can sue the buyer for the price of the goods if the buyer unlawfully neglects or refuses to pay, provided under a contract of sale the price is payable on a certain day irrespective of delivery.
Where in a case before the Supreme Court the property in the goods had passed to the buyer on delivery of the goods to the Railways and the seller being thereafter not responsible for deterioration of the goods in transit, it was held that the seller was entitled to recover the agreed price without any deduction for the deterioration.
Award of Interest
Section 61(2) which deals with this matter provide as follows:
61(2) In the absence of a contract to the contract, the court may award interest at such rate 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.
In the above case the buyer had defaulted in payment of the price and did not dispute its liability to ay interest but it being a Government institution (COD, Kanpur), its only plea was that in the notice under Section 80 of the Code of Civil Procedure which was served on the respondent, there was no claim of interest and as such the same should not be allowed. This defense was negatived. The court upheld the decision of the Patna High Court in B.B. Boss v. National Coal Trading Co. where also interest on late payment of price was allowed though there was o claim of interest in the demand notice. The Rajasthan High Court found in M.K.M. Moosa Bhai Amin v. Rajasthan Textile Mills that the District Judge had not allowed the claim as to interest on the ground that there was no stipulation in the contract for payment of interest on the unpaid price. The High Court allowed reasonable interest at the rate of six per cent. The Supreme Court laid down that “on a conspectus of all the decisions and the provisions of Section 61(2) we are constrained to hold that the plaintiff is entitled to get a decree of interest on the unpaid price @ 6 per cent annum which is considered to be a reasonable rate of interest.
2. Suit for damages for non-acceptance
Section 56 of the Act provides that where the buyer wrongfully neglects or effuses to accept and ay for the goods, the seller may sue him for damages for non-acceptance. This section does not provide as to how damages for non-acceptance are to be assessed. The principles for assessment of damages are laid down in Section 73 and 74 of the Indian Contract Act, 1872, and the same principles would be equally applicable. Where the goods are easily saleable n the market, the principle applicable is that the buyer has to ay to the seller the loss that the seller has sustained on reselling the goods on the date of beach of contract committed by the buyer. Whether the seller resells the goods or not, the measure of damages will be the difference in the market and contract prices on the day of breach. This principle applies even if the seller has actually suffered less loss. Where there is failure to accept an installment, the difference is to be taken on the due date of an installment. Where the difference is nil, the seller can get only nominal damages. Where the market price rises after the breach so that the seller makes a profit on resale, even so the court may allow him the difference. Where the goods do not have any ready market, the measure of damages will depend upon the facts of each case.
(B) REMEDIES AGAINST GOODS SOLD
Remedies against goods sold are available only to an unpaid seller. Section 45 of the Sale of Goods Act defines unpaid seller as a seller to whom the whole of the price has not been paid or offered or to whom a cheque or some other negotiable instrument was given for the price and the same has been dishonoured.
Under Section 46 of the Act, the unpaid seller of goods has the following remedies against the goods contracted to be sold:
(a) Right of Lien.
(b) Right of Stoppage in Transit.
(c) Right of Resale.
(a) Right of Lien
Lien means retaining the goods. Possession is an essential element for the exercise of this right. Unless there is possession, there is no lien. The unpaid seller who is still in possession is entitled to retain the possession of the goods until payment or tender of the price in the following cases:
(a) Where the goods have been sold without any stipulation as to credit.
(b) Where the goods have been sold on credit, but the term of credit has expired.
(c) Where the buyer becomes insolvent.
The seller may exercise his right of lien even when he is in possession of the goods as agent or bailee for the buyer.
Where an unpaid seller has made part delivery of the goods, be may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien.
Termination of Lien
An unpaid seller loses his right of lien when he absolutely delivers the goods to a carrier or some other person for the purpose of transmission to the buyer and does not reserve any right, called the right of disposal, to take back the goods; or when the buyer or his agent has taken possession of the goods or when the seller has waived his right of lien. Waiver may be express or implied. An express waiver means the seller promising to deliver the goods without waiting for the price. Implied waiver means an agreement to sell goods on credit or delivery of the documents of title to the goods enabling the buyer to take delivery of the goods.
