Rights of an Unpaid Seller under Sale of Goods Act | Law Optional Notes for UPSC PDF Download

Introduction

• In every sales contract, the seller has a duty to deliver the goods sold, while the buyer must pay the agreed-upon amount or provide something in return, known as quid pro quo, as per Section 2(f) of the Indian Contract Act.
• Reciprocal promises are a crucial concept in contract law, where each party commits to something in exchange for the other's promise. In a sale contract, both parties make reciprocal promises.
• For instance, when you order a book online, the seller promises to deliver the book, and you promise to pay the price upon delivery. These promises are interdependent and form the essence of the sales contract.

Who is an Unpaid Seller under the Sale of Goods Act?

• An unpaid seller is defined as the seller to whom:
  • The whole price of the goods has not been paid.
  • The payment is conditional in nature.
  • The seller has received a bill of exchange, promissory note, or cheque, but they are dishonored.

Until the bill of exchange, promissory note, or cheque is with the seller, they are considered the seller. However, if any of these instruments are dishonored, the seller is then termed as an unpaid seller.

Let's delve deeper into each point:

Whole Price Not Paid

• In this scenario, the buyer has not completed the payment for the goods in full as per the agreed terms of the sale.
• Example: Sarah purchased a laptop from John for $1000 but has only paid $800 so far.

Conditional Payment

• This refers to a situation where the buyer's payment is subject to certain conditions, such as the successful delivery of the goods.
• Example: David agrees to pay for the furniture only after it is delivered to his house in good condition.

Dishonored Bill of Exchange, Promissory Note, or Cheque

• When the buyer provides these financial instruments as payment but they are not honored by the bank due to insufficient funds or other reasons.
• Example: Mark gives a promissory note to the seller, but it bounces due to lack of funds in his account.

Understanding who qualifies as an unpaid seller under the Sale of Goods Act is crucial for both buyers and sellers to navigate legal obligations and rights effectively.

Rights of an Unpaid Seller under Sale of Goods Act

Unpaid sellers possess certain rights known as 'rights in rem'. These rights are applicable when the property of the goods has already been transferred to the buyer.
Here are the key rights an unpaid seller holds against the goods:

Right of Lien (Section 47)

The right of lien grants the unpaid seller the authority to retain possession of the goods until the payment is made. This right is available to the unpaid seller if the goods are sold without any credit stipulation or if the credit term has expired. It can also be exercised if the buyer becomes insolvent.

• Possession of goods is crucial for exercising the right of lien.
• The right of lien remains valid even if the seller has handed over the document of title to the goods.
• The seller's possession of the goods should not explicitly exclude the right of lien.
• Lien is enforced by the unpaid seller only for the due amount, excluding charges like warehouse rent or carriage expenses.
• If partial delivery has been made, the unpaid seller can exercise lien on the remaining goods.

Termination of Lien:

• If the goods are handed to a carrier or bailee for transmission without retaining the right of disposal.
• When the buyer or their agent legally acquires possession of the goods.
• If the seller waives the right of lien, which can be explicit or implied.

Right of Stoppage in Transit

This right allows the seller to stop the goods during transit after losing possession, enabling them to regain control. It applies when the buyer is insolvent and the goods are in transit.

Conditions for stopping goods:

• When the seller remains unpaid, either partially or in full.
• If the buyer becomes insolvent.
• The goods must be in transit, meaning not in the seller's possession and not yet received by the buyer.

Termination of Transit:

• By delivering to the buyer or their agent.
• Interception by the buyer, leading to the end of transit.
• Acknowledgment by the carrier that they hold the goods for the buyer.
• Part delivery of goods results in the end of transit for the remaining products.

Right of Resale

The unpaid seller holds the right to resell the goods under specific conditions, such as perishable nature or buyer's insolvency or failure to pay.

Conditions for resale:

• Perishable goods can be resold immediately without notice; non-perishable goods require notice to the buyer.
• If the seller notifies the buyer but they fail to respond.
• Resale right mentioned in the contract.
• Buyer's insolvency or non-payment.

The unpaid seller can claim damages for losses incurred on resale due to a breach of contract. However, any profits made need not be surrendered to the buyer. Additionally, if the property has not transferred, the seller can withhold delivery.