RIGHT OF UNPAID SELLER

INTRODUCTION

As per Section 2(f) of the Indian Contract Act, the seller must transfer the goods sold, and
the buyer must pay the required amount in return, under the contract of sale by them. This
is known as Reciprocal Promise. In other words, any set of promises made which forms the
consideration or part of the consideration for each other are called reciprocal promises and
every contract of sale of goods consists of reciprocal promises.
UNPAID SELLER

An unpaid seller is a person to whom the whole of the price has not been paid or tendered
(in other words, only a part of the price has been paid) [Sec.45(1)]. A seller partially
unpaid stands on par with one wholly unpaid. If the price has been. tendered by the buyer
but the seller has wrongfully refused to take the same he is not an unpaid seller. If the price
was paid through a bill of exchange or other negotiable instrument and such instrument has
been received as a conditional payment, and the condition cannot be fulfilled if the same
has been dishonored, the seller is deemed to be an unpaid seller [Sec.45(1)].
The protection afforded by this Act to an unpaid seller are also extended to “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” [See.45(2)]

IMPORTANT RIGHTS OF UNPAID SELLER

The unpaid seller, in addition to his rights against the goods as discussed above, have the
following three rights of action against the buyer personally:

  • Right of lien.
  • Right of stoppage of goods in transit;
  • Right of resale

RIGHT OF UNPAID SELLER.

RIGHT OF LIEN(Section 47):
‘Lien’ is the right to retain possession of goods and refuse to deliver them to the buyer
until the price due in respect of them is paid or tendered. An unpaid seller in possession of
goods sold is entitled to exercise his lien on the goods in the following cases:
(a) Where the goods have been sold without any stipulation as to credit;
(b) Where the goods have been sold on credit but the term of credit has expired;
(c) Where the buyer becomes insolvent even though the period of credit may not have yet
expired.
In the case of buyer’s insolvency the lien exists even though goods had been sold on credit
and the period of credit has not yet expired. When the goods are sold on credit the
presumption is that the buyer shall keep his credit good.
If, before payment the purchaser becomes bankrupt, the seller is entitled to exercise this
right and hold the goods as security for the price.
The unpaid seller’s lien is a possessory lien, i.e., the lien can be exercised as long as the
seller remains in possession of the goods. He may exercise his right of lien notwithstanding
that he is in possession of the goods as agent or bailee for the buyer [Sec. 47(2)].
Transfer of property in the goods or transfer of documents of title to the goods does not
affect the exercise of this right, provided the goods remain in the actual possession of the
seller. In fact when property has passed to the buyer then only retaining of goods is called
‘lien.’
Where the property in goods has not passed to the buyer and the title is still with the seller
then it is, strictly speaking, anomalous to say that the seller has a lien against his own
goods.
The seller’s lien when property has not passed to the buyer is termed as ‘a right of
withholding delivery. ‘Accordingly, [Section 46(2)] provides:
“Where the property in goods has not passed to the buyer, the unpaid seller has, in addition
to his other remedies, a right of withholding delivery similar to and coextensive with his
rights of lien and stoppage in transit where the property has passed to the buyer.”
This right of lien can be exercised only for the non-payment of the price and not for any
other charges, e.g., maintenance or custody charges, which the seller may have to incur for
storing the goods in exercise of his lien for the price.
This right of lien extends to the whole of the goods in his possession even though part
payment for those goods has already been made.
Further, where an unpaid seller has made part delivery of the goods, 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 (Section 48).
Also, the lien can be exercised even though the seller has obtained a ‘decree’ for the price
of the goods [Section 49(2)].

WHEN LIEN IS COST?
As already founded, lien depends on physical possession of goods. Once the possession
lost, the lien is also lost. (Section 49) accordingly provides that the unpaid seller of goods
loses his lien thereon 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 buyer or his agent lawfully obtains possession of the goods; or
(c) When the seller expressly or impliedly waives his right of lien. An implied waiver takes
place when the seller grants fresh term of credit or allows the buyer to accept a bill of
exchange payable at a future date or assents to a sub-sale which the buyer may have made.
It may be noted that right of lien, if once lost, will not revive if the buyer redelivers the
goods to the seller for any particular purpose.

