ICAI Notes 2.4 - Unpaid Seller, Sale of Goods Act - 1930 CA Foundation Notes | EduRev

Mercantile Law for CA CPT

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CA Foundation : ICAI Notes 2.4 - Unpaid Seller, Sale of Goods Act - 1930 CA Foundation Notes | EduRev

The document ICAI Notes 2.4 - Unpaid Seller, Sale of Goods Act - 1930 CA Foundation Notes | EduRev is a part of the CA Foundation Course Mercantile Law for CA CPT.
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Learning Objectives

  • Understand the concept of Unpaid Seller,
  • Know the rights of Unpaid Seller,
  • Analyze the effect of sub-sale or pledge by the buyer,
  • Distinguish the right of lien and right of stoppage in transit,
  • Know the rights of parties in case of breach of contract,
  • Understand the concept of sale by auction.

2.25 UNPAID SELLER 

According to Section 45(a) of the Sale of Goods Act, 1930, the seller of goods is deemed to be an ‘unpaid Seller’ when-
(a) the whole of the price has not been paid or tendered and the seller had an immediate right of action for the price.
(b) A bill of exchange or other negotiable instrument was given as payment, but the same has been dishonoured, unless this payment was an absolute, and not a conditional payment.

Any person who is in a position of a seller, is also a seller, and may exercise the rights conferred upon an ‘unpaid seller’ in above said circumstances. For instance, an agent of the seller, to whom bill of lading has been endorsed, is in the position of seller and may exercise rights of ‘unpaid seller’.

2.26 RIGHTS OF AN UNPAID SELLER 

An unpaid seller has been expressly given the rights against the goods as well as the buyer personally which are discussed as under.

(a) A rights of an unpaid seller against the goods: The unpaid seller has the following rights against the goods whether the property in the goods has passed to the buyer or not.

(1) Rights of lien (Section 47): He has a right of lien on the goods for the price while he is in possession, until the payment or tender of the price of such goods. The right of lien can be exercised by him in the following cases only:
(a) where goods have been sold without any stipulation of credit;
(b) where goods have been sold on credit but the term of credit has expired; or
(c) where the buyer becomes insolvent.

However, the unpaid seller loses his right of lien under the following circumstances:

(i) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods. 
(ii) Where the buyer or his agent lawfully obtains possession of the goods.
(iii) Where seller has waived the right of lien.
(iv) By Estoppel i.e., where the seller so conducts himself that he leads third parties to believe that the lien does not exist.

(2) Right of stoppage in transit: When the unpaid seller has parted with the goods to a carrier and the buyer has become insolvent, he can exercise this right of asking the carrier to return the goods back, or not to deliver the goods to the buyer. However, the right of stoppage in transit is exercised only when the following conditions are fulfilled:
(a) The seller must be unpaid.
(b) He must have parted with the possession of goods.
(c) The goods are in transit.
(d) The buyer has become insolvent.
(e) The right is subject to provisions of the Act.

(3) Right of re-sale: The unpaid seller can exercise the right to re-sell the goods under the following conditions:
(i) When the goods are of a perishable nature. In such a case the buyer need not be informed of the intention of re-sale.
(ii) When he gives notice to the buyer of his intention to re-sell the goods and the buyer does not within a reasonable time pay or tender the price.

(b) Rights of unpaid seller against the buyer: An unpaid seller can enforce certain rights against the goods as well as against the buyer personally. The rights of the seller against the buyer personally are called rights in personam and are in addition to his rights against the goods. The right in personam are as follows:

1. Suit for price (Section 55) 
(a) Where property has passed to the buyer and he wrongfully neglects or refuses to pay for the goods, the seller may sue him for the price of the goods [Section 55(1)].
(b) Where property has not passed under the contract of sale and the price is payable 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 the goods has not passed and the goods have not been appropriated to the contract [Section 55(2)].

2. Suit for damages for non-acceptance (Section 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. As regards measure of damages, Section 73 of the Indian Contract Act, 1872, applies.

3. Repudiation of contract before due date (Section 60): Where the buyer repudiates the contract before the date of delivery, the seller may treat the contract as rescinded and sue damages for the breach. This is known as the ‘rule of anticipatory breach of contract’.

4. Suit for interest [Section 61(2)(d)]: Where there is specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment becomes due, the seller may recover interest from the buyer. If, however, there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.

In the absence of a contract to the contrary, the Court may award interest to the seller in a suit by him at such rate as it thinks fit on the amount of the price from the date of the tender of the goods or from the date on which the price was payable [Section 61(2)(a)].

2.27 DISTINCTION BETWEEN RIGHT OF LIEN AND RIGHT OF STOPPAGE IN TRANSIT

(i) The essence of a right of lien is to retain possession whereas the right of stoppage in transit is right to regain possession.
(ii) Seller should be in possession of goods under lien while in stoppage in transit (a) seller should have parted with the possession  (b) possession should be with a carrier &  (c) buyer has not acquired the possession.
(iii) Right of lien can be exercised even when the buyer is not insolvent but it is not the case with right of stoppage in transit.
(iv) Right of stoppage in transit begins when the right of lien ends. Thus the end of the right of lien is the starting point of the right of stoppage in transit.