(b) Right of Stoppage in Transit
The right of stoppage in transit means that where the seller has delivered the goods to a carrier or some other person for transmission toward the buyer, the seller may ask such person to bring back the goods to him. This right can be exercised only in the extreme case of the buyer’s insolvency. The right is subject to two important conditions. One, the buyer must have become insolvent and, second, the goods must be in transit. The right commences when transit commences and ends when transit ends. The commencement and end of transit is governed by the principles stated in Section 51. They are as follow:
(1) Transit ends when the buyer or his agent has taken delivery of the goods from the carrier.
(2) Where the buyer or his agent takes possession of the goods before their arrival at the appointed destination.
(3) Where the carrier, on arrival at the appointed destination, acknowledge to the buyer that he is now holding goods on the buyer’s behalf.
(4) Where the buyer does not accept the goods on their arrival at the appointed destination, the transit does not end, even if ht goods have been unloaded.
(5) Where the goods have been delivered to a carrier chartered by the buyer it will be a question of fact in each case whether transit has ended. If the carrier has received the goods as the buyer’s agent, transit ends.
(6) Transit ends when, on arrival at the appointed destination, the carrier is wrongfully refusing to deliver the goods to the buyer.
(7) Where the goods have been delivered in part, the seller may stop the remainder unless, of course, part delivery shows an intention to deliver the whole.
Section 52 lays down the manner of exercising this power. The right is exercised by giving notice to the carrier to the effect that he should not carry further the goods and should return them to the seller.
The rights of lien and stoppage in transit are both defeated when the goods have been further sold by the buyer with the seller’s consent or documents of title to the goods, such as railway receipt or bill of lading, have been sent to the seller and he has sold or pledged the goods by transferring the documents.
(c) Right of Resale
An unpaid seller retains possession of the goods in the exercise of his right of lein or regains possession by stopping goods in transit. The contract of sale, however, remains binding. The buyer can claim possession by offering the price. But how long should the seller be compelled to wait? Section 54, therefore, gives the seller the remedy of reselling the goods.
In the first place, the goods may be resold without reference to the buyer if they are of perishable nature. In other cases, the seller should give a reasonable notice to the defaulting buyer of his intention to sell. The goods may then be resold. Shortfall, if any, in the price can be recovered from the defaulting buyer. A right of resale without notice can be expressly reserved in the contract. The buyer will become entitled to take back his deposit, if any, subject to his liability to damages for breach.
Under the Sale of Goods Act a buyer of goods has the following remedies:
(A) Damages for non-delivery.
(B) Remedy for breach of warranty.
(C) Remedy by way of specific performance of contract.
(A) DAMAGES FOR NON-DELIVERY
Section 57 of the Act provides that 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 section lays down the method for measure of damages by providing that damages will be assessed at the different between the contract price and the available price in the market.
(B) REMEDY FOR BREACH OF WARRANTY
The remedy for breach of warranty is available in all cases where the buyer cannot reject the goods. The loss which he has suffered for the breach of warranty may be recovered by way of damages, or, if the price has not been paid, may be set off against the price. A lady purchased a second-hand typewriter and spent money on its repair. It was recovered from her by the police being a stolen property. Thus the warranty of quite possession was broken. She was allowed to recover compensation for her loss including the cost of repair.
Where the breach of warranty is due to inferior quality of the goods the buyer can recover compensation in terms of money which will make good that loss.
(C) REMEDY OF SPECIFIC PERFORMANCE
When the contract is for the sale of specific or ascertained goods, and the seller is refusing to deliver the goods, the buyer may ask the court to direct the seller to deliver the goods to the buyer. This is known as the remedy of specific enforcement of the contract of sale of goods. One of the requirements for this remedy is that the sale must be that of specific goods. Where only a portion of the goods out of a big lot has been sold and that portion has to been identified, the remedy of specific performance is not available. Secondly, the power of the court to order specific performance is subject to the provisions of Chapter II of the Specific Relief Act, 1963. This chapter empowers the court to order specific performance only when damages would not be an adequate remedy. The buyer of a ship was allowed specific recovery of the ship because no other ship of the type was available. Similarly, in a sale of timber, the buyer was allowed to remove and take away the timber, because timber of parallel quality was not available in the market.
DAMAGES IN CONTRACT AND TORTS
Damages: Definition
Mayne defines damages as, “pecuniary satisfaction obtainable by success in an action”. He further says that damages may “rise to almost any amount’ or they may dwindle to a merely notional sum. They may be governed by rules so strict as to enable the judge to dictate their amount as a matter of law; or they may be left, within loose limits, to the discretion of the judge or jury.”
