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Identify the remedies available to a seller and critically analyse whether they provide adequate protection in the event of a breach of contract committed by the buyer.

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Identify the remedies available to a seller and critically analyse whether they provide adequate protection in the event of a breach of contract committed by the buyer

Introduction

When a contract is entered into between two commercial parties, there are several clauses and statutory remedies which may become relevant, if either of the parties then goes on to breach their obligations under the contract. The purpose of this paper is to consider the remedies may be available to the Seller, when the Buyer breaches their contract, typically through the failure to pay for the goods and services that they have received. The remedies fall broadly into two categories, namely proprietary remedies and personal remedies, both of which will be looked at in turn, with reference to statute and case law. 

Personal Remedies

Action for the price (300)

The Sale of Goods Act 1979 (SGA), section 49, provides multiple actions which the Seller may bring as an action for the price of the goods or services. Section 49(1) deals with the situation where the goods are passed to the Buyer, but the Buyer then fails or neglects to make the payment due, under the contract. Secondly, section 49(2) deals with the situation whereby the price becomes payable at some point in time when the goods have not necessarily been delivered. The distinction between these two sections is that the second deals with non payment where the goods have not been delivered whereas the first section deals with the situation where the goods have been delivered; a subtle yet critical distinction[1].

There are several opportunities available to the Seller to bring an action for the price of goods. Under section 49(1), the Seller needs to show that the goods have passed AND that the Buyer has not paid the price of the goods. Fundamentally, it is noted that this seller will not be able to claim this where they have not refused to pay the amount, or it is not yet due or where the Seller themselves is in breach of its obligations[2].

When the contract states a payment point has been reached then this is the point at which these remedies can be evoked, even if the property has not actually been passed, in accordance with section 49(2). It is however necessary for the Buyer to fail to pay for the goods wrongfully. The concept of whether or not the date for payment is certain was dealt with in the Workman case[3], where it was found that the point at which payment is due is distinct from the point at which the goods are passed.

The leading case of Stein, 1916, offers further understanding in this area[4]. In this case, Forbes agreed to sell a quantity of sheepskins to the defendant. The payment terms were set as “net cash against documents on arrival of the steamer”. The steamer arrived but the Buyer / defendant then refused to accept the documents and refused to make payment. It was held in this case that the defendant was guilty of breach of contract and the question then moved on to the remedies available to the Seller. The Seller was only suing for the price of the goods, with its legal team arguing that it was entitled to the price of the goods despite the fact that the goods had not exactly been passed to the Buyer. It was the Buyer that prevented delivery and therefore the payment had become due, at the point at which the documents were made available to the purchaser.

This indicates the willingness of the courts to offer this remedy to the Seller where the Buyer has prevented the delivery and the monies would otherwise have become due. 

Damages for non acceptance

The Seller is also able to bring an action where the Buyer has failed to accept the goods and has wrongfully failed to make the payment. These provisions are contained in section 50 of the 1979 Act and have a corresponding clause under Section 51 where the Buyer can make a claim against the Seller for a failure to deliver.

In this case, the basic provisions of Hadley, 1854[5], apply, which uses the rule of remoteness of damage when it comes to ascertaining the level of damages. That being said, the seller would be entitles to damages. As noted in section 50(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”.

This provision was looked at in the case of Charter[6], where the Seller was able to resell the vehicle in question for the same price within a matter of a few days and therefore the damages payable by the Buyer for the non acceptance of the goods were merely nominal[7].

By contrast, in the Thompson case[8], which also dealt with a vehicle that the Buyer had rejected and refused to make payment for, there was no available market for the vehicle and the Seller suffered a loss. The Seller was then awarded damages for their loss.

This indicates that, depending on the surrounding facts, the amount of damages may differ, but essentially the aim is to put the Seller in the position they would have been in, had the contract not been breached[9]. 

Proprietary Remedies

As well as the remedies above in terms of damages, there are other remedies which would be considered as proprietary remedies which are much more focussed on the goods themselves.

