Interest by Way of Damages and Special Damages under Section 61 of the Sale of Goods Act, 1930: Rights Preserved by the Act, Recovery of Money Paid on a Failure of Consideration, and Interest to Seller and Buyer

Section 61 is a saving provision. The Act sets out remedies for the seller and the buyer in Sections 55 to 59, and Section 61 makes clear that those are not exhaustive. Three rights existing under the general law survive: the right to special damages, the right to interest where the law allows it, and the right to recover money paid where the consideration has failed. The section then adds a power for the court to award interest on the price, running from stated dates, in a suit by the seller for the price and in a suit by the buyer for a refund.

1. The Section

Section 61, Sale of Goods Act, 1930

(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages in any case where by law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed.

(2) In the absence of a contract to the contrary, the Court may award interest at such rate as it thinks fit on the amount of the price: (a) to the seller in a suit by him for the amount of the price, from the date of the tender of the goods or from the date on which the price was payable; (b) to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller, from the date on which the payment was made.

2. Special Damages

Special damages are losses beyond the ordinary measure, recoverable under the second limb of Section 73 of the Contract Act where the parties knew, when they contracted, that such loss would be likely to result from a breach.
Examples in sale: liability to a sub-buyer where the seller knew of the sub-sale, loss of production where the seller knew the goods were for a particular machine, or wasted freight and storage.
They must be pleaded and proved, and knowledge of the special circumstances at the time of contracting must be shown.

The three rights preserved, and the two cases in which the court may award interest on the price

3. Recovery of Money Paid on a Failure of Consideration

Where a buyer has paid and received nothing of what he bargained for, he may recover the money as such, rather than claim damages. The principle belongs to the law of restitution, and reaches the Act through Section 61(1) and Section 3. It matters most where the seller's title fails: a buyer who paid for ownership and never received it may recover the whole price, even after using the goods, as in Rowland v. Divall, [1923] 2 KB 500.

📖 Butterworth v. Kingsway Motors Ltd., [1954] 1 WLR 1286

Facts: A car was sold through a chain of buyers, having originally been held by a person under a hire-purchase agreement who had no right to sell. The last buyer used the car for nearly a year before the finance company claimed it. Shortly afterwards the original hirer completed his payments, so that the defect in title was cured. The buyer claimed the whole price back.

Held: He recovered the full price. The seller had broken the implied condition as to the right to sell, and until the defect was cured the buyer had received nothing of what he paid for. The consideration had totally failed, and no allowance was made for the use he had had of the car.

Ratio: Where a seller has no right to sell, the buyer may recover the whole price for total failure of consideration, and use of the goods does not reduce the claim.

4. Interest on the Price

	Seller's suit for the price	Buyer's suit for a refund
Provision	Section 61(2)(a)	Section 61(2)(b)
Interest runs from	The date of tender of the goods, or the date the price was payable	The date on which the payment was made
Condition	No contract to the contrary	A breach of contract on the seller's part
Rate	As the court thinks fit	As the court thinks fit

It is discretionary. The court may award interest, and fixes the rate.
It yields to the contract. Parties often provide expressly for interest on delayed payment, and that provision governs.
Other statutes may apply, including the Interest Act, 1978 and provisions in special legislation on delayed payments.

5. Interest and Damages

The two answer different complaints. Damages compensate for the loss caused by the breach: the difference in value, the lost profit, the cost of substitutes. Interest compensates for being kept out of money that was due: it accrues with time and is calculated on the sum, not on the loss. A seller may recover both, the price with interest on it; a buyer may recover damages for the breach and interest on any money he paid and is entitled to have back.

6. The Position Stated Shortly

Section 61(1) preserves the rights to special damages, to interest where the law allows, and to recover money paid on a failure of consideration.
Special damages come from the second limb of Section 73 of the Contract Act and require knowledge of the special circumstances.
Butterworth v. Kingsway Motors: the buyer recovered the whole price where the seller had no right to sell.
Section 61(2)(a): the court may award the seller interest from the date of tender or from the date the price was payable.
Section 61(2)(b): the buyer may be awarded interest on a refund from the date he paid.
Interest is discretionary, subject to a contract to the contrary, and is distinct from damages.