Reed Smith Client Alerts

Recent insolvencies remind us that, when a seller of goods is unpaid, the question of possession leaps to the foreground. There is little value in a claim against an insolvent buyer for damages or for the price.

This client alert examines the options for unpaid sellers, with emphasis on remedies affecting the goods under the Sale of Goods Act 1979 (the “Act”). It also considers the interplay between those remedies and contractual remedies that are often agreed between sellers and buyers. Finally, we provide an overview of the insolvency terms under commonly used standard contract terms.

All references below to statute sections are to the Act. 

The unpaid seller

The statutory remedies are available to an “unpaid seller”, which the Act defines in section 38(1). A seller is ‘unpaid’ when (i) the whole of the price has not been paid or tendered (i.e. a seller can be ‘unpaid’ even if he has received part payment), or (ii) where conditional payment is to be made by a bill of exchange, where the condition has not been fulfilled because the bill of exchange has been dishonoured.

Importantly, payment does not have to be due for the seller to be an “unpaid seller” under s.38. That means the seller’s remedies are in some respects available even before payment is due, provided the price has not been paid or tendered.

The statutory remedies in outline

All the statutory remedies affecting the goods are set out in Section 39(1) of the Act. They apply automatically “by implication of law”. Because of that, they can be changed or excluded by the express terms of the contract and so sellers must consider their contracts carefully before assuming the statutory remedies are fully available.

The statutory remedies are:

  • a lien on the goods or the right to withhold delivery of them, until the price is paid or tendered;
  • where the buyer is ‘insolvent’ (as defined in the Act), the right to stop the goods in transit; and
  • a right of resale.

Importantly, the Act states that all of these remedies are available even where property in the goods (title) has passed from the seller to the buyer.