Consequences of Breach of Contract
Where either the seller fails to perform his obligations under the sale contract, the buyer will have rights and remedies, arising from the breach. The Act distinguishes between conditions and warranties.
A breach of a condition entitles the innocent party to terminate the contract and seek damages. A breach of a warranty gives the affected party, a right of compensation only. There may be a right to recoup monies paid on the basis of restitution where there has been a complete failure of consideration.
The acceptance by the buyer of the goods constitutes a waiver of the right to terminate the contract. This gives the buyer a right to damages (compensation) only. Having accepted the goods, he may not treat the contract as discharged. Where a contract for the sale of goods can be severed, acceptance of one instalment does preclude rejection of other instalments.
Repudiation by Seller
Where a seller indicates that he cannot or will not deliver the goods in accordance with the contract in advance of the due date, he repudiates the contract. The innocent buyer can either accept the repudiation and claim damages or alternatively, wait and see.
If he does not accept the repudiation and waits to see, the relevant loss is that relative to the market price as measured at the time of the due date for delivery.
In effect, the buyer is entitled to wait to see if the seller delivers on the relevant date, despite his repudiation. There are limits to the “wait and see” principle, given that it may involve inefficiency in the use of resources.
A failure on the part of the seller to comply with his delivery obligations may be a breach of a condition or a warranty. If goods are to be delivered at a particular date and time is of the essence, then the buyer can reject the goods and terminate the contract if they are not delivered on time. In other cases, he may be able to make time of the essence, by giving a reasonable period or giving the notice period specified in the contract.
Where goods are delivered late and the contract is not terminated, there may be a right of compensation arising from the breach. The measure of compensation is the loss sustained by reason of the late delivery if any. Under general contract law principles, special intended uses of the goods of profitable contracts on the buyer’s part will not increase the compensation payable by the seller, unless the seller was specifically aware of them in advance.
In practice, it is often the case that damages may not be sought for late delivery, as often no loss may ensue. The specific terms and conditions may also limit or exclude liability.
Buyer’s Rights re Non-Conforming Goods
A buyer is entitled to either reject the goods and/ or claim compensation, depending on the nature of the seller’s breach of contract. If title/ownership of the goods has passed, the buyer may claim them the goods in a property based action.
A buyer is entitled to reject goods and cancel the contract if the breach is serious. In the case of breaches of warranty or less serious breaches which do not go to the root of the contract, the right is to compensation only.
Where goods are rejected, the buyer need not pay for them. If he has paid for them, he is entitled to recover the price paid. The buyer may be entitled to compensation for the seller’s failure to comply with the contract.
If the goods are rejected, the ownership passes back to the seller. The buyer is not obliged to return the goods. He need only inform the seller of their rejection.
The right to reject goods and the right to terminate the contract are separate rights. Goods may be rejected and the seller may be asked to provide conforming goods. There is a right to reject if the wrong quantity is delivered. There is a right to reject if goods not meeting the requisite description are delivered.
Where a particular obligation is stated to be a condition, its breach entitles the buyer to reject the goods irrespective of how serious it is. The buyer may have an express right to reject the goods under the terms of the contract, in addition to the statutory right. This law has been reformed in England and Wales so that where rejection would be unreasonable, a non-consumer buyer may not reject the goods.
A buyer may reject goods claiming an entitlement to do so. The seller may counter with a claim for non-acceptance or non-payment. This will then raise the issues as to whether there has been a breach of contract on the seller’s part, whether the buyer is justified in rejecting the goods and whether the seller has failed to comply with his contractual obligations.
The right to reject is exercised by the manifestation of a clear intention to reject. The goods must be made available for collection by the seller. Once rejected, the ownership (title) to the goods, transfer back to the seller. If the buyer retains possession of the goods, he does so as a bailee and will have duties of care in respect of the goods. The risk of their loss may continue to rest with the buyer.
A buyer is not deemed to accept the goods until he has had a reasonable opportunity to examine them to judge whether they are conforming. What is reasonable depends on the circumstances. It may require time to see the goods in use and operation. Unless otherwise agreed, the buyer must be afforded an opportunity, on request, to inspect the goods to judge whether they are in conformity with the contractual requirements.
Where goods are rejected, the buyer may terminate the contract and claim compensation for the loss. If the price has been paid, he may recover the monies. Alternatively, he may choose not to reject the goods and make a claim for damages only. He may lose his right to claim damages entirely by waiver.
Where the goods are retained, the right to compensation may be set off against the price. Alternatively, he may pay the full price and sue for the loss or damages.
