THE NATIONAL LAW INSTITUTE

UNIVERSITY, BHOPAL

PROJECT OF law of contracts-2

on

damages for the breach of contract

under sale of goods act,1930

Submitted to: Submitted by:

Prof. Gargi Rajvanshi Prashant Sinha

B.A.LL.B (Hons.)

2013 B.A.LL.B 113

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 ACKNOWLEDGEMENTS

I would like to thank Prof. Gargi Rajvanshi for her step by step guidance in the making
of this project.My sincere thanks to all my friends and seniors for their constant
encouragement in making this project by giving their valuable tips and
suggestions.Lastly i would like to thank my parents and relatives for their support.

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 OBJECTIVE
To find out the remedies available to the buyer or seller of goods in case of breach of
contract by the other party.

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 INDEX

Serial No. Topic Page No.

1 MEANING AND ESSENTIALS OF CONTRACT

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2 INTRODUCTION TO CONTRACT OF SALE

6-7

3 SUITS FOR THE BREACH OF CONTRACT

8-9

4 CASES ANALYSED

I) Pran Nath Suri And Ors. vs The State Of M.P.

10-11
AIR 1991 MP 121

ii) The Ganganagar Sugar Mills Ltd. vs Rameshwar

12-13
Das Tara Chand And Ors.
AIR 1992 Raj 14

5 bibliography
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 MEANING AND ESSENTIALS OF A CONTRACT
Contract- Every promise and set of promises forming the consideration for each
other forms an agreement and a contract according to Sec 2 (h) is an agreement
enforceable by law.

Essentials of a valid contract include-

Proper offer and proper acceptance There must be an offer made by one person to
the another with the aim of obtaining the consent of the other to form a contract.Proper
communication of acceptance in prescribed or reasonable manner is also needed to
form a legally binding contract.

Lawful consideration An agreement to form a valid contract should be supported by

consideration. Consideration means something in return (quid pro quo). It can be cash,
kind, an act or abstinence. It can be past, present or future. However, consideration
should be real and lawful and not fictional eg- A and B agree that if A murders C,B will
give him Rs 25,00,000,here the consideration for B is unlawful and the contract stands
null and void.

Capacity of parties to Contract As per Sec 11 of Indian Contract Act,1872 parties to a

contract should be competent to enter into a contract.No person who is party to a
contract should be of unsound mind, a minor,lunatic,insane,idiot etc which means he
must know the consequences of entering a contract and capable of interpreting the
nature of the contract.Also the person being a party to a contract must not be barred by
law to enter a contract.

Free Consent For a valid contract it is necessary that free consent should have been
given by the person out of his free will.His consent for the contract should not have
been obtained by coercion,fraud,undue influence,misrepresentation etc

Lawful Object and Agreement The object of the agreement must not be illegal or
unlawful.Eg- A and B enter into an agreement for sale of rifles in country X which does
not permit trade in rifles.The agreement shall be void on account of illegality of the
object.

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INTRODUCTION TO CONTRACT OF SALE

FORMATION OF A CONTRACT OF SALE

Sale and agreement to sell-

1) 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 the part-owner and another.
2 ) A contract of sale may be absolute or conditional.
3) when in a contract of sale of goods the property in goods transfers from the seller to
the buyer,it is called sale whereas if the transfer of property in goods is to take place at
some future date or subject to some condition to be fulfilled,the contract is an
agreement to sale.
4) An agreement to sell becomes a sale when the time elapses or the conditions are
fulfilled subject to which the property in goods is to be transferred.

MEANING OF BREACH- When one of the parties to a contract does not fulfill the
promise it undertook or it interferes with the performance of other party to the contract,it
leads to breach of a contract.

MEANING OF DAMAGES- Damages refer to the monetary compensation ordered by a

court of law to be given to a party/parties by the other contracting party/parties for the
loss or injury sustained by the aggrieved party as a result of breach of contract.Types of
damages are-

Actual- Loss or injury resulting directly from the breach of contract.Actual damages are
awarded after quantifying the loss incurred.

Consequential – Loss or injury resulting indirectly from the breach of contract by one
of the parties is compensated by awarding consequential damages.

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Incidental – Expenses incurred by a party to take care of goods after the breach has
been committed by one of the parties are compensated by awarding incidental
damages.

