Prior to the introduction of the Sales of Goods Act, 1930 ("the Act"), contracts involving the sale and purchase were governed solely by principles laid down in the Indian Contract Act, 1872. However, it was found that the law relating to the sale of goods contained in Chapter VII of the Indian Contract Act, 1872 was not adequate to meet the needs of the community, in light of the developments in mercantile transactions1. Hence, the Sales of Goods Act, 1930 was introduced with the objective of balancing the rights, duties, claims, and expectations arising in the process of transferring property from one person to another i.e., of buyers and sellers.
The Act provides for remedies for the unpaid seller against the buyer under Section 55 and Section 56; for the buyer against the seller under Section 57, Section 58, and Section 59; and for buyer and seller, both can seek redress under Section 60 and 61 of the Act in case of breach by either party. This article discusses the remedies which are available with the seller against the buyer under a Sale-Purchase transaction in case of a breach.
Remedies for non-payment of goods (suit for the price)
Section 55 of the Act provides:
"Suit for price —
(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."
Section 55 of the Act lays down two situations in which the seller can claim damages for non-payment. The first is when the property in goods in passed/delivered to the buyer as per the contract of sale and purchase and the buyer intentionally and wrongfully refuses to pay for the goods as per the terms of the contract2. The passing of property would depend on certain conditions which are necessarily required to be fulfilled to enable the seller to sue for non-payment. Where goods are sold for a particular amount and the payment has to be made partly in cash and partly in kind, the default is made in kind, entitles the seller to sue for the remainder of the price.
The second situation arises when the payment is due on a stipulated or agreed date and the buyer defaults in making payment or refuses to pay regardless of the delivery of the goods3. In recent times, the parties have become more cautious about the transfer of title and ownership upon the full payment for goods purchased. Hence many contracts these days include a Retention of Title clause or otherwise called the Romalpa Clause4 whereby the title and ownership of the goods is passed on to the buyer only when the full payment of the contracted price of goods has been made to the seller.
Remedies for non-acceptance of goods and recovery of losses in case of re-sale
Section 56 of the Act provides for remedies for non-acceptance of goods by the buyer
"Section 56 - Damages for non-acceptance —
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance."
The above provision prescribes that if the buyer refuses to accept the goods and refuses to pay for them intentionally and in breach of contract, the seller may sue the buyer for such non-acceptance and non-payment. The damages claimed by the seller for non-acceptance must be determined in accordance with the principles laid down under Section 73 and Section 74 of the Indian Contract Act, 1872 i.e. damages to be awarded to the aggrieved party which can be fairly and reasonably considered arising naturally, and/or which may reasonably be in contemplation of both the parties at the time they entered into the contract5. Therefore, the damages assessed by the Court must conform to the principles for assessment of damages under Section 73 and Section 74 of the Indian Contract Act, 1872.
Where the buyer neglects or refuses to accept the goods in breach of contract, and the seller was constrained to sell the good in the market at a lower price, the seller can sue the buyer for the differential amount between the contracted price stipulated and the market price at which the goods were sold6. In case of resale of goods to a third party, the Court shall ascertain the market price at which the goods were sold. Where the market price is ascertainable, the difference between the contract price and the market price at which goods were sold is the true measure of damages7.
If, however, the market price on the date of breach is not available, the Court may take into account the surrounding circumstances and grant damages in terms of Section 73 of the Indian Contract Act, 1872, in which case the claimant will have to show that the amount of damage claimed is reasonable.8
Interest for the unpaid amount
Apart from the remedies discussed above, the seller may also sue for interest. Section 61 of the Act provides the right to recover interest and special damages wherever any of the parties to a contract have either failed or delayed in making payment. The Court may award interest at a reasonable rate on the unpaid amount from the agreed date of payment.
In the above backdrop, it can be concluded that the remedies available to a seller against a buyer can only be exercised successfully when the damages claimed are in conformity with the principles of the Indian Contract Act, 1872 i.e. either the damage amount is contractually stipulated as 'liquidated damages' i.e. a genuine pre-estimated amount of loss likely to be suffered by the seller for non-payment (under Section 74); or the awarding of damage is a reasonable measure to compensate the seller against loss suffered due to non-payment (Section 73). In the absence of any contractual stipulation for liquidated damages, in order to claim the damages, the seller must prove the sufferance of loss to show legal injury and also show that all due measures were taken in order to mitigate the losses.
1. Report on the Sales of Goods Act, 1930
2. Section 55(1) of the Sale of Goods Act, 1930
3. Section 55(2) of the Sale of Goods Act, 1930
4. Aluminium Industrie Vasseen BV v Romalpa Aluminium Ltd (1976) 2 All ER 552
5. Hadley v. Baxendale and Victoria Laundry (Windsor Ltd.) v. Newman Industries Ltd.
6. Bismi Abdullah & Sons, Merchants & Commission Agents v The Regional Manager, F.C.I., Trivandrum, 1980, 1986 SCC OnLine Ker 8; Bungo Steel Furniture (P) Ltd. v Union Of India, AIR 1967 SC 378;
7. The Ganganagar Sugar Mills Ltd v M/s. Rameshwar Das Tara Chand, AIR 1992 Raj 14
8. S.K.A.R.S.M. Ramanathan Chettiar vs. National Textile Corporation Limited – AIR 1985 Ker 262
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.