Unpaid Seller under Sale of Goods Act

An unpaid seller means a seller who has not been paid the whole price of the goods, when it has fallen due for payment. It is immaterial whether the possession as well as ownership of goods has been passed to the buyer or not.

The term Seller includes actual seller and any person having the position of a seller (e.g., an agent, a consignee, agent who has himself paid for the goods or is responsible for the price). [s. 45(2)]

Conditions of Seller becoming Unpaid Seller  under Sale of Goods Act

• Non Payment : The whole of the price has not been paid or tendered
• Non fulfillment of Payment Condition : Condition of the Payment is not fulfilled.

In case of conditional payment  (e.g where the payment has been made by a negotiable instrument) and the condition on which it was received has not been fulfilled (e.g by dishonour of the instrument or otherwise), the seller shall be deemed to be an unpaid seller [s.45(1)].

• Demand for Price : Seller has exercised an immediate right of action for the price.

Instances of Seller becoming Unpaid Seller under Sale of Goods Act

• Credit : If the seller allows some credit period to the buyer, he becomes an unpaid seller only after expiry of credit period, if he is still not paid in full.
• Cash Sale: In case of cash sale (i.e. No Credit), if  the seller is not paid in full on transfer of ownership of goods to buyer.

Instances of Seller not becoming Unpaid Seller under Sale of Goods Act

• Other Payments: If the buyer pays the price in full, but defaults in making some other payment due to be paid by him (e.g. Custody charges of the goods), the seller is not an unpaid seller.
• Tender of Payment: If the Buyer Tenders or makes an offer to pay the price, but the Seller fails to Accept the tender, the Seller shall not be an unpaid seller.

English Audio

English Video

Unpaid Seller’s Rights under Sale of Goods Act

The Unpaid seller gets following rights, depending on whether the property in goods has been passed on the buyer or not.

Unpaid Seller’s Rights against Goods 

• Right of Lien: Particular lien on goods in seller’s possession, whose ownership has passed to buyer (s.46-49)
• Right of Stoppage in Transit:  On goods in transit, on Insolvency of buyer (s.50-54)
• Right of Resale:  On Perishable Goods, or on exercise of Rights of stoppage in transit on non- perishable goods (s.46, s.54) 

Unpaid Seller’s Rights of against Buyer

• Sue for Price: Seller remains unpaid (s.55)
• Sue for Damages for non-acceptance of Goods : Buyer wrongfully refuses to Accept goods and pay the goods (s.56)
• Sue for Damages for Anticipatory Breach  : Buyer repudiating the contract before  due date of delivery (s. 60)
• Sue for Interest (s.61) : For Interest for non payment (or delayed payment) within due date as per contract

English Audio

English Video

Unpaid Seller’s Rights of Lien

Sometimes goods are handed over to someone (like Bailee, Pledgee etc), for some purpose. The holder of goods may hold the goods till his rightful dues are paid by the owner of the goods. The right to hold the goods of another, is called Right of Lien

Lien means the right to retain the goods belonging to another, until certain charges due from its owner are recovered [s. 46(1)(a)].

Unpaid Seller’s Exercise of Rights of Lien

The unpaid seller can exercise particular lien on the goods, in respect of which the buyer has not paid the price, but the ownership of the goods is transferred from him.

The seller can retain possession of the goods until the payment is received, when credit period allowed by seller, if any, has expired and the seller is not yet been paid, or where the Buyer becomes insolvent [s. 47(1)].

Rules of Seller’s Rights of Lien

• Possession of Goods : The seller can exercise his right of lien if he has the possession of goods, even in the capacity of Bailee [s.47(2)].

If the seller loses the possession of goods, he loses the right of lien also. The lien depends on actual possession of goods but not on mere possession of title and the possession of goods must not expressly exclude the right of lien.

• Price only : The unpaid seller can exercise the right of lien only to recover the price but not any other charges (like, warehouse or dock charges etc.).
• Part Delivery : In case of part delivery of goods, an unpaid seller can exercise his right of lien on the remainder. The remainder can be delivered only on recovery of price for the goods already delivered or yet to be delivered.

