Monday, March 24, 2014

Section 55 of the Indian Sale of Goods Act: Exhaustive or Illustrative?

There are often practical advantages in being able to sue for an agreed sum instead of damages, because the amount the claimant recovers in an action for the sum is usually not reduced by the application of legal rules such as mitigation and remoteness. For example, suppose an advertiser signs a contract with a television company to advertise its products for a fee of Rs. 1 crore, provides the text of the advertisement and decides a month before the date of advertisement that it no longer wishes to proceed with the contract. If the television company brings a claim for damages, it will only recover the difference between Rs. 1 crore and the market value of an alternative advertising contract on the appropriate date (whether it actually made one or not). If, on the other hand, it displays the advertisement and sues for the price, mitigation and remoteness are generally irrelevant. One of the most common examples of the action for the agreed sum is the action by a seller of goods for the price, which is now a statutory remedy under section 55(1) of the Sale of Goods Act, 1930. The many restrictions on the grant of specific performance (adequacy of damages, constant supervision etc) and damages do not apply to a claim under this provision (see, eg, the Bombay High Court’s decision in Vithaldas Vishram).

But section 55(1) only allows the seller to sue for the price in one of two circumstances:

55. 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 day certain 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.

An important question, therefore, is whether the seller can sue for the agreed sum (provided it has accrued) even when s 55 does not apply. The issue is of some commercial importance because, where sellers, as they commonly do, use a Romalpa clause, property will not pass to the buyer if the sum is not paid and therefore s 55(1) will either be unavailable (as title will not have passed prior to payment) or unnecessary (as payment would have been made). In its important judgment in FG Wilson v John Holt, the Court of Appeal has recently considered this question and granted leave to appeal to the Supreme Court on certain related points.

FG Wilson had entered into a distributorship agreement with John Holt, its distributor, to sell generator sets. The contract contained a ‘no set-off’ clause meaning that John Holt could not set off any claim it might have against Wilson against the price of the goods. John Holt claimed that Wilson was in breach of the Distributorship Agreement and instituted an action in the Commercial Court to recover damages. Wilson claimed that John Holt had failed to pay $12m, representing the price of generator sets delivered to it. The Distributorship Agreement contained a Romalpa clause which meant that FG Wilson retained title until it received payment. If FG Wilson’s action was for the price, the no set-off clause would apply, but not otherwise. FG Wilson said that its action was for the price despite the Romalpa clause because: (i) title passed when (or immediately before) John Holt ‘sold’ the generators to its buyers in Nigeria, thereby attracting section 49(1) of the English Act (section 55(1) of the Indian Act); or (ii) it was entitled to sue for the price even if section 49(1) is not satisfied, if the price has accrued under the contract, as in this case it undoubtedly had.

The Court of Appeal was divided on (i), which is a point of construction. Longmore LJ, who dissented on this point, held that the contract, in allowing John Holt to re-sell ‘in the ordinary course of business’, demonstrated that title must have passed to John Holt at the time of (or immediately before) the re-sale. In his view, section 49(1) was available. Patten LJ, with whom Floyd LJ agreed, held that John Holt transferred the generators to its Nigerian sub-buyer as FG Wilson’s agent, so that title never passed from FG Wilson to John Holt, the latter being obliged to account for the proceeds of sale to the former. In view of the majority’s finding, section 49(1) was unavailable (as title had not passed) and section 49(2) did not apply either (the seller did not attempt to argue it did). The Court of Appeal held unanimously that a seller cannot sue for the price independently of section 49, with the result that FG Wilson’s claim was not one for the price (and the no set-off clause did not therefore apply). At first sight, this appears to be an uncommercial result, because it means that a seller who has taken care to protect himself by a Romalpa clause now loses the ability to sue for the price. However, as Longmore LJ points, all the seller needs to do (which FG Wilson had failed to do) to retain his ability to sue for the price is to stipulate that the price is payable on a ‘day certain’ so that section 49(2) applies although there is a Romalpa clause.

It is no doubt true that retention of title clauses were less common in 1893 than they are today.  But if a seller is happy to allow a buyer use of the goods without paying for them but wishes to ensure that he retains property in the goods and that he can sue for the price, he only has to provide for payment to be due on a day certain.  That is what one would usually expect a seller to do; indeed that is what FG Wilson’s terms and conditions do under the heading Prices and Payments where it is provided that the Buyer is to pay within 30 days of the date of the invoice.  It is only the subsequent variations that have muddied the waters.
Is this also the law in India, for the purposes of section 55 of the 1930 Act? One—ultimately unpersuasive—argument in favour of the seller being able sue independently of section 55 is that provision merely codifies the common law. Indeed, although the predecessor to the 1930 Act (Chapter 7 of the Contract Act, 1872) did not contain any provision corresponding to s 55(1), the courts recognised that a seller could sue for the sum (see, eg, Chowdhry v Poddar). However, the English Sale of Goods Act, 1893, on which the 1930 Act is based and which was also an attempt by Sir Mackenzie Chalmers to codify the common law, only permitted the seller to sue for the sum only in these two circumstances, and one may ask why Parliament should single out two instances if the seller can in any event sue for the price. Moreover, as Longmore LJ points out in FG Wilson, the pre-1893 (in India, pre-1930) common law itself probably allowed a seller to bring an action for the price only if title had passed. Two indebitatus counts were available to the seller for this purpose: ‘goods bargained and sold’ and ‘goods sold and delivered’, which correspond respectively to sub-sections (1) and (2) of section 49 of the English and section 53 of the Indian Acts. As Longmore LJ explains:

Section 49(1) and (2) first appeared in the 1893 Sale of Goods Act but I doubt if Sir Mackenzie Chalmers would accept that criticism (ie Sir Roy Goode’s comment that section 49 was an example of ‘faulty drafting’).  In 1893 it was axiomatic that a seller could not sue for the price unless property in the goods had passed  … All this was regarded as straightforward in Scott v England (1844) 14 LJQB 43 and in the commentary on the old common indebitatus count for goods bargained and sold in Bullen and Leake’s Precedents of Pleadings (3rd ed. 1868) pages 39-40.

This was also the view of McCardie J in Colley v Overseas Exporters, where a leather merchant at Sheffield agreed to sell leather to the buyer, FOB Liverpool, for shipment on the Kenuta. When the Kenuta was withdrawn by the owners, the buyer (in breach of contract) failed to name a replacement ship and title did not pass. The seller said that he could nevertheless sue for the price. McCardie J rejected this contention because—unless one wishes to adopt the ‘fiction of fulfilment’ which is not part of English law although the position is less clear in India—title did not pass and neither the pre-1893 common law nor the 1893 (and therefore the 1930 and 1979) Acts allowed the seller to sue in the absence of the passing of title.

It therefore appears that the position in India is exactly the same. But it is clear that this is a difficult issue, with respectable arguments for both positions, particularly because, as Longmore LJ recognises at [56], the Court of Appeal’s view means that the seller can sue for neither the price nor for damages should the contract contain a Romalpa clause.

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