Rights of an Unpaid Seller under the Sale of Goods Act

RIGHTS OF AN UNPAID SELLER 

Section 45(1) of the Sale of Goods Act defines an unpaid seller as a seller to whom the buyer hasn’t offered or paid the entire amount for the goods or when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.1  

Rights of an unpaid seller can be categorized into two:  Rights of an unpaid seller against the goods & Rights of unpaid seller against the buyer. 

Rights of an unpaid seller against the goods: 

Under this category of rights, the seller has the following rights  

  1. Rights of lien 
  1. Right of stoppage in transit 
  1. Right of resale 
  1. RIGHT OF LIEN ( S.47): 

Under this right the seller can retain the possession of the goods until the buyer has paid or tendered the price for the goods They can do so in cases where the goods were sold without credit.2 This right may also be used when the buyer has purchased goods on credit and the time has expired and lastly, if the buyer becomes bankrupt and the goods were given on credit the seller3. An unpaid seller may possess the goods as an agent or as a bailee of the buyer. 4 when the seller is in possession of the goods it is called possessory lien.5 

As mentioned in section 48, in cases where the seller has given possession of some of the total goods to be given, the seller can retain the remaining goods and give the possession of the remaining goods to the buyer when the buyer fully pays the due amount.6 This right applies only when against the buyer apply only if there is no commitment to the contrary for the seller’s lien to be waived in the event of partial delivery of goods.7 As mentioned in section 49, this right end when the buyer or his agent legally obtains the goods or when the seller hands over the goods to a carrier or bailee to deliver it to the buyer or by means of a waiver.8 

In cases where a contract of sale provides that the seller is entitled to retain the lien of the goods until the payment is made by the buyer, the court in Suchetan Exports Pvt. Ltd. Vs Gupta Coal Ltd. And Ors, held that the title of goods would pass to the buyer, only when the total amount is paid to the unpaid seller, until which the unpaid seller can exercise lien over the goods.9 The seller after being paid for the goods cannot claim for more compensation for the costs, he may have occurred for retaining or storing the goods. This was held in Somes v. British Empire Shipping Co.10 

  1. RIGHT OF STOPPAGE IN TRANSIT 

When a buyer of goods does not pay the price within the time frame, the unpaid seller who has given delivery of the property has the right to stop them in transport. The seller may reclaim possession of the goods while they are still in voyage and possess those goods the until the price is paid or tendered. 

The conditions that must be fulfilled for the seller to use this right.  

  1. The seller is not paid in full or part, or 
  1. The buyer becomes insolvent, or  
  1. The products should not be in the possession of the buyer or the seller but in transportation.11 

In this section, A good is said to be in transit from when the seller hands over the goods to the carrier or a bailee to deliver it to the buyer.12  If the agent or the buyer takes delivery of the goods before its arrival at the destination, or by delivery to the buyer or the knowledge that the carrier company is holding goods on the buyer’s behalf or by partial delivery of goods, transit comes to an end.13  

The unpaid seller may use his right by either taking physical custody of the goods or notify the carrier or the bailee who has control of the items. In the latter case, the notice must be made such that the seller can transmit it to his servant or agent in time to prevent delivery to the buyer by exercising due care.14 In Majety Balakrishna Rao v. Mooke Devassy Ouseph and Sons the court held that the buyer would receive the goods only when the payment is made to the seller or the carrier (here the railway) as the case may be.15 

  1. RIGHT OF RESALE (S.54): 

Without the right of resale there is no sense of having the above-mentioned rights. This right is available under the following conditions16:  

  1. When the goods are perishable the unpaid seller can resell those goods without any prior notice  
  1. In the cases that the goods are nonperishable then the unpaid seller must notify the buyer before the resale. If the buyer fails to paid after time period mentioned in the notice, the seller may sell the goods.  
  1. If the contract mentions anything as to this right 
  1. Buyer does not pay the due amount or becomes insolvent.  

In the event that the goods are resold at a lower price than the contract price then the seller can reclaim the difference as the court held in Board of trustees of Cochin port Trust v A.L.Chopra.17  However, if the seller makes a profit, he can keep it. 18 

  1. Rights of an unpaid seller against the buyer:  

In a contract of sale, both, the seller and the buyer are under contractual obligation to perform their duties. The duty of the seller is to deliver the goods sold and the duty of the buyer is to pay the price consideration set or quid pro quo (reciprocal promise).  

