Unpaid Seller and his Rights
Who is an Unpaid Seller: What are the Rights of an Unpaid Seller
Overview:
In addition to certain remedies by way of action against the buyer, the Sale of Goods Act gives to the Seller in certain defined circumstances, certain rights against the goods themselves, but to be able to claim these rights, he must be an “Unpaid seller” within the meaning of Section 45 of the Act.
Interpretation of Term Unpaid Seller:
According to Oxford Dictionary of law:
“A seller of goods who has not been paid in full for them or who has
received and cheque or other negotiable instrument that has not been
honoured.”
Definition of Unpaid Seller:
The seller of goods is deemed to be an unpaid seller:
- (i) When the whole of the price has not been paid or tendered; or
- (ii) Where a bill of exchange or other negotiable instrument has been received as q conditional payment and the same has been dishonored.
The term "seller" here includes any person who is in the position of a seller, as for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price.
Explanation:
The seller of goods is an unpaid seller only when the following conditions
are fulfilled:
- (i) Seller must be unpaid and the price must be due.
- (ii) Seller must have immediate right of action for the price.
- (iii) Bill of exchange or other negotiable instruments received has been dishonored.
It is pertinent to note that an unpaid seller is one who has sold goods on
cash terms and does not include a seller who has sold goods on credit.
Position of Seller:
Any other person who is in a position of a seller is also entitled to rights
of an unpaid seller, e.g. an agent or consignor etc.
Essentials/Features/Characteristics of Unpaid Seller:
Section 45 of the Sale of Goods Act, 1930; states the following
characteristics of an unpaid seller:
- (i) He must sell goods on cash terms and not on credit, and he must be unpaid.
- (ii) He must be unpaid either wholly or partly. Even if only a portion of the price, however small, remains unpaid, he is deemed to be an unpaid sell. Where the price is paid through a bill of exchange or other negotiable instrument, the same must be dishonored.
- (iii) He must not refuse to accept payment when tendered. If the price has been tendered by the buyer but the seller wrongfully refuses to take the same, he ceases to be an unpaid seller
Rights of Unpaid seller:
An unpaid seller has the following rights:
- Rights of unpaid seller against the goods.
- Rights of unpaid seller against the buyer personally.
We shall examine these rights in detail one by one.
1. Rights of Unpaid Seller Against Goods:
There may be two situations regarding the rights of unpaid seller against
the goods,
FIRST SITUATION:
The seller has transferred the title but retains the possession.
SECOND SITUATION:
In the second situation the seller has both the title as well as the
possession of the goods.
Keeping in view the above mentioned situations the following three rights
exist for the unpaid seller.
- (i) Right of lien.
- (ii) Right of stoppage of goods in transit.
- (iii) Right of resale.
These rights apply both to
"Sale" and "Agreement to Sell",
1. RIGHT OF LIEN:
Section 47 of the Sale of Goods Act, 1930; deals with the right of Lien.
DEFINITION OF LIEN:
Lien is the right to retain possession of goods and refuse to deliver them to
the bryer until the price due in respect of them is paid or tendered.
Explanation: Lien can be exercised only on those goods which are in
possession of the seller. Such right of lien can also be exercised by the
agent on behalf of the seller.
Cases where right to line can be exercised:
An unpaid seller in possession of the goods can exercise his right of lien on
the goods in the following cases (Sec 47):
- (i) where the goods have been sold without any stipulation as to credit;
- (ii) where the goods have been sold on credit, but the term of credit has expired;
- (iii) where the buyer becomes insolvent, even though the period of credit may not have yet expired.
Termination of lien:
Lien depends on physical possession of goods. Where possession is lost, the
lien is also lost. The unpaid seller loses his lien in the following cases:
- (a) when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods; or
- (b) when the possession of the goods is obtained lawfully by the buyer or his agent, or
- (c) when the seller waives his right of lien. (Sec 49)
- (d) Seller if wrongfully deals, with the goods which are under his lien, by implication of law the right of lien is waived.
It may be noted that right of lien, if once lost, will not revive if the buyer
delivers the goods to the seller for any particular purpose.
Illustration:
Where a refrigerator after being sold was delivered to the buyer and since it was not functioning properly, the buyer delivered back the same to the seller for repairs, it was held that the seller could not exercise his lien over the refrigerator. (Eduljee vs John Bros.)
2. Right of Stoppage of goods in transit:
Meaning of stoppage in transit: Goods in transit means that the goods
must be neither with the seller nor with the buyer nor with their agent.
They should be in custody of carrier.
Explanation: It is the right of the unpaid seller to stop the goods
in transit and he can regain them until payment or tender of price is made.
Requirements to exercise this right:
Following are the requirements to exercise this right:
- (a) when the buyer becomes insolvent,
- (b) Seller has parted with the goods and goods are in transit.
- (c) when the seller has the right of stopping the goods;
- (d) when the property has not passed to the buyer.
- (e) Seller has to be unpaid.
- (f) No other provision of law is present which could prevent the exercise of this right.
- (a) when the buyer or his agent takes delivery of the goods after the goods have reached destination.
- (b) when the buyer or his agent takes delivery of the goods before their arrival at the appointed destination.
- (c) when the buyer requests the carrier to carry the goods to a new destination after the original destination is reached.
- (d) when the carrier wrongfully refuses to deliver the goods to the buyer or his agent.
-
(e) when part delivery of the goods has been made to the buyer with the
intention of delivering the whole of the goods.
