Rights of Unpaid Seller have been defined under the Sale of Goods Act, 1930. In a contract, there is always a reciprocal promise which means the buyer and seller must perform their contractual obligations.
Generally, in a contract of sale, a seller is under an obligation to deliver the goods and the purchaser is under an obligation to pay the requisite amount for the delivered goods i.e. quid pro quo (which means something in return).
Also, this obligation can be referred to as reciprocal promise which is defined under section 2(f) of the Indian Contract Act, 1872 as ‘Any set of promises made which forms the consideration or part of the consideration for each other are called reciprocal promises.’
Who is an Unpaid Seller?
The meaning and definition of an “Unpaid Seller” has been defined under Section 45 of the Sale of Goods Act, 1930.
Section 45 defines Unpaid Seller as “
In other words, an unpaid seller is a person who has sold the goods but has not received the full amount in exchange for the sale of goods or services rendered.
Therefore, as per this section, an unpaid seller is a person who falls into any of the three categories given below;
1. When the seller sold the goods or rendered services but the seller has not been fully paid in the exchange of sold goods or rendered services. The seller has the right to take immediate action to get that amount.
2. When the seller delivers goods and in return, the seller receives a Bill of Exchange or Other Negotiable Instrument as a part of the conditional buyer then the seller has the right to recover the consideration amount from the buyer.
Illustration: – When the cheque was presented in the Bank by the seller for encashment the cheque was dishonoured on account of funds insufficient. In this condition, the seller is unpaid and has the right to claim the consideration amount from the buyer.
3. It is stated in the definition of the unpaid seller, that a person who is working on behalf of a seller whether an agent or partner who had himself paid or is responsible to pay the price is also included.
Characteristics of an Unpaid Seller
- The seller must be unpaid either wholly or in part.
- The seller must deliver goods or render the services to the buyer then the seller possesses a legal right to claim the amount of consideration in exchange for the delivered goods or rendered services against the buyer.
- When the duration agreed for making payment has expired and the seller is yet to be paid.
- The seller must not have refused to accept the payment.
- When the amount is paid through cheque, promissory note or any other negotiable instrument, the dishonour or failure to pay will also make the seller unpaid.
Rights of Unpaid Seller
Rights against Buyer
1. Suit for the Price
When the seller delivered the goods to the buyer and the buyer has wrongfully neglected or refused to pay the consideration amount as per terms and conditions of the contract, then the seller possesses the right to sue the buyer as per Section 55 (1) of the Sale of Goods Act, 1930 and claim the compensation amount.
However, if the seller has not delivered the goods yet and the due date of payment has expired then the seller can sue the buyer for wrongful neglect or refusal on his part according to Section 55 (2) of the Sale of Goods Act, 1930.
2. Suit for Damages
According to Section 56 of the Sale of Goods Act, 1930, when the buyer refuses the delivery of the goods and has not paid any money to the seller then the seller can sue him for damages for non-acceptance of the goods and non-payment of the money. The damages caused to the seller due to non-payment of the money, and the quantum of damages caused to the seller can be decided as per Sections 73 and 74 of the Indian Contract Act, 1872.
However, in the case when the goods have a ready market, the seller has to resell the goods and the buyer has to pay the losses if incurred. And, if the seller does not resell the goods the difference between the contract and market price on the day of the breach is taken as a measure for damages. If the difference between them is nil then the seller gets nominal values.
Moreover, there is a duty of mitigation on the part of the seller, which means that the injured has to make reasonable efforts to minimize the loss from that breach.
For example, if the seller can resale the goods, the difference in the price in the contract and the resale price is given to the seller. However, if the seller deliberately refuses to resale the goods and its market value reduces then the buyer will not be liable for the exaggerated loss.
In the case of M. Lachia Shetty v/s Coffee Board, where a dealer who bid at an auction of coffee had been accepted and refused to carry out the contract, consequently, coffee was re-auctioned at the next best bidding price and the dealer who refused the bid have to give the difference in the amount of loss to the board.
3. Suit for Interest
According to Section 61 of the Sale of Goods Act, 1930, it is stated that where there is a specific agreement between the seller and buyer with regards to interest on the price of the goods from the date on which payment becomes due, then the seller has the right to recover the amount with interest from a buyer.
But, if there was no agreement between seller and buyer then the seller may charge interest from the date he notifies the buyer.
4. Repudiation of the contract before the due date
According to Section 60 of the Sale of Goods Act, 1930, the rule of anticipatory breach of contract applies wherein if the buyer repudiates the contract before the date of delivery the seller can consider the contract as rescinded and can sue for damages of the breach.
Moreover, if any one party repudiates before the due date other has two courses of action;
- He may immediately accept the breach and bring the action of damages if the contract is rescinded and damages will be assessed according to the prices then prevailing or he can wait for the date of delivery of the goods.
