In this article, we shall discuss rights of unpaid seller against the goods under the Sale of Goods Act, 1930.

Who is Unpaid Seller?

Section 45:

“Unpaid seller” defined:

(1) The seller of goods is deemed to be an “unpaid seller” within the meaning of this Act—

(a) when the whole of the price has not been paid or tendered;

(b) 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 by reason of the dishonour of the instrument or otherwise.

(2) In this Chapter, the term “seller” includes any person who is in the position of a seller, as, 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.

Unpaid seller is the seller to whom:

1. Whole of the price is not paid

2. Conditional payment Bill of exchange/ promissory note/ cheque has been received by seller but it dishonours. Till the time bill of exchange/ promissory note/ cheque is with the seller so, till that time he is only called as seller but when any of the mentioned instruments dishonours then after this seller is called unpaid seller.

Example: A sells his bike to B for Rs. 50,000 and receives a cheque for the price. Till this time seller will only be called as seller. But when subsequently, the cheque is dishonoured due to insufficiency of funds in B’s bank account, then only A becomes an unpaid seller.

Characteristics of Unpaid Seller:

• Seller must sell the goods on cash basis and must be unpaid (in cash transactions payment becomes due instantly)
• Seller must be unpaid either wholly or partly
• The decided period has expired and the price has not been paid to seller
• Seller must not refuse to accept the payment
• Where the price paid through negotiable instrument (bill of exchange/ promissory note/ cheque) and the same has been dishonoured

Rights of Unpaid Seller Against Goods:

Section 46:

Unpaid Seller’s Rights:

(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 possession/ lien:

Section 47:

Seller’s Lien:

(1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely:—

(a) where the goods have been sold without any stipulation as to credit;

(b) where the goods have been sold on credit, but the term of credit has expired;

(c) where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer.

Section 48:

Part Delivery:

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 an agreement to waive the lien.

Section 49:

Termination of Lien:

(1) The unpaid seller of goods loses his lien thereon—

(a) 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;

(b) when the buyer or his agent lawfully obtains possession of the goods;

(c) by waiver thereof.

(2) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods.

If the buyer fails to pay the price within the decided time, then unpaid seller has the right to keep the goods in his possession and he can refuse to deliver the goods until the due payment is paid.

When right of possession can be exercised:-

• When goods are sold on cash basis, but payment is unpaid
• When goods have been sold on credit basis and the term of credit has expired
• When the buyer becomes insolvent even within the decided period for payment
• So, far as the goods are in the possession of unpaid seller, he can exercise this right. If goods are lost/ given up then right of possession/ lien is also lost/ given up

Termination of Right of Possession:

• By delivery of goods to the buyer/ his agent
• By delivery of goods to the carrier/ courier company
• By waiver. This means that it’s specifically mentioned in the contract that seller can’t retain the possession of the goods even if the price has not been paid
• When buyer has obtained the possession of goods lawfully

2. Right of Stoppage of Goods in Transit:

Section 50:

Right of Stoppage in Transit:

Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price.

Section 51:

Duration of transit:

(1) Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.

(2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.

(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.

(4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.

(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.

(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end.

(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.

Section 52:

How Stoppage in Transit is Effected:

(1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, shall be given at such time and in such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer.

(2) When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-delivery shall be borne by the seller.

Section 53:

Effect of Sub-Sale or Pledge by Buyer:

 (1) Subject to the provisions of this Act, the unpaid seller’s right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto: Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith and for consideration, then, if such last mentioned transfer was by way a sale, the unpaid seller’s right of lien or stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller’s right of lien or stoppage is transit can only be exercised subject to the rights of the transferee.

(2) Where the transfer is by way of pledge, the unpaid seller may require the pledgee to have the amount secured by the pledge satisfied in the first instance, as far as possible, out of any other goods or securities of the buyer in the hands of the pledgee and available against the buyer

Section 54:

Sale not Generally Rescinded by Lien or Stoppage in Transit:

(1) Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or stoppage in transit.

(2) Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice to the buyer of his intention to re-sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may occur on the re-sale. If such notice is not given, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-sale.

(3) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer.

(4) Where the seller expressly reserves a right of re-sale in case the buyer should make default, and, on the buyer making default, re-sells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim which the seller may have for damages

If a buyer fails to pay the price within the decided time, then unpaid seller has the right to stop the goods in transit.

Conditions for stoppage of goods:-

• When seller is unpaid either wholly or partially
• When the buyer becomes insolvent
• Goods must be in the course of transit- This means that goods must not be in the possession of the seller and have not reached the buyer’s possession as well

Termination of Transit:

• By delivery to the buyer/ his agent
• Interception by the buyer (Interception means the act of catching/ receiving) When buyer or his agent obtains the delivery of the goods before their arrival at the appointed destination hence, the transit comes to an end
• Acknowledgement to the buyer by the carrier/ courier company that they are holding the goods on buyer’s behalf, then also transit comes to an end
• Part delivery of goods If part of the goods are delivered to the buyer then the transit comes to an end for the remainder of the goods as well

3. Right of Resale:

The unpaid seller has the right to resell the goods.

Conditions for resale:

• When goods are of perishable nature- Then unpaid seller can resell them immediately without the notice to the buyer. But in case of non-perishable items unpaid seller needs to send notice to the buyer for reselling them
• Where unpaid seller gives the notice to buyer and buyer still don’t pay for it
• Where the right of resale is reserved/ mentioned in the contract If contract clearly specifies that reselling can’t be done or vice versa
• Buyer becomes insolvent
• Buyer fails to pay the price of the goods