Rights of Unpaid Seller | Sale of Goods Act, 1930

Rights of Unpaid Seller

The seller of goods is deemed to be an ‘unpaid seller’ within the meaning of this Act —


(a) When the whole of the price has not been paid or tendered.

(b) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the conditions on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

– Sec. 45(1), The Sale of Goods Act, 1930

Who is unpaid seller?

The seller to whom the full price of the goods sold has not been paid the price is known as an unpaid seller.

A seller of goods is deemed to be unpaid in the following cases:

1. The price must be due but not paid.
   
   
2. A negotiable instrument like cheque and bill of exchange was received but the same has been dishonoured.
   
   
3. The seller who has obtained a decree for the price of the goods will also be an unpaid seller if the decree has not been satisfied.
   
   
4. When the seller has been paid a large amount but a small portion of the payment remains to be paid.
   
   
5. When the price has been paid but some other expenses which were payable to the seller has not been paid.
   
   
6. The seller must have an immediate right of action for the price.

Example: A sells goods worth Rs 1,00,000 to B on the credit of six months. After six months, B did not pay the price. A shall be regarded as an unpaid seller.

---

Rights of Unpaid Seller

An unpaid seller has the right against the goods as well as against the buyer.

Rights of an unpaid seller against the goods

In some cases after the sale of goods the seller continues to have possession of the sold goods. At such times, an unpaid seller has certain rights against the goods.

These can be further studied under two heads;

Property has passed to the buyer

When the ownership of goods is transferred to the buyer, there are three rights of an unpaid seller. These are:

1. Right of Lien – [Sections 47-49]
2. Right of stoppage in transit – [Sections 50-52]
3. Right of Re-sale

Property has not passed

When the ownership of goods is not transferred to the buyer, there are two rights of an unpaid seller. These are:

1. Withhold Delivery
   
2. Stoppage in transit

Rights of unpaid seller against the buyer

An unpaid seller has the following rights against the defaulting buyer:

1. Suit for damages for non-delivery – [Sec. 56]
   
   
2. Suit for price – [Sec. 55]
   
   
3. Suit for specific performance
   
   
4. Suit for breach of warranty
   
   
5. Suit for damages for repudiation of contract before due date – [Sect. 60]
   
   
6. Suit for interest – [Sec. 61]

---

Right of Lien

The Right of Lien means, the right to retain the possession of the goods until the charges or the full price has been paid.

This right is available to the unpaid seller where the goods have been transferred to the buyer. This is because lien depends on possession. Even if the seller has handed over the documents of title to the buyer, the lien is not affected.

“According to Section 47, the unpaid seller can exercise a lien, only when the following conditions are satisfied:

• Where the goods have been sold without stipulation as to credit; or
• Where the goods have been sold on credit but the term of credit has expired; or
• When the buyer has become insolvent.”

“If in such case where the unpaid seller has made only a part of the delivery of the goods he has the right of lien on the rest of the goods unless such part delivery has been made under an agreement to waive the lien” [Section 48].

---

Right of Stoppage in Transit

The right of stoppage in transit is an extension of the right of lien.

The right of lien is a right to retain the possession, whereas the right of stoppage in transit is a right to regain the possession.

The right of stoppage in transit can be exercised if the goods are in transit and the buyer has become insolvent in the meantime.

Conditions: unpaid Seller + possession of goods with carrier (independent) + insolvent buyer.

Duration of transit (Section 51)

The goods are stopped to be in transit in the following situations:

• As Seller’s Agent: In this case, the seller has a lien on the goods, so question of right of stoppage in transit does not arise.
  
  
• As Buyer’s Agent: In this case, the seller cannot exercise the right of stoppage in transit.
  
  
• In an Independent Capacity: In this case, sit from the time they are delivered to a carrier for the purpose of transmission to the buyer, until the buyer or his agent takes their delivery.

---

Right of Resale

Section 54 indicates that “the unpaid seller has the right of resale.“

When the seller uses his right of lien or stoppage in transit, the contract continues to remain in force and the buyer can claim delivery of goods by paying for the goods.

The seller is not expected to wait indefinitely for the buyer to make the payment. However, just because the seller is unpaid, the property in the goods cannot pass to the unpaid seller again. The buyer has the right to the property, and he has the option to pay the price and take the delivery of goods at any time.

Thus, under section 54, the seller has been given a limited right to resell the goods in certain circumstances.

The seller has the right to resell the goods in the following case:

• Where the goods are of perishable and will lose value in a short time:
  
  the unpaid seller can resell the goods, in such a situation where buyer fails to pay the price within a reasonable time.
  
  
  
• Where the unpaid seller has used his right of lien or of stoppage in transit and gives notice to the buyer of his decision to resell the goods:
  
  the unpaid seller may, if the buyer does not pay or tender the price within a reasonable time, resell the goods.

---

Right to withhold Delivery of Goods

The right to withhold the delivery of goods means the seller refuses to deliver the goods to the buyer.

The following conditions must be satisfied to exercise the right to withhold the delivery of goods:

1. The seller is an unpaid seller.
2. The ownership of goods has not been passed.

The right to withhold the delivery of goods is in addition to the other remedies available to the seller.

---

Rights of unpaid seller against the buyer

The buyer has the following remedies against the seller:

Suit for damages for non-delivery

When the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This is in addition to the buyer’s right to recover the price, if already paid, in case of non-delivery.

Suit for price

Where the buyer has paid the price and the goods are not delivered to him, he can recover the amount paid.

Suit for specific performance

When the goods are specific or ascertained, a buyer may sue the seller for specific performance of the contract and compel him to deliver the same goods.

The court orders for specific performance only when the goods are specific or ascertained and an order for damages would not be an adequate remedy.

Suit for breach of warranty

Where there is a breach of warranty by the seller, or where the buyer elects or is compelled to treat the breach of condition as breach of warranty, the buyer cannot reject the goods.

The buyer may,

a) set up the breach of a warranty in extinction of the price payable by him, or
(b) sue the seller for damages for breach of warranty.

Suit for damages for repudiation of contract before due date

Where the seller repudiates the contract before the date of delivery, the buyer may adopt any of the following two courses of action:

• Damages for anticipatory breach: He may treat the contract as rescinded and sue the seller for damages.
  
  
• He may treat the contract as subsisting and wait till the date of delivery. The contract remains open at the risk and for the benefit of both the parties.
  
  If the seller subsequently chooses to perform there shall be no damages otherwise he shall be liable to damages assessed according to the prices on the day stipulated for delivery.

Suit for interest

The buyer may recover such interest or special damages, as may be recoverable by law. He may also recover the money paid where the consideration for the payment of it has failed.

---

Business Law Notes

(Click on Topic to Read)

---

Business Law Book References

1. Goel, P. K. (2006). “Business Law for Managers” Wiley
2. Sheth, T. (2017). “Business Law” (2ed.) Pearson.
3. Kuchhal. M.C. & Prakash. “Business Legislation for Management” (2ed.) Vikas Publishing.

---

FAQ

---

Go On, Share article with Friends

Did we miss something in Business Law Note? Come on! Tell us what you think about our article on Rights of Unpaid Seller |Lien, Resale, Stoppage in Transit, Withhold Delivery of Goods Business Law in the comments section.