Rights Of an Unpaid Seller

The rights of an unpaid seller can broadly be discussed under the two heads:

(l) rights against the goods; and

(2) rights against the buyer personally.

 


1. The rights against the goods are as follows:

a) Where the property in goods has passed to the buyer:

i) Right of lien;

ii) Right of stoppage of goods-in-transit; and

iii) Right of resale.

b) Where the property in goods has not yet passed to the buyer, he has an additional right of withholding delivery.

 

2. The rights against the buyers personally as follows:

i) Right to file a suit for price;

ii) Right to file a suit for damages; and

iii) Right to file a suit for interest.

 

Look at Figure It gives a complete picture of the various rights of an unpaid seller.

Rights of an Unpaid Seller

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Against goods

Against the buyer personally

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Where the property in goods has passed to the buyer

Where the property in goods has not passed the buyer

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Lien

Stoppage in transit

Resale

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Withholding delivery

Lien

Stoppage in transit

Resale

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Suit for price

Suit for damages

Suit for interest

 

Let us now discuss these in detail.

 

Rights Against the Goods

Where the Property in the Goods Has Passed to The Buyer

As stated earlier the rights of an unpaid seller when the property in the goods has passed to buyer are as follows:

 

Right of Lien

You have learnt in Unit 10 that the term ‘lien’ means to ‘retain possession’ of the goods until charges due in respect of the goods are paid or tendered. The right of lien is a possessory right and can be exercised by the unpaid seller only when the goods are in his possession. An unpaid seller has the right of lien over the good until the full price is paid or tendered.

According to Section 47(1) of the Sale of Goods 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.”

Thus, it is clear that the unpaid seller can exercise his right of lien on goods only when the goods are in his actual possession. For exercising this right of lien, transfer of property, title or ownership is immaterial. The unpaid seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer [Section 47(2)]. Right of lien is not affected even where the seller has delivered to the buyer, the documents of title to the goods such as bill of lading or any other type of delivery order provided the goods are in his possession. For example; A sold certain goods to B for Rs. 5,000 and allowed him to pay the price within one month, B becomes insolvent during this period of credit. A, the unpaid seller can exercise his right of lien.

You should note that the term ‘insolvent’ in the Sale of Goods Act means “a person who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they became due, whether he has committed an act of insolvency or not [Section 2 (8)]”.

Rules regarding right of lien: The important legal provisions in connection with the exercise of right of lien are as following:

i) The goods must be in actual possession of the seller. Once the possession is lost, the lien is also lost.

ii) When the goods have not been sold on credit and the buyer fails to pay the full price, right of lien can be exercised.

iii) When the goods have been sold on credit and the credit period has expired, lien can be exercised.

iv) When the buyer becomes insolvent, the seller can retain possession over the goods.

v) The right of lien can be exercised even if the goods are in the possession of the seller in any other capacity, such as a bailee or agent.

vi) In case the documents of title have been delivered but the goods are in the actual possession the seller, the right of lien can be exercised.

vii) The right of lien can be exercised only for the price and not for any other expenses, e.g., godown charges, interest, etc.

viii) The right of lien is indivisible in nature. The seller may refuse to deliver a part of the goods on payment of a proportionate part of the price by the buyer.

ix) 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 48). In simple words, where part delivery is intended as delivery of the whole, right of lien is lost.

x) The right of lien can be exercised even though the seller has obtained a decree for the price of the goods [Section 49 (2)].

 

Termination of lien: You know that the right of lien depends upon the actual possession of the goods. The unpaid seller’s right of lien is lost in the following cases:

i) When the goods are delivered 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(l)(a)]. It is so because, the delivery to the carrier amounts to the delivery to the buyer himself. For example; A sold machine to B for Rs. 20,000 and delivered the same to the railways for the purpose of transmission to the buyer. The railway receipt was taken in the name of B and sent to B. Now, A cannot exercise the right of lien.

ii) When the buyer or his agent lawfully obtains possession of the goods [Section 49(1)(b)]. The possession by the buyer or his agent must be lawful.

iii) When the seller waives his right of lien. This waiver may be express or implied. Thus, when the seller extends the period of credit or when the seller agrees to a sub-sale by the buyer, there is an implied waiver.

iv) When the buyer tenders’ price, but the seller refuses to accept it, the right of lien is lost.

v) Where the buyer disposes of the goods by sale or in any other manner and the seller assents there to Section 53(1).

vi) Where a document of title to goods has been lawfully issued to the buyer and he transfers the documents to an innocent purchaser, who takes them for consideration and in good faith and the seller has assented to it Section 53(1), right of lien is not lost by obtaining a decree,

Where, however, the property in goods has not passed to the buyer, the question of exercising the right of lien does not arise. In such a situation the unpaid seller has the right to withhold the delivery of the goods.

