The characteristic of a contract is the agreement that establishes the rights and obligations of the parties involved. Similarly, both parties have rights and obligations in a sales contract. The seller will deliver goods, while the buyer pays for those goods. Thus, disputes arising from the seller’s breach of sales contracts mainly relate to delivery and product quality issues. In this article, TNTP will provide legal knowledge regarding disputes arising from the seller’s breach of sales contracts.
1. Dispute related to sales contracts
The sale of goods is a commercial activity whereby the seller is obliged to deliver goods, transfer ownership to the buyer, and receive payment; meanwhile, the buyer is obliged to pay the seller and receive goods and the ownership thereof as agreed.
In this transaction, because the seller is responsible for the production, supply, and delivery, disputes related to the seller’s obligations often arise from violations such as failure to deliver, late delivery, or delivery of incorrect quantities, quality, or types.
2. Dispute due to the seller’s late delivery
According to Article 37 of the Commercial Law 2005, the seller must deliver goods at the time already agreed upon in the contract. If both parties agree on a time limit for delivery of goods without a specific shipment time, the seller may deliver goods at any time within the time limit and must notify the buyer in advance. If there is no agreement on the time limit for delivery of goods, the seller must deliver goods within a reasonable time after the contract is concluded.
Most of the time, the parties will agree on the delivery time in the sales contract or in purchase orders. The seller must deliver the goods at the time agreed upon by both parties. If the seller cannot deliver on time, they must notify the buyer in advance and propose a new delivery time. If the buyer does not agree to change the delivery time, and the seller cannot deliver on time as agreed, it is determined that the seller has failed to deliver on time.
Timely delivery by the seller is important because if the seller breaches this obligation, the buyer’s production and business operations will be delayed, potentially leading to the buyer breaching contracts with third parties. In this case, the seller will be subject to penalties, and compensation for breaching as stipulated in the contract.
3. Dispute due to the seller delivering incorrect types, quantities, or quality
According to Article 34 of the Commercial Law 2005, the seller must deliver goods as agreed in contracts on quantity, quality, packing and preservation method and other contractual terms. If the parties do not have an agreement, the following cases are considered as the seller not delivering, or delivering goods of the wrong type or quantity:
● Not suitable for common use purposes of goods of the same type;
● Not suitable to any specific purpose that has been notified by the buyer to the seller or the seller should have known at the time the contract is entered into;
● Quality of goods is not the same as the quality of the samples previously handed over by the seller to the buyer;
● Not being preserved or packaged by a method common to such goods, or not preserved by proper preserving methods in cases where no common preserving method is available;
● Goods are delivered but the quantity is not as agreed.
Delivering goods of the correct type, quantity, and quality is a fundamental obligation in sales contracts since delivering incorrect types, quality, or quantities can cause damage to the other party, preventing them from achieving the purpose of the contract. When the purpose of the contract is not achieved, the seller has to face compensation for damages and possibly face penalties for breach (if agreed), and the buyer has the right to unilaterally terminate the contract signed between the parties.
However, according to Clause 1 of Article 40 of the Commercial Law 2005, if the buyer knew or should have known about the defects of the goods at the time the contract was concluded, the seller is not considered to have delivered goods that do not meet quality standards. Furthermore, according to Clause 4 of Article 44 of the Commercial Law 2005, the seller is also not liable for defects of goods that the buyer or the buyer’s representative has known or should have known but failed to notify the seller of within reasonable time limit after the examination of goods.
4. Dispute due to the seller’s breach of other terms in the sales contract
Apart from common disputes mentioned above, disputes due to the seller’s breach of obligations can also arise from the following reasons:
● The seller’s failure to deliver documents related to the goods: According to Article 42 of the Commercial Law 2005, if there is an agreement on the delivery of documents, the seller is obliged to deliver all goods-related documents to the buyer within the agreed time limit, place and method. Thus, if the seller fails to fulfil the obligation to deliver the relevant documents to the buyer as agreed and does not rectify this issue, disputes due to the seller’s breach of obligations may arise.
● The seller’s failure to ensure ownership rights over the goods: According to Article 45 of the Commercial Law 2005, the seller is obligated to ensure that the buyer’s ownership rights to the goods are not disputed by any third party and the handover of the goods is lawful. The seller will be responsible if disputes arise regarding ownership or the validity of the goods.
● The seller’s goods infringe intellectual property rights: According to Article 46 of the Commercial Law 2005, the seller must not sell goods that infringe intellectual property rights and shall be held responsible for any dispute related to intellectual property rights over goods sold. Accordingly, for specific goods that have been granted intellectual property rights and are owned by the buyer or any third party, any unauthorized use by the seller will be considered an infringement of intellectual property rights.
● The seller’s breach of confidentiality clause: Disputes may arise if the seller unintentionally or intentionally uses or discloses the buyer’s confidential information without the buyer’s permission or exposes the buyer’s trade secrets.
● The seller’s breach of other agreed terms.
In cases where the seller breaches the obligations in the sales contract, the seller may face penalties such as: being compelled to fulfil the contract, compensating for damages, facing penalties for breach, temporarily suspending the contract, suspending the contract, or terminating the contract,… depending on the agreements between the parties and legal provisions.
Above is the article “Dispute Arising from Seller’s Breach in Sales Contracts”. TNTP hopes that the article is helpful to readers.
Sincerely.
