The voluntary exchange of good


The voluntary exchange of good, services or both is called as trade. Commercial law is that branch of law which deals with the rights and duties which arises from the supply of goods and services in the way of trade. Therefore commercial law plays a vital role in laying the strong foundation for trade. Commercial law completely governs with business and commercial transactions .Therefore it may also be termed as a set of special rules which are observed during the formation of a contract. The term trade and contract are interlinked because before a trade takes place both the parties should enter into a contract and later they should follow the principles of the contract which is governed by the common law. The principle of the contract says both the parties are liable to disclose all the material facts known to them before the contract is concluded. If anyone among the both fails to disclose the facts then the other party can avoid the contract based on the grounds of misrepresentation or breach of the contract. There are different remedies which are available to claim the damages which are caused due to the breach. Damages are nothing but the laws which is incurred by the party due to the breach in the contract. The damage may be either loss of income or profit, loss of time, loss of expenditure etc. . The damages are measured on the nature of the contract i.e the terms and conditions which are mentioned in the contract. “The objective of the award of damages is to compensate the injured party rather than to punish the defendant”. The damages caused to the injured party maybe major or minor. The claims for such damages are assessed by considering whether the statement is a term of the contract or not.

Damages are the remedy for the breach of contract. Therefore it may be called as the right which is available for the injured party to claim. If no loss is claimed in certain circumstances then the plaintiff will be awarded with the nominal damages. The plaintiff will not be able to recover every loss which is caused from the breach by the defendant. The plaintiff also has a duty to mitigate his losses.

The way of assessing the damages if there is a breach of an international sales contract and the remedies available for both buyer and seller for misrepresentation are discussed below.

The Remedies Available For A Buyer

When the seller makes a misrepresentation the buyer has the following remedies

  1. Recession And Restitution:

If the seller makes a misrepresentation either fraudulently or by his negligence or entirely without any fault then the buyer will have the right to keep away from the contract from the beginning. In such instance “Recession goes restitution” which means both the parties should surrender the benefits which they receive from the other. If this is not possible then recession will be nullified. For example if a property is passed to the buyer before recession then later on the buyer has to give back the property to the seller. This is called the effect of recession. The remedy for recession is the same as in the other sale contracts.

  1. Rejection OF THE GOODS:

The buyer has every right to reject the goods if he find the goods are not upto the description of the contract and also if the goods are not of good quality. The buyer can also reject the goods due to late delivery if time is the essence in the contract.

McDougall v Aeromarine of Emsworth Ltd

  1. Suspension Of Payment:

If the seller fails to complete any obligation which is related to the duty of payment by the buyer, then the buyer has every right to stop the payment until the seller performs his duty completely. Hence making the obligation as a condition or a warranty is not relevant. No matter the obligation maybe a major or a minor one it is assumed to be a condition of payment and the buyer has the right demand on the existing duty of the mutually related obligation. Therefore until the buyer and seller agree upon the payment and delivery, they can be considered as arising condition. The buyer might not have to do the payment until and unless the seller delivers the possession of the goods in return to the payment.

  1. Termination And Restitution Or Damages:

The buyer has the right to end the contract of sale on any ground which is mentioned in the contract as authorizing termination or even if there is any breach of condition by the seller or if the seller rejects the contract. The buyer also has the right to end the contract if there is any anticipatory breach. If there is any termination of the contract of the sale then the seller has the right to recover the possession of the goods and the buyer has the right to recover the money paid. This is considered as a total failure of the contract.

  1. Acceptance Of The Goods And Damages Or Offset Against The Price:

The buyer has no right to reject the goods for all kinds of breach. Even if the buyer has the right to reject the contact then first he has to take up the transaction by accepting the goods and there are many instance in which the buyer will be considered to have accepted the goods even if he did not to mean so. The effect of acceptance changes the condition to be equal to that of a warranty and later the buyer can claim the damages for the breach of warranty.

  1. Specific Performance:

The court has the power to order when a party is required to perform a specific act which is mentioned in the contract. Any type of forced action which are used to complete a previously established transaction can be considered as a form of specific performance. Therefore it can be considered as the most effective remedy which protects the expected interest of the innocent party to a contract whose financial burden will be reduced.

The orders of specific performance should be granted to an innocent buyer to exempt him from all the difficulties and added laws when the seller goes away without performing his actual duty according to the contract. “For relaxing the stringency of the rules specific performance” is considered as the primary remedy which is available in the civil law jurisdiction.

  1. Additional Remedies For Consumer Buyers:

When the buyer is considered as a consumer Part 5A of the Sale of Goods Act 1979 provide the buyer with a set of additional remedies, if the goods are not according to the contract of sale at the time of delivery. The remedies are to demand the seller to repair or replace the goods, to demand the seller to reduce the price for a right amount, or to with draw the contract regarding to the goods. These above remedies are applied according to the nature of the contract.

