Rights and obligations of the buyer and the seller

• The buyer’s remedies arising from the seller’s breach of contract

  • require proper performance

  • avoid the contract

  • proportionally reduce the contract price

  • seek damages

• damages may be claimed by the buyer even when any of the first three remedies is also claimed

• proper performance

  • the buyer may require the seller to honour the contract

  • this right is lost if the buyer has already taken action which is inconsistent with the requirement of performance, for example, the buyer has treated the contract as avoided

  • the buyer may extend the time period for performance

  • an order by the court of specific performance will only be awarded if that is consistent with the existing local law

  • if a breach by the seller is with reference to non-conformance of the delivered goods the buyer may require the seller to

    • repair the goods where non-conformance is minor, or

    • replace the goods where non-conformance is fundamental

  • the seller may seek to remedy the failure to perform if

    • there is no unreasonable delay, and

    • the buyer is not unreasonably inconvenienced

  • for this to apply, the seller must give notice to the buyer of the intention to remedy, and

  • the buyer should contact the seller showing acceptance of late performance

  • note, the buyer must actually receive the notification from the seller

• where the buyer fails to reply to the seller’s notice, the seller is entitled to assume that the buyer has accepted late performance

• where goods are delivered before the due date, the buyer

  • may accept delivery, or

  • refuse delivery until the contracted date

• where excess goods are delivered, the buyer

  • may accept all the goods, or

  • some of the excess, or

  • just those goods as per the contract

• if the buyer accepts some or all of the excess, the buyer must pay for that excess

• avoid the contract

  • the buyer may avoid the contract for a fundamental breach, or where the seller fails to deliver within an additional period fixed by the buyer

  • such a declaration of avoidance is effective only if it is made by notice from the buyer to the seller

• proportionally reduce the contract price

  • the buyer may reduce the price in the same proportion as the value of the goods actually delivered bears to the value conforming goods would have had at delivery

  • if the seller corrects the non-conformity, the buyer cannot reduce the price

  • if third party rights are involved and the buyer could not reasonably have known then, on subsequent discovery, the buyer may reduce the contract price

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1 Obligations of the buyer

• the buyer must take delivery of the goods as specified within the contract and must pay the agreed price for those goods

• if a price is not specified within the contract it is assumed that the buyer and seller have an agreement to set the price which prevailed at the date of the contract

• if the price is determined by the weight of goods delivered, the value is calculated based on the net weight

• place of payment, if not specified within the contract, shall be

  • at the seller’s place of business, or

  • if payable when goods / documents are delivered to the buyer, at the place where that delivery takes place

• timing of payment, if not specified within the contract, shall be

  • on delivery of the goods / documents …

  • ... but only after the buyer has examined the goods

• the seller may include a contract term which states that title to the goods shall not pass until payment has been made. This is called a “Romalpa Clause”

• in addition, where carriage is involved, the seller may state that the goods shall not be released to the buyer until payment is made

• where there is an agreed date of payment, the buyer should pay on that date without the seller having to request payment

• the buyer is obliged to take delivery of the goods, and

• take all such reasonable steps to enable the seller to effect delivery

• The seller’s remedies arising from the buyer’s breach of contract

  • require acceptance of the goods

  • require payment for the goods

  • avoid the contract

  • seek damages

• acceptance and payment

  • the seller may enforce the contractual terms with reference to acceptance and payment unless...

  • ... the seller has taken steps incompatible with that right, for example, the seller has notified the buyer that the contract is being treated as avoided

  • it is possible for the seller to extend the time period for the buyer to meet obligations …

  • ... but such extension should be of reasonable length

• avoid the contract

  • the seller may avoid the contract for a fundamental breach, or where the buyer fails to pay or take delivery within an additional period fixed by the seller

  • if the buyer has paid, the seller loses the right to avoid unless...

  • ... it is in respect of late performance by the buyer, or

  • .... it is in respect of any other breach by the buyer

2 Damages

• may be claimed by either party in addition to any other remedy claimed e.g. avoidance

• is a monetary amount claimed in compensation for the loss suffered by the injured party

• the amount of damages awarded is limited to that amount which could have been reasonably foreseeable by the breaching party

• the injured party should seek to mitigate the loss suffered as a result of the breach, for example:

  • by selling goods which have been rejected by the buyer and claiming only the difference between contract price and sale proceeds

  • by buying replacement goods and claiming only the amount paid in excess of the contract price

3 Breach of contract

• defined as “the failure of one party to perform their obligations under the contract”

• two types

  • anticipatory breach, and

  • breach during performance

• anticipatory breach is a breach in advance of the due date for commencement of performance

  • if it becomes apparent that the other party will not perform a material part of their obligations because

    • there is a serious indication of their inability to perform

    • creditworthiness is in doubt

    • indications arising from the other party’s preparation to perform

  • in these situations, one party may suspend their own performance, even if the due date for commencement has not yet been reached

  • but must give notice of the intention to suspend

  • when such notice is received, if the other party gives assurance that everything is fine, the notifier cannot suspend performance

  • when goods have already been despatched before the potential breach becomes known, the seller can prevent delivery of those goods, even though the buyer may already hold the title documents

• anticipatory avoidance requires it to be clear that a fundamental breach will occur

4 Breach during performance

• remedies available to the injured party have already been covered in these notes

• possible that the breach may be classed as “fundamental”

  • this is a major breach, for example, one party giving notice that they will not continue with the contract

  • in this situation, the injured party may declare that the contract is avoided and …

  • ... claim damages

• instalment contracts

  • where delivery of the goods is by instalments the rights of the injured party depend on the timing of the breach

    • in (say) a ten instalment contract, the first instalment is in breach (e.g. poor quality) the buyer may treat the whole contract as avoided

    • but if the first seven instalments are accepted and the eighth is in breach, the buyer will likely only be able to reject the eighth instalment and claim damages or require replacement

5 Effects of avoidance

• avoidance releases future obligations but preserves claims for damages and dispute-resolution terms; restitution may be required

• but, of course, remedies must then be available to the injured party

  • claim damages

  • resort to a tribunal

  • exercise any rights specified in the contract in anticipation of avoidance

  • claim recovery of any goods delivered (restitution)

• but note, restitution is only available if no third party rights will be adversely affected and full restitution is possible (restitutio in integrum)