Unpaid Seller
The ordinary law of contract applies for the most part in respect of the sale of goods. The sale of goods act provides additional remedies for buyers. A distinction is drawn between remedies available to consumers and others.
The seller has a right to retain possession of the goods where they are to be delivered in exchange for the price. This depends on whether the price is due on delivery or not. The seller’s obligation to deliver the goods is subject to the condition that the buyer is ready willing and able to pay the price in exchange for them.
An unpaid seller in possession of goods may retain them until the price is paid if the contract does not provide for payment after delivery i.e. no credit. He may also withhold them where they are sold on credit but where the buyer has become insolvent in the meantime.
Notwithstanding that the property in goods may have passed to the buyer, the unpaid seller has a lien on the goods or right to retain them for the price while he remains in possession of them. If the buyer is insolvent there is a right to stop the goods in transit after he has parted with possession. There is a right of resale in accordance with the Act.
The seller has statutory claim for the price of goods. The seller also has a statutory claim to damages for non-acceptance. The right to sue for the price is separate to other remedies. It arises as soon as the price is due under the contract regardless of delivery.
The seller may retain title to the goods until he has been paid. In this case, the title remains with the seller even if the buyer disposes of the goods. There are however exceptions to this principle whereby in some cases, a further buyer without notice of the retention, may take title to the goods.
Unpaid Seller’s Lien
The unpaid seller’s lien applies until the buyer takes possession of the goods. It applies notwithstanding that title to the goods may have passed to the buyer. Where the seller retains the goods in the circumstances, there is a statutory right of sale.
The unpaid seller may lose his right to retain the goods and the lien where
- he delivers them to a carrier or other interested person to pass to the buyer without reserving the right of disposal
- the buyer (may be through its agent) lawfully obtains possession of the goods
- where the right of retention is expressly or impliedly waived.
The waiver may be at the time the contract is entered or may arise later. If the seller deals with the goods in a manner which is inconsistent with the lien’s existence. then it may be taken to be waived.
Generally, where a buyer becomes insolvent before he comes into possession of the goods the seller has a right to stop them in the course of transit. He has the right to take possession of the goods. He may give notice to the carrier or other person in whose custody they are, to do so.
Subject to the contract otherwise providing, the failure to pay the price on the due date does not entitle the seller to terminate the contract. That is to say, time is not of the essence unless expressly so provided. The seller may claim interest.
Where an unpaid seller has partly delivered the goods, he may exercise a lien or right of retention in relation to the remaining goods.
Where the goods are perishable in nature or the seller gives notice to the buyer of his intention to resell in exercise of the lien and the buyer does not pay or tender the price within a reasonable time, the seller may terminate the contract and sell the goods and recover damages from the buyer for any loss thereby caused.
In the absence of a lien or retention of title the unpaid seller has no right to take the goods. If he does, so it would constitute the tort of conversion.
Buyer’s Remedies
The buyer has a statutory right of action against the seller for damages for non-delivery. Non-delivery damages are the loss directly and naturally resulting in the ordinary course of events from the seller’s breach of contract. When there is no available market for the goods of the type of the relevant place, the loss is assessed on the basis of the goods’ value. Evidence must be given of the closest equivalent resale price which the buyer could have made on sale or on their incorporation into other articles.
Where there is an available market for the goods in question, damages are presumed to be the difference between the contract price and the market price at the time when the goods are to have been delivered. Accordingly, the buyer should mitigate his loss by going to the market to buy substitute goods.
The substituted seller should be a reasonable alternative who is accessible within a reasonable distance. This provision does not apply where the parties have agreed or contemplated that this measure of loss would not compensate the buyer the event of failure of delivery.
The buyer may also recover the incidental expenses incurred in purchasing the substitute goods.
Buyer’s Breach of Contract Claim
In accordance with contract principles, where the seller repudiates the contract prior to the date for delivery the buyer may either accept the repudiation and immediately claim for damages (and mitigate his loss). Alternatively, he may continue to treat the seller as bound until the due dat. In this event the seller may perform the contract on the due date in which event no breach arises.
The market price may be the basis of damages even though the buyer has entered a favourable sub-sale at a better price. For this latter basis to apply, the seller must be shown to have knowledge of the sub- sale
In the case of a breach of warranty by the seller, the buyer may not thereby reject the goods. He is entitled to damages for the value of loss arising by reason of the breach. He may claim this in reduction of the price or maintain a separate action for damages. The measure of damages is that applying under ordinary contract law principles i.e. that directly and naturally resulting in the ordinary course of events.
Where the breach relates to quality, the loss is presumptively the difference between the value of the goods as delivered and the value which they would have had, if the warranty had been complied with.
The buyer may also recover expenses that are reasonably incurred as a result of the breach of contract. In principle other loss that is foreseeable may be recoverable including loss of profit and reliance loss whereby expenditure was incurred
Where the seller repudiates his obligations under the contract or commits a fundamental breach or breach of a condition, the buyer has an option to either treat his obligations as discharged and sue for damages or not to do so and sue for damages only. The right to terminate may be lost if the goods are accepted or in other circumstances where the election is not promptly made.
As set out separately, consumers have a number of further remedies by statute in addition to claims for damages and specific performance. They include rights for replacement, repair and price reduction.
Effect of Acceptance
The Sale of Goods Act regulates the right to reject nonconforming goods. There are differing rules in respect of business to business sales and business to consumer sales.
Goods may be accepted under the Sale of Goods Act by way of
- express confirmation
- an act inconsistent with the seller’s ownership
- time passing.
The buyer may expressly accept the goods provided that he has already examined the goods or has had the reasonable opportunity to examine them. A contract may provide to the contrary in a business to business case, but not in a consumer case.
Accepting the goods by doing an act inconsistent with the seller’s ownership is equally subject to the buyer having had a reasonable opportunity to examine the goods. Once again, a contract may provide to the contrary, other than in a consumer case.
What comprises an act inconsistent with the seller’s ownership is a matter of interpretation in the facts of the case. Complex scenarios can arise in particular cases.
Acceptance may be deemed to have occurred after a reasonable time has elapsed. What is reasonable is dependent on the circumstances. The caselaw holds that there is one reasonable period only and that it is not relative to the particular defect.
Right to Reject
The buyer may wish to reject the goods when the defect occurs while the seller will want them to be rejected it quickly, if at all. The time must be at least the time required to give the buyer a reasonable opportunity to examine the goods and ensure that they comply with the requirements of the contract.
The right of rejection may last for a longer period. It may be extended by the course of dealings between the parties or by conduct such as where there are defects and the parties engage as to repair.
Where the seller has no title, the right of rejection lasts indefinitely. It is not possible to accept them in the circumstances because the seller cannot give title.
A buyer is not deemed to accept goods just because he requests or agrees to their repair. Goods may be sub sold to another under another transfer or disposition. This may constitute acceptance, although in some circumstances, it may not be enough.
Where the contract is not severable (e.g. in instalments), acceptance means the right to reject the goods for breach of condition becomes a right to damages for breach of warranty only. The buyer’s option to reject the goods and discharge the contract is lost and his right is to damages only.
Where there is a right to reject some, but not all the goods, it is permitted to accept some but rejecting the remainder. If the contract can be severed the acceptance of goods under the severed part of the contract does not entail the loss of the right of rejection under the under the other severed contract.