When a part of the goods is delivered as to show an agreement to waive the lien, the seller cannot retain the remainder (s.48).

• Right Indivisible : The right of lien is whole. It cannot be proportioned on part of the goods

Ex. X sells 100 pcs of goods at Rs 1000, to be delivered on Cash payment to Y.  X can hold the goods with him till full payment is made. Y cannot force X to deliver only 10 pcs on payment of Rs 100. X can retain all of 100 pcs, till the full payment is made for the entire quantity (i.e 100 pcs) of goods sold.

• Decree of Court: When an unpaid seller, having a lien thereon, has obtained a decree for the price of goods, he does not lose his right of lien [s.49(2)].

English Audio

English Video

Unpaid seller’s Termination of Right of Lien (s.49)

The unpaid seller loses his right of lien on the goods in the following cases:

• Payment of Price: If the buyer makes the full payment of price of the goods and the ownership and possession of goods has transferred to the buyer, the right of lien of unpaid seller ceases on receiving payment.
• Delivery of Goods to the Carrier: When the seller delivers the goods to carrier or any other persons as a Bailee, without reserving the right of disposal of the goods, seller’s right to lien on gods ceases (as delivery to carrier amounts to delivery of goods to buyer).
• Delivery of Goods to the Buyer: When the buyer lawfully obtains possession of the goods, the seller cannot regain the possession of the goods any more (whether they are delivered by mistake or otherwise) and the sellers right of lien on goods ceases.

Where the buyer redelivers the goods to the seller for any special purpose, the right of lien cannot be exercised.

Ex: X sold a refrigerator to Y, which was delivered to Y, but the payment was due from Y. Later on, Y was delivered back the refrigerator to X for some repairs. As the refrigerator was in the hands of X for a specific purpose (repairs), X was not entitled to the right of lien. So, X cannot hold the refrigerator for price.

• Transfer of Title : Where the buyer, after having obtained the title of goods, lawfully transferred the documents to a person, who takes the documents in good faith and for consideration, the right of lien ceases to exist.
• Re-sale of Goods: If the buyer has further sold the goods with the consent of the seller, the seller cannot exercise his right of lien.
• Waiver of Lien: Even if the seller has not received price, the seller may decide not to exercise the right of lien.

Waiver of Unpaid Seller’s Rights of Lien

The seller may waive his right of lien, even without any consideration, in following manner :

Express Waiver of Unpaid Seller’s Rights of Lien

When contract of sale provides in express terms that the seller shall not retain possession of goods even if the price is not paid.

Implied Waiver of Unpaid Seller’s Rights of Lien

When the seller sells the goods on credit or grants a fresh term of credit on the expiry of the original term, lien is waived until the term has expired. But, the right of lien will be activated after the expiry of such term of credit.

Ex : X sells goods to Y on 7 days credit and holds the goods. Later on, X extends the credit period. X can no more hold the goods and must deliver to Y.

Ex: If the seller takes a Bill (Bill of Exchange or post-dated cheque) for the price payable at a future date, the lien is waived during the currency of the bill or cheque. But, it revives on dishonour of bill.

English Audio

English Video

Unpaid Sellers Rights of Stoppage of Goods on Insolvency of Buyer

The right of stoppage of goods in transit, which is an extension of right of lien, arises only on the insolvency of buyer, when the goods are in transit [s.46(1)(b)].

Unpaid Sellers Rights of Stoppage of Goods in Transit

The unpaid seller can ask the carrier to not to carry the goods if he remained unpaid. He may resume the possession of the goods and retain the same until payment, by taking actual possession of the goods or by giving a notice of his claim to the carrier or other bailee or principal, in whose possession the goods are (s.50).

No contract can be rescinded by mere exercise by an unpaid seller of his right of lien or stoppage in transit u/s 54 [s.54(1)].

When Goods are said to be in Transit

Goods are deemed to be In-Transit, from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent takes delivery of them (s.51). Even where the goods are  rejected by the buyer and the carrier or other bailee continues in possession of them, and the seller has refused to receive them back,  the goods are still considered to be in transit (s.51(1)).