RIGHT OF STOPPAGE OF GOODS IN TRANSIT

The right of stoppage in transit means the right of stopping further transit of the goods
while they are with a carrier for the purpose of transmission to the buyer, resuming
possession of them and retaining possession until payment or tender of the price.
Thus, in a sense this right is an extension of the right of lien because it entitles the seller to
regain possession even when the seller has parted with the possession of the goods.
WHEN CAN THIS RIGHT BE EXCERCISED (SECTION 50)-
An unpaid seller can exercise this right only when:
(a) The buyer becomes insolvent:
The buyer is said to be insolvent when he has ceased to pay his debts in the ordinary course
of business, or cannot pay his debts as they become due, whether he is declared an
insolvent or not [Section 2(8)]; and
(b) The property has passed to the buyer:
If property has not passed to the buyer then this right is termed as the “right of withholding
delivery” [Section. 46(2)]; and
(c) The goods are in the course of transit:
This means that goods must be neither with the seller nor with the buyer nor with their
agent. They should be in the custody of a carrier as an independent middleman (i.e., in his
own right as a carrier) e.g., railways and common carriers whose business is to transport
goods of others.
The carrier must not be either seller’s agent or buyer’s agent. Because if he is seller’s
agent, the goods are still in the hands of seller in the eye of law and hence there is no
transit, and if he is buyer’s agent, the purchaser gets delivery in the eye of law and hence
question of stoppage does not take place.
DURATION OF TRANSIT (SECTION 51)-
Since the right of stoppage in transit can be exercised only so long as the goods are in the
course of transit, it becomes necessary to know as to when the transit begins and when it
comes to an end. When the transit comes to an end the right of stoppage cannot be
exercised.
According to Section 51, goods are deemed to be in course of 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.
Thus the transit continues so long as the goods are not delivered to the buyer or his agent,
no matter whether they are lying at the destination with the carrier awaiting transmission or
are in actual transit.
The goods are still deemed to be in transit if they are rejected by the buyer and the carrier
or other bailee continues in possession of them, even if the seller has refused to receive
them back.
The transit is deemed to be at an end and the seller cannot exercise his right of stoppage in
the following cases:
(a) When the buyer or his agent takes delivery after the goods have reached destination.
(b) When the buyer or his agent obtains delivery of the goods before their arrival at the
appointed destination.
(c) When the goods have arrived at their destination and the carrier acknowledges to the
buyer or his agent that he holds the goods on his behalf.
(d) When the goods have arrived at their destination but the buyer instead of taking
delivery requests the carrier to carry the goods to some further destination and the carrier
agrees to take them to the new destination
(e) When the carrier wrongfully refuses to deliver the goods to tie buyer or his agent.
(f) When part delivery of the goods has been made to the buyer with an intention of
delivering the whole of the goods, transit will be at an end for the remainder of the goods
also which are yet in the course of the transit.
HOW THE RIGHT OF STOPPAGE IS EXERCISED (SECTION 52)-
The unpaid seller may exercise his right of stoppage in transit either:
(a) By taking actual possession of the goods, or
(b) By giving notice of his claim to the carrier or other bailee in whose possession the
goods are.
Such notice may be given either
(a) to the person in actual possession of the goods, or
(b) to his principal. The notice must be given well in advance to enable the principal to
communicate with his agent in time, so as to prevent delivery to the purchaser.
It is the duty of the carrier, after receiving due notice, not to deliver the goods to the buyer
but to redeliver them to, or according to the directions of the seller.
If by mistake he delivers the goods to the buyer, he can be made liable for conversion. The
expenses of redelivery are to be bearable by the seller only.


LIEN AND STOPPAGE AND TRANSIT DISTINGUISHED

The relevant points of distinction between these two rights of an unpaid seller are as
follows:

The seller’s lien attaches when the buyer is in default, whether he be solvent or
insolvent. The right of stoppage in transit arises only when the buyer is insolvent.

Lien is available only when the goods are in actual possession of the seller while right of
stoppage is available when the seller has parted with possession and the goods are in the
custody of an independent carrier.

