RIGHTS OF UNPAID SELLER

Nasrullah M.S
Batch -2
semester -2
 MEANING
• The seller of goods is deemed to be an ‘unpaid
seller’ (a) when the whole of the price has not
been paid or tendered; or
• (b) where a bill of exchange or other negotiable
instrument has been received as a conditional
payment, i.e., subject to the realization thereof,
and the same has been dishonored.
 
 RIGHT OF AN UNPAID SELLER
• An unpaid seller has two-fold rights

– (1.) Rights of unpaid seller against the goods, and

– (2.) Rights of unpaid seller against the buyer

personally
• (1.) Rights of unpaid seller against the goods

– (a) Right of lien (Sec. 47)

– Lien is the right to retain possession of goods and refuse to

deliver them to the buyer until the price due in respect of them
is paid or tendered. An unpaid seller in possession of goods sold
is entitled to exercise his lien on the goods in the following
cases:

• Where the goods have been sold without any stipulation as to credit;

• Where the goods have been sold on credit, but the term of credit has
expired:

• Where the buyer becomes insolvent, even though the period of credit
may not have yet expired.

– When the goods are sold on credit the presumption is that the
buyer shall keep his credit good. If, therefore, before payment
the buyer becomes insolvent, the seller is entitled to exercise this
– This right of lien can be exercised only for the non-payment of
the price and not for any other charges, e.g., maintenance or
custody charges, which the seller may have to incur for storing
the goods in exercise of his lien for the price.

– This right of lien extends to the whole of the goods in his

possession even though part payment for those goods has
already been made.

– In other words the buyer is not entitled to claim delivery of a

portion of the goods on payment of a proportionate price.

– Further, where an unpaid seller has made part delivery of the

goods, he may exercise his right of lien on the remainder.

– Also, the lien can be exercised even though the seller has
obtained a ‘decree’ for the price of the goods [Sec. 49(2)].
• (b) Right of Stoppage of Goods in Transit

• The right of stoppage in transit means the right of stopping further

transit of the goods, while they are with a carrier for the purpose of
transmission to the buyer, resuming possession of them and
retaining possession until payment or tender of the price. Thus, in
a sense this right is an extension of the right of lien because it
entitles the seller to regain possession of the goods.
 
• When can this right be exercised? (Sec. 50).

• the buyer becomes insolvent.

• the goods are in the course of transit. This means that goods must
be neither with the seller nor with the buyer nor with their agent.
They should be in the custody of a carrier as an independent
middleman (i.e. in his own right as a carrier) e.g. railways and
common carriers whose business is to transport goods of others.
• (c) Right of Resale

• The right of resale is a very valuable right given to an unpaid seller. In the
absence of this right the unpaid seller’s other rights against the goods,
namely, ‘lien’ and ‘stoppage in transit,’ would not have been of much use
because these rights only entitle the unpaid seller to retain the goods
until paid by the buyer.

• If the buyer continues to remain in default, then should the seller be

expected to retain the goods indefinitely, specially when the goods are
perishable? Obviously, this cannot be the intention of the law. Section 54,
therefore, gives to the unpaid seller a limited right to resell the goods in
the following cases:
 
– where the goods are of a perishable nature; or

– where such a right is expressly reserved in the contract in case the buyer
should make a default; or

– where the seller has given a notice to the buyer of this intention to resell and
the buyer does not pay or tender the price within a reasonable time.
– If on a resale there is a loss to the seller, he can
recover it from the defaulting buyer. But if there is a
surplus on the resale, the seller can keep it, with him
because the buyer cannot be allowed to take
advantage of his own wrong.

– If , however, the unpaid seller fails to give notice of

resale to the buyer, where neither the goods are of
perishable nature nor such a right was expressly
reserved, he cannot recover the loss from the buyer
and is under an obligation to hand over the surplus, if
any, to the buyer arising from the resale.
• (2.)Rights of Unpaid Seller against the Buyer Personally

• The unpaid seller in addition to his rights against the goods

as discussed above, has the following three rights of action
against the buyer personally:
 
– (a) Suit for Price (Sec. 55).

– Where property in goods has passed to the buyer, or where the

sale price is payable ‘on a day certain’ although the property in
goods has not passed; and the buyer wrongfully neglects or
refuses to pay the price according to the terms of the contract,
the seller is entitled to sue the buyer for price, irrespective of
the delivery of goods.

– Where the goods have not been delivered the seller would file
a suit for price normally when the goods have been
manufactured to some special other and thus are unsalable
otherwise,
• (b)Suit for damages for non-acceptance (Sec. 56).

– Where the buyer wrongfully neglects or refuses to accept and pay for
the goods, the seller may sue him for damages for non-acceptance. The
seller’s remedy in this case is a suit for damages rather than an action
for the full price of the goods.

• The damages are calculated in accordance with the rules contained in

Section 73 of the Indian Contract Act, that is, the measure of
damages is the estimated loss arising directly and naturally from the
buyer’s breach of contract.

• Where the goods have a ready market the principle applicable is that
the seller may recover from the buyer damages equal to the
difference between the contract price and the market price on the
date of breach of contract. Thus if the difference between the
contract price and market price is nil, the seller can get only nominal
damages (Charter vs Sullivan).

• But where the goods do not have any ready market , the measure of
damages will depend upon the facts of each case
• (c) Suit for special damages and interest (Sec. 61)

– This Section entitles the seller to sue the buyer for

‘special damages’ also for such loss ‘which the parties
knew, when they made the contract, to be likely to
result from the breach of it.”

– In fact the Section is only declaratory of the principle

regarding ‘special damages’ laid down in Section 73 of
the Indian Contract Act.

– The Section also recognizes unpaid seller’s right to get

interest at a reasonable rate on the total unpaid price
of the goods sold, from the time it was due until it is
actually paid. (Telu Ram Jain vs Aggarwal & Sons,1991).