Rights of Unpaid Seller 

The concept of unpaid sellers and their rights is an important aspect of the Sales of Goods Act, 1930 in India. An unpaid seller refers to a seller who has not yet received the full price for the goods sold or when the buyer fails to fulfil their payment obligations. 

The law provides various rights to unpaid sellers in order to protect their interests and facilitate the recovery of their dues. 

Definition of an Unpaid Seller

As per the Sales of Goods Act, 1930, Section 45 defines an unpaid seller as a seller who has not yet received the full price for the goods or a part thereof and includes any person who is in the position of a seller, e.g., an agent or a consignor. In other words, an unpaid seller is a seller who has not been paid for the goods they have sold, either in full or in part.

Governing Law in India on Unpaid Seller Rights

In India, the rights of unpaid sellers are primarily governed by the Sales of Goods Act, 1930. The Act is a comprehensive legislation that sets out the rights and obligations of buyers and sellers in relation to the sale of goods. The Act applies to all kinds of goods, including movable goods, whether they are sold for cash or on credit.

The Sales of Goods Act, 1930 has been enacted based on the principles of English common law, with certain modifications to suit the Indian legal system and commercial practices. The Act has been amended from time to time to reflect changing business practices and to provide better protection for the rights of buyers and sellers.

The Act provides detailed provisions on various aspects of the sale of goods, including the formation of contracts of sale, conditions and warranties, transfer of property in goods, the performance of the contract and remedies for breach of contract. The Act also contains specific provisions relating to the rights of unpaid sellers.

What are the Rights of Unpaid Seller?

The Sales of Goods Act, 1930 provides various rights to unpaid sellers in case of default by the buyer. These unpaid sellers’ rights are aimed at protecting the interests of the seller and ensuring that they are able to recover their dues in case of non-payment by the buyer. The rights of unpaid seller are:

• Right of Lien
• Right to Stoppage in Transit
• Rights to Resell the Goods
• Right to Sue for the Price
• Rights to Claim Damages
• Rights of to Retain the Goods
• Right to Rescind the Contract

Right of Lien by Unpaid Seller

One of the important rights of unpaid seller is the right to lien. Lien refers to the right to retain possession of the goods until the full price has been paid by the buyer. An unpaid seller can exercise this right if the goods have been sold on credit and the buyer has not yet paid the full price. 

The seller can retain possession of the goods until the payment is made and can refuse to deliver the goods to the buyer until the price is paid in full. The right of lien can be exercised by the seller even if the goods are in transit, i.e., they have been dispatched but not yet delivered to the buyer.

However, there are certain conditions that need to be fulfilled in order for the seller to exercise the right of lien. According to Section 47 of the Sales of Goods Act, 1930, the right of lien can be exercised by the seller if:

a) The goods have been sold without any stipulation for credit, i.e., the sale was on a cash basis.

b) The buyer becomes insolvent, i.e., is unable to pay their debts as they become due.

c) The goods have been sold on credit, but the term of credit has expired and the seller has not yet received the full price.

If these conditions are met, the seller can exercise their right of lien and retain possession of the goods until the full price is paid.

In the case of Grice v. Richardson, the sellers had delivered a portion of the three parcels of tea that were part of the sales, but had not been paid for the remaining portion. They were allowed to retain the goods until the price was paid. However, if there is an agreement to waive the lien for the goods delivered, the seller cannot retain the remainder.

In a case the Supreme Court of India held that an unpaid seller has the right to exercise a lien over the goods and refuse to deliver them until the buyer pays the price. The court further held that the seller’s right to lien is not affected by the fact that the goods have been delivered to a carrier for transmission to the buyer or that the seller has claimed an interest in the goods as a result of the buyer’s insolvency.

Unpaid Sellers’ Right to Stoppage in Transit

Another important right of unpaid seller is the right of stoppage in transit. This right arises when the goods are in transit, i.e., they have been dispatched by the seller but not yet delivered to the buyer and the buyer has become insolvent. In such a situation, the seller can stop the goods in transit and resume possession of the goods. This right allows the seller to prevent the goods from being delivered to the insolvent buyer and gives them the opportunity to recover their dues.

The right of stoppage in transit can be exercised by the seller if the buyer becomes insolvent after the goods have been dispatched, but before they are delivered. The seller can exercise this right by giving notice to the carrier or other bailee in possession of the goods and directing them to stop the delivery of the goods to the buyer. 

Once the notice is given, the goods are deemed to be in the possession of the seller and the seller can either retain them until the full price is paid or resell the goods to recover their dues.

It is important to note that the right of stoppage in transit is only available to the seller if the buyer becomes insolvent. If the buyer is not insolvent, the seller cannot exercise this right, even if the payment has not been made.

​​In the case of Great Indian Peninsula v. Hanmandas, the seller had consigned goods with the GIP Railway Company for transportation to the buyer. Upon arrival at the destination, the company delivered the goods to the buyer who loaded them onto his cart, but the cart had not yet left the railway compound when a telegram was received to stop the goods. The company failed to do so and was subsequently sued by the seller for damages. The court held that the transit had ended as soon as the goods were handed over to the buyer.

In another case, the court held that an unpaid seller has the right to stop the goods in transit if the buyer becomes insolvent after the goods have been dispatched. The court held that the seller’s right to stoppage in transit arises as soon as the seller knows of the buyer’s insolvency and it is not necessary for the seller to physically intercept the goods.