 

Right of Stoppage of Goods in Transit

You learnt that when the unpaid seller parts with the possession of the goods, the right of lien is lost. If after delivering the goods to the carrier, the buyer becomes insolvent, the seller has got another right i.e., to stop the goods-in-transit. He can prevent the goods from being delivered lo the buyer or to his agent. The right of stoppage in transit simply means the right of stopping the goods while they are in transit. This right arises only when the lien is lost. In this sense it is said that the right of stoppage in transit is an extension of the right of lien. By exercising this right, the unpaid seller regains possession over the goods.

According to Section 50 of the Act, “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.”

On analysing the above provision, you will notice that the right of stoppage-in-transit can only be exercised in the following cases:

i) The seller must be unpaid;

ii) The property in goods must have passed to the buyer;

iii) The goods must be in the course of transit i.e.; the goods are neither in the possession of the seller nor in the possession of the buyer or his agent;

iv) The buyer of the goods has become insolvent; and

v) The goods-in-transit can be stopped only for the payment of the price of the goods.

 

Duration of transit: As you have learnt that the goods can be stopped only when they are in the course of transit. Now the question arises as to how long and up to what time the goods can be said to be in transit? In simple words, it can be said that the goods are deemed to be in transit when they are neither in the possession of the seller nor in the possession of the buyer, but they are in the possession of a carrier who is holding them in his own name for the purpose of transmission to the buyer.

If the carrier is holding the goods as an agent for the seller, there is no question of exercising the right of stoppage-in-transit because the seller can exercise lien over them. In case the carrier is holding the goods as an agent of the buyer, the seller cannot exercise the right of stoppage in transit, because the delivery to the carrier amounts to delivery to the buyer.

Section 51(1) of the Sale of Goods Act, explains the duration of transit, It provides that “goods are deemed to be in the 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 takes delivery of them from such carrier or other bailee” From this provision it becomes very clear that the goods are said to be in transit when they are in possession of the carrier who is acting as an independent person. However, the transit does not mean that the goods should be actually moving.

Sometimes, the buyer asks the seller to deliver the goods at a different place other than the agreed one, the goods are in transit until they are received by the buyer or his agent at that place. Similarly, if the goods are rejected by the buyer and they are in the possession of the carrier, the transit is not deemed to be at an end, even if the seller had refused to receive them back [Section 5 1(4)].

 

Termination of transit: You know that the unpaid seller can stop the goods while they are in transit. In other words, this right will be lost when transit ends. Let us now study the cases when the transit comes to an end. Transit comes to an end in the following circumstances:

i) Buyer taking the delivery: Once the goods reach the hands of the buyer or his agent the transit comes to an end. Sometimes, the buyer or his agent obtains delivery of goods before their arrival at the appointed destination, the transit comes to an end [Section 51 (2)]. For example, A of Delhi sold certain goods to B of Mumbai. The goods reached Mumbai and the buyer, after taking the delivery of the goods, was loading them in his truck. Though the truck was still in the premises of station, the transit has ended because B has taken the delivery.

 

ii) Carrier’s acknowledgement to the buyer: If, after the arrival of the goods at the appointed destination, the carrier or bailee acknowledges to the buyer or his agent, that he holds the goods on his behalf, the transit ends. It should be noted that this acknowledgement must be in clear terms. It is immaterial that a further destination of the goods was indicated by the buyer. Thus, in the above example, B, went to the railway authorities and after presenting the railway receipt, told them that he would collect the goods within a week. In the meanwhile, B becomes insolvent and A wants to stop the goods. A will not succeed since the transit came to an end when the railway authorities agreed to keep the goods on behalf of B.

 

iii) Carrier’s wrongful refusal to deliver the goods to the buyer: Where the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent, the transit is deemed to be at an end [Sec. 51(6)]. Here, it should be noted that the transit will come to an end only when the carrier’s refusal is wrongful.

 

iv) Delivery to the ship: When the goods are delivered to a ship, the question arises whether the transit ends or not. The answer to this question depends on the circumstances of each case. If the ship is chartered by the buyer, i.e., the buyer is the owner of the ship, the transit ends as soon as the goods are loaded on the ship. On the other hand, if the carrier is acting independently, the transit continues.

 

v) Part delivery of goods: Where part delivery of the goods has been made to the buyer or his agent, 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 51(7)].

 

vi) How stoppage in transit is affected: The unpaid seller may exercise his right of stoppage in transit either: (a) by taking actual possession of the goods; or (b) by giving notice of his claim to the carrier in whose possession the goods are [Section 52(1)]. Such notice may be given either to the person in actual possession of the goods or to his principal. In case the notice is given to the principal, to be effective, it must 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 [Section 52(1)]. In other words, the notice to the principal shall be effective only, if there is sufficient reasonable time with him to further pass on the information to his agent. The notice need not necessarily be in writing and no particular form for it is laid down. All that is required is to give a clear notice to the principal or carrier not to deliver the goods to the buyer and it must reach the carrier before he delivers the goods to the buyer.

