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IAI Actuarial Core Principles · Business Management · Implied terms, exclusion of liability, contractual remedies and damages

Sundaram Textiles in Coimbatore agrees to buy 500 bales of cotton described in the contract as 'Grade A long-staple'. On delivery the cotton is Grade C, and the mill cannot use it. Under general contract principles in India, the description of the goods is treated as a condition. What is the buyer's strongest remedy?

The buyer may reject the cotton, treat the contract as ended and also claim damages. A description that is a condition goes to the root of the bargain, so its breach gives a right to terminate. A warranty breach would give damages only.

  1. AReject the goods and treat the contract as terminated, in addition to claiming damagesCorrect
  2. BKeep the goods and claim damages only, because the breach is a warranty
  3. CSeek only an order that the seller replace the goods, with no right to terminate
  4. DTreat the contract as automatically void from the start
  5. Claim only a reduction in price, since termination is never available for description

Explanation

A breach of condition goes to the root of the contract. The innocent party may repudiate and also claim damages. Option 1 describes a warranty breach, which would not justify termination. The contract is not void; it is terminable at the buyer's election.

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