Rights of Unpaid Seller to Resell the Goods

The Sales of Goods Act, 1930 also provides the unpaid seller’s rights to resell the goods in certain circumstances. According to Section 48 of the Act, if the seller has exercised their right of lien or has stopped the goods in transit and the buyer does not pay the price within a reasonable time, the seller can sell the goods to recover their dues.

The seller can sell the goods either by public auction or by private sale. However, the seller must notify the buyer of their intention to resell the goods and if the buyer pays the price before the resale, the seller is bound to deliver the goods to the buyer. The seller is also entitled to claim damages from the buyer for any loss incurred due to the non-payment of the price.

It is important to note that the seller must act in good faith and take reasonable care to get the best price for the goods in case of resale. 

If the seller sells the goods for a lower price than what could have been reasonably obtained, the buyer may be entitled to claim damages for any loss suffered due to the seller’s negligence or misconduct in the resale.

In the case of R v. Ward v. Bignall, there was a contract for the sale of two cars, a Vanguard and a Zodiac, for $850. The buyer made a deposit of $25 but failed to pay the full price despite receiving reasonable notice. The seller then attempted to resell the cars, but could only sell the Vanguard for $359. The seller claimed damages amounting to $475, which represented the balance of the price and $22 for advertising expenses. The court held that once the seller resells the goods, the contract is rescinded and the seller cannot claim the full price, but can only ask for the advertising expenses and the shortfall in the price of the Vanguard.

Right to Sue for the Price by the Unpaid Seller

If the seller is unable to exercise their right of lien or stoppage in transit, or if they do not wish to resell the goods, they can also sue the buyer for the price of the goods. 

According to Section 55 of the Sales of Goods Act, 1930, the seller can sue the buyer for the price of the goods, even if the property in the goods has not been passed to the buyer.

The seller can sue the buyer for the price of the goods, along with any interest or damages, after the agreed time for payment has passed or when the buyer has wrongfully refused to pay for the goods. The seller can also sue the buyer for the price if the buyer becomes insolvent before the property in the goods has passed to them.

It is important to note that the seller must notify the buyer of their intention to sue for the price, if such notice is required by the contract or by law. The notice must be given within a reasonable time after the right to sue for the price has arisen and failure to give notice may affect the seller’s right to claim the price.

Unpaid Sellers’ Rights to Claim Damages

Apart from the right to sue for the price, an unpaid seller’s rights include the right to claim damages for any loss suffered due to the buyer’s default. If the buyer wrongfully neglects or refuses to accept the goods, or fails to pay for the goods, the seller can claim damages for any loss incurred as a result.

The amount of damages that can be claimed by the seller would depend on the circumstances of the case and the actual loss suffered by the seller. The seller can claim damages for the loss of profit that would have been made if the buyer had fulfilled their obligation to accept and pay for the goods. The seller can also claim damages for any additional expenses incurred as a result of the buyer’s default, such as storage costs or transportation charges.

It is important to note that the seller has a duty to mitigate their damages, which means that they must take reasonable steps to minimize their losses. If the seller fails to mitigate their damages, the court may reduce the amount of damages that can be claimed.

Rights of Unpaid Seller to Retain the Goods

In certain situations, an unpaid seller also has the right to retain the goods until their dues are paid. According to Section 46 of the Sales of Goods Act, 1930, an unpaid seller who is in possession of the goods has the right to retain the goods until the price is paid or until other obligations of the buyer are fulfilled.

The right to retain the goods is similar to the right of lien, but it is not limited to cases where the goods have been sold on credit. 

The seller can retain the goods in their possession as a security for the payment of the price or other obligations of the buyer, even if the goods have been sold for cash. However, the seller can only exercise this right if they are in actual possession of the goods or have the right to retain possession.

Unpaid Sellers’ Right to Rescind the Contract

In certain circumstances, an unpaid seller also has the right to rescind the contract of sale and treat it as if it never existed. According to Section 49 of the Sales of Goods Act, 1930, if the buyer has become insolvent and the seller has not yet delivered the goods, the seller may refuse to deliver the goods and may also treat the contract as rescinded.

Rescission of the contract means that the seller can cancel the contract and no longer be bound by its terms. The seller can also claim damages for any loss suffered as a result of the buyer’s default and can retain any advance payments made by the buyer.

It is important to note that the right to rescind the contract is only available to the seller if the buyer has become insolvent before the delivery of the goods. Once the goods have been delivered, the seller’s right to rescind the contract is lost and the seller can only exercise their other rights, such as the right of lien, stoppage in transit, or resale of the goods.

Conclusion

The rights of an unpaid seller are crucial to safeguarding their interests in a commercial transaction. The Sales of Goods Act, 1930 in India provides comprehensive provisions that outline the rights and remedies available to unpaid sellers in case of default by the buyer. These rights include the right of lien, stoppage in transit, resale of goods, claim for damages, right to retain the goods and right to rescind the contract.

The rights of an unpaid seller play a crucial role in balancing the interests of buyers and sellers in commercial transactions. It is imperative for unpaid sellers to have a clear understanding of their rights and legal options to protect their financial interests and seek appropriate legal remedies in case of default by the buyer. Adhering to the provisions of the Sales of Goods Act, 1930 and seeking legal advice when needed can help unpaid sellers effectively assert and enforce their rights in India.