Acceptance by Buyer
A buyer who has a right to reject the goods may lose that right. In this case, his only right is to compensation. Generally, once the buyer accepts the goods, he cannot reject them and may sue for compensation only. Acceptance does not necessarily mean taking delivery.
The buyer may examine the goods to verify that they conform. A buyer is not regarded as having accepted the goods until he has had a reasonable opportunity to examine them. Acceptance may take place when the seller is told that the goods are accepted.
The buyer may be deemed to accept the goods by doing an act which is inconsistent with rejecting them or inconsistent with the seller’s ownership. This may include selling the goods. It may include retention of the goods where this is consistent only with acceptance.
There are additional rights for consumers, that allows them to damand repair, replacement or to money back / damages, notwithstanding acceptance of the goods.
Acceptance of the Goods
A buyer is deemed to accept the goods when
- he intimates to the seller that he has accepted them;
- subject to the right of examination, when he does any act in relation to them, which is inconsistent with the ownership of the seller; or
- when without good and sufficient reason, he retains the goods without intimating to the seller that he has rejected them.
Where the buyer does an act that is inconsistent with the seller’s ownership before he has had the opportunity to inspect the goods his right of rejection will remain. It is not clear whether this principle applies to the case of deemed acceptance above.
The buyer may intimate acceptance, in which event, he loses the right to reject. A delivery note or an acceptance note showing mere delivery is not necessarily an acceptance of the goods. However, if acceptance of the goods is clearly intimated, even though the buyer has not examined them, he is likely to have waived his right to reject.
What constitutes an act inconsistent with the seller’s ownership is a matter of interpretation in the circumstances. Using the goods or consuming them is likely to be sufficient. Similarly, dealing with, selling, mortgaging, or transferring them would generally be inconsistent with the seller’s ownership. A retention of the goods without intimating rejection is an acceptance unless there is a good and sufficient reason otherwise.
The circumstances will determine how long a delay there may be before rejection. If the goods are perishable, the time for rejection will be short. Similarly, if prices in the market change significantly, this is a factor which would put an onus on the buyer to reject, more quickly. There may be a course of dealings or custom in the trade which is relevant.
There are special rights for consumers to acquire remediation of defective goods, details of which are set out below and in other articles. EU Regulations provide rights for consumers to require the repair or replacement of goods.
Instalment Contract Non-Conformity
In the case of instalment deliveries, the delivery of a defective instalment may amount to a breach of the entire contract. Whether there is a right to terminate the entire contract, depends on the significance of the breach relative to the contract as a whole and the probability that the breach will be repeated.
It is a question of interpretation as to whether a contract is for a series of instalments or is a series of separate contracts. If there are separate contracts, then the right to reject one instalment, does not entitle the buyer to reject all instalments.
Unless a contract is severable, there may not be a partial rejection. If some goods are accepted, the right to reject ceases to apply to all goods. The principle does not apply where there are mixed types of goods or where the contract can be severed. The written contract may make specific provision, allowing partial rejection.
A contract is severable where it can be broken down into a number of contracts. This may apply to multiple orders. Where there is a supply contract over a period of time, there may be a series of different contracts for each supply. In this case, the right to reject can only apply to that contract.
If there is a single contract, the question arises of whether it is severable. This may arise where there are a number of deliveries and instalments of goods. If the contract is severable, acceptance of one instalment does not amount to acceptance of all. Where the seller makes one or more defective deliveries under a severable contract, the entire contract is interpreted to ascertain whether there is a right of termination.
Where the breach in relation to some instalments goes to the “root” of the contract, the buyer may terminate it. This is a fundamental or very serious breach, which entitles the innocent party to terminate the entire contract.
Acceptance, Rejection and Damages
If the goods do not conform with the contract, they can usually be rejected, as failing to comply with its implied or expressed terms. Where the goods do not conform to the contract, the buyer is entitled to compensation. If the breach is serious he is entitled to reject the goods.
Where a buyer pays for goods, but they are not delivered he is entitled to either claim the goods if the property has passed, or to recover the price paid. He may also be entitled to damages for non-delivery.
If the goods are accepted, the loss is that resulting from the breach. This is usually the difference in value between what should have been delivered and what was in fact delivered.
Purpose and Extent of Damages for Breach
The purpose of damages is to compensate the party who has suffered the breach. The purpose is not to punish the contract breaker or take any special profit he may have made. If no actual loss has been incurred, the claimant is entitled to nominal damages only and expenses. (e.g. if goods have not been delivered in a falling market and the buyer can buy equivalent goods more cheaply). He should therefore not sue.