Mayne’s definition of damages, it will be noted, is wide enough to cover actions for the price of goods, amounts payable under insurance policies and all those cases where money is recovered otherwise than as compensation for wrong.
The object of the pecuniary compensation to be given for reparation of the damage suffered is to award as far as possible so much of money which will put the injured party in the same position as he would have been in if he had not sustained the wrong for which he is claiming damages. This principle is equally applicable to breach of contract and tort.
The practical aspect of this principle is different however, because in almost in every case damages do not prove to be complete compensation. An example will make this point clear. Presume that A lends Rs. 10,000/- to B and B promises to pay back the amount to A with interest at 6% pm a specified date. B fails to pay the amount due on specified date and also long after. Now by delay A may, apart from suffering mentally, might become insolvent and thus ruined for ever, or he may be compelled to borrow money at an exorbitant rate of interest. Even if he files a suit for recovery of the due amount against B, the cost taxed in the decree will be much less than he actually spends in the action. Thus it will be seen that damages are not complete compensation for the injury sustained.
Kinds of Damages
(i) Ordinary or general damages:- Actual losses are those which are sufficiently connected directly to the act. Such damages are generally awarded. They are known as ordinary or general damages.
(ii) Notional damages:- Where the plaintiff has suffered no actual loss, but his right has been violated, the court may award him a very small amount by way of damages. The amount serves as a token for the right violated and is known as notional damages, Ashby v. White is famous for such award. The returning officer was sued far denying the plaintiff her right to cast vote. She had lost nothing because the candidate whom she wanted to support had won. The court allowed her a token amount.
(iii) Special damages:- Special damages represent a sum which is awarded to a particular plaintiff for any extraordinary loss suffered by him on account of his special circumstances.
(iv) Exemplary damages:- They differ from ordinary damages. They are punitive in nature and while awarding such damages the aim is also to punish the person for the wrongful act. Exemplary damages are never awarded in case of contractual breaches except in case of a breach of contract to marry. In torts they are awarded according to circumstances.
Liquidated Damages and Penalty
The situation of liquidated damages or penalty can arise only in connection with a contract. The parties may fix beforehand the amount which shall be payable by one to the other in case of breach. If the amount so mentioned appears to the court to be reasonable in the circumstances, it is known as liquidated damages. If it is much more than that it will be viewed as a penalty.
The same sum may b a penalty though referred to as liquidated damages and vice versa. In other words, ‘penalty’ means the sum ascertained by the parties themselves which the one party making a breach will be liable to pay the other by way of compensation. The penalty is more punitive in nature. While awarding penalty, the court will consider the question of reasonableness.
Penalty or Liquidated Damages—A Question of Law
The question whether a sum mentioned in an agreement to be paid for a breach is a penalty or liquidated damages is a question of construction to be decided by the Judge upon the terms and inherent circumstances of each particular contract, judged as at the time of making of the contract, not at the time of the breach.
Ascertainment of Damages
In the case of Kingslay v. Secretary of State, the Calcutta High Court laid down the principal with regard to the ascertainment of damages: “Though every breach of duty arising out of a contract gives rise to an action for damages without proof of actual damage, the amount of damages recoverable as a general rule is governed by the extent of actual damage sustained in consequence of defendant’s act. In cases admitting proof of such damages the amount must be established with reasonable certainty. But this does not means that absolute certainty is required nor in all cases is there a necessity for direct evidence as to the amount. Damages are not uncertain for the reason that the loss sustained is incapable of precise measurement. Certainty to a reasonable extent only is required. It is necessary that the loss or damage suffered must be proved, so as to remove from a reasonable man’s mind the doubt that it was most likely to follow from the breach of the contract. In actions for breach of contract where there has undoubtedly been an infringement of a right, nominal damages are recoverable even though o actual damages can be proved.”
However, the present position of law as enunciated by the Supreme Court in Maula Bux v. Union of India is as follows:
(i) The words “whether or not actual damage or loss is proved to have been caused thereby” in Section 74, are hinted only to those cases where it it not possible to prove the exact value of loss in terms of money, and so the value fixed by the parties may be terms of money, and so the value fixed by the parties may be taken as reasonable measure of compensation.
(ii) Where loss in terms of money is determinable, the party claiming compensation must prove the loss suffered by him, otherwise no compensation would be awarded.
