ABE Principles of Business Law 2008

(Continued over)

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236 The Sales of Goods 3: Disputes and Remedies

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The Sales of Goods 3: Disputes and Remedies 237

A. REMEDIES OF THE SELLER

Should the buyer be in breach of a contract of sale, the seller has various remedies open to him/her, depending on the circumstances. The types of breach of which a buyer may be guilty are by the nature of a contract of sale of goods limited to:

Failure to pay the price;

Failure to take delivery, either at all or later;

Wrongful rejection of the goods.

The remedies open to the seller depend partially on whether he/she still has possession of the goods at the time of the buyer's breach, and whether or not the property in the goods has passed to the buyer. He/she will always have a right of action for breach of contract, and may also have a remedy in respect of the goods themselves.

Before looking at these remedies in detail, we must first establish just who "the seller" is, and when his/her primary right to be paid the price is in default.

S.38(2) of the 1979 Act defines a seller as including "any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid (or is directly responsible for) the price".

The definition is therefore more extensive than that which you would normally think of as a seller. Anybody who has documents of title to the goods assigned to him, or who has paid, or has a legal duty to pay, the original seller or any intermediate seller for the goods, is deemed to be "a seller" within the meaning of the Act. The definition is also wide enough to include a surety for the buyer. Until the buyer defaults, the liability of a surety is only contingent. But once he has been called upon to pay the buyer's default, then he is subrogated to the rights of the seller – that is to say, he steps into the seller's shoes as far as enforcing the seller's rights against the buyer to be paid. He is then a person "who is in the position of a seller".

As we have said, the primary right of a seller is to be paid the price.

S.38(1) provides as follows:

"The seller of goods is an unpaid seller within the meaning of this Act:

(a)when the whole of the price has not been paid or tendered;

(b)when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise".

You should note that a seller is "unpaid" while any part of the price has not been paid or tendered. "Tendered" refers to the offer of payment in satisfaction of the price. If the seller refuses to accept a tender of payment in accordance with the contract, then he/she ceases to be an "unpaid seller". By the same token if, according to the terms of the contract, payment in whole or in part is not due, the seller remains an "unpaid seller" (e.g. if the contract provides for payment by instalments, or after an agreed period of credit).

Payment by means of a negotiable instrument, usually these days a cheque, is only a conditional payment: conditional, that is, on the instrument being duly honoured on presentation in accordance with the terms of its issue. If it is dishonoured (or "bounces"), then the condition is unfulfilled, and the seller's rights revert.

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238 The Sales of Goods 3: Disputes and Remedies

Remedies Affecting the Goods

Three specific rights in respect of goods are given to an unpaid seller by S.39:

"(1) Subject to this and any other Act, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law:

(a)a lien on the goods or a right to retain them for the price while he is in possession of them;

(b)in case of the insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them;

(c)a right of resale as limited by the Act.

(2)Where the property in goods has not passed to the buyer, the unpaid seller has (in addition to his other remedies) a right of withholding delivery similar to and coextensive with his rights of lien or retention and stoppage in transit where the property has passed to the buyer".

We will now look at these rights in detail.

Lien

A lien is the right of a person such as a bailee, in possession of goods, to retain those goods until any claim he/she has on or in respect of them has been satisfied.

This is a common law right, and applies to any goods which a person has in his/her possession with the consent of the owner. If you leave your car with a garage for repairs or servicing, the garage has a lien on it, and a right to retain it until you have paid the bill.

However, the lien of a seller is special, not general. He/she has no right to retain the goods until any other debts owed by the buyer are paid, but only in the precise circumstances allowed by the Act.

S.41 sets out the rules:

"(1) Subject to this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases:

(a)where the goods have been sold without any stipulation as to credit;

(b)where the goods have been sold on credit but the term of credit has expired;

(c)where the buyer becomes insolvent.

(2)The seller may exercise his lien or right of retention notwithstanding that he is in possession of the goods as agent or bailee or custodier for the buyer."

Sub-section (1) is straightforward. Sub-section (2) is spelling out the situation where the property has passed to the buyer. In order for a lien to exist, the goods must be owned by someone else. Hence, if this is the case, the seller is acting as agent or bailee or custodier of the goods for or on behalf of the owner. Which category she is in will depend on the individual circumstances. The reason for this sub-section being inserted is because it changes the common law rule, which was that only a seller in possession was entitled to a lien. She lost the right if she retained possession only as an agent or bailee.

The right of lien given by the Act is, however, only in respect of payment or tender of the price. It does not subsist in respect of other charges arising out of the goods – e.g. storage charges (Somes v. British Empire Shipping Co. (1860)).

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Where the contract provides for delivery by instalments, or where part-delivery only has been made, S.42 permits an unpaid seller to exercise his/her lien in respect of any instalment or part not already delivered.

You should note that a lien exists only if the seller is in possession. It does not entitle him/her to repossess goods from the buyer or from any other party who is actually in possession. It is therefore different from the right of stoppage in transit, which we will look at in the next section.

The Act makes this clear in S.43, which covers the termination of the seller's lien. This states:

"(1) The unpaid seller of goods loses his lien or right of retention in respect of them:

(a)when he delivers the goods to a carrier or other bailee or custodier for the purpose of transmission to the buyer without reserving the right of disposal of the goods;

(b)when the buyer or his agent lawfully obtains possession of the goods;

(c)by waiver of the lien or right of retention.

(2)An unpaid seller of goods who has a lien or right of retention in respect of them does not lose his lien or right of retention by reason only that he has obtained judgment or decree for the price of the goods."

We discussed "reserving the right of disposal" earlier in this module, and in the context of lien it usually arises when the seller takes a bill of lading in respect of the goods made out to his/her order. It is only when the seller endorses that bill of lading to the buyer or some other party that the right of disposal is transferred.

The "waiver" of lien can arise in a number of ways. It can be express, as a term of the contract, or more commonly waiver can be implied from the seller's conduct. The granting of credit at the time of the contract amounts to a waiver for the period of credit. Should the seller deal with the goods in a manner inconsistent with the right of retention, she will be deemed to have waived her lien. For instance, if she wrongfully sells the goods to a third party in circumstances where the Act does not allow a right of resale, she cannot rely on her right of lien to justify her action. A lien would also be deemed to have been waived if the seller takes some security for the goods, the terms of which are inconsistent with the right of lien.

Stoppage in Transit

The right of "stoppage in transit" is of ancient origin, and is derived from mercantile custom. The first reported case was Wiseman v. Vandeputt (1690), and the doctrine was approved and accepted by the House of Lords in Lickbarrow v. Mason (1793). It is now, however, governed by the Sale of Goods Act 1979, Ss.44–46.

(a)The principle is that normally once a seller delivers goods to a carrier for transmission to the buyer, he loses his right of lien. Hence if the seller is unpaid, and during the course of transit the buyer becomes insolvent, then the unpaid seller can reassert his lien by instructing the carrier not to deliver the goods to the buyer and instead hold them to the seller's order. It is important to note that the right of stoppage in transit arises only if the buyer becomes insolvent. It cannot be exercised merely because he does not pay, or even merely because he calls a meeting of creditors: it could be he just needs more capital.

The definition of insolvency for the purposes of sale of goods (which is not necessarily the same as insolvency for other legal purposes) is contained in S.61(4) of the 1979 Act:

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If the facts show that the master is acting in a capacity as carrier, the transit will subsist. On the other hand, if he/she is deemed to be an agent of the buyer, then the transit will end (if indeed it ever began) under Rule (2) when the goods are loaded.