When the carrier or the bailee who is in possession of goods receives such a notice from the seller, it becomes his duty to 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 [Sec.52(2)]. If the carrier, after receiving notice, delivers the goods to the buyer or his agent, he shall be liable to the seller for conversion.

Right of Resale

You have learnt the two important rights of an unpaid seller against the goods, namely, the right of lien and the right of stoppage in transit. After exercising any of these rights, the seller again gets the possession of the goods which have already been sold by him. Now a question arises as to how long the unpaid seller should wait for the buyer to pay the price and take the delivery of the goods. This question becomes more important in case where the goods are of a perishable nature. Therefore, the unpaid seller has been given another right, and that is, the right to resell the goods. You should note that without this right, the first two rights would become meaningless or burdensome for the seller, for without this right the seller shall have to keep the goods with him.

An unpaid seller who is in possession of the goods can resell them under the following circumstances:

a) Where the goods are perishable: The unpaid seller can in such cases sell the goods without any notice to the buyer. The word ‘perishable’ does not only mean physical deterioration, it also includes commercially perishable goods. The unpaid seller can resell such goods after the expiry of reasonable time. What is reasonable time is a question of fact depending on the facts of such ease.

b) Where the seller expressly reserves a right of resale: In case where the seller expressly reserves right of resale if the buyer commits a default in making the payment, the unpaid seller may resell the goods. The consequence of this resale will be that the original contract of sale will be rescinded but without defeating unpaid seller’s right to claim damages Section 544).

c) Where the unpaid seller has given a notice to the buyer about his intention to resell and the buyer does not pay or tender the price within a reasonable time.

If on such resale, the unpaid seller fails to realise the amount which he would have otherwise recovered as price from the original buyer i.e. If there is some loss to the seller, he is entitled to recover this loss from the original buyer. But if there is some profit or surplus on resale, the seller is entitled to keep it with himself, because the buyer cannot be allowed to take advantage of his own wrong i.e., breach of contract.

Notice of Resale: Except in cases of perishable goods and where the seller expressly reserves the right of resale, a reasonable notice to the buyer must be given that he (unpaid-seller) intends to resell the goods. This notice is necessary because of the following two reasons:

i) The buyer is given another opportunity to perform the contract, i.e., pay the price and take the delivery of the goods.

ii) If the buyer is still unable to pay, he can at least supervise the sale and see to it that the goods are sold at a proper price. In this way the buyer can minimise his liability to the seller.

If the unpaid seller fails to give such a notice and resells the goods, he cannot claim the loss on such resale from the buyer and in case there is any surplus or profit on such-resale, he cannot keep it, he will have to give it to the original buyer. However, the buyer (who buys in case of resale) shall get good title to the goods against the original buyer, notwithstanding that no notice of resale has been given to the original buyer [Section 54(3)],

It should, however be noted that if the buyer had paid some money, by way of advance or deposit, then this amount can be claimed by him but subject to the seller’s claim for damages.

Where the Property in the Goods has not Passed to the Buyer

Where the property in goods has not passed to the buyer then the unpaid seller has, addition to other rights, right to withhold delivery of goods. This right is similar to and is co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer [Section 46(2)].

Right Against the Buyer Personally

You have studied the rights of an unpaid seller against the goods. In addition to those rights, the seller has certain remedies against the buyer persona1ly. These rights are as follows:

1. Suit for price: It is the legal duty of the buyer to pay the price of the goods, where, under a contract of sale, the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods [Section 55(1)].

Where the property in goods has not passed to the buyer, as a rule, the seller cannot file a suit for the price; his only remedy is to claim damages. But Section 55(2) provides that if the contract of sale stipulates the payment of the price on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in goods has not passed. Thus, you see that transfer of ownership is immaterial. For example, A sold certain goods to B for Rs 10,000 and the price was agreed to be paid after ten days of the contract. B fails to pay the price on the agreed day. A can file a suit for price against B even though the goods have not been delivered or the property in goods has not been transferred to B.

2. Suit for damages for non-acceptance: Sometimes, the seller is ready, and willing to deliver the goods to the buyer but the buyer refuses to accept them. In such cases, if the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. What shall be the number of damages is to be determined in accordance with the provisions laid down in Section 73 of the Indian Contract Act (Please refer to Unit 8 of Block 2).

3. Suit for interest: When under a contract of sale, the seller tenders the goods to the buyer and the buyer wrongfully refuses or neglects to accept and pay the price, the seller has a further right to claim interest on the amount of the price. The interest may be calculated from the date of the tender of the goods or from the date on which the price was payable. The unpaid seller can claim interest only when he can recover the price, i.e., if the seller’s remedy is to claim damage, then he cannot claim interest. The rate of interest to be awarded is at the discretion of the court.


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