  1. Tort Remedies For Non-Delivery:

When the buyer is entitled to the possession and if the seller rejects to deliver the possession, then the buyer has the right to sue the seller under the civil suit for specific delivery and he can claim the damages for withholding the possession. “The tort of conversion is founded on interference with a right to possession”

  1. Other Tort Remedies:

If the buyer incurs any loss due to the fraudulent misrepresentation or by any other fraudulent behavior by the seller, the seller is liable for all the damages under a civil suit .Even though a negligent misrepresentation does not give a chance to claim damages, it is considered as a civil wrong under the common law if there is any physical injury for the buyer or his property. If there is any breach of trust the right for damages can be claimed under Sec 2 (1) of the Misrepresentation Act 1967.

  1. Damages For Breach Of Collateral Contract:

If the seller, makes the buyer to enter into the contract of sale by giving a false or an untrue statement, the false statement will be considered as a warranty which allows the buyer to claim the damages. There is no other alternative reason for the buyer other than treating “The collateral warranty as a misrepresentation in relation to the contract of sale and to rescind the contract”.

The Measure Of Damages For Non Delivery

The sale of goods act is based on the general principles of the law of contract which governs the measure of damages. The provisions relating to the damages for breach is mainly focused on a particular rule in “Hadley vs Baxendale”.

Section 51(1) says if the seller refuses or neglects to deliver the goods to the buyer unlawfully, then in such circumstances the buyer have the right to maintain an action against the seller and can also claim damages for the non delivery of the goods.

Section 51(2) says in the ordinary course of events, the, measure of damages for the sellers breach of contract can be estimated by the laws which occurs directly and naturally.

Section 51(3) says that if the goods have an available market then the measure of damages is evident and the damages should be determined by the difference of the contract price and the market price of the goods. This should be done only after the goods are delivered.

Meaning Of Available Markets

There is no precise meaning for the term market. Therefore an available market may be defined as a market which is made available to the buyer so that he can have an immediate access to it at the necessary time and place when the seller fails to deliver the goods which are contracted on or before the delivery date. Here the goods are dealt with fluctuating price which is fixed according to the supply and demand for the goods.

Measure Of Damages Where There Is An Available Market

The principle which applies to an available market is as follows:

  • It is evident that the measure of damage is the amount where the market price is more than the contract price on the date of delivery of the goods. If there is any breach by the seller, the loss is calculated using this method. When the seller is in breach for non delivery then the buyer can lessen his loss by buying the substitute goods in the open market. If the buyer refuses to go the market then seller will not be responsible for the loss.

  • If the seller requires for the extension of time for the delivery date then the market price is calculated on the postponed delivery date. The buyer cannot postpone the steps of mitigation by keeping the contract open without the sellers acceptance. Only after the seller refuses to deliver the goods, then the buyer is expected to buy the substitute goods in the open market.

“Melachrino vs Nickoll & Knight”

  • When the buyer experiences additional damages other than general loss because of excess of the market price caused due to the sellers fault during the time of contract would be included as extra freight charge, cost spent in locating replacements etc. in such instance the buyer is entitles to claim the special damages under section 54.

When the market price is more than the contract price the damages will be calculated even if the buyer:

  • Fails to go to the market to buy the substitute goods then the buyer will be deprived from bargaining.

  • If the buyer obtains the substituted goods for a higher or lower price than the actual market price within the due delivery date even after the seller performing his contract then the purchase goods is considered as a broken sale contract.

  • “R. Pagnan and Fratelli vs Corbisa Industrial Agropacuarialda [1970] 2 Lloyds rep”

  • “is able to buy substitute goods at due delivery rate at less than the market price – for he could have got them in addition to the contract goods and thereby have had the benefit of 2 bargains, and in any event what the buyer chooses to buy has no necessary connection with the original contract and is thus res inter alios acta”

  • The buyer can still perform his subcontract by going to the market, even after contracting to resell the identical goods at a higher price when compared to the market price. Even if the buyer fails to do so he cannot expect the seller to pay him the extra loss which accords due to the increase in the resale price when compared to that of the market price.

  • When the buyer contracts to resell the identical goods at a much lower price when compared to that of market price, the seller cannot take advantage of this with an intention of minimizing the damages because it is the buyer right to take the decision of the goods. To fulfill the sub purchase contract the buyer would obtain the necessary goods from a different source (Example Market).

  • When the buyer contracts with the sub purchaser to sell the identical goods on the same date as under the original sale contract (i.e the date on which the seller is supposed to deliver the goods to the buyer) and if the seller fails to deliver the goods to the buyer on the contracted date the buyer also intern will not be able to deliver the goods to his sub purchaser. In such instance the buyer does not have any right to claim for the loss which he has incurred with the sub purchaser due to the sellers breach.

