Who is Unpaid Seller and His Rights Against Buyer

Unpaid Seller Under the Sale of Goods Act 1930:

Under the Sale of Goods Act 1930, it is essential that in the contract of sale, the seller when selling his property or goods the seller becomes entitled to be paid consideration as agreed.

Sometimes it may happen that a transaction of Sale has taken place but the buyer without any valid reason refuses to pay the agreed consideration to the seller in whole or in part.

In such circumstances, the seller to whom the consideration has not been paid such seller is called an unpaid seller under the Sale of Goods Act, of 1930.

Relevant Provisions:

Sections 45, 47, 48, and 49 of the Sale of Goods Act, 1930.

Definition of Seller:

“A seller is deemed to be an unpaid seller if:

  1. When the whole of the price is not paid to him.
  2. A part of a price yet to be paid.
  3. When a bill of exchange or other negotiated instrument has been received as conditional payment and therefore the condition on which it had been received has not been fulfilled because of dishonour of the instrument or otherwise.

Definition of Unpaid Seller:

An Unpaid seller is a person who sells out a property he owns or the property of the principal, or co-owner and does not get paid for that sale from the buyer.

Essentials of Contract of Sale:

There are certain essentials of a contract of sale which are:

  1. There shall be a contract of sale between the buyer and seller.
  2. There shall be agreed consideration.
  3. The consideration must not be paid wholly or partly.
  4. The consideration is paid through a negotiable instrument but such an instrument has become dishonor.

Rights of Unpaid Seller:

1). Rights with regard to goods: Right of lien:

Lien means to retain the possession of goods. It is the first right of an unpaid seller with regard to the goods which means that whenever the buyer refuses to pay the agreed consideration to the seller.

Then, if the goods are in the possession of the seller in the lien, returns the same in the possession and refuses to deliver them to the buyer until and unless payment by the buyer.

Cases where the Right to lien can be exercised:

A right to lien can be exercised in the following cases:

  1. Where goods are not sold on credit.
  2. Where goods are sold on credit but the term of credit has expired.
  3. Where the buyer becomes insolvent even though the term of credit has not expired.

Part Delivery:

Under Section 48 of the Sale of Goods Act, of 1930;

“Where an unpaid seller has made part delivery of the goods/products, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an agreement to waive the lien”.

e.g. 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 lien:

Section 49 of the Sale of Goods Act, of 1930; talks about the termination of a lien. Lien depends on the physical possession of goods. Where possession is lost, the lien is also lost. The unpaid seller loses his lien in the following cases;

  1. When he delivers the goods to any carrier or transport agency or bailee for the purpose of transmission to the buyer.
  2. Buyer or his agent lawfully has obtained the possession of goods.
  3. By waiver of lien.
  4. Seller wrongfully deals with the goods which are under his lien, by implication of law, the right of lien is waived.

2). Right of Stoppage in Transit:

It is the second right of an unpaid seller to stop the goods in transit if the unpaid seller gets the information that the buyer has become insolvent then the unpaid seller can resume the possession of goods by stopping the same in transit.

Requirement of stoppage in transit:

  1. The seller shall be unpaid.
  2. The buyer has become insolvent.
  3. The goods should be in transit.
  4. The seller has the right to exercise the right of stoppage.

How stoppage in transit becomes ineffective:

1). The Interception by the buyer:

The right is deemed to come to an end when the buyer or his agent intercepts the transit.

2). Acknowledge by carrier:

The Moment the buyer is informed of the goods that the carrier is holding the goods on behalf of the buyer; the transit comes to an end.

3). Wrongful refusal:

When the carrier wrongfully refuses to deliver the goods to the buyer or his agent, the right of stoppage of goods in transit comes to an end.

4). 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.

Right to Resale:

It is the third right of an unpaid seller to resell the goods to any third person if the buyer fails or refuses to pay the agreed consideration to the seller.

Difference between Right of Lien and Right of Stoppage in transit

Right of lienRight of stoppage in transit
The Unpaid seller can exercise the right of lien when the buyer is at fault whether he is solvent or insolvent.The unpaid seller can exercise the right of stoppage in transit when the buyer is insolvent.
Lien ends where the right of stoppage commences. The stoppage in transit ends when the goods are delivered to the buyer.
Lien is exercisable as the seller is in possession. Stoppage in transit is exercisable as long as the goods are passing through channels of communication.

Rights against the buyer personally:

An unpaid seller in addition to his rights against goods has the following rights against the buyer personally.

1). Suit for price: Under Section 55 of the Sale of Goods Act, of 1930;

Where the ownership of goods has passed to the buyer and the buyer refuses or neglects to pay the price for the goods 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: Under Section 56 of the Sale of Goods Act, of 1930;

Where the buyer refuses or neglects 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 performance:

In cases of anticipatory damages, the seller can even compel the buyer to perform his part of the contract. The Court can also force him to pay the amount due to the seller.

4). Right of Recession: Under Section 60 of the Sale of Goods Act, of 1930;

Where the buyer repudiates the contract of sale before the due date of delivery, the seller may either:

  1. Treat the contract as rescinded and sue for damages for breach, or
  2. Treat the contract as subsisting and wait till the arrival of the date of delivery.
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