Termination of Transit of Goods under Sale of Goods Act

The Transit of goods is deemed to come to an end and the seller cannot exercise his right of stoppage, when the buyer or his agent takes delivery of goods (s. 51(2)).

The transit of goods also comes to an end when :

– When the carrier acknowledges to the buyer that he holds the goods on his behalf, the transit comes to an end [s. 51(3)]

When the carrier wrongfully refuses to deliver the goods to the buyer, the transit comes to an end [s. 51(6)]

-When part delivery has been made to the buyer, transit will end for the remainder of the goods which are yet in the course of the transit.

-Whereas, if part delivery is made with an intention of delivering the whole of the goods, the goods cannot be stopped in transit [s. 51(7)].

-When the goods have arrived at their destination but the buyer does not take delivery and requests the carrier to carry the goods to some further destination, the transit comes to an end

However, if the buyer rejects in taking delivery of goods and the carrier continues to possess them, the transit is not deemed to come to an end [s.51(4)].

Exercise of Right of Stoppage in Transit under Sale of Goods Act

The unpaid seller may exercise the right of stoppage in transit by actually taking  possession of the goods or by giving notice of claim to the carrier or other bailee who are in possession of the goods, to his principal or carrier (s.52).

Notice of Stoppage of Goods in Transit to Principal under Sale of Goods Act

he notice to the principal must be given at such time and in such circumstances that the principal, by reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer [sec. 52(1)].

Notice of Stoppage of Goods in Transit to Carrier under Sale of Goods Act

But, if the notice is given by the seller to the carrier or other bailee in possession of the goods, the carrier must re-deliver the goods to, or according to the direction of the seller, the expense of which to be borne by the seller [s.52(2)].

If the carrier, in spite of getting proper notice from the seller to stop the goods in transit, delivers them to the buyer or refuses to deliver them to the seller, he is liable to the seller for wrongful appropriation of goods. But, if, after completion of transit, the carrier wrongfully returns the goods to the seller, he is liable to the buyer for such conversion.

English Audio

English Video

Sub-sale or Pledge by Buyer under Sale of Goods Act

When the buyer further sells the goods to a new buyer, it is called as sub-sale.  The unpaid seller’s right of lien or stoppage in transit is not affected by any sale or other disposition of the goods by the buyer (s.52(1)).

Ex. X sold 10 tons of wheat to Y, at Rs 1,00,000. Out of this 10 tons, Y resold 8 tons of wheat to Z and instructed X to deliver 8 tons to Z. X delivered 5 tons to Z. Later on, when Y did not pay the price to X, X refused to deliver further wheat to Z. X was so entitled to refuse the delivery to Z .

English Audio

Sub-sale or Pledge by Buyer With Seller’s Consent : When the buyer exercises the right of sub-sale or pledge of goods with seller consent , the seller shall lose his right of lien and right of stoppage of goods in transit (s.53).

Sub-sale or Pledge by Buyer Without Seller’s Consent : When the buyer exercises the right of sub-sale or pledge of goods without seller’s consent, the following situation may arise :

Sub-sale by Buyer with Transfer of Document of Title

If the sub-sale of goods is made by the buyer to the new buyer by way of transfer of document of title to goods, the new buyer, who bought the goods in good faith and for consideration, shall become entitled to the goods. In such a case, the unpaid seller loses his right to exercise the right of lien and right to stop the goods in transit.

Ex: X bought from B a shipment of certain goods. B sent the bill of lading to X. X handed over the bill of lading to C in return for a loan. C took the bill of lading in good faith. Subsequently, X became insolvent. B attempted to stop the goods in transit but C claimed them. Held, C had a good title to the goods, which defeated B’s right of stoppage in transit.

Ex: B sells and consigns certain goods to X. B being still unpaid, X becomes insolvent and while the goods are in transit, assigns the bill of lading for cash to C who knows that X is insolvent. The assignment not being in good faith, B may stop the goods in transit.

Pledge by Buyer with Transfer of Document of Title

If the pledge of goods is made by the buyer by way of transfer of document of title to goods, and the pawnee acts in good faith and for consideration, then, the rights of unpaid seller to exercise right of lien and right to stop the goods in transit shall become secondary.

