Rights of an Unpaid

Seller
Course Title: Mercantile Law
Course Code: IL-C-405

Central University of Kashmir

Department of Law,
School of Legal Studies

Prepared by: Submitted to:

Sujeet Kumar Dr. Nayeem Ahmad Bhat
B.A.LL.B 4th Sem Assistant Professor, SLS
2007CUKmr35 Central University of Kashmir

Table of Contents

INTRODUCTION................................................................................................3

Page 1 of 13
RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS SOLD..............3

1. Right of Lien............................................................................................4

Termination of Lien......................................................................................5

i. By Waiver.............................................................................................6

ii. Goods delivered to Buyer.....................................................................6

iii. No Right of Disposal............................................................................6

2. Right of Stopping the Goods in Transit:..................................................6

3. Right of Resale:........................................................................................8

RIGHTS OF UNPAID SELLER AGAINST THE BUYER PERSONALLY...10

1. Sue for Price...........................................................................................10

2. Damages for Non- Acceptance..............................................................11

3. Suit for specific performance.................................................................11

4. Suit for Interest & Special Damages......................................................11

Conclusion..........................................................................................................12

List of References...............................................................................................13

INTRODUCTION

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According to section 2(1) of Sale of Goods Act, 1930 (hereinafter referred to as
SOGA) Seller is a person who sells the goods or agrees to sell the goods.
Unpaid implies payment is not made or without payment.

Definition of an unpaid seller has been given under section 45 of SOGA. It says

that an unpaid seller is a person who has not been paid yet either by cash or
other negotiable instruments. In the case of negotiable instruments, the mere
fact that it has been tendered by the buyer doesn’t mean that seller is not
anymore, an unpaid seller. He becomes an unpaid seller when even after
tendering it, it is rejected by the bank or as the case may be. Section also
provides that any person who is in the position of a seller e.g., his agent is also
considered seller for the purposes of SOGA.

Although ownership of the goods is passed to the buyer after the sale of goods
but an unpaid seller has certain rights.

An unpaid seller has two-fold rights which are as follows:

1. Rights of unpaid seller against the goods.

2. Rights of unpaid seller against the buyer personally.

RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS SOLD

Under the SOGA, these rights are:

1. a possessory lien (particular, not general);

2. a right of stoppage in transit; and
3. a right of resale.

These rights have been provided in the provisions of S.46 of the SOGA which
provides:

[46. Unpaid seller’s rights. —

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 (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 is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the
goods in transit after he has parted with the possession of them;
(c) a right of re-sale as limited 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:

For the recovery of price, an unpaid seller has a right to keep the goods in his
own possession. Right of Lien means seller can withhold the delivery of goods
to the seller till his payment is being made. In other words, ‘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. Section 47 of SOGA deals with the
right to Lien.

The SOGA provides for the conditions under which an unpaid seller will be
able to exercise his right of lien i.e., where the goods are not sold on credit or if
they were sold on credit and the term of the credit has expired or where the
buyer becomes bankrupt.

In the case of buyer becomes bankrupt, the lien exists even though the goods
were sold on credit and the period of credit has not yet expired. In cases where
the goods have been sold on credit the presumption is that the buyer will pay the
price. If, therefore, before payment the buyer becomes bankrupt, the seller is
entitled to exercise his lien over the goods as security for the price.

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The SOGA also provides that the seller can exercise this right notwithstanding
that he is an agent, bailee or custodian for the buyer.

Example: X sells the goods to Y for Rs. 500. Y pays 250 and promises to pay
the remaining 250 after two months. X has a right of lien on the goods.

This right of lien can be exercised only for the non-payment of the price and not
for any other charges, i.e., maintenance or custody charges, which the seller
may have to incur for storing the goods etc. Also, the right of lien extends to the
whole of the goods in his possession even though part payment for those goods
has already been made. In other words, the buyer is not entitled to claim
delivery of a portion of the goods on payment of a proportionate price.

However, in those situations where goods have been partially delivered by the
seller then he may exercise his right of lien on the remaining part unless there is
an agreement in which he waives this right. This has been provided in S.48 of
the SOGA.

In the case of Eduljee v. Cafe John Bros.1 the seller sold a second-hand

refrigerator to a buyer for Rs. 120 and it was further agreed that the seller will
put that in order at a cost of Rs. 320. The buyer took the delivery of the
refrigerator and admitted that it was working satisfactorily. Subsequently, two
of its parts were delivered to the seller for further repairs. The seller now
refused to deliver it back claiming a lien on them until the amount originally
due had been 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.

