Unpaid Seller (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

Business Laws for CA Foundation

Created by: Sushil Kumar

CA CPT : Unpaid Seller (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

The document Unpaid Seller (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev is a part of the CA CPT Course Business Laws for CA Foundation.
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LEARNING OUTCOMES:
In this unit, the students would be able to:
• 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.

UNPAID SELLER:

A contract comprises of reciprocal promises.  In a contract of sale, if seller is under an obligation to deliver goods, buyer has to pay for it. In case buyer fails or refuses to pay, the seller, as an unpaid seller, shall have certain rights.

According to Section 45(1) 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) when a  bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
The term ‘seller ‘ here includes any person who is in the position  of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price [Section 45(2)].

Example 1: X sold certain goods to Y for Rs. 50,000. Y paid Rs. 40,000 but fails to pay the balance. X is an unpaid seller.

Example 2: P sold some goods to R for Rs. 60,000 and received a cheque for a full price. On presentment, the cheque was dishonored by the bank. P is an unpaid seller.

RIGHTS OF AN UNPAID SELLER:

Unpaid seller’s right (Section 46): Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law-
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he  has parted with the possession of them;
(c) a right of re-sale as limited by this Act. [Sub-section (1)]
Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. [Sub-section (2)]
An unpaid seller has been expressly given the rights against the goods as well as the buyer personally which are discussed as under:
(a) Rights of an unpaid seller against the goods: The right of unpaid seller against goods can be categorized under two headings.
Unpaid Seller (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev

RIGHT OF UNPAID SELLER AGAINST THE GOODS:

The unpaid seller has the following rights against the goods:
(1) Seller’s lien (Section 47): 
According to sub-section (1), subject to the provisions of this 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.
According to sub-section (2), the seller may exercise his right of lien notwithstanding that he in possession of the goods as agent or bailee for the buyer.
Part delivery (Section 48): 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.
Termination of lien (Section 49): According to sub-section (1), the unpaid seller of goods loses his lien thereon-
(a)  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;
(b)  when the buyer or his agent lawfully obtains possession of the goods;
(c)  by waiver thereof. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason  only that he has obtained a decree for the price of the goods. [Sub-section (2)]
Analysis of section 47, 48 and 49
Rights of lien:
An unpaid seller 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. It is the right to retain the possession of the goods and refusal to deliver them to the buyer until the price due in respect of them is paid or tendered.
The unpaid seller’s lien is a possessory lien i.e. the lien can be exercised as long as the seller remains in possession of the goods.
Exercise of right of lien: This right can be exercised by him in the following cases only:
(a) where goods have been sold without any stipulation of credit; ( i.e., on cash sale)
(b) where goods have been sold on credit but the term of credit has expired; or
(c) where the buyer becomes insolvent.

Example: A sold certain goods to B for a price Rs. 50,000 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.

Seller may exercise his right of lien even where he is in possession of the goods as agent or bailee for the buyer.

The term insolvent refers to “a person is said to be insolvent who has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not”.

Termination of lien: 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.

Exception: The unpaid seller of the goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods.

Example: A, sold a car to B for Rs. 1,00,000 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.
(2) Right of stoppage in transit (Section 50 to 52):
Right of stoppage in transit (Section 50): 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 paid or tendered price of the goods.
Duration of transit (Section 51):
(1) 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 in that behalf takes delivery of them from such carrier or other bailee.
(2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end.
(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.

(4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.
(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.
(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end.
(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, 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.
How stoppage in transit is effected (Section 52)
(1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, shall 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.
(2) When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall 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.
Analysis of section 50, 51 and 52
Meaning of right of stoppage in transit: 
The right of stoppage in transit means the right of stopping the goods while they are in transit, to regain the possession and to retain them till the full price is paid.

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.

This right is the extension of the right of lien because it entitles the seller to regain possession even when the seller has parted with the possession of the goods.

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. [Section 50]
Example: B at Delhi, orders goods of A, at Mumbai. A consigns and forwards the goods to B. On arrival at Delhi, they are taken to B‘s warehouse and left there. B refuses to take these goods and stop payment. The goods are in transit and the unpaid seller can take them back.

Duration of transit: The goods are deemed to be in 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 in that behalf takes delivery of them from such carrier or other bailee.
When does the transit come to an end?

The right of stoppage in transit is lost when transit comes to an end. Transit comes to an end in the following cases:
• When the buyer or other bailee obtains delivery.
• Buyer obtains delivery before the arrival of goods at destination.
• Where the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods as soon as the goods are loaded on the ship, unless the seller has reserved the right of disposal of the goods.
• If the carrier wrongfully refuses to deliver the goods to the buyer. w Where goods are delivered to the carrier hired by the buyer, the transit comes to an end. w Where the part delivery of the goods has been made to the buyer, there the transit will come to an end for the remaining goods which are yet in the course of transmission. w Where the goods are delivered to a ship chartered by the buyer, the transit comes to an end. [section 51]
How stoppage in transit is effected: 

There are two modes of stoppage in transit-
Unpaid Seller (Part-1) - The Sale of Goods Act, 1930 CA CPT Notes | EduRev
Where the notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall 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.

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