Introduction
Unpaid Sellers are dealt with in Chapter V of the Sale of Goods Act 1930. In a contract of sale, the seller is always under an obligation to deliver the goods and the buyer has to pay for it. If the buyer does not pay for it, the seller will be known as an unpaid seller.
Relevant Provisions
Sections 45, 47, 48, 49, 51, 56, and 60 of the Sale of Goods Act 1930.
Defining the term “Unpaid Seller”
According to Section 45 of the Sale of Goods Act 1930
- An unpaid Seller is a person whose price has not been paid in part or full
- Where payment is made by bill of exchange or some other negotiable instrument and it has been dishonored due to the buyer’s insolvency or some other reason.
Explanation:
The seller of goods is an unpaid seller only when the following conditions are fulfilled:
- The seller must be unpaid and the price must be due.
- The seller must have immediate right of action for the price.
- Bill of exchange or other negotiable instruments received has been dishonored.
Essentials of Unpaid Seller
There are some essentials that must be fulfilled to become an unpaid seller.
- He must sell the goods on cash terms and not o credit.
- He must be unpaid either wholly or partly
- He must not refuse to accept payment when tendered
Rights of Unpaid Seller
An unpaid seller has the following two-fold right;
- Rights against the Goods
- Rights against the Buyer
1. RIGHTS AGAINST THE GOODS
Following are the rights that are available to the unpaid seller against the goods.
A) 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 the possession of goods and also to refuse to deliver them to the buyer until the price due in respect of them is paid. A lien can be exercised only on those goods which are in possession of the seller. Such a right of lien can also be exercised by the agent on behalf of the seller.
Requirements to exercise a Lien
A right to Lien can be exercised in the following cases.
- Where goods are not sold on credit
- Where goods have been sold on credit but the term of credit has expired
- Where the buyer becomes insolvent even though the term of credit has not expired
Right on the part of goods; U/s 48
Right of lien can also be exercised on the part of the goods eg if 50 bags were to be given, 25 were delivered and the buyer becomes insolvent, the lien would extend to the remaining 25 bags.
Termination of a lien; U/s 49
Lien depends on the physical possession of goods. Where possession is lost, the lien is also lost.
B) Right of Stoppage in Transit
Meaning of stoppage
Goods in transit mean that the goods are neither with the seller nor with the buyer nor with their agent. They should be in the custody of the carrier. It is the right of the unpaid seller to stop the goods in transit and he can regain and retain them until payment or tender of price is made.
Requirements to exercise a lien
The following are the requirements to exercise this right
- The seller has to be unpaid
- The buyer is insolvent.
- The seller has parted with the goods and the goods are in transit
- No other provision of law is present which could prevent the exercise of this right
- The seller has a right of exercising the right of stoppage
Modes of exercising this right
Following are the modes of exercising the right of stoppage of goods in transit.
- The unpaid seller can acquire the goods before they reach their appointed destination
- If the goods are with the carrier, the seller can give him notice for the possession of goods and require them on this claim
Duration of transit; U/s 51
This right only applies during transit. It commences from the moment goods are delivered to the carrier. Goods in transit need not be in motion. If the buyer refuses to take delivery, the law says that the goods are still in transit.
Effect of sub-sale
When the buyer sells part or whole of the goods further to a second buyer this is known as a sub-sale. If the sub-sale is with the consent of the seller then the seller does not have a right to stop the goods at least up to the extent of that sub-sale.
C) Right of Resale
The third right of an unpaid seller is the right of resale.
When this right accrues
In order to avail of this right, the following conditions must be fulfilled:
- He must be an unpaid seller.
- Goods by nature must be perishable.
- Such a sale must be effected within a reasonable time given by law.
- When there is an express provision regarding such right in the contract.
- When the seller gives notice of his intention of reselling to the buyer and the buyer still does not pay.
Deficit to be paid by the first buyer
If the original price of goods was Rs. 200/- and the seller had to resell it for Rs. 150/-, he can recover damages from the buyer for breach of contract. But for such a claim, he must have informed the buyer before such reselling.
2. RIGHTS AGAINST THE BUYER
Following are the rights against the buyer that an unpaid seller can avail.
1. Suit for Price U/s 55
If the ownership of the goods has been transferred to the buyer and the buyer refuses to pay the price according to the terms of the contract, the seller can sue him irrespective of the delivery of the goods.
2. Suit for damages for Non-Acceptance U/s 56
If the buyer refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance of goods. However, the seller can recover damages but he cannot recover the full price.
3. Suit for Special Damages
The seller can sue the buyer for special damages. The seller can recover a reasonable interest on the total unpaid price.
4. Suit for Performance
In cases of anticipatory damages, the seller can even compel the buyer to perform his part of the contract. The court can also compel him to pay the amount due to the seller.
5. Right of Recession U/s 60
If the buyer repudiates the contract of sale before the due date of delivery, the seller has two options that are discussed below;
- He may treat the contract as rescinded and sue for damages for breach
- He may consider the contract as subsisting and wait till the arrival of the date of delivery.
Final Note
An unpaid seller is one whose price has not been paid in full amount. An unpaid seller has different rights against the buyer provided by the Sale of Goods Act 1930.
He has the right of lien, right of re-sale, or right of stoppage of goods in transit and personal rights against the buyer where it has the status of unpaid seller.
FREQUENTLY ASKED QUESTIONS
Who is an Unpaid Seller? What are his rights provided in the Sale of Goods Act?
(2017-S, 2017-A, 2016-S, 2016-A, 2014-S)
Who is an Unpaid Seller? What are his rights and duties?
(2011-S)
Explain the term “Unpaid Seller”. Discuss the rights of unpaid sellers against the goods.
(2008-A, 2009-A, 2010-A)
What are the remedies available to the seller and the buyer upon breach of the contract of sale?
REFERENCES
- The Contract Act, 1872
- N-Series by M.A. Chaudhary
- Law of Contract by Avtar Singh
