Rights of unpaid seller against the buyer and seller under

Sale of Goods Act, 1930.

• Introduction
• In every contract of sale, a seller is under an obligation to deliver the goods sold and buyer is under
an obligation to pay the requisite amount set or quid pro quo i.e something in return, under the
contract of sale, by them. This is known as reciprocal promise as per Section 2(f) of the Contract
Act.

• In certain cases, when a buyer refuses or fails to pay the requisite amount to the seller, the seller
becomes an unpaid seller and can exercise certain rights against the buyer. These rights are
considered as seller’s remedies in case there is a breach of contract by the buyer.
 Remedies Available to unpaid seller
• These remedies can be against:
• Buyer
• Goods

• According to Section 45(1) of Sale of Goods Act, 1930, the seller is

considered as an unpaid seller when:
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• When the whole price has not been paid and the seller has an immediate right of action for the price.

• b- When Bills of Exchange or other negotiable instrument has been received as conditional payment,
and the pre-requisite condition has not been fulfilled by reason of the dishonour of the instrument or
otherwise.
• For instance, X sold some goods to Y for 50,000 and received a cheque. On presentment, the cheque
was dishonoured by the bank. X is an unpaid seller.

• Seller also includes a person who is in a position of a seller i.e agent, consignor who had himself paid
or is responsible for the price.
 Rights against buyer

• 1- Suit for the price

• When any goods are passed on to the buyer and the buyer has wrongfully neglected or refused to pay
as per the terms and conditions of the contract, the seller may sue him as per the Section 55(1) because
once the property has been passed the buyer is bound to pay the price.

• But in the case due date of payment has been passed and goods had not been delivered yet, the seller
can sue the buyer for the wrongful neglect or refusal on his part according to clause 2 of Section 55.

• In case the price is due in foreign currency the damages must be calculated at the rate of exchange
prevailing at the time when the price was due not on the judgement date.
 Suit for damages

• In case there is a wrongful refusal on the part of buyer for acceptance of goods and payment of money, the
seller can sue him for damages of non-acceptance as per Section 56.
• For calculating the quantum of damages Section 73 and 74 of Contract Act applies.

• In case the goods have a ready market, the seller has to resell the goods and buyer have to pay the losses if
incurred. If the seller does not resell the goods the difference between contract and market price at the day of
breach is taken as a measure for damages. If the difference between them is nil seller gets nominal value.
 Suit for interest

• As stated under Section 61, where there is a specific agreement between buyer and seller with regards to interest
on the price of goods from the date on which payment becomes due, the seller may recover interest from a
buyer. But if there were no such agreement the seller may charge interest from the day he notifies the buyer.

• If there is no contract to the contrary, the court of law may award interest to the seller at such rate as it thinks fit
on the amount of the price from the date on which amount is payable .

•  Repudiation of the contract before the due date

• According to Section 60, the rule of anticipatory breach contract applies, wherein, if buyer repudiates the
contract before the date of delivery the seller can consider the contract as rescinded and can sue for damages of
the breach.
 Rights against goods

• Lien
• Lien is a right which seller of goods can exercise when a buyer has not paid the price of goods, under this
right seller can retain the possession of goods as an agent or bailee for the buyer. The seller can retain his
possession as per Section 47 under the following circumstances:

• 1- In case the buyer is insolvent.

• 2- When the term of goods sold on credit is expired.

• 3- Goods sold without any stipulation as to credit.

 Termination of Lien
• According to Section 48 if the seller has delivered a part of unpaid goods he can exercise his right of lien on rest. In Grice
V Richardson, the sellers had delivered a part of the three parcels of tea comprised in the sales, and they had not been paid
for the part which remained with them. They were allowed to keep it till the payment of the price. Where, however, a part
of goods delivered which show an agreement to waive the lien, the seller cannot the remainder.

• Termination of lien takes place when the seller losses the possession of goods. As per Section 49, under following
circumstances right of lien is terminated-

• 1- Waiver of lien-

• The right of lien is an implied right attached by law in every contract of sale, the seller has the autonomy to waive this
right, it may be expressed or implied from the conduct of the seller.

• 2- When buyer or agent lawfully obtains possession of goods.

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• Once the buyer got the possession of goods from the seller, all the rights of the seller in respect to goods are
ceased even if the price is not paid. The seller can recover the price as a normal debt because the acceptance
of possession gives absolute, unqualified and indefeasible right of goods to the buyer. When the goods are
given again to the seller for repair he can not access the right of lien.

• 3- When the seller delivers goods to a carrier or other bailee for the purpose of transmission to the buyer
without reserving the right of disposal of the goods.

• When the seller has delivered goods to the carrier for transmission, his right of lien is ceased but the right to
stoppage in transit is still accessible by him. In case seller regains possession of goods in transit by stoppage
his right to lien is revived.
 Stoppage

• When the goods have been transferred to carrier or bailee for the purpose of transmission to
the buyer, who has become insolvent, the seller has the right to stop the goods in transit in
order to protect himself against the loss that may arise due to insolvency. As per Section 50,
there are four essential requirements for stopping the goods in transit:

• Unpaid seller.
• Buyer insolvent.
• Property should have passed to the buyer.
• Property should be in course of transit.
 Resale

• Exercising the right of lien or stoppage does not rescind the agreement but reselling of goods does and without this right, the other
two rights of lien and stoppage would not be of much usage because he can only retain goods under these right till the buyer pays
back the money.

• The unpaid seller can exercise his right under following conditions and circumstances-

• 1- Seller before reselling the goods needs to send a notice to the buyer except in the case of perishable goods, giving him last chance
to pay the price and take back the goods within a reasonable time. If the buyer does not pay the money back seller has the right to
resell the goods. If the seller fails to give notice of his intention to resell, he cannot claim damages from the buyer and he has to give
any profit.

• 2- If there is any loss in the resale of goods he can claim the loss from the buyer, on the contrary, if there is profit buyer cannot
claim it.
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• 3- Seller gives rightful ownership to buyer after the resale it does not matter
notice of resale is given or not to defaulted buyer.

• 4- Sometimes the seller reserves exclusive right to resale the goods if the buyer
makes a default in payment, in such cases the buyer cannot ask for profit on
resale if no notice is served and seller has the exclusive right to resale
 Rights against seller

Damages for non-delivery

• Section 57 states that, whenever any seller or refuses to deliver the goods to the buyer, the buyer
may sue for non-delivery of goods.
• If the buyer has paid any amount he is entitled to recover it.
• Quantum of damages is decided through market forces, contract and market price on the day of the
breach is considered as damages.
• If the buyer wants to claim that damages he must prove it in the court of law, otherwise, he cannot
get a penny more than refund i.e the amount he has already paid. Buyer must try to keep the loss at
a minimum by purchasing the goods from other sources instead of waiting for the market to
fluctuate.
 Suit for specific performance

• Acc to Section 58 when goods are specific or ascertained and there is a breach of contract
committed on the part of the seller then the buyer can appeal to the court of law for specific
performance. The seller has to perform the contract and he does not have any option of retaining
the goods by paying damages. The power of the court to order specific performance is subject to
the provisions of chapter II of Specific Relief Act, 1963.