In this case the plaintiff was contractor for supplying potatoes, eggs, fish etc. for one year to the Military Headquarters, Uttar Pradesh Area. He had deposited Rs. 18,500/- as security for due performance of the contract. He failed n making a regular supply as contracted and the Government of India forfeited the deposit. The plaintiff challenged the forfeiture. The Supreme Court did not agree that the deposit was earnest money, nor did it agree with the contention that the deposit represented genuine pre-estimated loss. SHAH C.J. held the forfeiture to be in the nature of penalty. Union of India had did proved to have suffered any loss and so it was not entitled to any compensation.
Similar were the facts of Union of India v. Rampur distillery and Chemical Co. Limited also before the Supreme Court. In this case, the contractor had to supply ‘rum’ and had failed to supply as per contract. The Supreme Court did not allow the Government of India to forfeit the deposit as reasonable compensation, as no loss was shown on account of the breach of contract.
Measure of Damages
Damages are a sort of compensation in terms of money for the injury sustained. The sum of money which should be given for reparation of damages suffered should, as nearly as possible, be the sum which will put the inured party in the same position as he would have been in, if he had not sustained the wrong for which he is getting damages. As stated by the Supreme Court in Murlidhar Chiranjilal v. Harichandra Dwarkadas, the first principle on which damages in cases of breach of contract are calculated is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a position as if the contract had performed; but this principle is qualified by another principle which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach and debars him from claiming any part of the damages which is due to his neglect to take such steps. On the facts of the case the difference between the price in Calcutta at the date of the breach and the contract price was considered as the measure of damages. In cases permitting proof of such damages the amount must be established with reasonable certainty. General principles for ascertaining damages have been clearly and lucidly laid down by the Calcutta High Court in the leading case of Frederick Thomas Kingsley v. Secretary of State. Damages should be calculated as on the date of breach and any subsequent change of circumstances tending to decrease the price cannot be taken into consideration.
DAMAGES IN CONTRACT
Remoteness of Damage
(i) Damages naturally arising from a breach of contract according to usual course of things are always recoverable.
(ii) Damages which would not arise in the usual course of things from a breach of contract but which do arise in circumstances peculiar and special to the case are not recoverable.
(iii) When, however, the special circumstances are known to the person who breaks the contract and the damages complained arose naturally from the breach of the contract, such special damages must be deemed to have been contemplated by the parties. They are, therefore, recoverable.
Implied knowledge—A presumptive basis of contemplation
Contemplation, therefore, must have some basis. The defendant must have the knowledge of facts. Knowledge, again, is of two kinds—
(i) actual knowledge of a fact,
(ii) implied knowledge which is to be implied only within reasonable bounds.
THE INDIAN CONTRACT ACT, 1872—SECTION 73
Compensation for loss or damage caused by breach of contract:- When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained y reason of the breach.
Compensation for failure to discharge obligation resembling those created by contract: When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured y the failure to discharge is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.
Explanation:- In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance f the contract must be taken into account.
Rule in Section 73—Applicable to all contracts
The rule contained in Section of the Act is applicable in India to all kinds of contracts, whether they relate to movable or immovable property and whether they relate to any other contract relating to service, marriage or to any other personal relation.
Breach of marriage contracts
The aggrieved party can maintain a suit for damages or compensation against the party who has broken or has brought about a breach of a contract of betrothal. Contracts of betrothal entered into on behalf of minors by their guardians and shown to be for their benefit are enforceable at the instance of the minors. Where a mother entered into an agreement for the marriage of her minor daughter with a boy, who was of age, the daughter was allowed to sue him for breach of the agreement. WADIA, J. pointed out that according to Hindu law a betrothal can be broken off if either party is found to be of a lower caste or to have an incurable disease or if the intended husband is found unfit, or the girl is unchaste, etc. Such an agreement cannot be specifically enforced and only damages can be recovered for its breach.
Where it is alleged that the contract of marriage was induct by fraud or deceit and damages are sought to be recovered for the same, it must be proved that there would have been no intention to marry but for the fraud. Where the parties to marriage agreement were Hindu related within prohibited degrees, the agreement being void under the Hindu Marriage Act, no claim for damages for breach of contract was maintainable.
Breach of contract of service
Generally the practice adopted between a master and servant is to give one month’s notice to terminate his contract of service or in lieu of this one month’s salary. In order to entitle a servant t one month’s notice, it is necessary for him to show that he was able to perform his part of the contract. Where a servant is unable to attend to his work he may be dismissed without a month’s notice. Where a contract of service is broken by the employer, damages are determined with reference to the usual terms of wages for the employment contracted for and the time that would be lost before similar employment can be obtained by the servant. In an action for wrongful dismissal from service, the damages are restricted to the actual loss suffered by the wrongful determination of the service; no damages are recoverable for injured feeling or probable difficulty of getting another service.