2.28 EFFECT OF SUB-SALE OR PLEDGE BY THE BUYER (SECTION 53) 

The unpaid seller’s right of lien or stoppage or transit is not effected by any further sale or other disposition of the goods by the buyer.

For example, an oil merchant A sold 100 tins of oil to B without appropriating any particular oil to the contract. B sold 60 tins out of it to C and gave delivery order addressed to A. C lodged the delivery order with A requesting him to “await” his orders. Meanwhile B became insolvent and thus A became the unpaid seller. A claiming his right of lien refused to make delivery to C. It was held that A was entitled to do so.

However, the unpaid seller’s above right is subjected to the following two exceptions:
(a) when the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer [Sub-Section (1)].
(b) when a document of title of goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value (price). 

2.29 RIGHTS OF PARTIES IN CASE OF BREACH OF CONTRACT 

(a) Buyer’s right against the seller in case of breach of contract (Sections 57-59)

The law confers certain protective rights on the buyer of goods. They are as follows:

(1) Suit for non-delivery: Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery [Section 57].

Where there is an available market for the goods in question, prima facie the measure of damages would be contract price minus market price at the date of the breach. If, however, there is no such market, the measure of damage would be the estimated loss naturally resulting from the breach. Thus, if the goods contracted for are not obtainable, then the purchaser may purchase similar goods and may claim from the seller the difference in price. If he does not purchase such similar goods but has during the contract period settled contracts for the same kind of goods with other persons, the rates at which those contracts were settled might afford a basis for ascertaining the damages. Where, on breach of contract, the goods are irreplaceable in the market, the proper measure of damages is the profits which the buyer would have made if the contract had been carried out.

(2) Suit for specific performance [Section 58]: Where property has passed to the buyer, he also can exercise another right, viz., a right to sue for specific performance and its limits regulated by the Specific Relief Act. In such cases the court may, in its discretion grant a decree ordering the seller to deliver those specific or ascertained goods which formed the subject-matter of the contract.

(3) Suit for damages for Breach of warranty [Section 59]: Where there is a breach of warranty by the seller or where the buyer elects or is compelled to treat any breach of condition on the part of the seller as a breach of warranty, the buyer is entitled to reject the goods but the buyer may:
(a) set up against the seller the breach of warranty in diminution or extinction of the price; or
(b) sue the seller for the breach of warranty. The measure of damage for breach of warranty is the estimated loss or damage arising directly or naturally from the breach, which is prima facie the difference between the value of the goods at the time of the delivery and the value they would have had, if the goods had answered to the warranty.

(4) Suit for recovery of price: Under Section 61, the buyer has a right to recover the money paid to the seller where the consideration for payment of it has failed. For example, where the buyer is deprived to goods by their true owner, he may recover the price for breach of the condition as to title.

(b) Seller’s right against the buyer in case of breach of contract (Sections 55 and 56) 

(i) Suit for the price: Where the property in the goods has passed to the buyer or he has wrongfully neglected or refused to pay for the goods according to the terms of the contract, the sellers may sue him for the price of goods. Further, where the price is payable under the contract 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 even if the property in the goods has not passed and the goods have not been appropriated to the contract (Section 55).

(ii) Damages for non-acceptance: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, then the seller may sue him for damages for non-acceptance (Section 56).

2.30 AUCTION SALE 

An ‘Auction Sale’ is a mode of selling property by inviting bids publicly and the property is sold to the highest bidder. An auctioneer is an agent governed by the Law of Agency. When he sells, he is only the agent of the seller. He may, however, sell his own property as the principal and need not disclose the fact that he is so selling.

Under Section 64 of the Sale of Goods Act, 1930, in the case of an auction:

(a) Where goods are put for sale in lot, each lot is prima facie deemed to be subject matter of a separate contract of sale;
(b) The sale is complete when the auctioneer announces its completion by the fall of hammer or in any other customary manner and until such announcement is made, any bidder may retract from his bid;
(c) Right to bid may be reserved expressly by or on behalf of the seller and where such a right is expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the auction;
(d) Where the sale if not notified to be subject to the right of the seller to bid, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any person representing him. Any sale contravening this rule may be treated as fraudulent by the buyer;
(e) The sale may be notified to be subject to a reserve or upset price; and
(f) If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.

2.31 SUMMARY 

A seller is called an ‘unpaid seller’ when either he has not been paid the whole price or the buyer has failed to meet at maturity the bill of exchange or any other negotiable instrument which was accepted by the seller as conditional payment. In such a circumstance the buyer may exercise lien on goods if he is in possession of them. If goods are in transit to the buyer, he may stop the goods in transit and obtain the possession of the goods. When the unpaid seller has exercised right of lien or stoppage in transit, he may sell the goods after giving a notice to the buyer of his intent to re-sell. The new buyer shall have a good title on goods as against the original buyer even if the notice of re-sale has not been given by the seller to the original buyer. If the seller neglects to deliver the goods the buyer may sue him for damages, or he may sue the seller for specific performance if the property in goods had not been transferred to the buyer. Where the buyer neglects to pay the price, the seller may sue him for the price as well as exercise lien on goods. Where the buyer wrongfully neglects to accept and pay for the goods, the seller may sue him for damages for non-acceptance.

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