The compensation awarded is (only) that which arises naturally from the breach. The principle is that the claimant should be put in the same position as if the contract had been fulfilled. His expectations are protected and compensated for by a monetary payment.
If a buyer does not receive the goods, he is entitled, generally to the difference between the price of the goods and the costs of obtaining substitutes and loss of profit. A party is not liable to compensate for losses which are too remote, and could not reasonably have been contemplated.
Defective products legislation and the law of negligence provide a remedy for a buyer or the person who has been injured by the product.
Where the right to reject does not apply, the buyer’s sole right in the event of a breach is for compensation by way of damages. The general law of contract applies. Therefore, the loss must be caused by the breach and it must generally flow naturally from it. Many classes of indirect or consequential losses are not compensated because they are too remote.
The buyer is expected to take steps to mitigate his loss and buy equivalent goods in the market. The buyer may have suffered no loss if the market price has fallen. Nominal damages only may be granted, so that the buyer is unlikely to take legal action.
The fact that the buyer has contracted to resell for a price less than market price is not generally relevant. Equally, where he has contracted to sell for more than the market price, it is also irrelevant. If the seller is specifically aware in advance of the buyer’s special prospective losses, be may be liable for them in accordance with general principles of contract law.
The Sale of Goods Act provides that the presumed measure of loss for non-delivery is the estimated loss arising directly and naturally resulting in the ordinary course of events from the seller’s breach. Where there is a market for the goods concerned, it is presumed that the buyer’s loss is the difference between the price under the contract and the market price of similar goods on the date of delivery.
The substitute goods must be available in a reasonably accessible and available market. If there is no available market, the measure of compensation is the difference between the sale price and the market value of the goods at that time. This will apply if goods are “once off” or unique. Where the buyer has to buy substitute goods, which are of superior quality in order to deliver them under a contract to a third party, he is entitled to claim the extra cost.
A buyer may not generally claim compensation where he has resold at an especially favourable price (in accordance with general principles). His claim may be allowed if the resale is foreseeable and the price is not extravagant. Therefore, where the buyer contracts to resell specific goods so that replacement goods cannot be tendered before the breach, resale is foreseeable as reasonable probability and the price is not extravagant, compensation may be allowed.
In the normal course, where goods are bought for resale, the compensation is the difference, if any, between the price/value of the goods at the due date and actual date of delivery. This reflects the loss to the buyer by reason of the delay in the onward sale. Where there is an available market, the value is that reflected in the market.
Damages for a breach of warranty are measured as the estimated loss arising directly and naturally in the ordinary course of events upon the breach of warranty. Where goods are defective and breach the merchantability warranty, the compensation measure is presumed to be the difference between the value of the goods at the date of delivery and the value which they would have had, if they had complied with the warranty.
In some cases, certain types of damage occur in the natural course of events and compensation may, accordingly, be available. These may include damages for loss of future profits, goodwill, personal injury and damage to other property. In consumer cases, a right to compensation for mental distress may be sometimes available exceptionally.
Damages for Direct Loss
Under contract law, a person who buys defective goods is usually compensated for direct loss only. This is usually the loss in value of the goods but not indirect financial loss and other loss which follows as a consequence.
Damages are measured as the estimated loss arising directly and naturally in the ordinary course of business from the breach. The market price is the general yardstick by which the loss is measured.
If the goods are not delivered, the buyer is entitled to be put in the position in which he would have been, had the contract been performed. Generally, the buyer should go into the market to buy substitute goods, where there has been a breach which he has accepted.
The market price at delivery is the presumptive value of the goods. Where the goods are delivered late, the loss is the difference between the market price at the due date and the market price at the actual date of delivery.
If the particular type of loss is foreseeable as a possibility, then the seller may be liable even the detail and extent of the damage that results is unpredictable.
Ordinary and Special Circumstances
The measure of damages is such as may fairly and reasonably be considered as arising naturally according to the usual course of things from the breach of contract. Alternatively expressed, they are such as may be supposed to have been in the contemplation of both parties when they made the contract, as a result of the breach concerned. The type of loss concerned must be foreseeable.
If a party knows of the other person’s special circumstances, which are such as would result in an additional loss, above that naturally or probably occurring, this extra loss must be compensated for, if it occurs. Accordingly, where the seller is informed that the goods are to be used for a particular profitable purpose, then the seller will be liable to compensate for that special loss if delivery is not made.
A person who has suffered a breach of contract must minimise his loss. This is the principle of mitigation. He must refrain from taking steps to increase his loss. Therefore, a buyer should purchase alternative goods in the market or take other steps as are reasonably necessary, in order to minimise his loss. The difference between the contract price and market price is presumed to be the measure of damages to be paid.