In Berndtson v. Strang (1868) it was held that the proper test to apply was whether the ship's master was a servant of the owner, or of the buyer in his capacity as charterer. It will depend on the terms of the charter as to whether or not the buyer is deemed "owner" of the ship for the voyage (a demise charter). If he is not, the master is still a servant of the actual owner, and so a carrier.

The transit ends if the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his/her agent.

Where part-delivery of the goods has been made, the remainder may be stopped in transit, unless the part-delivery was made in such circumstances as to show an agreement to give up possession of the whole of the goods.

(d)S.46 details the rules as to how a stoppage in transit may be effected. The unpaid seller can exercise his/her right of stoppage by taking actual possession of the goods, or by giving notice of his/her claim to the carrier or bailee in whose possession they are. By the nature of things, the latter course is the most likely to arise, unless the unpaid seller has an agent in the place of destination.

Notice of the exercise of the right is equally valid if given to the person in actual possession of the goods, or that person's principal. However, if given to the principal, it will be ineffective unless given in sufficient time to allow the principal, by using due diligence, to communicate the notice to his/her servant in possession to prevent delivery being made.

When notice of stoppage in transit is given by the seller to the carrier or bailee, the carrier or bailee is under a duty to redeliver the goods to the seller, or deal with them in accordance with the directions of the seller. The expenses of redelivery or other action must be borne by the seller.

In this event, of course, the carrier or bailee, being in possession, has a lien on the goods for payment of freight or other charges in connection with both the original carriage and the redelivery.

(e)The question of what happens if the buyer has resold the goods in the meantime is covered by S.47. Both the right of lien and the right of stoppage in transit are unaffected, unless the seller has assented to a resale or other disposition of the goods by the buyer. Where, however, a document of title to the goods (e.g. a bill of lading) has been lawfully transferred to the buyer, and he/she has in turn transferred it by way of sale to a sub-buyer who takes it in good faith and for valuable consideration, then the original unpaid seller's rights of lien or stoppage in transit are defeated. If, however, the transfer of the document to a third party was by way of pledge not sale, then the original seller's rights can only be exercised subject to the rights of the pledgee.

Note that stoppage is appropriate where property has not passed. You cannot have a lien on your own goods!

Resale

A lien on goods, or a right of stoppage in transit, would be of only limited value to an unpaid seller if he/she did not also have a right to resell the goods. The difficulty is that the contract of sale is not rescinded by the exercise of a lien or stoppage in transit by the seller.

This common law rule is specifically spelled out by S.48(1).

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242 The Sales of Goods 3: Disputes and Remedies

Hence, unless a power of resale is given, the unpaid seller would be in breach of contract if the property in the goods had passed to the buyer. If it had, he/she could not pass a good title to the sub-buyer. S.48(2) therefore provides that on a resale after exercise of lien or stoppage in transit, a sub-buyer acquires a good title as against the original buyer. S.48(3) lays down the rules under which the unpaid seller may resell the goods:

"Where the goods are of perishable nature, or where the unpaid seller gives notice to the buyer of his intention to resell, and the buyer does not within a reasonable time pay or tender the price, the unpaid seller may resell the goods and recover from the original buyer damages for any loss occasioned by his breach of contract".

For obvious reasons, perishable goods may be sold at once. But in the case of nonperishable goods, the unpaid seller is first required to give notice, and a reasonable time for the buyer to remedy his/her breach of contract and pay the price. Failure to do so constitutes a repudiation of the contract by the buyer. However, even if the unpaid seller wrongfully resells, whether or not given the necessary notice, or too short a period of notice, by S.48(2) the sub-buyer gets a good title. The unpaid seller may be liable to the buyer for damages.

One problem with Section 48(3) which the courts have not clearly solved is whether the resale rescinds the contract – in which case all the seller can do is to claim damages for non-acceptance, having returned the buyer's deposit or any other payment – or whether the resale is simply affirming the contract, in which case the seller can claim for any loss he/she suffers on the resale. Such problems do not affect lien or stoppage since they do not rescind the contract of sale.

