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Q&A – Delayed payment

Question: I am a dealer and have sold a valuable artwork from stock.  Payment was due last week.  The client says that he cannot pay until he is able to resume work.  I need the funds now.  What are my rights?

Answer: Under English law, a seller has the right to either sue the buyer for payment of the purchase price or for damages, but not both.

The Sale of Goods Act 1979 provides that the principal right of the seller is to be paid for the goods.  If the price remains unpaid, the seller enjoys, in addition to the right to sue the buyer for the price, other rights to the goods themselves.  The seller has a lien on the goods.  Where the buyer is insolvent, the seller enjoys a right of stopping the goods in transit after having parted with possession of the goods.  These rights arise notwithstanding that the title in the goods may have passed to the buyer, and they arise even if they are not expressly provided in the sale contract. 

If your agreement with the buyer explicitly provides that the time of payment is of the essence, and the buyer fails to make payment on the due date, typically you can cancel the contract by giving written notice to the buyer, on the grounds that the buyer materially breached his obligations under the contract.  Additionally, you have the right to sue the buyer for damages.  If you elect this option, you have a duty to mitigate your loss.  In the case of a sale of art, this normally means reselling the artwork at the best possible price, thereby minimizing your loss.  Reselling is considerably more difficult in the current climate.  Nonetheless, you should try, for example by advertising the artwork on your website if you use the website as a sale platform.

If your agreement with the buyer does not explicitly state that the time of payment is of the essence, you cannot unilaterally cancel your contract with the defaulting buyer.  In that case, you may decide to give notice to the buyer requiring him to make payment within a reasonable time frame and notifying the buyer of your intention to resell the art if he does not pay within such time.  What constitutes reasonable time is a question of fact and the courts exercise their discretion when assessing reasonableness, depending on the circumstances, in particular the agreed payment term.  If the parties agreed that payment would be made within 30 days, a notice to make payment within 14 days if the buyer has not paid by the 30th day is probably reasonable.  However, in the event of a dispute, the courts are likely to be sympathetic to buyers claiming that they need longer to pay given the pandemic.  An additional period of 14 days may be considered unreasonable.   In doubt, seek legal advice.

Where the unpaid seller gives notice to the buyer of his intention to re-sell and the buyer does not pay within a reasonable time, the unpaid seller may re-sell the goods and recover from the original buyer any loss occasioned by his breach of contract.  

If you decide to issue a notice to the buyer, your notice must clearly state the following:

  • that the buyer has defaulted on his payment obligations pursuant to the contract between the parties; and
  • that you have been patient, but cannot afford to continue giving the buyer any further extension – this is assuming that you and the buyer have discussed when payment would be made after payment was not forthcoming on the due date; and
  • that unless the buyer makes payment within a specified period starting on the date of this notice, with the “time of payment being of the essence”, you will deem the contract to be repudiated by the buyer and you will sell the artwork to someone else. 

The courts are unlikely to have much sympathy for contract parties who take unilateral action during the pandemic, at the expense of other contract parties.  In the event that a dispute about non-payment escalated, you will want to show the court that you behaved reasonably and with moderation.  Accordingly, communications with the defaulting buyer should preferably be in writing, and the tone of your correspondence should not come across as overly aggressive or unreasonable.  That is not to say that if payment is due, you should not insist that it be made in a timely fashion.  If the buyer fails to make payment even after you have given him a reasonable period to do so, seek legal advice.

You should check who owns the artwork whilst you await payment.  If English law applies to the sale contract, and the contract is silent on ownership, once you have agreed to sell the artwork to the buyer, in principle, the buyer owns the artwork.  This is because under English law, unless the parties to a sale agree otherwise, ownership passes to the buyer when the contract is made (if the sale is unconditional, the goods are specific and in a deliverable state, see s. 18 Rule 1 Sale of Goods Act).  The contract is made when the seller agrees to sell the goods, and the buyer agreed to pay the price for such goods.  The contract can be made orally (e.g. by phone, on Skype, FaceTime or any other voice technology platform) or in writing (by exchange of emails, WhatsApp or on any other digital platform). Your position is more precarious if the buyer owns the artwork and you have not been paid.  As mentioned above, if you have possession of the artwork, you can exercise a lien on the artwork until you have been paid. 

If the contract provides that ownership will pass only when you have been paid, in principle you still own the artwork, and you will continue to do so until you have received payment.

If the artwork is no longer in your possession, it is imperative that you recover possession whilst you await payment of the price, especially if ownership of the art has passed to the buyer.  Without possession, you run the risk that your debt claim against the buyer is unsecured and should the buyer become insolvent, you would rank as an unsecured creditor in the liquidation.  If so, by the time secured creditors have been paid, there may be nothing left to pay unsecured creditors.