The right of lien comes to an end once the seller hands over the possession of the
product to the carrier for the reason of transmission to the buyer.
On the other hand, the right of stoppage in transit commences after the seller has delivered
the goods to a carrier for the purposes of transmission to the buyer and continues until the
buyer has acquired their possession.

The right of lien consists in retaining the possession of the goods while the right of
stoppage consists in regaining possession of the goods.
RIGHT OF RESALE

The right of resale is a very important right given to an unpaid seller. In the absence of this
right, the unpaid seller’s other rights against the goods, namely, lien’ and ‘stoppage in
transit,’ would not have been of much use because these rights only entitle the unpaid
seller to retain the goods until paid by the buyer.
If the buyer continues to remain in default, then should the seller be expected to retain the
goods indefinitely, especially when the goods are perishable?
Obviously, this cannot be the intention of the law. Section 54, therefore, gives to the
unpaid seller a limited right to resell the goods in the following cases:
(a) Where the goods are of a perishable nature; or
(b) Where such a right is expressly reserved in the contract in case the buyer should make a
default; or
(c) Where the seller has given 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
there is a surplus on the resale, the seller can keep it with him because the buyer cannot be
allowed to take advantage of his own wrong.
If the unpaid seller fails to give notice of resale to the buyer, where neither the goods are
of perishable nature nor such a right was expressly reserved, he cannot recover the loss
from the buyer and is under an obligation to hand over the surplus, if any, to the buyer,
arising from the resale.
Thus, it will be seen that giving of notice to the buyer, when so required, is very necessary
to make him liable for the breach of contract.
It is so because such a notice gives an opportunity to the buyer either to pay the price and
have the goods, or, if he cannot pay, to supervise the sale to see that the same is properly
made.
It is important that absence of notice, when so required, affects the rights of the unpaid
seller himself only as discussed above and it does not affect the title of the subsequent
buyer who will acquire a good title to the goods.
Section 54(3) specially declares- “Where an unpaid seller who has exercised his right of
lien or stoppage in transit resells the goods, the buyer acquires a good title thereto as
against the original buyer, notwithstanding that no notice of the resale has been given to
the original buyer.”
CASE LAWS

Ram Saran Das Raja Ram And Anr. vs Lala Ram Chander on 5 May, 1967-
Where, however, the unpaid seller, who has exercised his right of lien or stoppage in
transit. Where, however, the unpaid seller, who has exercised his right of lien or stoppage
in transit, gives notice to buyer of his intention to sell, the unpaid seller may, if the buyer
does not within a reasonable time pay or tender the price, resell the goods within a
reasonable time and recovery from the original buyer damages for any loss occasioned by
his breach of contract, but the buyer is not entitled to any profit which may occur on the resale. In case of re-sale, pursuant to the exercise of the right of lien or stoppage in transit,
the buyer acquires a good title thereto as against the original buyer notwithstanding want of
notice of the resale to the latter.
Suchetan Exports P.Ltd vs Gupta Coal India Limited & Ors on 2 August, 2011
Unpaid Seller” as defined in Section 45(1)(a) of the aforesaid Act, and would be entitled
only to recovery of cost of the goods supplied. It was further stipulated that the seller
would thereupon transfer the rights in respect of the goods to the buyer by endorsing in
favor of the buyer a set of negotiable documents and hand over the same to the latter.

CONCLUSION

If a person sells something to the another, he is expecting some consideration for the same
by that person. If he has not received anything or received half of the price of that goods he
is called as an unpaid seller. The word unpaid seller is defined under section 45 of the Sale
of Goods Act,1930. The rights and duties of an unpaid seller are also given under this Act.
If a person enjoys the rights on a property, he is also entitled to take some responsibilities
for the same. If an unpaid seller has not received the full price of the goods he can claim
for the same by the buyer but before claiming he has to perform his duties towards that.


REFERENCES:

  1. The Sales of Goods Act, 1930
  2. http://www.indiankanoon.org
  3. Case Material, Faculty of Law University of Delhi
  4. http://www.shareyouressays.com/english-essays/three-important-rights-of-unpaidseller-against-the-goods/92211

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