Rights of an Unpaid Seller

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This article is written by Akshaya V, CMR University, School of Legal Studies, Bangalore.

SYNOPSIS – This article covers a trivial yet pertinent topic under the Sale of Goods Act, 1930. It talks about the vulnerability of the business of a seller in his commercial dealings with buyers and potential buyers. To protect the adverse vulnerability of contracts of sale, certain rights are given to the sellers as illuminated in the article.

INTRODUCTION 

We are all aware that commercial sectors across the nation are regulated by various rules and laws. However, predominantly every commercial undertaking comes under the ambit of regulations set out under The Indian Contract Act, 1872. Concerning the current topic of study, any act of buying, selling, dealing with and distribution of goods is exclusively and solely regulated by The Sale of Goods Act, 1930, commonly known as SOGA. The said Act formed part of The Contract Act, 1872. It was repealed later in time and re-enacted into the Sale of Goods Act. The non-repealed provisions of the Indian Contract Act, 1872, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to contracts for the sale of goods.

Sale of Goods Act circumvents the law relating to the sale of goods. The selling of goods is one of the particular forms of contracts recognized by law in India. The parties to the contract may, by express specifications modify the provisions of law. However, the Act restricts such privileges in some places. 

At the outset, it is pertinent to understand the meaning and definition of buyer and seller under the Sale of Goods Act, 1930.

Section 2(1) of Sale of Goods Act, 1930 defines a buyer as “buyer means a person who buys or agreed to buy goods.“

Section 2(13) of Sale of Goods Act, 1930 defines seller as “seller means a person who sells goods or agrees to sell goods.”

From these definitions, the interpretation is that the contract of sale binds two parties – buyer and seller. The contract herein shall not be unilateral as there is an obligation attached to both the parties. The seller shall deliver the goods to the buyer for the price that paid. The definitions are used in a wider sense than the common understanding of them. Not only an individual who buys but also the one who agrees to buy is a buyer. Similarly, a ‘seller’ means not only an individual who sells but also a person who agrees to sell. Therefore, a person who has agreed to deliver goods at a future also qualifies to be called a seller.

The distinction between a sale and an agreement to sell is subtle to note. The type of goods also determines the difference, i.e., sale pertains to specific goods and agreement to sell pertains to future or unascertained goods as defined in Section 2(14) and 2(6) of the Sale of Goods Act, 1930. A sale is absolute whereas, agreement to sell is conditional on happening of an event. In a sale, the title and risk attributed to the goods are passed off to the buy whereas, the seller retains the title and risk over goods in agreement to sell. 

In a contract of sale of goods, both the seller and buyer have rights towards one another. In a jurisprudential aspect, the kind of rights vested in them is the right in rem. Both parties can be a person of incidence and inherence as regards to their right. the Sale of Goods Act, 1930 gives the enforceability of the legal right to the parties. 

Rights of an Unpaid Seller

A seller is bound to deliver the goods in return for a consideration. The contractual terms end at the time of delivery of goods and payment of a price. This is known as a reciprocal promise. When a seller has been unpaid by the buyer, he can exercise legal right over him as elucidated under the Sale of Goods Act, 1930.  

Who is an Unpaid Seller?

Section 45(1) of THE SALE OF GOODS ACT, 1930 – 

  1. when the whole of the price has not been paid or;
  2. 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 because of the dishonor of the instrument or otherwise.

It has to be noted the term “seller” includes any person in the position of a seller or his agent or any person directly related to the payment of a price. When such price is not paid or partly paid either in cash or by way of any acceptable negotiable instruments. In the case of negotiable instruments, the mere fact that it has been offered by the buyer doesn’t mean that seller is paid off. He becomes an unpaid seller when even after offering to the bank, it is prohibited by the bank (dishonor) or on account of other conditions. 

Three important rights of an unpaid seller against goods as per Section 46 of THE SALE OF GOODS ACT, 1930. 

(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law— 

(a) a lien on the goods for the price while he owns them; 

(b) in case of the indebtedness of the buyer, a right of discontinuing the goods in transit after he has parted with their possession; 

(c) a right of resale as bounded by this Act. 

(2) 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 co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. 

