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In any contract for the sale of goods, both the seller and the buyer make reciprocal promises. The seller is obligated to deliver the goods, while the buyer is required to pay for them. When the buyer fails to fulfill their payment obligation, the seller becomes an "unpaid seller" and is entitled to certain legal rights.
This article explores the definition of an unpaid seller and the various rights they possess under the Sale of Goods Act.
Definition of an Unpaid Seller
As per Section 45(1) of the Sale of Goods Act, a seller is deemed to be an unpaid seller in the following conditions:
If the whole price of the goods sold has not been paid or tendered.
If a bill of exchange or any other negotiable instrument has been received as conditional payment, and the condition has not been fulfilled due to dishonor of the instrument or otherwise.
The term "seller" includes any person in the position of a seller, such as an agent of the seller.
Rights of an Unpaid Seller
An unpaid seller has two types of rights:
Rights against the goods sold
Rights against the buyer personally
Rights against the Goods Sold
The seller's rights against the goods include:
Right of Lien: The right to retain possession of the goods until payment is made.
Right of Stoppage in Transit: The right to stop the goods in transit and regain possession if the buyer becomes insolvent.
Right of Resale: The right to resell the goods under certain conditions.
Right of Lien
The right of lien allows the unpaid seller to retain possession of the goods until payment is made. This right can be exercised in the following cases:
When the goods are sold without any credit terms.
When the credit term has expired.
When the buyer becomes insolvent.
The lien is a "particular lien," meaning it can only be exercised by the seller and not by any assignee or creditor. The seller can exercise this right even if they hold the goods as an agent or bailee of the buyer.
Right of Stoppage in Transit
The right of stoppage in transit allows the unpaid seller to stop the goods from being delivered to the buyer and regain possession while the goods are still in transit. This right is available only if the buyer becomes insolvent after the sale.
The goods are considered in transit from the time they are delivered to a carrier until the buyer or their agent takes delivery.
Right of Resale
The unpaid seller can resell the goods in the following circumstances:
If the goods are perishable, the seller can resell without notice to the buyer.
If the goods are not perishable, the seller must give notice to the buyer to pay within a reasonable time before reselling.
If the seller has expressly reserved the right of resale in the contract.
If the seller resells the goods without giving the required notice, they cannot claim damages from the buyer for any loss incurred. However, if notice is given, the seller can claim damages and retain any profit from the resale.
Rights against the Buyer Personally
In addition to rights against the goods, the unpaid seller has the following rights against the buyer personally:
Right to Sue for the Price: If the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay, the seller can sue for the price.
Right to Sue for Damages: If the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller can sue for damages for non-acceptance.
Lien’ and ‘Stoppage-in-Transit’
Lien | Stoppage-in-Transit’ |
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Case Laws on Rights of an Unpaid Seller
Bharneha vs Wadilal [28 Bom. L.R. 777 P.C.]
In this case, a seller sold shares to a buyer and delivered the share certificates along with a signed transfer deed. The buyer paid with a cheque, which later bounced due to the buyer's insolvency.
The court held that the seller did not have a lien on the shares because the lien ceased once the shares were delivered to the buyer. This case underscores that the right of lien is lost once the seller transfers possession of the goods to the buyer.
Schetmans vs Landshire and Yorkshire Railway Co. [(1867) L.R. 2 CH. App. 332]
In this case, goods were delivered on board a ship owned by the buyer, and the bill of lading indicated delivery to the buyer or his agent.
The court ruled that the bill of lading amounted to delivery to the buyer, ending the transit period. Consequently, the seller lost the right of stoppage-in-transit. This case highlights that the right of stoppage-in-transit ceases once the goods are considered delivered to the buyer.
James vs Griffin [(1837) 2 M&W 6231]
Here, the buyer ordered goods from the seller, who shipped them to the buyer's location. Upon arrival, the buyer refused to accept the goods and stopped payment.
The court held that the goods were still in transit, allowing the unpaid seller to reclaim them. This case illustrates that goods remain in transit if the buyer refuses delivery, enabling the seller to exercise the right of stoppage-in-transit.
Knights vs Wiffen [(1870) L.R. 5 Q.B. 660]
In this case, a seller sold grains to a buyer, who then sold part of the grains to a third party.
The seller acknowledged the third party's title to the grains. When the buyer became insolvent, the court ruled that the seller lost his lien and stoppage-in-transit rights because he had recognized the third party's title.
This case demonstrates that acknowledging a sub-buyer’s title can forfeit the seller’s lien and stoppage-in-transit rights.
Dreyfus & Co. (1943), K.B. 40
This case involved the transfer of a document of title to goods. The court held that if the document is transferred to a bona fide buyer for value, the unpaid seller's rights of lien and stoppage-in-transit are lost.
This case emphasizes that the transfer of a document of title to a bona fide purchaser extinguishes the unpaid seller's rights.
Asfar vs Blundell [(1896) 1 Q.B. 123]
In this case, the court considered goods that were perishable in nature. The court ruled that the term "perishable" includes goods that may deteriorate to the point of becoming non-merchantable.
This case is significant because it broadens the definition of perishable goods, allowing unpaid sellers to resell such goods without notice to the buyer.
Partha Sarithi vs Gopinath [48 Masd. 787]
In this case, the court ruled that a period of eight months was an unreasonable time for an unpaid seller to exercise the right of resale.
This case highlights the importance of acting within a reasonable time when reselling goods, as delays can affect the seller's ability to claim damages.
Gobdindram vs Shamji & Co. [(1961) A.I.R., I.S.C. 1285]
In this case, the court held that an unpaid seller who resells goods after giving the required notice to the buyer can recover damages for any loss and retain any profit from the resale.
This case underscores the necessity of giving notice to the buyer before resale to retain the right to claim damages and profits.
Thornett vs Haines [(1846) 15 M&W 367]
This case involved a seller using pretended bidding to raise the auction price. The court ruled that such actions make the auction sale voidable at the buyer's option.
This case illustrates that fraudulent practices in auctions, such as false bidding, can render the sale voidable, protecting the buyer's interests.
Designed to Protect Seller’s interest
The rights of an unpaid seller under the Sale of Goods Act are designed to protect the seller's interests when the buyer fails to fulfill their payment obligations.
These rights include retaining possession of the goods, stopping goods in transit, reselling the goods, and suing the buyer for the price or damages.
Understanding these rights is crucial for sellers to effectively manage their risks and ensure they are compensated for their goods.
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