Business Law Unit 2
Rights of Unpaid Seller
Rights of an Unpaid Seller Against Goods
An unpaid seller is one who is not paid for the goods sold by him. Any seller would be deemed to be an unpaid seller if:
A. The whole price is not paid or tendered.
B. The credit period allowed has passed and the payment is due.
C. The negotiable instrument issued against payment has been dishonoured.
D. The buyer is declared insolvent.
His rights against goods are:
a. Rights when the property is passed to the buyer:
i) Right of lien.
ii) Right of stoppage in transit.
iii) Right of resale.
b. Rights when the property has not passed to the buyer
i) Right of withholding delivery.
ii) Right of stoppage in transit.
Rights of unpaid seller against the buyer.
If the goods are delivered to the buyer, the unpaid seller has a right to sue the buyer for recovery of price, including costs of suit, customary interest and damages, if any.
If the buyer takes the delivery of the goods from the seller, by issuing a cheque and later the cheque gets bounced, the unpaid seller can sue the buyer under the Negotiable Instruments Act, 1881. Such a buyer is liable for punishment with imprisonment or a fine.
Seller’s lien refers to the seller’s right to retain the possession of goods until certain charges due in respect of them are paid. 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:
Where the goods have been sold without any stipulation as to credit;
Where the goods have been sold on credit but the term of credit has expired;
Where the buyer becomes insolvent.
Stoppage in Transit
Stoppage in transit is one of the rights of an unpaid seller. This right consists of stopping the goods while they are in the possession of a carrier or lodged at any place in the course of transmission to the buyer. The seller can resume the possession of the goods and retain until the price is tendered or paid.
Rights of an unpaid seller to stop the goods in transit. They are:
a) The buyer of goods must have become insolvent.
b) The goods should be in possession of a middleman or some person intervening between the vendor who has parted with the goods and a buyer who has not received them.
c) The goods must be in transit or in possession of a middleman for the purpose of transit.
d) The seller’s right of stoppage in transit can be exercised as long as the goods are in transit and not yet delivered to the buyer.
e) The seller may retain the goods until price is tendered or paid.
Right of Resale by a Seller
When a seller exercises his right of lien or right of stoppage in transit over goods, he cannot resale them as he wishes because of the existence of the original contract between the seller and buyer. The buyer has the right to pay for the goods and have them. If the seller resells them without notice of the buyer, he has to give the profit accrued on the resale to the buyer. Therefore the seller has limited right to resell the goods.
The seller can resell the goods that are under his lien or stopped in transit in the following cases:
If the goods are perishable in nature; the seller has given a notice to the defaulting buyer granting reasonable time for the payment. The buyer fails to pay the price within the specified time; the seller can sell the goods and also retain the profits, if any.
The original contract can provide the right to resale in case the buyer fails to pay the price and in such a case the seller need not send a notice to the buyer.
Remedies For Breach Of Contract
Remedies Available To the Seller
In case of breach of the contract of sale of goods where the seller is the aggrieved party he has the following remedies:
Suit for price:
1) Where under a contract of sale, the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.
2) Where under a contract of sale, the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. In short, section 55 gives right to the seller to sue the buyer for the price. Now a seller can institute suit for the price when:
(i) The property in the goods has passed to the buyer, for example, goods have been sold and delivered.
(ii) Where the goods have not been delivered and the property in the goods has not passed to the buyer. The seller can sue for the price under clause (2), if the price is payable on a certain day and the buyer wrongfully neglects or refuses to pay such price. He may also exercise right of lien and stoppage in transit as discussed.
Suit for Damages
For non-acceptance: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. The measure of damages is according to the provisions of section 73 of The Indian Contract Act, depending upon the available market for the goods. In action for damages for breach of contract to buy goods, plaintiff can only recover difference between contract price and market price and not between contract price and actual price.
For repudiation of the contract – Anticipatory breach: Where the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach. This remedy is in anticipation of the breach of contract popularly known as anticipatory breach of contract.
The words repudiates the contract occurring in section 60, demonstrate that the repudiation must be of the contract in its entirety and that it is only in that event, that there is anticipatory breach which can create the right to rescind the contract.
Remedies Available To the Buyer
In case of breach of the contract of sale, where the buyer is the aggrieved party he has the following remedies:
Suit for damages for non-delivery of the goods (Sec 57):
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This remedy of the buyer is similar to that of the seller under section 56, discussed above under suit for damages by the seller.
Suit for specific performance:
In any suit by the buyer for breach of contract to deliver specific or ascertained goods, the Court may, if it thinks fit, on application of the buyer, by its decree, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The decree, may be unconditional, or upon such terms and conditions as to damages, payment of the price or otherwise as the court may deem just.
Specific performance is subject to the provisions of The Specific Relief Act 1877. It should be noted that this section applies only to specific or ascertained goods. The Court has discretion to order specific performance whenever damages would not be an adequate remedy.
Breach of Contract & Remedies
Nature of breach
A breach of contract occurs where a party to a contract fails to perform, precisely and exactly, his obligations under the contract. This can take various forms for example, the failure to supply goods or perform a service as agreed. Breach of contract may be either actual or anticipatory.
Actual breach occurs where one party refuses to form his side of the bargain on the due date or performs incompletely.
Anticipatory breach occurs where one party announces, in advance of the due date for performance, that he intends not to perform his side of the bargain. The innocent party may sue for damages immediately the breach is announced.
Effects of Breach
A breach of contract, no matter what form it may take, always entitles the innocent party to maintain an action for damages, but the rule established by a long line of authorities is that the right of a party to treat a contract as discharged arises only in three situations.
The breaches which give the innocent party the option of terminating the Contracts are:
Renunciation occurs where a party refuses to perform his obligations under the contract. It may be either express or implied.
(b) Breach of condition
The second repudiatory breach occurs where the party in default has committed a breach of condition.
(c) Fundamental breach
The third repudiatory breach is where the party in breach has committed a serious (or fundamental) breach of an in nominate term or totally fails to perform the contract. A repudiatory breach does not automatically bring the contract to an end.
The innocent party has two options:
He may treat the contract as discharged and bring an action for damages for breach of contract immediately.
He may elect to treat the contract as still valid, complete his side of the bargain and then sue for payment by the other side.
Introduction to Damages
Damages are the basic remedy available for a breach of contract. It is a common law remedy that can be claimed as of right by the innocent party. The object of damages is usually to put the injured party into the same financial position he would have been in had the contract been properly performed. Sometimes damages are not an adequate remedy and this is where the equitable remedies (such as specific performance and injunction) may be awarded.
The major remedy available at common law for breach of contract is an award of damages. This is a monetary sum fixed by the court to compensate the injured
Party. In order to recover substantial damages the innocent party must show that he has suffered actual loss; if there is no actual loss he will only be entitled to nominal damages in recognition of the fact that he has a valid cause of action.
In making an award of damages, the court has two major considerations: Remoteness – for what consequences of the breach is the defendant legally responsible? The measure of damages – the principles upon which the loss or damage is evaluated or quantified in monetary terms. The second consideration is quite distinct from the first, and can be decided by the court only after the first has been determined.
Remoteness of Loss
The rule governing remoteness of loss in contract was established in Hadley v Baxendale. The court established the principle that where one party is in breach of contract, the other should receive damages which can fairly and reasonably be considered to arise naturally from the breach of contract itself (‘in the normal course of things’), or which may reasonably be assumed to have been within the contemplation of the parties at the time they made the contract as being the probable result of a breach.
Thus, there are two types of loss for which damages may be recovered:
1. What arises naturally; and
2. What the parties could foresee when the contract was made as the likely result of breach.
As a consequence of the first limb of the rule in Hadley v Baxendale, the party in breach is deemed to expect the normal consequences of the breach, whether he actually expected them or not.
