RIGHTS OF UNPAID SELLER AGAINST THE GOODS

Introduction

It is already known that seller and buyer have certain duties towards each other, which are needed to be performed by both the parties, efficiently and effectively. The foremost responsibility of the seller is to deliver the goods, safely and the foremost onus of buyer is to receive and to pay the consideration for them, in consensus with the conditions mentioned in the contract. As we known that if any of the party defaults on his/her behalf, then he is liable for the same. If the buyer doesn’t pay the agreed consideration for the goods, then the seller, not only has right to avoid the agreement or can also sue the buyer for the breach of contract, but also has certain other rights against the goods, namely Right of lien, Right of stoppage in transit and Right to resale under the Sale of Goods Act, 1930.[1]

Who is an unpaid seller?

According to Section 45, “When the whole of the price has not been paid or tendered; or 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”, then the seller of goods is said to be an “Unpaid seller”.[2]

So, A seller is said to be an unpaid seller when the consideration has not been remunerated to him. It signifies that the seller/vendor is not an unpaid seller, if only a portion of the amount has been paid. It should also be mentioned that a person is an unpaid seller if neither the full amount nor the same has been paid or tendered by him. The vendor is not said to be an unpaid seller if the customer has offered the money but the seller has unreasonable refused to accept it without citing a sufficient reason.[3]

Right of lien

The right of lien is one of the rights against goods that an unpaid seller might exercise. Lien is keeping custody of respective goods or refusing to deliver them to the purchaser until the buyer has paid the agreed sum of money or consideration for them. When the buyer fails to pay the agreed consideration or price for the goods, the seller might use the power of lien and keep proprietorship of the items as a representative of the master or bailee for the buyer.

Seller’s Lien (Section 47)

As per Section 47, the unpaid seller can only hold the goods, only under three conditions:

  • When the goods have been sold without any credit stipulation;
  • When the goods have been traded on credit, but there is expiration term of credit;
  • When the purchaser turns insolvent.[4]

Part-delivery (Section 48)

According to Section 48, if an unpaid vendor only delivers half of the items, he make the use of his claim on the remaining products. This is true, unless the buyer and seller have agreed to waive the lien in the event of partial delivery.

Termination of Lien (Section 49)

According to Section 49(1) of SOGA, 1930, an unpaid seller loses his right of lien:

  • If he delivers the goods to a carrier or any other bailee for transmission to the buyer without reserving the right of disposing of the goods.
  • At what time the buyer or his agent, lawfully, obtain proprietorship of the goods.
  •  Waiving the goods off.

In addition, Section 49(2) says “An unpaid seller with a lien does not lose his lien just because he has won a decree for the price of the goods”.[5]

Right of stoppage in transit

Section 50 says, “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 payment or tender of the price.”[6]

After the unpaid seller has lost custody of the commodities, the buyer has the right to halt the goods in transit. This power allows the seller to reclaim possession of the property. When the buyer falls insolvent while the goods are in route, the unpaid seller has this right. If goods are handed to a carrier or other bailee for the purpose of transmission to the buyer, they are considered to be in transit until the buyer or his agent takes conveyance of them.

Duration of Transit (Section 51)

As long as the goods are in transit, the right of stoppage in transit can be invoked. As a result, the halting the goods in between the time of transit becomes critical, i.e., when the time transit starts and when it ends. The regulations and procedures for this can be found in Section 51 of SOGA.[7] The goods are considered to be in transit under section 51(1) from the time they are transferred to the carrier or any other bailee for the purpose of safely delivering the goods to the buyer. The buyer or his/her agent takes delivery from the carrier or bailee until the buyer or his/her representative takes custody from the carrier or bailee. This indicates that the transit will continue as long as the items are with a carrier and when the goods come under the possession, transit period comes to an end.

Situations for terminating the transit

  • The purchaser or his agent obtains delivery of the items before they arrive at their particular agreed destination. When this occurs, the transit period ends when the delivery is completed.
  • The transit is completed when the items arrive at their destination and the bailee informs the purchaser or his representative that he is holding the commodities.
  • When the customer discards the goods and the seller trashes to accept them back, the transit period does not end.
  • In some instances, goods are delivered to a buyer-chartered ship. Depending on the case, it is determined that if the master is operational as an agent or carrier of the goods.
  • The transit ends if the carrier or other bailee refuses to deliver the items to the buyer or his representative erroneously.
  • The transit for those commodities has ended if the items have been delivered in part and the unpaid seller has stopped the remaining goods in transit. This is presuming that no agreement to relinquish custody of all goods has been reached.[8]

Right to resale

Afterwards exercising the power of lien or stoppage in transit, this is a very valuable right given to an underpaid seller. He or she can keep possession of goods after exercising the power of lien or stoppage in transit, as long as the purchaser does not pay the consideration or price. If the buyer does not pay the price within a reasonable time, the unpaid seller has the right to resell the items, under certain circumstances or situations, under the ambit of Section 54:

  • Unless the goods are perishable, the seller must give the buyer notice before reselling them, giving him one last chance to pay the amount and return the goods within a reasonable time limit. If the buyer does not pay the money back, the unpaid vendor has the right to again sell the items. The seller cannot appeal in the court against the buyer for damages if he fails to tell the buyer of his plan to resell, and any profit must be forfeited.
  • If he makes a profit on the resale of products, he can recover it from the buyer; however, if he makes a loss, he cannot recover it from the buyer.
  • Whether or not the defaulted buyer receives a notification of resale, the seller transfers legitimate title to the buyer after the resale.
  • If the buyer defaults on payment, the seller may reserve the exclusive right to resell the things; in such cases, the buyer is not entitled to a profit on resale if no notification is given and the seller has the sole right to resell.

Conclusion

The seller turns into an Unpaid Seller only when agreed consideration has not been fully paid to the seller and the buyer has failed to fulfil the conditions and terms of the bills of exchange and any other negotiable instruments, mentioned in the respective contract. If the vendor has exercised the right of lien or stoppage in transit, then one can also resell the goods after providing vendee/buyer with a notice and new vendee will be given the good title of the goods. The seller can also appeal in the court and sue the buyer for not paying the agreed sum of money of any other consideration, as well as lien. These rights protect the interest of the seller and gives him/her, an extra edge over the buyer/vendee and these rights also enables him/her doesn’t easily exploit as most of the considerations are paid after the delivery of the goods.

Author(s) Name: Gurrashmeet Singh (Dr. BR Ambedkar National Law University, Sonipat)

References:

[1] See Sale of Goods Act, 1930

[2] See Sec. 45 of Sale of Goods Act, 1930

[3] Rai D, ‘What Are The Rights Of An Unpaid Seller?’ (iPleaders, 2021) <https://blog.ipleaders.in/rights-of-an-unpaid-seller/> accessed 8 August 2021

[4] See Sec. 47 of Sale of Goods Act, 1930

[5] See Sec. 49 of Sale of Goods Act, 1930

[6] See Sec. 50 of Sale of Goods Act, 1930

[7] See Sec. 51 of Sale of Goods Act, 1930

[8] ‘Rights of Unpaid Seller Against The Goods’ (Toppr, 2021) <https://www.toppr.com/guides/business-laws/the-sale-goods-act-1930/rights-of-unpaid-seller-against-goods/> accessed 8 August 2021

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