Termination of Lien

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

1
AIR 1943 Nag. 249.
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 i. By Waiver: If an unpaid seller himself waives his right of lien then it will
be terminated.
ii. Goods delivered to Buyer: When a buyer or his agent or his any
representative obtains the lawful possession of goods, unpaid seller’s
right of lien automatically ends.
iii. No Right of Disposal: When an unpaid seller delivers the goods to the
carrier/bailee without reserving the right to disposal with himself then his
right of lien ends.

Section 49 of SOGA provides for the above-mentioned situations in which the

seller loses his right of lien. It further provides that the right of Lien can still be
exercised even though the seller has got a decree from a Court of Law for the
payment of price.

ii. Right of Stopping the Goods in Transit:

The right of stoppage in transit means the right of stopping the goods while they
are in transit, to regain possession and to retain them till the full price is paid. In
other words, if buyer has become insolvent, an unpaid seller has a right of
stopping the goods in transit and can resume the same on the payment of price.
This right has been provided in Section 50 of SOGA. This right is limited to the
transit only, the moment the goods are delivered to the buyer, seller cannot
exercise this right. Cave J. has explained the position as “the moment the goods
are delivered by vendor to a carrier to be carried to the purchaser the transitus
begins. When the goods have arrived at their destination and have been
delivered to the purchaser or when the carrier holds them as warehouse for the
purchaser or his agent and no longer as carrier, the transitus is at end.”2

Moreover, Section 51 of SOGA provides that in case of goods are being

delivered to carrier by land or water then till the time buyer or his agent takes
the possession of goods from such carrier on land or on water, seller can
2
Bethell v. Clark, 19 QBD 553 at pg. 561.
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exercise this right. If the buyer takes the possession that means transit has come
to an end and hence, seller cannot exercise this right.

Example: A sells 100 Kgs of wheat to B but delivery will be two stages. A
delivers 50 Kgs wheat in first week of January and will deliver remaining in last
week of January. Later on he comes know that B has become insolvent. A can
stop delivery of remaining in transit and can resume the same on the payment of
price.

When the notice of stoppage in transit is communicated to the carrier/bailee

having possession of goods then such person must re-deliver the goods only as
per the seller’s instructions and in such case, the cost of re-delivering the goods
will be borne by the seller. This has been provided by Section 52(2) of SOGA.

Lord Cairns LJ in case of Schotsmans v. Lances and Yorks Rly. had made the
following observation in this regard:

“The essential feature of stoppage in transit is that the goods should be in the
possession of a middleman or some other person intervening between the
vendor who has parted with and the purchaser who has not received them.”

In Turner v. Trustees of Liverpool Docks 3, the cargo of cotton was put on the
ship of the buyer but the goods were made deliverable to seller or their
order. Patterson J. while giving judgment observed that unless the vendor
protects himself by special terms, restraining the effect of such delivery, there is
no doubt that delivery was made to him.

In the case of Litt v. Cowley4 after the receipt of notice to stop the goods, the
carried by mistake delivered the goods to the buyer. It was held that the
assignees of the insolvent buyer were bound to deliver it back to seller or be
liable to pay damages.

3
(1851)6 Ex. 543.
4
(1816) 2 Marsh 457.
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 iii. Right of Resale:

An unpaid seller is considered the owner of the goods until he is not paid by the
buyer. So he has a right to sell his goods subject to a few conditions.

The right of resale is very important right of an unpaid seller. In the absence of
this right, the unpaid seller’s other right against the goods, namely, ‘lien’ and
‘stoppage in transit,’ is just futile 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 what else the seller is expected to do with the goods,
especially when the goods are perishable? Hence, Section 54 of SOGA,
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.

Example: A agrees to deliver a homemade cake to C on credit. C does not pay.

A can re-sell it to any other person.

In the case of RV Ward Ltd. v. Bignall5, there was a contract for sale of 2 cars.
The buyer defaulted in paying a price despite a reasonable notice.  The seller
then tried to resell but could find customer only for 1 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. Thus, the unsold car became his property and he could not
recover his price. But he could recover the shortfall in the sold car and the
advertising expense.

5
(1967)2 All e.r. 449.
Page 8 of 13
Where the goods are perishable in nature and the unpaid seller notifies the buyer
of his intention to resell them, if the buyer doesn’t pay within a reasonable time,
the seller can resell the goods. Seller can also recover from the original buyer
any damages incurred due to his breach of the contract under Section 54 (2) of
SOGA.

