Damages: Sale Contracts: Breach by Seller

The principle for award of damages is, by money amount, put the parties in a
situation they would be if the contract were performed. The principle developed
almost entirely with reference to sale contracts. In a sale contract, where the seller
was in breach, the buyer could put himself in equivalent position by procuring the
goods from another source. The damages were codified as:1

51 Damages for non-delivery (2) The measure of damages is the estimated loss
directly and naturally resulting, in the ordinary course of events, from the seller’s
breach of contract.

(3) Where there is an available market for the goods in question the measure of
damages is prima facie to be ascertained by the difference between the contract price
and the market or current price of the goods at the time or times when they ought to
have been delivered or (if no time was fixed) at the time of the refusal to deliver.

With reference to the above measure of damages, explore the followings:

1. A retailer enters in a contract to sell a particular brand and model of a TV to a

buyer. The sale price is Rs. 55,000. The TV is to be given to the buyer 10 days later,
on Monday. The seller failed to deliver the TV to the customer on Monday. The
prevailing market price for the TV on Monday is Rs. 60,000. The buyer buys a TV for
Rs. 60,000. What damages should be awarded to the buyer?

2. In performance of a sale contract, a seller delivered ten laptops at Rs. 30,000

each. The laptops were defective. The buyer terminated the contract and bought
laptops of the same brand and description. The buyer got it for Rs. 28,000 each.
Calculate the damages the buyer can claim from the seller.

3. In performance of a sale contract, a seller delivered a power stabiliser for Rs. 35

lakhs. The equipment was defective and the buyer terminated the contract. The
market price for the stabiliser had gone up by Rs. 60,000. Also, since contracting,
the business context for the buyer had changed. The project for which the buyer
wanted the stabiliser had got abandoned. The buyer did not buy a stabiliser. The
buyer, however, claimed Rs. 60,000 in damages from the seller. Should the
damages be awarded?

4. A transportation company entered into a contract to buy a truck of a particular

1
The codification refers to England’s the Sale of Goods Act, 1897. The formulation is adopted in other
jurisdictions.
brand and model from a seller. The truck was to be delivered on Monday. The seller
breaches the contract by not delivering on Monday. The buyer explored for another
seller, through the internet, emails and visits to the dealers of the truck. In this, the
company incurred an expenditure of Rs. 4000. The market price for the truck had
gone up by Rs. 25,000. The company bought the truck. The buyer is claiming Rs.
25,000 for the additional price, and Rs. 4000 for the expenditure in finding another
seller as the damages. What damages should be awarded to the buyer?
 Damages: Sale Contracts: Breach by Buyer

The principle for award of damages is, by money amount, put the parties in a
situation they would be if the contract were performed. The principle developed
almost entirely with reference to sale contracts. In a sale contract, where the buyer
was in breach, the seller could put himself in equivalent position by selling in the
market to another buyer and claim the difference. The damages were codified as: 2

50. Damages for non-acceptance. (2) The measure of damages is the estimated loss
directly and naturally resulting, in the ordinary course of events, from the buyer’s
breach of contract.

(3) Where there is an available market for the goods in question the measure of
damages is prima facie to be ascertained by the difference between the contract price
and the market or current price at the time or times when the goods ought to have
been accepted or (if no time was fixed for acceptance) at the time of the refusal to
accept.

In the case of mass produced goods, where there is ready availability of goods and
customers, in net, the seller loses a customer and with it, the profit. Thus, in
appropriate cases, as an alternative, the seller will be awarded the loss of profit as
damages. Apply the principle to award damages in the following cases. In each case
ask: Is there a breach? If the answer is yes, damages have to be paid.

1. An auctioneer struck down a painting of a famous artist for Rs. 50 lakhs. The
buyer refused to pay and take the painting. The auctioneer terminated the contract.
The painting was auctioned a week later for Rs. 48 lakhs. What damages should be
awarded to the auctioneer?

2. A retailer enters in a contract to sell a particular brand and model of a TV to a

buyer. The profit for the retailer on the sale of the TV model is Rs. 7000. The buyer
refused to proceed further and the contract was terminated. What has the seller lost?
What would have happened if the buyer had paid for the TV? What damages should
be awarded to the seller?

3. A retailer enters in a contract to sell a particular brand and model of a TV to a

buyer. The profit for the retailer on the sale of the TV model is Rs. 7000. The retailer
unboxed the TV and set it up. At this point of time, the buyer changed his mind and
refused to proceed further with the contract. The product was a fast moving one.
2
The codification refers to England’s the Sale of Goods Act, 1897. The formulation is adopted in other
jurisdictions.
There was another customer in the next 30 minutes. The retailer used up the
unboxed TV in another sale. What damages should be awarded to the retailer?
[While the unboxed TV is used, what would have been the retailer’s profit if both the
customers had bought?]

4. A buyer contracted to buy a machine from a seller. The machine was to be

fabricated and delivered a month later. The buyer was to pay 50% of the sale price
on the formation of the contract. In ten minutes of the formation of the contract, the
buyer changed his mind. He refused to pay the seller. The seller terminated the
contract. The profit for the seller on the machine was Rs. 10,000. The seller claims it.
The buyer asserts that there is no loss to the seller, as in the ten minutes, the seller
could not have committed its men and resources. Is the buyer in breach? What has
the seller lost? Should damages be awarded? If yes, what should be the amount of
damages?
 Damages: Service Contracts

The principle for award of damages developed almost entirely with reference to sale
contracts. The courts, in the past 100 years, have applied it to service contracts. In
each case and kind of service, the courts have explored the best way of working out
the money compensation to put the parties in a situation they would be if the contract
were performed.

1. A company enters into a contract to hire out a car for six months to Y. The hiring
charge per month is Rs. 40,000. A month later, Y breaches the contract. Within the
terms of the contract, the company terminated the contract at the end of the first
month and got the car back. The going rate for hiring out cars now is Rs. 35,000 a
month? What damages should be awarded?

2. A company was awarded a contract to build a 100 Km road at the total project
cost of Rs. 800 crores. The company abandoned the project after constructing 60
Kms of the road. How should the party suffering breach mitigate its losses and move
forward? What damages should be awarded to the suffering party?

3. A taxi service has a fleet of cars. A customer books a car for airport drop in the
evening. The profit for the company from this booking was Rs. 400. The customer
cancelled the booking. What damages should be awarded to the company?

4. There is a taxi on the road. A customer hails it and agrees to go to the airport for
Rs. 800 and then backs out. However, another person readily avails the taxi for the
airport for Rs. 800. What is the loss to the taxi? What damages should be awarded
to the taxi?

5. A flight of an airlines is heavily wait listed. A passenger with a confirmed ticket

cancels his ticket. The fare for the sector is Rs. 8000. What is the loss to the
airlines? What damages should be awarded to the airlines?

6. A flight of an airlines is only 70% full. A passenger cancels his ticket. The fare for
the sector is Rs. 8000. What is the loss to the airlines?