- The contract is at open risk and will be a benefit to both parties buyer and seller.
Rights against Goods
The seller has a right against the buyer regarding goods as below;
1. Right to Lien
The seller’s right to lien is a right which the seller of the goods can exercise when the buyer has not paid the price of goods, Under this right the seller can retain the possession of goods on agent or bailee for the buyer. The seller can retain his possession as per section 47 of the Sale of Goods Act, 1930 when;
- the buyer becomes insolvent,
- the term of goods sold on credit is expired,
- Goods sold without any stipulation as to credit.
When the goods are sold to the buyer on credit the seller’s right to lien is suspended during the term of credit and the lien exists only for the price of goods and not any additional charges.
As per section 48 of the Sale of Goods Act, 1930, it is stated that if the seller has delivered a part of unpaid goods he can exercise his right of lien on rest.
In the case of Grice v/s Richardson, the sellers had delivered a part of the three parcels of tea that was compromised in the sales, and they had not been paid for the part that remained with them. However, they were allowed to keep it till the payment of the price, where a part of the goods delivered which shows an agreement to waive the lien, the seller cannot be remainder.
However, the termination of the lien takes place when the seller loses possession of the goods. According to section 49 of the Sale of Goods Act, 1930, under the following circumstances right of lien is terminated;
1. Waiver of lien
The seller’s right of lien is an implied right that is attached by the law in every contract of sale, the seller has the autonomy to waive his right. The waiver of the seller’s right to lien may be expressed or implied from the conduct of the seller.
2. When the buyer or agent lawfully obtains possession of the goods sold
When the buyer or agent gets lawful possession of the goods which is not yet sold by the seller, all the rights of the seller over the goods are ceased even if the price is not paid or partly paid. The seller can recover the price as a normal debt from the buyer because the acceptance of possession gives an absolute, unqualified and indefeasible right of goods to the buyer. When the goods are given back to the seller for repair or any other purpose, he can not access the right of lien.
3. When the seller delivers the goods to a carrier or other bailee
When the seller delivered the goods to a carrier or other bailee for the purpose of transmission to the buyer, the seller’s right to lien is ceased but the right to stoppage in transit is still accessible by the seller. In case, the seller regains possession of the goods which is in transit by way of stopping the transmission or carrier and his right to lien is revived.
In the case of Valpy vs Gibson, the seller delivered the goods to the buyer’s shipping agent, who had put them on board a ship. But, the goods were returned to the seller for repacking, while they were still with the sellers the buyer became insolvent and the seller being unpaid seller claimed to retain the goods in the exercise of their lien.
It was held that they had lost their right lien by the delivery to the buyer’s shipping agent. Furthermore, when the seller has reserved the rights of disposal his right of lien continues til the end of the transit. And the seller cannot lose his right to lien just because he has obtained a decree for the price of goods.
Whenever the goods have been delivered to the bailee or carrier for the purpose of transmission to the buyer, who becomes insolvent then the seller has the right to stop the goods in transit to protect himself against the loss that may arise due to insolvency.
Section 50 of the Sale of Goods Act, 1930 there states four essential requirements/conditions for the stoppage of goods which is in transit;
- The seller should be an unpaid Seller,
- The buyer becomes Insolvent,
- Goods should have passed to the buyer,
- Goods should be in the course of transit.
In the case of Schotsmans v/s Lancashire & Yorkshire Rly Co., it was held the goods in transit depending upon the capacity of the middleman to hold the goods.
A middleman or agent should be an intervening person between the seller and the buyer who has not yet received the goods.
Section 5, lays down the rules and regulations related to the commencement and end of the transit, This section is divided into seven sub-sections which solve all the issues related to the commencement and end of the transit.
1) Delivery to the Buyer
The goods are considered in transit when the seller delivers the goods to the carrier or bailee for the purpose of transmission to the buyer till the goods are received by the buyer himself or his agent takes delivery of them.
In the case of Great Indian Peninsula Ry Co. v/s Hammandas, the seller consigned the goods with the Great Indian Peninsula Ry Co. for transportation to the buyer. Upon arrival at the destination, the company delivered the goods to the buyer who had loaded the goods on his cart, but the cart had not yet left the railway station when a letter was received by the company to stop the goods, the company did not so and therefore, the company was sued by the seller in damages. However, it was held that the transportation of the goods had ended as soon as the goods were handed over to the buyer.
But, in the case of James v/s Griffin, it was held that when the goods reached the destination of the buyer but the buyer refused to accept the delivery of the goods then the transit did not come to an end.
2) Interception by the buyer
When the buyer or the agent takes the delivery of the goods from the carrier, the transit ends even before their arrival at the appointed destination.
In this case, the carrier delivers the goods before the arrival of the buyer, although it is wrongful and the carrier may be held liable for the damages but the transit ends here.
In the case of Lyons vs Honffnung, the buyer takes his seat as a passenger in a ship that was carrying the goods. The court said that this does not amount to delivery to the buyer before their arrival at the appointed destination.
3) Acknowledgement to the Buyer
The transportation is considered to come to an end when the goods are delivered at the appointed destination and the carrier acknowledges to the buyer or his agent.
It is immaterial that if the goods are still in the carrier or if the buyer has indicated another place for delivery. However, in order to put an end to the original contract of transportation, a very clear acknowledgement is required.
In the case of Whitehead vs Anderson, a quantity of timber was consigned on board. When the ship arrived at the destination, the buyer went bankrupt. Later, the buyer’s agent came to the board and told that he had come to take possession.
The delivery man said that he would deliver the goods only when the freight was paid. Before this could be done, the seller sent a notice to stop and asked to send the goods to be delivered to the agent of the seller.
However, the court held that since the transportation had not come to an end, the carrier was within his rights to return the goods to the seller. The captain agreed to deliver the goods on a condition and if the condition is not fulfilled, the buyer does not acquire the constructive possession of goods.
4) Rejection by the Buyer
When the buyer rejects the goods and the carrier continues to process them, then the goods are held to be still in transit. This will also include the case when the seller himself refuses to take the goods back.
5) Delivery to ship charted by the buyer
It is a question of fact whether the carrier is acting on his own or as an agent of the buyer at the time when the goods are delivered to a ship charted by the buyer. As soon as the goods are lost on the ship, the transportation ends if the carrier is acting as an agent of the buyer.
6) Wrongful refusal to delivery
When the carrier wrongfully denies the delivery of the goods to the buyer or his agent the transit is at the end. It is obvious that the goods should have arrived at their destination because otherwise, the carrier has the right to refuse to deliver them.
In the case of Bird vs Brown, the court observed that when it is considered wrongful to refuse the delivery of the goods, the buyer becomes insolvent. The carrier refused to deliver the goods and handed the goods returned to the seller. The court said that after the formal demand for the goods by the trustee, there could be no valid stoppage in transportation.
7) Part Delivery
In the case when the goods have been delivered partly, the seller has a right to stop the delivery of the rest of the goods unless the part delivery shows an agreement to the possession of the whole.
For example, A sells 200kg of salt to B, and 100kg has been transferred to B, but the rest of the 100kg of salt is still in transit, in case B fails to pay, A has a right to stop the goods in transit.
The right of lien or stoppage does not rescind the agreement but reselling of goods does and without this right, the other two rights of lien and stoppage would not be of much usage because he can only retain the goods under these rights till the buyer pays the money back.
The unpaid seller can exercise his right under the following conditions and circumstances;
- The seller before reselling the goods needs to send a notice to the buyer except in the case of perishable goods, giving the last chance to the buyer to pay the price and take back the goods within a reasonable time. If the buyer does not pay the money back seller has the right to resell the goods. But, if the seller fails to send notice to the buyer before reselling it then he cannot claim damages from the buyer and he has to give any profit thereof.
- After reselling the goods, if there is any loss caused to the seller he can claim the loss from the buyer on the contrary, if there is profit buyer cannot claim it.
- The seller gives rightful ownership to the buyer after reselling the goods it does not matter whether notice of resale is given or not to the defaulted buyer.
- Sometimes the seller reserves the exclusive right to resale the goods if the buyer makes a default in payment, in such cases the buyer cannot ask for the profit on reselling the goods if no notice is served and the seller has the exclusive right.
What are the rights of an unpaid seller Mcq?
What are the rights of an unpaid seller: a right of re-sale as limited by this Act. a lien on the goods for the price while he is in possession of them. in case of the insolvency of the buyer a right to stop the goods in transit after he has parted with the possession of them.
What are the three rights of an unpaid seller?
The seller who has received only a part of the payment is also said to be an unpaid seller. The 3 most significant rights of an unpaid seller are the right of Lien as per section 47 of the abovementioned act, the right of stoppage of transit in process, and the right of resale.
What are the rights of an unpaid seller in India?
Apart from the right to sue for the price, an unpaid seller’s rights include the right to claim damages for any loss suffered due to the buyer’s default. If the buyer wrongfully neglects or refuses to accept the goods, or fails to pay for the goods, the seller can claim damages for any loss incurred as a result.
Who are unpaid seller examples?
A seller who has not received the full price of the goods sold is termed as an unpaid seller. Example: X sells goods of Rs. 5,00,000 to Y on a credit of one month, but after the expiry of one month he does not pay the price, here X is said to be an unpaid seller.
Rights of unpaid seller have been defined under section 45 (1) of the Sale of Goods Act, 1930. The seller becomes unpaid when the seller has not been paid in wholly or in part or the buyer has failed to meet the maturity of bills of exchange or any other negotiable instrument accepted by the seller. The seller has the right to resale the goods when there is a default in the payment on the side of the buyer.