Modes/ways of exercising the right of stoppage in transit:
The unpaid seller may exercise his right of stoppage in transit,
either:
- (i) by taking possession of the goods, or
- (ii) by giving notice of his claim to the carrier or other bailee in whose possession the goods are.
Duration of transit:
Under Section 51 of the Sale of Goods Act, 1930;
This right only applies during transit. It commences from the moment goods are delivered the carrier. Goods in transit need not be in motion, those in possessions of carrier even if in store they are deemed to be in transit. If buyer refuses to take delivery, law says that the goods are still in transit.
Situations where right of stoppage in transit becomes ineffective:
(i) Interception by the Buyer:
The right is deemed to come to an end when the buyer or his agent intercepts
in the transit. Even here two situations exist.
(a) First Situation: When goods have reached destination and then
buyer or agent takes possession, the right would become ineffective.
(b) Second Situation: Second situation arises when goods have not
reached destination and buyer or agent takes possession before the goods
reach for destination, the right would become ineffective here too.
(ii) Wrongful Refusal:
When the carrier wrongfully refuses to deliver the goods to the buyer or his
agent right of stoppage of goods in transit comes to an end.
(iii) Change of Destination:
When the buyer requests the carrier to carry the goods to a new destination
after the Original destination is reached, the right of stoppage of goods in
transit comes to an end.
(vi) Effect of sub-sale:
Sub-sale means when the buyer sells part or whole of the goods further to a
second buyer this is known as Sub-sale. If the sub-sale is with the consent
of the seller then the seller does not have a right to stoppage at least up
to the extent of that sub-sale.
3. Right of Resale:
The third right of unpaid seller is resale. He can resell the goods in the
following cases.
- (a) where the goods are of perishable nature; or
- (b) where there is express provision regarding such right in the contract; or
- (c) where the seller gives a notice to the buyer of his intention to resell and the buyer does not pay or tender the price within a reasonable time.
If on a resale there is a loss to the seller, he can recover it from the defaulting buyer. But, if the resale results in profit, the seller can retain it. If the unpaid seller sells without giving notice to buyer, he will not be entitled to recover damages from buyer, Moreover, in case of profit, on resale, the buyer will be entitled to profit.
2. Rights of unpaid seller against the buyer personally:
The unpaid seller, in addition to his rights against goods has the following
rights against the buyer personally:
(i) Suit for price:
Where the ownership in goods has passed to the buyer; and the buyer refuses
to pay the price according to the terms of the contract, the seller can sue
the buyer for price, irrespective of delivery of goods. (Sec 55)
(ii) Suit for damages for non-acceptance for the goods:
Where the buyer refuses to accept and pay for the goods, the seller may sue
him for damages, for non-acceptance. The seller can recover damages only. He
cannot recover full price. (Sec 56)
(iii) Suit for special damages and interest:
The seller can sue the buyer for special damages also where the parties are
aware of such loss at the time of contract The unpaid seller can recover
interest at a reasonable rate on the total unpaid price of goods sold, from
the time it was due until it is actually paid. (Sec 61)
(iv) Suit for performance:
in cases of anticipatory damages the seller can even compel the buyer to
perform his part of the contract. Court can also force him to pay his amount
due to seller.
(v) Forfeiture of earnest money:
Sellers can forfeit the buyer's earnest money; if any.
(vi) Right of rescission:
Under Section 60 of the Sale of Goods Act, 1930;
Where the buyer repudiates the contract of sale before the due date of
delivery, the seller may
- (i) Treat the contract as rescinded and sue for damages for breach, or
- (ii) Treat the contract as subsisting and wait till the arrival of the date of delivery.
Rights of Buyer against Seller:
The buyer has the following rights against the seller for breach of
contract:
(1) Suit for damages for non-delivery:
Where the seller wrongfully neglects or refuses to deliver the goods to the
buyer, the buyer may sue the seller for damages for non-delivery. (Sec. 57)
(2) Suit for specific performance:
Where there is breach of a contract for the sale of specific goods, the
buyer may file a suit for specific performance. This remedy is granted only
when damages would not be adequate remedy. It is granted when subject-matter
of the contract is rare goods, say, a picture by a dead painter. (Sec
58)
(3) Suit for damages for breach of warranty:
Where there is breach of warranty by the seller, the buyer is entitled to
sue for damages if he has paid the price to seller. But if the buyer has not
yet paid the price he may ask the seller for a reasonable reduction in
price. (Sec 59)
(4) Sit for cancellation and damages for breach of condition:
Where there is a breach of condition by the seller, the buyer can avoid the
contract and claim damages. [Sec 12(2)]
(5) Suit for Recovery of Price with interest:
If the buyer has already paid the price to the seller and the seller does
not deliver the goods to the buyer, he can sue’ the seller for the refund of
the, price and also interest at reasonable rate. Damages, however, are
calculated according to the terms of the contracts in all cases. (Sec 61)
CONCLUSION:
To conclude that unpaid seller is one whose price has not been paid yet in
full. An unpaid seller has different rights against the buyer provided by
the Sale of Goods Act, 1930. He has the right of resale, right of stoppage
of goods in transit and personal rights against buyer where it has status of
unpaid seller.
Relevant Questions:
- Who is Unpaid Seller?
- What are his rights provided in Sale of Goods Act?
- Who is Unpaid Seller? What are his rights and duties?
- Explain the term “unpaid seller”. Discuss the rights of unpaid Seller against the goods.