Rights of Unpaid Seller : Sale of Goods Act 1930

Who is an Unpaid Seller?

Unpaid sellers are those sellers to whom the buyer has failed to pay or has refused to pay for the goods. Sales are a set of reciprocal promises where both parties to the contract have to perform their part of the obligation in order to complete the contract. Under a sales contract, the seller is under the obligation to sell goods, and once the buyer has received the goods, he is under the obligation to pay for the goods received. In a case where the buyer has failed to pay or has refused to pay for the goods, the seller will be considered an unpaid seller, and he will be entitled to all the rights of an unpaid seller.

Section 45(1) of the Sales of Goods Act 1930 establishes that the seller shall be deemed an unpaid seller:

• When the buyer has not paid the full price of the goods received or has outsold the price, the seller will have the immediate right of action to claim the price.
• When, as a conditional payment, any bill of exchange or negotiable instrument has been received in regards to the sale made and the condition based on which it was received has not been fulfilled due to dishonor of the instrument or otherwise.

Geeky Takeaways:

• Sales are a set of promises where both buyer and seller are vested with their set of obligations of performance.
• A contract of sale gets discharged once the seller has delivered the goods to the buyer and the buyer has paid for those goods.
• In a case where the buyer has refused to pay for the goods or has failed to make the payment towards the goods received by the seller, the seller shall reserve the title of an unpaid seller and will be vested with the rights as per the Sales of Goods Act 1930.
• Section 45 of the Sales of Goods Act 1930 defines an unpaid seller, and the rights of an unpaid seller are defined under Section 46 of the Sales of Goods Act of 1930.

Rights of an Unpaid Seller

As per the Section 46 of the Sales of Goods Act, an unpaid seller has been given the following rights both against the goods and the buyer:

1. Seller’s Lien: As per Section 47 of the Sales of Goods Act 1930, the seller has the right to retain possession of the goods until payment if he is in possession of the goods. This is possible when:

• The seller sells the goods without any condition of credit.
• The seller sold the goods on credit, but the agreed credit period has expired.
• The buyer of the mentioned goods has been declared insolvent.

The section further explains that the seller may exercise his right of lien even when he holds possession of goods as an agent or as a bailee.

2. Part-delivery: Section 48 of the Sales of Goods Act 1930 states that in a case where the unpaid seller makes part-delivery of the goods, the act gives the seller the right to lien on the remaining goods. The provision shall be valid unless there is an agreement between the buyer and the seller for waiving the lien under part delivery.

3. Right of Stoppage in Transit: Right of stoppage can be called as an extension to the right of lien. The right of stoppage in transit is given to an unpaid seller to stop the goods while they are in transit; in such a case, the seller regains possession and retains them till the buyer pays him the full price. Furthermore, the act has also established that in the event that an unpaid seller loses possession of the goods and the buyer becomes insolvent, the seller can get the goods back.

4. Right of Re-sale: A seller who has not been paid by the buyer has the right to resell the sold items. Section 54 has defined the general criteria for the resale of goods by an unpaid seller:

• If the goods are perishable in nature, the unpaid seller may choose to resell them.
• When the unpaid seller has gained possession of the goods by using the right of lien or stoppage in transit and has given a notice to the buyer expressing his intention to re-sell the goods,.

5. Suit for Price: Where, under a sales contract, the property in the goods has been passed to the buyer by the seller and the buyer has wrongfully refused to pay for the goods received, the seller has the right to sue him for the price of the goods. Furthermore, when the price is payable on any specific day, regardless of the delivery, and the buyer has wrongfully refused or ignored to pay such a price due to the seller, as per the act, the seller has the right to sue him for the price even though the property in the goods has not passed. 

6. Suit for Damages for Non-Acceptance: In a case when the buyer has wrongfully neglected or refused to accept the goods and has refused and neglected to pay for the goods, the seller has the right to sue him for the damages for non-acceptance by the buyer.

7. Repudiation of Contract before Due Date: In a case where the buyer repudiates the contract before the agreed date of delivery, the seller has been vested with the right to treat the contract as rescinded and sue the buyer for damages for the breach of the sale contract. This case is also referred to as the ‘rule of anticipatory breach of contract’.

8. Suit for Interest: In a case when there exists a specific agreement between the buyer and the seller regarding the interest on the price of the goods from the date on which payment becomes due, the seller has the right to recover interest from the buyer. Also, if there exists no specific agreement to cover this clause, the seller may charge interest on the price when it becomes due from such day as he may notify the buyer.

Examples under Unpaid Seller

Example 1: Sachin from Delhi sent goods to Rachin from Agra for an invoice price of ₹1,00,000. On arrival of the carrier in Agra, Rachin only paid ₹40,000/- and refused to pay the rest of the goods. Now, as Sachin has not received the full payment from Rachin, he will get the title of unpaid seller. 

Example 2: Kaushik sold certain goods to Priyanka for ₹50,000. Priyanka paid ₹40,000 but failed to pay the balance. Kaushik is an unpaid seller as per the Sale of Goods Act 1930.

Conclusion

A seller can be given the title of an unpaid seller when the seller has not been paid the whole price or the buyer of the goods has failed to meet the maturity of any bill of exchange or any other negotiable instrument paid as conditional payment. In such a case the seller may exercise lien on goods if he is in possession of them. In cases where the goods are in transit from seller to buyer, the act empowers the seller to stop the goods in transit and obtain possession of the goods. The unpaid seller is vested with several rights to protect his interest.

Rights of an Unpaid Seller- FAQs

Who is an unpaid seller?

A seller is considered an unpaid seller when the seller has not been paid the full price or the buyer of the goods has failed to make the payment.

When does the unpaid seller have the right to stop the goods in transit?

The unpaid seller has the right to stop the goods in transit when the buyer becomes insolvent.

Under what circumstances may an unpaid seller exercise the right of re-sale?

i. when the goods are of perishable nature.

ii. When the seller gives notice to the buyer expressing his intention to re-sale and the buyer does not within a reasonable time pay the price for the goods.

Give an example of an unpaid seller.

X sold goods to Y worth ₹1,000, but Y refused to pay. On refusal, X will be treated as an unpaid seller for the amount due to Y.

In which cases the seller loses the right of lien?

• Delivery of the goods has been made to the buyer from the seller.
• Delivery of the goods has been made to the carrier.
• Tender of price by the buyer.