In R V Ward Ltd v. Bignall (1967) the Court of Appeal held that a resale rescinds the original contract. Hence, the seller could only claim damages for non-acceptance. Having made a loss on the resale, he could not recover that loss from the buyer.

But in Clough Mill Ltd v. Martin (1984) the Court of Appeal felt that it was possible for the unpaid seller to recover any shortfall in the original price where he had been forced to resell by reason of the buyer's default. Nevertheless, the Court pointed out that the buyer must be credited with any deposit or part-payment.

Finally, S.48(4) states that if the seller has expressly reserved a right of resale in the event of default by the buyer, and he/she duly exercises this right, then the original contract of sale is rescinded, but without prejudice to any claim for damages the seller may have.

Other Remedies of the Seller

Rights in respect of the goods – i.e. lien, stoppage in transit, and resale – are, of course, not the only rights an unpaid seller possesses. These can apply only if he/she, or a carrier, is in possession of the goods. They are called "real" remedies, because they are applicable to things. The other remedies are "personal" because they are applicable to the defaulting buyer him-/herself, and are quite irrespective of the actual goods. Personal remedies can be sought either in addition to, or in substitution for, the real remedies.

(a)Claim for the Price

S.49 states:

"(1) Where, under a contract of sale, the property in the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may maintain an action against him for the price of the goods.

Where, under a contract of sale, the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price, although the

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property in the goods has not passed and the goods have not been appropriated to the contract."

An action for the price is distinct from a claim for damages. The price is an amount fixed by the contract, and is a debt owing from the buyer to the seller. Damages, on the other hand, are the loss suffered by the seller in respect of the buyer's breach of contract. The amount of loss has to be proved, and it may be more or less than the price.

Under Sub-section (1), if the property has passed, the seller can forthwith sue for the price as soon as the due day of payment has passed. This presents few problems. Should the seller still be in possession, his/her lien on the goods will ensure that the defaulting buyer does not get delivery until the judgment debt for the price is paid.

But if the property has not passed, it is more difficult. In the first place, payment of the price must be due by the contract of sale on "a day certain". In Shell Mex Ltd v. Elton Corporation Dyeing Co. Ltd (1928), it was held that this was "a time specified in the contract not depending on a future or contingent event". In other words, it is a time which is fixed independent of any action by either party. If the property has not passed, and the price is not payable on a day certain, then the seller's only remedy is for damages.

It follows, of course, that when the price is received, whether voluntarily or as a result of a judgment, the seller will be bound to pass the property in the goods, and if applicable, give possession of them to the buyer.

(b)Damages

The alternative remedy where the buyer wrongfully neglects or refuses to accept the goods, or wrongfully rejects them, is an action for damages for "non-acceptance". By the nature of it, the seller is necessarily repossessed of the goods, and if they are of a type for which there is a market he/she can resell them; S.50 provides for this remedy.

Firstly, "the measure of damages is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer's breach of contract".

It was held in Hadley v. Baxendale (1854) that the quantum of damage does not depend only on the buyer's actual knowledge of any special circumstances likely to cause loss, but firstly on "imputed" knowledge – that is, "what reasonable businessmen must be taken to have contemplated as the natural and probable result if the contract was broken. As reasonable businessmen, each must be taken to understand the ordinary practices and exigencies of the other's trade or business" (Lord Wright in

Monarch Steamship Co. Ltd v. Karlshamns Oljefabriker A/B (1949)).

Secondly, it depends on actual knowledge of any special circumstances likely to cause loss.

The second available measure of damages is as stated in S.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".

The test for an "available market" is either some actual market or exchange where the goods can be sold (Dunkirk Colliery Co. Ltd v. Lever (1878)); or "a particular level of trade in a particular locality" (Heskell v. Continental Express Ltd (1950)).

The market or current price for an aggrieved seller is the actual selling price of the commodity in the market or locality.

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