Unpaid seller and his rights
Meaning of an Unpaid Seller [Sec 45(1)(2)]
The seller of goods is deemed to be an ‘unpaid seller’
- When the whole of the price has not been paid or tendered
- When a bill of exchange or other negotiable instrument (such as cheque) has been received as conditional payment, and it has been dishonored [Section 45(1)].
- The term ‘seller’ includes any person who is in the position of a seller(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) [Section 4592)].
Rights of an Unpaid Seller [Section 46-52,54-56,60-61]
The rights of an unpaid seller can broadly be classified under the following two categories:
- Rights against the goods
Rights against the buyer personally
The various rights of an unpaid seller have been shown in Fig.
(I) Rights against the goods where the property in the goods has passed to the buyer
a) Right of Lien [Section 47,48 and 49]
Meaning of Right of Lien:
The right of lien means the right to retain the possession of the goods until the full price is received.
Three circumstance under which right of lien can be exercised [Section 47(1)]
- Where the goods have been sold without any stipulation to credit;
- Where the goods have been sold on credit, but the term of credit has expired;
- Where the buyer becomes insolvent.
Other provisions regarding right of lien [Sections 47(2), 48, 49(2)]
- The seller may exercise his right of lien, even if he possesses the goods as agent or Bailee for buyer[Section 47(2)]
- 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 agreement to waive the lien [Section 48].
- The seller may exercise his right of lien even though he has obtained a decree for the price of the goods [Section 49(2)].
Circumstances under which right of lien in the following cases:
- 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 [Section 49(1)(a)].
- When the buyer or his agent lawfully obtains possession of the goods [Section 49(1)(b)]
- When the seller waives his right of lien [Section 49(1) (c)].
- When the buyer disposes of the goods by sale or in any other manner with the consent of the seller [Section 53(1)].
- Where document of title to goods has been issued or lawfully transferees to any person as buyer or owner of the goods and that person transfers the document by way of sale, to a person who takes the document in good faith and for consideration.[Proviso to Section 53(1)].
B) Right of Stoppage of Goods in Transit
The right of stoppage of goods 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.
Conditions under which right of stoppage in transit can be exercised [Section 50]
The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled:
- The seller must have parted with the possession of goods,i.e. the goods must not be in the possession of seller.
- The goods must be in the course of transit.
- The buyer must have become insolvent.
c) Right of Resale[Section 46(1) and 54]
An unpaid seller can resell the goods under the following three circumstance:
- Where the goods are of a perishable nature.
- Where the seller expressly reserves a right of resale if the buyer commits a default in making payment.
- Where the unpaid seller who has exercised his right of lien or stoppage in transit gives a notice to the buyer about his intention to resell an dbuyer does not pay or tender within a reasonable time.
(II) Rights against the goods where the property in the goods has not passed to the buyer
Right of withholding delivery [Section 46(2)]
Where the property in the goods has not been passed to the buyer, the unpaid seller, cannot exercise right of lien, but get a right of withholding the delivery of goods, similar to and co-extensive with lien and stoppage in transit where the property has passed to the buyer.
Rights of Unpaid Seller against the Buyer Personally
The unpaid seller, in addition to his rights against the goods as discussed above, has the following three rights of action against the buyer personally:
- Suit for price (Sec. 55). Where property in goods has passed to the buyer; or where the sale price is payable ‘on a day certain’, although the property in goods has not passed; and the buyer wrongfully neglects or refuses to pay the price according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered, the seller would file a suit for price normally when the goods have been manufactured to some special order and thus are unsaleable otherwise.
- Suit for damages for non-acceptance (Sec. 56). Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. The seller’s remedy in this case is a suit for damages rather than an action for the full price of the goods.
- Suit for Interest [Section 61(2)]
In case of breach of the contract on the part of seller, the buyer may sue the seller for interest from the date on which the payment was made.