Lien

Where the Seller has not been paid for their goods, they have a right of lien over these goods, which essentially allow the Seller to retain possession of the goods until they are paid for, in accordance with section 41 of the 1979 Act. This acts as a form of possessory security. It is then possible for the Seller who has not been paid to have a right of lien, with S41(1) stating that there are three key areas in which a lien is operational. The first of these is where the goods have been sold with no arrangement for credit; the second where there was credit extended, but the terms have not been complied with; and the third where the Buyer has become insolvent[10].

A Seller is also able to exercise their lien where only part of the money has been paid and it is also possible to exercise a lien over part of the goods if some have already been delivered, in accordance with section 38.

Where a Seller delivers goods he loses his rights to exercise a lien, even if he then takes possession back[11]. The leading case of Mount v Jay[12] is also a helpful example of how the operation of lien is applied, in practice[13]. In this case, the defendant was looking towards getting rid of goods in a market that they perceived to be falling and they did so with full knowledge that Meyrick (the plaintiff) would only actually pay for the goods at the point at which he obtained money from his own customers. The defendant fully knew and agreed to the fact that Meyrick would be reselling the goods and therefore they were essentially undertaking risk as to the honesty of Meyrick; 250 cartons were sold on this basis. When the payments were not forthcoming, it was therefore impossible to argue that they had not consented to the transfer of the goods, as they did so with full knowledge that the intention was that these goods would be passed before payment could be made.

Right of stoppage

Sections 44-46 lay out the rights of the unpaid Seller to stop the goods, as they are still in the process of being transported to the Buyer, provided they have not yet actually reached the Buyer. In order to make use of this remedy, the Buyer must not only have failed to make the payment, but they must also be insolvent, at the point at which the Seller hands over the goods to the carrier he loses the right to exercise a lien over them and therefore in accordance with section 43, by using the right of stoppage, the seller is able to resume the possession of the goods and allow them to behave in the same way as if he had exercised a lien, from the outset. In a similar way to the rules relating to a lien, delivery of part of the goods does not prevent the Seller from exercising their rights of stoppage over other goods. Where the Buyer refuses to accept the goods, the process of transit is deemed to be continuing and therefore it is possible for the Seller to exercise their right of stoppage during this entire period of transit. If the purchaser has already agreed an onward sale, this would not necessarily prevent the rights of stoppage, provided the title documents have not yet passed to the party purchaser (section 46).

It is however noticed that if at the point at which the carrier received notice of stoppage, he himself had a lien over the freight for unpaid carriage fees then it will be the Seller that would be liable for these cars and any potential costs re delivery, if the matter became resolved[14].

Right of resale

Section 48 provides that the Seller has the right to resale in certain circumstances. There are three circumstances contained within section 48 where a right of resale may be exercised. Firstly, where notice has been given to the Buyer that there is no intention to sell their products again and no response has been received within a reasonable period of time. Secondly, where the Seller still has not been paid and the goods are perishable, thus placing a sense of urgency on the Seller’s actions and thirdly, where the Seller has stated expressly that they reserve the right to resale in the event of some form of default by the purchaser.

In the case of Ward[15], the Buyer had agreed to purchase two vehicles at a total price of £850, with a deposit payable of £25. Within a few hours, he then refused to pay the remaining amount and refused to take delivery of either of the two vehicles. The Seller then gave notice to the purchaser that, in the event that he did not complete the purchase within a reasonable period of time, the vehicles would be disposed of. One of the vehicles was then sold for £350 and the second vehicle remained unsold. The Seller then claimed damages against the purchaser for the balance amount. It was ultimately held that this meant that the Seller had rescinded the contract, as they were no longer able to perform the contract, where one of the vehicles had been sold and they could not therefore claim the full amount of their losses, in the same way that they would have been able to, had they not chosen to resell one of the items. 

Retention of title

Finally, there is the option for the Seller to place a retention of title clause within the contract of sale, which states that the Seller can retain the title to the goods, until a specific event takes place, commonly the purchase price is paid. This clause is often called a Romalpa[16] clause, as it was established during this leading case as an acceptable remedy[17].