Nominal- A small amount of money is given in case of nominal damages just for the
infringement of a right,in such case no loss in reality is incurred by any of the parties.

Punitive- Damages awarded by a court or jury, typically in addition to actual damages,

when the party against whom the award is made is deemed to have behaved
egregiously; for example, with particular recklessness or malice.

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 SUITS FOR THE BREACH OF CONTRACT

Suit For Price- Under the following two conditions a suit for price can be filed by the
seller-

1) When under a contract of sale,the property in goods passes to the buyer but he
wrongfully neglects of refuses to pay the price of the goods,then it gives a right to the
seller to sue the buyer for the price of the goods.

2) When under a contract of sale,the price for the goods is payable on a certain day
irrespective of delivery of goods but the buyer wrongfully refuses or neglects to pay the
price of the goods,seller under that case may sue the buyer for the price even when the
property in the goods has not passed to the buyer.

Damages For Non-Acceptance- The seller has a right to sue the buyer in case the
buyer wrongfully refuses or neglects to pay the price of the goods.

Damages For Non-Delivery- If the seller wrongfully refuses or neglects the delivery of
the goods,he can be sued by the buyer for non-delivery of the goods.

Specific Performance- Subject to the provisions of Chapter 2 of Specific Relief

Act,1877,in any suit for the breach of contract to deliver specific or ascertained
goods,the Court if it thinks fit,on the application by the plaintiff,may by its decree direct
to perform the contract specifically and it will not give the defendant the option of
retaining the goods on payment of price.

Remedy For Breach Of Warranty-

When there is a breach of warranty by the seller or where the buyer elects or is
compelled to treat a breach of condition as a breach of warranty,the buyer can not only
reject the goods but also-

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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 the breach of warranty.

Even if the buyer has filed a suit for breach of warranty in diminution or extinction of the
price, it will not prevent him from suing for damages for the same breach.

Repudiation Of Contract BeforeThe Due Date- When either of the parties 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.

Interest By Way Of Damages And Special Damages- Following points have to noted
in this regard-

1 ) Nothing in the sale of Goods Act,1930 shall prevent the buyer or seller to recover
interest or special damages when by the law in a given situation such an interest or
special damages are 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 as 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 part of the seler- from the date on which the payment was made.

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Pran Nath Suri And Ors. vs The State Of M.P.
AIR 1991 MP 121

MATERIAL FACTS
A trade Quarry was put to auction for a term of 3 years (1 -4-67 to 31 -3-70) where
the plaintiff made a bid of Rs. 3,501/-per annum. It was the highest and accepted on
6-4-1967.

The plaintiff did not enter an agreement with the State despite being notified to do so.

The plaintiff had deposited an amount of Rs. 175/ - for earnest money and an amount
of Rs. 850/- for first instalment.

This amount of Rs. 1025/- was directed to be forfeited and proceedings were initiated
for recovering an amount of Rs.9,172/- by way of compensation for the loss claimed
to have been incurred by the State Government on account of default by the plaintiff.

The plaintiff filed a suit claiming refund of Rs. 1025/- and to get an injunction order
restraining the State Government from making the recovery.

Clause (8) laid an obligation on the plaintiff that for executing the agreement he had
to provide surety bond within 30 days of the communication of the acceptance of the
bid, failing which his security deposit and earnest money were liable to be forfeited
entitling the State to hold a re-auction of the quarry and recover the loss sustained
consequent to reauction.

IT WAS HELD BY THE COURT THAT-

1) The plaintiff defaulted on 28-5-67 when he failed to execute the contract and to
provide the surety.

2) Nothing prevented the State in holding a re-auction of the trade quarry for the
unexpired term pursuant to Clause (8) of the terms and conditions of the auction. The
breach of obligation on the part of the plaintiff imported a liability of forfeiture of
earnest money on him but nothing more.

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3) The State cannot be permitted to take advantage of its own negligence' in not
holding the re-auction for the unexpired term and thereby not taking steps for
mitigating the damagesFuthermore,the state could not show the extent of the loss it
would have sustained by holding a re-auction from 1 -4-67 to 31 -3-70

4) The State was not entitled to recover anything in the name of compensation for
breach of contract or obligation from the plaintiff and was also not entitled to retain
and forfeit the amount of first installment paid by the plaintiff because the instalment
was paid as consideration for working the quarry, an occasion which never arose.Only
earnest money could be kept by the state.