  • (Williams vs Reynolds (1865) 6 B & S 495, 34 LJQB 221)

    The principle of market price cannot be replaced by the fact which says that the resale of identical goods at a higher price by the buyer was within the knowledge of the seller. The buyer can cover the sub contract by purchasing the goods in the market and his duty to reduce the loss in this way does not affect the sellers knowledge of the sub contract. This is because the seller assumes that it is the duty of the buyer to take the initiative of mitigation.

    There are some exceptions where the market principle is replaced even if there is an available market.

    (Pagan and Fratelli vs Carbosia Industrial Agropacuaria Limitada)

    Measure Of Damages Where There Is No Market

    The rules which governs the computation of damage becomes more complex when there is no available market for the contract goods. if there is no available market the position will be quite different when the buyer is contracted he will not be able to get the descripted goods from the other source and even if they are available the buyer will not be able to utilize them.

    There are some cases which cannot be solved easily but we can extract the following rules:

    • When there is no available market the basic value of the goods should be substituted for the market price and according to that value the buyers loss of profit should be determined.

    • “The measurement of value as a basis for computing damages is subject to the buyers over riding duty to take reasonable steps to mitigate his laws”

    • When the buyer acquires the goods with an intention to resell and if the seller knows about that resell in such instance the normal resale price will be considered as the value.

    • After signing the contract if the seller comes to know that the goods were not only purchased to resale but even the resale price is also more than the normal price known to him, because of the buyers intention of sub contract then in such instance the value of the goods will be considered and the damage will be calculated accordingly.

    • If a buyer purchases the goods which are not for resale nor it is used for making a product which is for sale instead if the buyer uses the goods as a business to generate income then it would be more difficult in calculating the damage because the two variables interact i.e a capital element and a income element.

    Delay In Delivery

    The buyer is liable to claim the damages only when the seller delivers the goods late. Here the buyer has to either elect or must be obliged to accept only if the buyer lawfully rejects the goods for a late tender then he makes the case as non delivery. “The computation of normal measures of damages for delay in delivery – a matter not specifically dealt with by the sale of goods act – proceeds on a basis entirely different from that applicable to non delivery”. The duty to mitigate by the buyer in case of non delivery comes into action on the due delivery date if there is an available market then the buyer damages or assessed by reference on the market price on that date.

    The measure of damages for a case of non delivery depends on 2 issues i.e whether the goods bought by the buyer were for resale or for use in his business to generate income.

    Damages For Breach Of Warranty

    Depending on the circumstance of the buyers possession the damages for a breach of warranty is calculated. When the buyer is deprived of his possession the damages will be calculated considering the value of the goods along with other special damages(expenditure on repairs which is offered will be stopped when the buyer loses his possession) incurred by him.

    Manson vs Burningham [1949] 2 KB 545

    To mitigate such loss the buyer has to avoid the loss of possession which can be done by discharging the encumbrance i.e money is less than the value of goods.

    The buyers claim of damage for the breach of warranty becomes limited when he accepts the goods which are not confirmed to the contract (section 11 (4) Sale of goods act ). The damages are measured according to the “first limb of the rule in Hadley vs Baxendale [1854]”.

    Measure Of Damages For The Seller

    Section 50 of the Sale of goods act 1979 laid down the measure of damages for the seller which this can be considered as the duplicate of the provisions in section 51 which are related to non delivery. After observing it the necessary changes have been made except for “the measure of damages for non acceptance where there is an available market is the excess of the contract price over the market price.” In case of anticipatory breach the main difference is that the second limb of section 50(3) cannot be applied because the due date for acceptance is not fixed. Therefore damages are assessed accordingly with suitable measures for the goods when there is no available market


    The only remedy for the buyer when there is a misrepresentation or breach of contract is claiming the damages from the seller. The damage is nothing but the loss which the buyer incurs due to the sellers breach. The buyer has various remedy like rejection of the goods, termination of the contract, stopping the payment and he also has a tort remedy where he can claim damages for the loss under the sale of goods act 1979. The assessment of damages takes place depending on the fact of the available market and no available market. When there is an available market the damages are assessed by calculating the market price on the due delivery date exceeds the contract price. When there is no available market then the damages are assessed by substituting the value of the goods to the market price. When the buyer uses the goods for himself for generating income then damages are assessed by taking the two variables into account i.e the capital income and income element.

    Therefore compensation is given accordingly by considering the above terms and conditions.


    Commercial Law , Roy Goode, Third Edition

    Export Trade: The law and practice of international trade, Schmittoff , Eleventh Edition

    Commercial Law, Robert Bradgate and Fidelma White

    Commercial Law: Texts, Cases And Materials By L.S.Sealey And R.J.A.Hooley, Fourth Edition