However, if the buyer has also pledged certain other goods with the same pawnee, then, the unpaid seller can compel the pawnee to satisfy his claim out of other goods of the buyer pledged with him. Thus, if the pawnee’s debt is satisfied out of the other goods or securities of the buyer pledged with him, the unpaid seller can demand the goods back from the pawnee. [s.53(1),(2)]

Ex: A sells goods to B of the value of Rs.10,000 and forwards a bill of lading to B who deposits it with C to secure an advance of Rs.4,000. B becomes insolvent. A may exercise his right of stoppage in transit, but subject to paying C the sum of Rs.4,000.

Pledge by Buyer without Transfer of Document of Title

In case of sub-sale or pledge by the buyer, made otherwise than by way of transfer of document of title to goods (i.e., by way of transfer or delivery of actual goods), the unpaid seller’s right of lien and right of stoppage of goods in transit are not affected. The new buyer, or the pawnee (as the case may be), shall not become entitled to the goods, even though he might have acted in good faith and had paid consideration.

English Audio

English Video

Unpaid Seller’s Rights of Resale of Goods

An Unpaid seller has right to resell the goods to another buyer, if the buyer fails to pay the price to the seller within a reasonable time.

On re-sale, the new buyer shall become the owner of such goods.

Unpaid Seller’s Right to sell Perishable Goods

In case of perishable goods (physically or commercially), the unpaid seller may sell the goods if the buyer fails to pay the price to the seller within a reasonable time. The unpaid seller may sell perishable goods even without giving a notice to the buyer.

Unpaid Seller’s Right to sell Non-Perishable Goods

In case of non-perishable goods, the unpaid seller can re-sell the goods having given a notice of his intention to re-sale to the buyer.

However, no notice is required to be given by the seller, if the seller expressly reserves the right of re-sale in case of default by buyer [s.54(4)]

On resale, the unpaid buyercan claim deficit (i.e. the difference amount between contract price and amount realised on re-sale) from the buyer on arising a loss on re-sell. Even on getting the surplus on re-sale, the seller is not liable to surrender it to the buyer (as the buyer cannot be allowed to take advantage of his own mistake).

Ex. X sells goods to Y with clear terms that if X does not make payment within 3 days, X will have the right to sell the goods to another. In this case, X may sell the goods to another, on expiry of 3 days period, without giving any notice to Y.

Right of Unpaid Seller to withhold delivery

Where the property in goods has not passed to the buyer, the seller, in addition to other remedies, also gets a right of withholding delivery, similar to and co-extensive with his right of lien and stoppage in transit (i.e additional rights) [s.46(2)].

English Audio

English Video

Unpaid Seller’s Right of Lien vs Right of Stoppage of Goods in transit

Basis of Distinction	Right of Lien	Right of Stoppage of Goods in transit
Meaning	Right of Lien is Right to Retain Goods. Lien means a right of a person to retain the possession of goods belonging to some other person.	Right to Stoppage in Transit is right to Regain goods. Stoppage of goods in transit means a right to regain or resume the possession of goods belonging to some other person.
Right of Unpaid seller	An unpaid seller can exercise the right of lien against any buyer, becoming insolvent, or buyer who has the capacity to pay but does not pay.	An unpaid seller can exercise the right of stoppage of goods in transit only if the buyer has become insolvent.
Possession of Goods	Right of lien can be exercised only if the goods are in actual or constructive possession of the unpaid seller.	Right of stoppage of goods in transit can be exercised only if seller has delivered the goods to a carrier, to be delivered to the buyer,  who has become insolvent, but the goods are yet to be delivered by the carrier to the  buyer .
Period of exercising  Right	Lien can be exercised until the possession of goods are delivered to the buyer.	The right of stoppage of goods in transit continues until the goods are delivered by carrier to buyer. Hence, where the right of lien ends, the right of stoppage of goods in transit starts.
Cessation of Right	Right of lien is lost if the seller delivers the goods to a carrier without reserving his right of disposal of goods and the possession of goods is transferred to the buyer.	The right of stoppage of goods in transit is lost immediately on delivering the goods to the buyer by the carrier.