Under the second limb of the rule, the party in breach can only be held liable for abnormal consequences where he has actual knowledge that the abnormal consequences might follow or where he reasonably ought to know that the abnormal consequences might follow.
The Measure (or Quantum) of Damages
In assessing the amount of damages payable, the courts use the following Principles: The amount of damages is to compensate the claimant for his loss not to punish the defendant.
The most usual basis of compensatory damages is to put the innocent party into the same financial position he would have been in had the contract been properly performed. This is sometimes called the ‘expectation loss’ basis.
Sometimes a claimant may prefer to frame his claim in the alternative on the ‘reliance loss’ basis and thereby recover expenses incurred in anticipation of performance and wasted as a result of the breach. In a contract for the sale of goods, the statutory (Sale of Goods Act 1979) measure of damages is the difference between the market price at the date of the breach and the contract price, so that only nominal damages will be awarded to a claimant buyer or claimant seller if the price at the date of breach was respectively less or more than the contract price.
In fixing the amount of damages, the courts will usually deduct the tax (if any) which would have been payable by the claimant if the contract had not been broken. Thus if damages are awarded for loss of earnings, they will normally be by reference to net, not gross, pay. Difficulty in assessing the amount of damages does not prevent the injured party from receiving them.
In general, damages are not awarded for non-pecuniary loss such as mental distress and loss of enjoyment. Exceptionally, however, damages are awarded for such losses where the contract’s purpose is to promote happiness or enjoyment, as is the situation with contracts for holidays. The innocent party must take reasonable steps to mitigate (minimize) his loss, for example, by trying to find an alternative method of performance of the contract
Liquidated Damages Clauses and Penalty Clauses
If a contract includes a provision that, on a breach of contract, damages of a certain amount or calculable at a certain rate will be payable, the courts will normally accept the relevant figure as a measure of damages. Such clauses are called liquidated damages clauses. The courts will uphold a liquidated damages clause even if that means that the injured party receives less (or more as the case may be) than his actual loss arising on the breach.
This is because the clause setting out the damages constitutes one of the agreed contractual terms. However, a court will ignore a figure for damages put in a contract if it is classed as a penalty clause – that is, a sum which is not a genuine pre-estimate of the expected loss on breach.
This could be the case where:
1. The prescribed sum is extravagant in comparison with the maximum loss that could follow from a breach.
2. The contract provides for payment of a certain sum but a larger sum is stipulated to be payable on a breach.
3. The same sum is fixed as being payable for several breaches which would be likely to cause varying amounts of damage.
All of the above cases would be regarded as penalties, even though the clause might be described in the contract as a liquidated damages clause. The court will not enforce payment of a penalty, and if the contract is broken only the actual loss suffered may be recovered.
This is an order of the court requiring performance of a positive contractual obligation. Specific performance is not available in the following circumstances:
- Damages provide an adequate remedy.
- Where the order could cause undue hardship. Where the contract is of such a nature that constant supervision by the court would be required.
- Where an order of specific performance would be possible against one part to the contract, but not the other.
- Where the party seeking the order has acted unfairly or unconscionably. He is barred by the maxim ‘He who comes to Equity must come with clean hands’.
- Where the order is not sought promptly the claimant will be barred by the maxims ‘Delay defeats the Equities’ and ‘Equity assists the vigilant but not the indolent’. In general the court will only grant specific performance where it would be just and equitable to do so.
An injunction is an order of the court requiring a person to perform a negative obligation. Injunctions fall into two broad categories:
Prohibitory injunction, which is an order that something, must not be done.
Mandatory injunction, which is an order that something, must be done.
For example to pull down a wall which has been erected in breach of contract. Like specific performance it is an equitable remedy and the court exercises its discretion according to the same principles as with specific performance.
You May Also Like To Read : Business Law Unit 3
Thanks For Reading: Business Law Unit 2
Powered By 360Presence