What is the Natural Course of Events
It depends on the circumstances, as to what losses are foreseeable in the natural course of events. In a famous case, an engineering firm bought a boiler. The supplier was deemed to foresee the loss of business caused by the non-availability of the boiler to the claimant and was thereby liable for the loss that arose which arose in consequence.
Where the buyer is selling on the goods as retailer or wholesaler, the market price or the price at which he intended to sell or does, in fact, sell the same goods may measure the lost profit. If the buyer intended to sell on, the loss will generally be measured by that sale, if the seller knew about it.
Otherwise, the damages are the difference between the market price and the contract price. Where the actual loss is less than the difference between the two prices, the damages may be the actual loss where the buyer resells the goods.
The Sale of Goods Act gives the court power to award specific performance in an action for breach of contract, irrespective of whether or not, the contract is for the sale of specific or ascertained goods. The identity, must, however, be sufficiently certain. The court has the discretion to withhold the award and may grant compensation instead.
Where goods are ordinary items that can be purchased elsewhere, the court is not likely to grant an order to require specific delivery. The Sale of Goods Act also allows a court to award damages instead of rescission, where a sale of goods contract is entered on foot of a negligent misrepresentation.
The court has the discretion to award specific performance, where goods have not been delivered. Specific performance is a mandatory order, which compels the respondent to perform the contract.
Failure to do so s contempt of court and is subject to punishment. Generally, specific performance is ordered only where the goods are unique or a have special value. Otherwise, compensation will be ordered.
The consumer buyer has the right to require repair, replacement, price reduction or cancellation of the contract with a refund. He is not entitled to require repair or replacement, where the right is not exercised within a reasonable time or where it cannot be done without significant inconvenience.
A consumer has a right to require the seller to repair or replace defective goods. Terms and conditions which seek to limit the key consumer rights, do not bind the consumer. The buyer may request the seller to remedy the breach or replace the defective goods. If the seller refuses to do so within a reasonable time, the buyer is entitled to repudiate the contract or reject the goods. He may have the defect remedied at his own expense and recover the cost from the seller.
The consumer has a right to require repair or replacement, free of charge unless this is impossible or disproportionate. It is disproportionate if it would impose costs on the seller, which relative to other remedies are unreasonable, taking account of the value of goods. (assuming they were compliant). Account is also taken of whether the alternative remedy may be taken without any significant inconvenience to the consumer.
The lack of conformity must become apparent within two years of delivery. Limiting contract terms may be agreed, but the limitation may not be for less than one year. Where the lack of conformity becomes apparent within six months, it is presumed that the goods were defective at the time of delivery.
References and Sources
Brian Doolan, A Casebook on Irish Business Law (1989)
Henry Ellis, Modern Irish Commercial and Consumer Law (2004)
Michael Forde, Commercial Law, 3rd Edition (2005)
Linehan, Irish Business and Commercial Law (1995)
McCormack, Reservation of Title 1990 (1994)
Patrick O’Reilly (ed.), Commercial and Consumer Law (Statutes) (2000)
Sean Quinn (ed.), Statutes Revised on Commercial Law, 1695-1913 (1994)
Fidelma White, Commercial Law (2003) (2nd Ed 2012)
Fidelma White, Commercial and Economic Law In Ireland (2011)
Vincent Grogan, Thelma King and Edward J. Donelan, Sale of Goods and Supply of Services: A Guide to the Legislation (Law Society of Ireland, 1983)
Paul Anthony McDermott, Contract Law (Butterworths, Dublin, 2001)
2011 Report of the Sales Law Review Group,
Atiyah and Adam’s Sale of Goods 13th Ed (2016)
Bridge, Benjamin’s Sale of Goods 9th Ed (2015);
Bridge, The Sale of Goods 3rd Ed (2014)
Blackstones’ Statutes Commercial and Consumer Law 2017
Goode on Commercial Law 5th Ed 2017
Sale of Goods Act 1893
Sale of Goods and Supply of Services Act 1980
Electronic Commerce Act 2000
Criminal Justice (Theft and Fraud Offences) Act 2001 (50/2001)
International Carriage of Goods by Road Act 1990 (13/1990)
European Union (Consumer Information, Cancellation and Other Rights) Regulations 2013 (S.I. No. 484 of 2013)
European Communities (Certain Aspects of the Sale of Consumer Goods and Associated Guarantees) Regulations 2003 (S.I. No. 11 of 2003)