JUDGEMENT
The plaintiff's suit for refund of Rs. 850/- was granted. The defendant-State was
permanently restrained from recovering Rs. 9,172/- from the plaintiff. Plaintiffs suit
for refund of Rs. 175/-, being earnest money was dismissed.

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The Ganganagar Sugar Mills Ltd. vs Rameshwar Das Tara
Chand And Ors.
AIR 1992 Raj 14

1) An auction sale took place on September 10,1979. The defendants took part in it.

2) Defendants gave bids for the purchase of sugar @ Rs. 281.75 besides payment of
Rs. 40.67 as excise duty, per quintal and deposited required earnest money. The
number of bags purchased by the defendants in appeals Nos. 63/86, 77/86, 80/86,
81/86 and 65/86 were 400, 200, 250, 200 and 250 respectively and the defendants of
the remaining appeals purchased 100 bags each.

3) At the time of the auction sale,' they were told to lift the sugar' bags purchased by
them during the period from' Sept, 16 to.Sept. 22, 1979 which was extended by the
Collector, Sri Ganganagar till Sept.-29, 1979. Earnest money was duly deposited at
the rate of Rs. 30/- per bag .

4) On Sept. 12,1979, the Government of lndia in the Ministry of Agriculture and

Irrigation, Department of Food, New Delhi issued Sugar (Price Control) Order, 1979
under Sec 3, Essential Commodities Act, 1955, fixing the wholesale price of sugar @
Rs. 268/- per quintal which included basic excise duty, additional excise duty in lieu
of sale-tax and other charges for Rajasthan with immediate effect.

5) The defendants urged the plaintiff to deliver sugar @ Rs. 268/- per quintal as fixed
under the Price Control Order. The plaintiff repeatedly requested and also served
notice Ex. 3 upon them for lifting the sugar after paying the price at the agreed rate of
Rs.281.75 + Rs. 40.67 as excise duty, per quintal and adjusting it from the amount of
earnest money. The defendants did not lift their sugar.

6) The plaintiff filed suits against them for damages @ Rs. 54.42 (Rs. 281.75 + Rs.
40.67 -- Rs. 268/-) per quintal after adjusting the amount of earnest money deposited
by them.

7) All the defendants asserted that the terms and conditions of the auction sale were
not explained to them, after the issuance of the Price Control Order the plaintiff was
not entitled to charge price at the rate exceeding Rs.268/- including all charges per
quintal and the contract for the purchase of sugar at the rate of Rs. 322.42 stood
frustrated.

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IT WAS HELD THAT-

1) In the auction sale the defendants purchased sugar bags of specific lot. The number
of sugar bags purchased, the number of the lot of bags and the quality of sugar were
duly mentioned in the plaint of each case.

2) According to the provisions of Section 20 of the Act, the property in the goods
passed to the defendants immediately after the auction sale.

3) It could not be shown as to how the plaintiff was unjustly enriched. On the
contrary, it was clear from the aforesaid discussions that the defendants put the
plaintiff to loss by committing the breach of the contracts. If they had respected the
contracts, the plaintiff would have obtained price at the agreed rate of Rs. 322.42 per
quintal. On account of the breach of the contracts on their part, the plaintiff had to sell
the sugar at the notified rate of Rs. 268/- per quintal and thereby suffered loss at the
rate of Rs. 54.52 per quintal.

JUDGEMENT

The plaintiff-appellant will get interest on the amount of loss ( Rs. 54.52 x No. Of
Quintals of Sugar sold) at the rate of 12% per annum from the date of the institution
of the suit to the date of payment of deposit. If the defendant-respondents pay to the
plaintiff-appellant or deposit in the trial Court the entire difference amount and costs
within three months from the date of the receipt of a notice ,they will have to pay
interest only at the rate of 6% per annum.

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BIBLIOGRAPHY
Sale Of Goods Act,1930

Websites-

Manupatra

IndiaKanoon

Wikipedia

Notes by Prof. Gargi Rajvanshi

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