English Audio

English Video

Unpaid Seller’s Rights against the Buyer personally

An unpaid seller can enforce certain rights called as ‘rights in personam’ (as against ‘rights in rem’ in respect of Goods) against the buyer personally, in addition to his right against the goods.

Unpaid Seller’s Rights to Sue for Price

The unpaid seller may sue the buyer if the buyer neglects or refuses to pay the seller as per contract  (s.55)

• Property Passed to Buyer : When the property in goods has passed on to the buyer, the unpaid seller can sue him for price, even if the payment of price is not linked with the transfer of property or delivery [s.55 (1)].
• Property not Passed to Buyer :  When the property in goods (ownership) has not passed to the buyer, but the payment has become due, the seller may sue him for price. [s.55(2)]

Unpaid Seller’s Rights to Sue for Damages for non-acceptance of Goods

When the buyer wrongfully neglects or refuses to Accept goods and pay the price of the goods, the unpaid seller can sue him for damages for non-acceptance  (s.56).

• Refusal amounting to repudiation : When the refusal amounts to repudiation of the contract, the damages should be measured as per s.73 & 74 of Indian Contract Act, 1872.
• Refusal not amounting to repudiation : Where the refusal does not amount to repudiation and the seller requests buyer to take delivery of the goods but buyer does not take delivery of goods within reasonable time, the buyer is liable to the seller for reasonable charges for taking care and custody of goods and for any loss occasioned by his refusal or neglect.
  • Sue for Damages for Anticipatory Breach

If the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for breach of contract without waiting for the due date (s.60).

• Sue for Interest

The seller may recover interest from the buyer, if there is a specific agreement between the parties to a contract regarding interest on price of the goods from the date on which payment becomes due [s.61(2)(a)]

In absence of specific agreement regarding Interest, the seller can charge interest on the price when it becomes due. Court may award interest at such rate as it thinks fit, on the amount of the price from the date of tender of price, or from the date on which the price was payable.

English Audio

English Video

Buyer’s remedies against Seller for Breach of Contract

A buyer has the following remedies against the seller, for breach of a contract of sale:

Buyer’s Remedy against Seller for Damages for Non-delivery of Goods

The Buyer can sue the seller for recovery of damages resulting from non-delivery of goods, if the buyer is ready and willing to take the delivery of goods, but the seller wrongfully neglects or refuses to deliver the goods, as per terms of Contract (s.57).

Buyer’s Remedy against Seller for Damages for Repudiation of the contract

If the seller, before due date of delivery of goods, expresses his intention of non-delivery of goods to the buyer, the buyer may immediately sue the seller for damages without waiting for due date for delivery of goods to arrive (s.60).

Alternately, the buyer may treat the contract as subsisting and wait until the due date of delivery of goods has arrived. If on the due date, the seller does not deliver the goods, the buyer can sue the seller for breach of contract

Buyer’s Remedy against Seller for Specific Performance

If the seller wrongfully neglects or refuses to deliver Specific or Unascertained Goods, the buyer may sue the seller for specific performance. The buyer may even seek a Court order directing the seller to deliver the goods as per contract of sale (s.58).

Buyer’s Remedy against Seller for Breach of Warranty

In case of breach of warranty  by seller, if the price is payable by the buyer,the buyer may deduct the amount of damages at the time of making the full payment (s.59).

If the amount of damages exceeds than the price payable, the buyer may sue the seller for recovery of such excess damages.

If the price has already been paid by the buyer,the buyer may sue the seller for recovery of damages.

The fact that a buyer has set up a breach of warranty in diminution or extinction of price, does not prevent him from suing for the same breach of warranty, if he has suffered further damage [s.59(2)].

Buyer’s Remedy against Seller for Refund of Price and Recovery of Interest

On repudiation of contract of sale due to wrongful neglect or refusal by the seller to deliver the goods, the buyer can sue the seller for refund of price, if already paid by the Buyer, and may also  sue for recovery of interest, as awarded by court (s. 61(2)(b)). Where the buyer has not paid the price, he cannot claim any interest, but can recover damages for non-delivery of goods.

English Audio

English Video

To see PDF file click below: