Rights of Unpaid Seller

    As per contract of sale, a seller is bound to convey the goods sold and in return, the buyer is bound to pay the necessary price for that particular goods. This is called reciprocal promise [1]. There are some certain circumstances when a buyer fails to pay the necessary amount to the seller and the seller becomes an unpaid seller.

    Therefore, he can exercise some rights against the buyer. Such rights can be recognised as seller’s remedies, in case buyers refuse to pay the price. Therefore an unpaid seller can apply these remedies against:-

    -Buyer

    -Goods

    There are certain conditions under which the seller is considered to be an unpaid seller:-[2]

    -When the entire price isn’t paid. 

    Where any negotiable instrument or any essential condition have not been satisfied because of dishonour of instrument.

    Right against buyer

    An unpaid seller has certain rights against the buyer and such rights are seller remedies against the breach of contract by the buyer. These are:-

    1. Suit for the price:-

    Where goods have been given to the buyer and thereby he improperly dismissed the payment according to the terms and conditions of the contract, the seller may sue him as he is legally entitled to payment of goods he sold. However, when there arises a situation, then the date on which payment was to be made has been passed, then also the seller may sue the buyer for the same.[3]

    2. Suit for damages:-

    When the buyer deliberately, without any reason refuses to accept the delivery of the goods, then the seller may sue him for damages he has suffered because of the buyer  [4]. Hence Section 73 and Section 74 of the Indian Contract Act apply for calculating the quantum of damages.

    If there is a ready market available, then the seller has full right to sell those goods, in which the buyer will have to pay for misfortunes whenever acquired. However, if the goods have not been resold, then the seller may require the buyer for the loss and the loss will be calculated as the difference between the contract price and market price on the day of breach.

    But this should also be kept in mind that the seller would try to maintain the loss as much as he can and this duty is known as a duty of mitigation. In the case of Lachia Shetty v. Coffee Board [5], there was a seller, whose bid has been acknowledged, yet not complete the contract, then it was re-auction at next best price. Therefore it was held that the person ( one who refused) has to pay the loss to the board.

    3. Suit for Interest:-

    In case if any agreement has been made by the parties to the contract regarding any interest to be paid for the price of the goods, then the seller is entitled to recover the whole amount from the buyer. If any particular date is mentioned as from when the interest is to be charged, then the interest would be charged from that particular date. If there is no such information regarding the date mentioned, then the seller may charge it at any date but he must notify the buyer. And if there is no contract regarding interest then the interest would be charged as per the court of law.

    4. Abandonment of the contract before the due date:-

    If the buyer rescinds the contract before the due date of delivery of goods by the seller, then in this situation also the seller can sue the buyer for anticipatory breach of contract. Moreover, if any party to the contract repudiated before the due date then the other party will be left with two options: either to accept the breach, in this case, the party against whom such breach is committed can sue for damages, or the second option is, that the party in loss can wait till the due date of contract come; however, there may be the case where the parties can change their mind and agree to perform.

    Rights against goods

     The unpaid seller has the following rights against the goods:

    -Right of lien;

    -Right of stoppage of goods in transit;

    -Right of resale.

     The unpaid seller has a right to retain the delivery of the goods in case such goods has not been passed to the buyer.[7]

    Right of lien (Section 47)

    Under the right of lien, the seller can retain the possession of goods if the buyer has not paid the price of those goods. There are following circumstances as per Section 47 under which he can retain the possession:-

    -When the buyer becomes insolvent.

    -When time-period on which goods were sold on credit lapsed.

    -Goods sold with no specification as to credit.

    Part-delivery (Section 48)

    According to Section 48, if part-delivery of the goods has been made to the buyer, the seller may exercise the right of lien on the goods which were not delivered. In Grice v. Richardson,[8] it was held that they were allowed to keep with them till the payment was made.

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    Termination of Lien (Section 49)

    Termination of lien happens when the seller loses the ownership of goods. Therefore under the following conditions right of lien is terminated:-

    -When the goods are delivered to the transporter without reserving the rights of disposal of the goods.

    -Where the ownership is legally obtained by the purchaser.

    -By waiver of lien.

    In Valpy v Gibson [9],  the goods were put onto the ship by the buyer’s agent. But then goods came back to the seller due to some reason. Thereafter, the buyer became insolvent and the seller became an unpaid seller so he retained the goods for exercising his right of lien. It was held that the seller has lost his right of lien as he conveyed the goods to the shipping operator. 

    Stoppage in transit ( Section 50)

    When the seller has transferred the goods to the carrier for the delivery of the goods to the buyer who has become insolvent, then the seller can exercise his right of stoppage of goods in transit. There are four essentials for this. 

    1. Unpaid seller;
    2. Buyer insolvent;
    3. Property should have passed to the buyer;
    4. Property should be in the course of transit.

    In the case of Schotsman v. Lancashire & Yorkshire Railway Co.[10], it was observed that the course of transit fully depends upon the middlemen and the middlemen should be one who has parted goods from the seller but the same has not yet been observed to the buyer.

    Resale(Section 54)

    The right of stoppage of goods in transit and right of lien is not of much usage to the seller as he can only retain the goods while exercising such rights, but in reselling of goods the seller can cancel the agreement.

    For the exercise of this right, these conditions must satisfy:-

    1) Notice to the buyer must be given to the seller except if goods are of perishable nature.

    2) In case of loss suffered by the seller while selling those goods he can claim that loss from the buyer whereas vice-versa is not applicable. 

    3)Sellers can give rightful possession to buyers after the resale of the goods without any prior notice.

    4) Sometimes the seller can reserve his right to resale the goods, on the condition that the buyer fails to make the payment of the goods sold or agree to be sold. Then, the buyer in this situation has no right to ask for profits in case of any gain by reselling the goods if such notice is given to him. 

    Measure of damages on re-sale

    According to section 54 (2), on the resale being properly made, the unpaid seller can recover from the original buyer damages for any loss occasioned by his breach of contract. The loss which in such a case is occasioned to the seller is the difference between the contract price and the resale price, and the measure of damages, therefore, is the difference between the contract price and the resale price. It may be noted that the measure of damages in case of resale is different from that for breach of any other contract because in other cases the damages are governed by the provision contained in section 73 of the Indian Contract Act, according to which the measure of damages is the difference between the contract price and the market price prevailing on the date of the breach of contract. Since the re-sale is to be made after giving notice to the buyer, the re-sale may not be made on the date of the breach of contract, and on re-sale, the seller may recover different prices than prevailing on the date of the breach of contract. It may be observed that the criterion of allowing the difference between the contract price and the resale price is followed by applying section 54 (2) of the Sale of Goods Act if the resale has been properly made. If the resale has not been properly made then the damages are allowed according to the formula under section 73 of the Indian Contract Act i.e., the difference between the contract price and the market price, is allowed by way of damages.

    Section 54(4) provides that where the seller expressly reserves the right of resale in case the buyer should make a default and then re-sells the goods, the original contract of sale is thereby rescinded. This subsection protects the rights of the seller to claim damages from the buyer whose default necessitated the re-sale, even though the contract between the seller and the original buyer is rescinded.

    Conclusion

    The seller becomes an unpaid seller when the buyer has not paid in full or fails to comply with necessary conditions of any negotiable instrument which is accepted by the seller on the terms and conditions fixed between both the parties. The unpaid seller can exercise his right against goods or against that particular buyer who has not paid the price. The seller can resell the goods after giving due notice to the buyer and also he can claim for any loss suffered by him while reselling such goods. But in case the seller refuses to deliver the goods to the purchaser, then that particular buyer can sue for specific performance to the seller. 

    REFERENCES:-

    [1]  The Indian Contract Act 1872,sec. 2(f).

    [2] The Sales of Goods Act, 1930,sec. 45(1).

    [3] The Sales of Goods Act, 1930,sec.55(1).

    [4] The Sales of Goods Act, sec. 56.

    [5]  AIR 1981 SC 162.

    [6] The Sales of Goods Act, 1930,sec.46(1).

    [7] The Sales of Goods Act, 1930,sec.46(2).

    [8] (1877-78) LR 3 App Cas319.

    [9] (1874) 4 CB 837.

    [10] (1917) UKHL 509.


    BY CHAHAT | PANJAB UNIVERSITY, REGIONAL CENTRE, LUDHIANA

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