Where the tenure of a service is fixed in terms of an Act, any removal in violation of that Act does not put an end to the contract of service. The employee can claim salary, but not damages. But where there is no such operative statute and an employee is wrongfully dismissed, his contract of service ends. He can claim damages but not salary, though damages may be measured in terms of salary.
Breach of contract of sale
In all cases of contract of sale of goods, ordinarily the damages must be assessed by finding out the difference between the contract rate and the market rate of the goods at the date of the breach. Whenever damages are awarded on any other basis, it is necessary to explain the circumstances why the criterion of market rate is not applicable to the facts of the case. Damages may be occasionally awarded on the basis of loss of profit if the other party had the knowledge of the circumstances. Where there was no open market for the purchase of cloth for export at the date of contract as well as the breach and the same was within the knowledge of sellers, damages for breach by the sellers were ascertained by relying upon the market rate for export contracts for the foreign country in question that were available at the date of breach.
The general principle of laws is that the loss of profits can only be claimed when the particular purpose is specifically communicated to the other party.
Statutory Damages
Where the amount of compensation payable is fixed by an Act, the tariff applicable will be the one which is in fo4rce at the time of the breach. This opinion has been expressed by he Supreme Court in Padma Srinivasna v. Premier Insurance Co. The case arose out of a claim for compensation under the Motor Vehicles Act, 1939 for the death of the claimant’s husband. The death was caused by a truck which was insured with the defendant company against third party risks. At the time of insurance the limit of insurer’s liability in such cases was Rs. 20,000 only. The accident took place on April 5, 1970. A amount before that, on March 2, 1970 the Motor Vehicles (Amendment) Act of 1969 came into force and this raised the compensation for loss of life to Rs. 50,000. The insurer was held liable to pay the latter amount. The court said that if the parties to a contract agree that one shall pay to the other damages for breach of contract in accordance with the law contained in any particular statute, without pinpointing the particular provision of a particular law, then the law which is in force on the date of breach will be applicable. The date of the cause of action is important and not the date of insurance.
DAMAGES IN TORT
The tests of remoteness in contract and tort are not the same in all respects. In respects. In contract they are subject to the rules in Hadley v. Baxendale. Damages are too remote if they are not natural and probable consequences of the breach in the ordinary course or in respect of which it can be inferred that the defendant undertook liability.
An illustration of these rules occurs in Henderson v. Yeyer. The defendant, who was a manufacturer of cranes, agreed to sell cranes to the plaintiff, a timber importer, for use in the latter’s timber yard. Delivery was delayed beyond the contract date, and the plaintiff consequently suffered loss in loading by hand and considerable congestion and inconvenience in his yard, labour by hand being much slower than by crane. For all these items the plaintiff recovered damages, on the principle of Fletcher v. Tayler and Cory’s case. But he failed to recover additional demurrage on the barges kept waiting to be unloaded, and rent of storage of some of the timber awaiting unloading, on the ground that the defendant was not informed of (and being only a crane-maker could not be assumed to know) the length or times of the timber importing season, and could not be deemed to have contemplated the probability that these later expenses would be incurred by his delay. Such items were therefore too remote.
In tort it is settled rule that the “test is not what was contemplated as the probable consequences of the breach but (once the culpability is established) whether the damages are the direct consequence of the breach; if not, generally they are too remote.”
Motive as an element in damages
In the law of contract damages are given by way of compensation for the loss suffered by the injured party and not for the purpose of punishing the defendant for the breach. Motive for and the manner of breach is not taken into account because generally punitive damages are not recoverable for breach of contract. In the law of tort, on the other hand, the motive and the manner of the commission of a tort have an important bearing on the question of damages. The more motivated and wanton a tort, the higher will be the damages.
Punitive damages
The expression “punitive damages” refers to a figure of damages which not only compensates the plaintiff for his loss, but goes beyond that and contains an element of punishment of the defendant. In contract such damages are not awarded. Even where the parties have fixed their own figure of compensation, the court may reduce it if it looks a penalty. But in tort such damages may be awarded. If a person perpetrates upon another a wanton and deliberate wrong, he may be subjected to the liability of paying punitive damages as a measure of reminding him of the deliberate mischief played by him.
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