Although in principle this offers the opportunity for the Seller to retain the title of goods which would then be ring fenced in the event of insolvency, even if the goods have been delivered, there are several examples where this may not be practically applied. For example, in the Borden case[18], despite the existence of a retention of title clause, it was impossible for the Seller to rely on this as the £300,000 worth of timber which was not paid for when the purchaser became insolvent, due to the fact that the timber had already been converted into chipboard and therefore could not be identified and the Seller lost their title. 

Conclusions

There are multiple potential ways in which a Seller can deal with breach of contract by the Buyer, whether these are linked to the property itself or allow the Seller to claim damages for losses. In any event, care needs to be taken by the Seller, at all stages, to ensure that their interests are protected and that they do not act in a way that could reduce their position, unwittingly. 

References

Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 

Booth Steamship Co. Lim. v. Cargo Fleet Iron Co. Lim. (1916) 115 L. T. 199 

Borden (UK) v Scottish Timber [1981] Ch 25 

Bradgate, R., and White, F (2007) Commercial Law Blackstone Legal Practice Course Guide Series Legal practice course guides, Oxford University Press. Ch 18 

Charter v Sullivan [1957] 2 QB 117 

Cowan, Clark and Goldberg ‘Will English Romalpa Clauses Become Registrable Securities?’ [1995] CLJ 43 

Dobson and Stokes, Commercial Law (2011) 8th edition, Sweet and Maxwell, 

Goode, R and MacKendrick, E (2010) Goode on Commercial Law, Penguin Books. 

Mount v Jay [1960] 1 Q.B. 159 

Sealy, L., and Worthington, S (2007) Cases and Materials in Company Law, Oxford University Press. 

Stein Forbes v County Tailoring Ltd (1916) 115 LT 215 

Tettenborn ‘Principle and Pragmatism in the Law of Danger: Remedies of Sellers and Buyers’ [1991] CLJ 36 

Thompson v Robinson [1955] Ch 177 

Valpy v Gibson (1847) 4 CB 837 

Ward v Bignall [1967] 1 QB 534 

Workman Clark Ltd v Lloyd Brazilero [1908] 1 KB 968 

Worthington ‘Equitable Liens in Commercial Transactions’ [1994] CLJ 263


[1] Dobson and Stokes, Commercial Law (2011) 8th edition, Sweet and Maxwell,

[2] Bradgate, R., and White, F (2007) Commercial Law Blackstone Legal Practice Course Guide Series

Legal practice course guides, Oxford University Press. Ch 18

[3] Workman Clark Ltd v Lloyd Brazilero [1908] 1 KB 968

[4] Stein Forbes v County Tailoring Ltd (1916) 115 LT 215

[5] Stein Forbes v County Tailoring Ltd (1916) 115 LT 215

[6] Charter v Sullivan [1957] 2 QB 117

[7] Sealy, L., and Worthington, S (2007) Cases and Materials in Company Law, Oxford University Press.

[8] Thompson v Robinson [1955] Ch 177

[9] Goode, R and MacKendrick, E (2010) Goode on Commercial Law, Penguin Books.

[10] Tettenborn ‘Principle and Pragmatism in the Law of Danger: Remedies of Sellers and Buyers’ [1991] CLJ 36

[11] Valpy v Gibson (1847) 4 CB 837

[12] Mount v Jay [1960] 1 Q.B. 159

[13] Worthington ‘Equitable Liens in Commercial Transactions’ [1994] CLJ 263

[14] Booth Steamship Co. Lim. v. Cargo Fleet Iron Co. Lim. (1916) 115 L. T. 199

[15] Ward v Bignall [1967] 1 QB 534

[16] Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676

[17] Cowan, Clark and Goldberg ‘Will English Romalpa Clauses Become Registrable Securities?’ [1995] CLJ 43

[18] Borden (UK) v Scottish Timber [1981] Ch 25