1. Right of Lien

Lien is the right to keep possession of goods, mostly in cases of non – payment of remuneration or price. The seller retains the possession of goods until the price is paid by the buyer if the goods are not yet delivered. The seller shall exercise this right notwithstanding the fact that he is in possession as an agent or Bailee of the buyer. For the purpose of this right, the seller can retain goods in the following cases – 

  1. where the goods have been sold without any specification as to credit, because in case of credit purchase, the seller must sell for consideration at a future date;
  2. where the goods if sold on credit, the period of credit expires – the seller keeps the possession of good for the non – payment of price after the credit period; and
  3. on the insolvency of the buyer. 

An unpaid seller loses his right of lien in the following instances:

  1. when the seller himself waives off the right of lien; and
  2. when a buyer or his representative obtains the possession of goods delivered by the seller. 

CASE LAW – Euljee v Cafe John Boss

The seller sold a second-hand refrigerator to a buyer for Rs.120 and it was agreed that the remaining amount of Rs.320 will be paid after two months. The buyer meanwhile had given two parts to repair but the seller refused to return those parts till the amount was paid. It was held that once the delivery of the refrigerator had been made to the buyer, the right of lien had come to an end and the same could not be revived by the seller again by getting the possession of those goods.

2. Right Of Stoppage Of Goods In Transit

Goods are deemed to be in transit from the time they are transferred to a carrier to be delivered to the buyer. The seller may stop the transit of such goods when the buyer of the goods turns insolvent, he may resume possession of goods and retains until payment of the price is made. The transit is limited as the seller shall not have any right to sell once it is delivered to the buyer or if the goods are in the warehouse of the buyer or his authorized agent. 

CASE LAW – Litt v Cowley

After the receipt of the notice to halt the goods, the goods were accidentally carried and delivered to the buyer. It was held that the assignees of the insolvent buyer were bound to deliver it back to the seller or be liable to pay damages.

The distinction between the right of lien and stoppage in transit is that the latter shall be exercised only on the insolvency of the buyer. The right of lien denotes holding the possession of the goods while the right of the stoppage denotes repossession of the goods.

3. Right of Resale 

Practically the seller can’t have possession of goods for a longer duration. Therefore, it is important to find another buyer to resell the goods. Therefore, if the buyer continues to remain in default of not paying the price, the seller gets the right to resale. Section 54 of the Sale of Goods Act, 1930 gives a limited right of resale to the buyer in the below-mentioned cases – 

  1. where the goods are perishable in nature and;
  2. where there is an express stipulation on the contract of sale elucidating that the buyer shall not make default in payment. 

CASE LAW – RV Ward Ltd. V Bignall

There was a contract for the sale of two cars. The buyer failed to pay despite reasonable notice.  The seller then tried to resell but possibly found the customer only for one car. He then claimed damages for the balance price and advertising expense. Hon’ble Court held that when the seller resells the goods, the contract is rescinded and goods once again become his property. But he could recover the shortfall in the sold car and the advertising expense.

Rights of an Unpaid Seller against the Buyer 

  1. Sue for price: As per Section 55 of the Sale of Goods Act, 1930, in case of default made by the buyer, the seller may move the court to sue the buyer to pay the price after the goods have been delivered thereof. Where the buyer, out of the refusal to pay or owing to sheer negligence does not pay to the seller, may be sued. 

Illustration – A sold washing machine to B for Rs. 40,000. B settled the amount partly and refused to pay the remaining. A can sue B in this instance. 

  1. Damages for non – acceptance: According to Section 56 of the Sale of Goods Act, 1930, the seller may claim damages from the buyer when there is non – acceptance of goods on the part of the buyer after delivery. The damages are ascertained as per Section 73 of the Indian Contract Act, 1872. Such damages may be liquidated or unliquidated. Unliquidated damage is the amount of loss to be estimated arising from the buyer’s breach of contract as opposed to liquidated damages that are agreed upon at the time of the formation of the contract. 
  2. Suit for specific performance – Section 58 of the Sale of Goods Act, 1930, the seller may sue the buyer for specific performance through a decree given by the Court. The said decree may be unconditional without providing the defendant the choice of retaining the goods on payment of damages.

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