Seller of defective goods entitled to maintain claim for price

Readie Construction Limited v. Geo Quarries Limited [2021] EWHC 3030 (QB)

In this case, the Sellers were able to claim payment for goods delivered notwithstanding that they were alleged to be defective and the sale contract contained a retention of title clause. The dispute is a useful example of how appropriately drafted payment terms can work in a seller’s favour in such circumstances.

The background facts

The Buyers in this case ordered a quantity of aggregate from the Sellers, to be delivered to one of their construction sites. The Sellers agreed to supply the aggregate on credit terms and the credit form incorporated the Sellers’ standard terms and conditions of sale.

The relevant terms in essence provided that:-

“2. ORDERS

2.2 Every contract for the sale of Goods shall be deemed to be concluded only when the Goods have been delivered or collected…

…

4. PAYMENT

4.1 The Customer shall make payment in full without any deduction or withholding whatsoever on any account by the end of the calendar month following the month in which the relevant invoice is dated…

…

5. PROPERTY RISK AND TITLE

5.1 Upon delivery the Goods shall be at the Customer's risk.

5.2 Notwithstanding 5.1 above and subject to 5.5 below both the legal and equitable title in the Goods will remain with the Company until the Customer has paid in all monies owed by it to the Company under any contract or otherwise including all VAT and interest where applicable.

…”

Several deliveries of the aggregate were made, invoices issued and payment made. However, before paying the invoice for the last batch, the Buyers contended that it was defective and declined to pay. The Sellers obtained summary judgment. The Buyers appealed.

The High Court judgment

One key issue was whether, on the true construction of the contract, the Buyers were entitled to withhold payment on the basis that the goods delivered were defective or whether the contractual terms meant that they were obliged to pay the amount on the invoice irrespective of the quality of the goods delivered.

S. 49 of the Sale of Goods Act 1979 (“Act 1979”) provides as follows:

"(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.

(2) 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 a price, the seller may maintain an action for the price, although the property in the Goods has not passed and the Goods have not appropriated to the contract."

Therefore, an action for the price of the goods (i.e. a debt claim) may only be maintained where property has passed, but with an exception for cases where the price is payable “on a day certain irrespective of delivery”, pursuant to the contract.

S. 28 provides that payment and delivery are concurrent conditions:

"Unless otherwise agreed, delivery of the Goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the Goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the Goods."

S. 49(1) did not apply because of the retention of title clause. As to s. 49(2), the Buyers contended that it did not apply where defective goods had been delivered. Delivery and payment were concurrent conditions; therefore, where non-contractual goods had been supplied, this could not be considered as delivery of the goods for these purposes and so payment was not due. Rather, where during an agreed credit period, a buyer discovered that the seller had delivered non-conforming goods entitling the buyer to reject them, the buyer was entitled to withhold payment following the expiry of the credit period.

The Sellers relied among other things on the fact that they had extended to the Buyers a substantial credit line on the basis that the Buyers would pay as soon as the invoice was issued. Any claims of allegedly defective goods could be made separately and subsequently.

The Court found in favour of the Sellers and dismissed the appeal. While delivery and payment would normally occur at the same time, unless otherwise agreed, s. 49(2) provided for a scenario where the time of delivery and the time of payment were divorced from one another. Where that was the case, as here, then the contract became one where the price was payable on a day certain irrespective of delivery. Consequently, the Sellers were entitled to payment if there had been purported delivery of the goods, even if the goods delivered were arguably not of the contractual specification.

Comment

The Court’s decision was a commercial one that took into consideration the importance of cash-flow (the “lifeblood” of a business) in such cases. Further, the Buyers’ line of argument would have created a problem for sellers where a sale contract contained both a retention of title clause and a period of credit because those cases would always have fallen outside of the scope of s. 49(2), preventing the seller from bringing a straightforward debt claim and forcing it to pursue a generally more complicated claim in damages instead.

Author

Natalie Jensen, Partner