Under this category, the seller has the following rights against the buyer –  

  1. Suit for price 
  1. Suit for damages  
  1. Repudiation of contract before due date  
  1. Suit for interest 
  1. Suit for Price (S.55):  

Suit for price is the premier right of an unpaid seller against the buyer. Section 55 of the Sale of Goods Act, 1930, describes that if the ownership of goods has been transferred to the buyer and he refuses to make a payment for the goods, the seller has the right to file a suit for price against the buyer.19  

Section 55(2) also states that if, according to the terms of the contract of sale, the payment for the goods is to be made by a certain time or date by the buyer and such payment is failed to be made, the seller has the right to sue the buyer for price even if the ownership of goods has been transferred to the latter. 20 

  1. Suit for Damages (S.56): 

According to Section 56 of the Sales of Goods Act, if the buyer refused to accept the goods or defaults in making the payment for them with a malicious intention, the seller has the right to file a suit against the buyer for damages.21 

For example, food and dairy products are subjected to get damaged if the buyer refuses to take them, once the order has been placed. 

The measure of damages can be derived from Section 73 and 74 of the Indian Contract Act in the following two ways –  

  1. Where there is an available market for the goods in question, the measure of damages is the difference between the contract price and the market price at the date of the breach.  
  1. Where there is no such market, the measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events, from the breach of the contract.  

The seller has the duty of mitigation which requires the injured to make substantial and reasonable efforts to minimise the loss incurred from the breach.22 In the case of M. Lachia Shetty v. Coffee Board, a dealer who bid at an auction of coffee first accepted the contract but later on refused to carry it out.23 This resulted in the coffee being reauctioned at the next best bidding price and the court asked the dealer to pay for the difference in the amount of loss to the board.24  

  1. Repudiation of Contract Before Due Date (S.60):  

Here, breach of contract signifies rejecting a contract in the middle without any prior notice and genuine reason. Section 60 of the Sale of Goods Act says that if a buyer repudiates the contract before the due date for the delivery of goods and the seller does not accept the repudiation and waits for the due date to make the delivery, he reserves the right to sue the buyer for repudiating the contract.25  

The provision implies that if one of the parties to the contract repudiates before the due date, then the other party has two ways it can go about it –  

  1. The aggrieved party may immediately accept the breach and bring the action of damages for the contract being rescinded. In this case, the damages will be evaluated as per the then prevailing prices or he can wait for the date of delivery.26  
  1. In the second course of action, the contract is open at risk and will be beneficial for both the parties. In case one party changes his mind and agrees to perform, then the damages will be assessed according to the prices on the day of delivery.27 
  1. Suit of Interest (S.61):  

According to Section 61 of the Sale of Goods Act, the unpaid seller the right to be paid interest by the buyer for any delay in making the payment and such interest is affective from the date when the price is payable. If the goods are sold on credit, interest will run from the expiry of the credit.28 If the parties do not have such specific terms, the courts may award the seller with the interest to him at a rate which it sees fit.29  

References-

[1] Universal, Sale of goods act, 1930, 11, (2021).

[2] Id.

[3] Id.

[4] Id.

[5] Rights of Unpaid Seller Against Goods, Vendantu, https://www.vedantu.com/commerce/rights-of-unpaid-seller-against-goods, (Last visited October 31, 2021).

[6] Supra note 1.

[7] Ganshyam Singh, Section 48: Part Delivery, IBC Laws, (Nov. 13, 2016).

[8] Supra note 1 at 12.

[9] Gunita Pahwa & Priya Dhankhar, India:Unpaid Seller’s Lien, Mondaq, (Aug. 16, 2016), https://www.mondaq.com/india/contracts-and-commercial-law/519392/unpaid-seller39s-lien.

[10] Id.

[11] Rajdhanicollege.ac.in. 2021. Sale of goods act, 1930 Unpaid Seller and his Rights, https://rajdhanicollege.ac.in/admin/ckeditor/ckfinder/userfiles/files/Ch18%20Sale%20of%20goods%20act,%201930%20Unpaid%20seller%20and%20his%20rights.pdf, (Last visisted Nov. 1, 2021).

[12] Supra note 1 at 12.

[13] Supra note 10.

[14] Id.

[15] Majety Balakrishna Rao vs Mooke Devassy Ouseph And Sons,r AIR 1959 AP 30.

[16] Supra note 10.

[17] Board of trustees of Cochin port Trust v A.L.Chopra, Casemine,  https://www.casemine.com/judgement/in/56e66b04607dba6b534373c8, (Last visited Nov.1, 2021).

[18] Id.

[19] Universal, Sale of goods act, 1930, 11, (2021).

[20] Id.

[21] Id.

[22] Rights of Unpaid Seller | Explained, https://www.legalbites.in/rights-of-unpaid-seller/ (last visited Nov 2, 2021)

[23] Id.

[24] Id.

[25] Universal, Sale of goods act, 1930, 11, (2021).

[26] Rights of Unpaid Seller | Explained, https://www.legalbites.in/rights-of-unpaid-seller/ (last visited Nov 2, 2021).

[27] Id.

[28] Universal, Sale of goods act, 1930, 11, (2021).

[29] What are the Rights of an Unpaid Seller? iPleaders, https://blog.ipleaders.in/rights-of-an-unpaid-seller/ (last visited Nov 2, 2021)

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