In Mysore Sugar Co. Ltd Bangalore v. Manohar Metal Industries 6, the buyer
having made a default in taking the goods, the seller gave him a notice on
12.09.1966 that if the buyer did not lift the goods within three days, the contract
would be treated as cancelled. The buyer did not lift the goods. The seller made
a re-sale 30.12.1966. Seller sought to recover the loss from the re-sale. It was
held that there was inordinate delay of over 3 months in making re-sale after the
notice to buyer and due to such delay, particularly in the falling market as in the
present case, the value realized on re-sale did not afford the ground for fixing
the damages. If the re-sale had been properly made in September 1966, the
seller would have suffered no loss, and therefore, seller’s claim for
compensation was rejected.

According to the provision of Section 53 of SOGA, the unpaid seller’s right of
lien or stoppage in transit is not defeated by any resale done by the buyer to a
third party without the seller’s consent. In case of transfer of goods by buyer,
the unpaid seller’s right of lien or stoppage in transit can be exercised subject to
rights of transferee. When pledgee sells goods, the unpaid seller is entitled to
receive the surplus sale proceeds.

In the case of Knight v. Wiffen7 A sold 80 maunds of barley out of a large stock
lying in his granary to B. Out of his purchase, B sold 60 maunds to C before the
goods had been ascertained and C obtained delivery order and presented it to A,
who informed to C that the barley will be given to him in the due course.
Subsequently, B became insolvent and A wanted to exercise the right of lien
6
AIR 1982 Kant 282.
7
(1870) 5 QB 660.
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over barley which he had sold to B. It was held that A had assented to sub-sale
of 60 maunds of barley, therefore he could not exercise his right of lien over
those 60 maunds of barley, though such a right could be exercised in respect of
remainder i.e., other 20 maunds.

Further, in the case of P.S.N.S Ambalavana Chettiar & Co. v. Express

Newspapers Ltd.8  Hon’ble Supreme Court of India has held that for the purpose
of measure of damages under SOGA, the re-sale is properly made if the
property in the goods re-sold had passed to the original buyer. On the other
hand, if the property in the goods has not passed to the original buyer, the re-
sale is not properly made and therefore, the damages are not awarded accorded
to Sale of Goods Act (difference between the contract price and the re-sale
price) but they are awarded according to the formula under the Indian Contract
Act (difference between the contract price and market price on the date of
breach of contract).

RIGHTS OF UNPAID SELLER AGAINST THE BUYER PERSONALLY

The unpaid seller can take following actions against the buyer personally:

1. Sue for Price:

The unpaid seller has also a right to claim the price from the buyer for the
goods. It has been provided under Section 55 of SOGA. It provides that where
the property in the goods have already been delivered to buyer and seller
remains unpaid owing to the negligence or deliberate refusal of the buyer then
seller may sue the buyer for the price of the goods.

Example: D sold a watch to F for Rs. 1000. F refused to pay. D can sue F for
price of the watch.

2. Damages for Non- Acceptance:

8
AIR 1968 SC 741.
Page 10 of 13
According to Section 56 of SOGA if Buyer refuses to accept the goods and pay
the price of the goods then seller can sue him for damages for non-acceptance.
The damages are calculated in accordance with the rules contained in Section
73 of the Indian Contract Act, that is, the measure of damages is the estimated
loss arising directly and naturally from the buyer’s breach of contract.

3. Suit for specific performance:

According to Section 58 of SOGA subject to Specific Relief Act, seller may

also sue buyer for specific performance of contract in case of a breach of
contract and the decree passed can be unconditional without giving the
defendant the option of retaining the goods on payment of damages.

4. Suit for Interest & Special Damages:

According to Section 61 of SOGA, the unpaid seller can recover the reasonable
interest on the unpaid price goods sold. The seller can also sue the buyer for
special damages where both the parties are aware of such loss at the time of
contract

Conclusion
This assignment shows that the seller can become an unpaid seller in cases, first
when the buyer does not pay the full amount to the seller and second when the
buyer fails to meet the maturity of the bill. Under all the situation, the seller can
resale the goods or possess the good if he has the right to lien, stoppage, or give

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the notice to the buyer. In all the above situation, the unpaid seller has the right
to sue the buyer for the failure in payments of the goods. And if the seller fails
to deliver the goods, the buyers can directly sue the seller for non-performance
and claim compensation for the damages.

List of References
 Act
1. The Sales of Goods Act, 1930, (Act 3 of 1930).
2. The Indian Contract Act, 1872, (Act 9 of 1872).
 Book

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1. Bangia R.K., Contract - II (Allahabad Law Agency, 7th edn., 2020).

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