An unpaid seller is one who has not received full payment for the goods sold or has received a negotiable instrument that has been dishonored. The Sale of Goods Act, 1930 provides several rights to such a seller.
Meaning of Unpaid Seller
According to Section 45 of the Sale of Goods Act, an unpaid seller is:
- A seller who has not been paid in full.
- A seller who has received a bill of exchange or other negotiable instrument but the instrument has been dishonored.
Rights of Unpaid Seller
The rights are classified into two broad categories:
A. Rights Against the Goods
These are rights that can be exercised even if the property in goods has passed to the buyer.
- Right of Lien (Section 47-49)
- The seller has a right to retain possession of goods until payment is made.
- Can be exercised when:
- Goods are sold without any credit.
- Credit has expired.
- Buyer becomes insolvent.
- Loss of lien happens when:
- Goods are delivered to carrier without reserving right of disposal.
- Buyer or agent lawfully obtains possession.
- Seller waives the lien.
- Right of Stoppage in Transit (Section 50-52)
- If the buyer becomes insolvent, the seller can stop the goods in transit and regain possession.
- Requirements:
- Buyer is insolvent.
- Goods are in transit.
- Ends when:
- Buyer or agent takes delivery.
- Carrier acknowledges delivery to buyer.
- Right of Resale (Section 54)
- The seller can resell goods:
- If goods are perishable.
- After giving notice to buyer and buyer fails to pay.
- Where right is expressly reserved in the contract.
- The seller can resell goods:
B. Rights Against the Buyer Personally
- Suit for Price (Section 55)
- If property in goods has passed and buyer fails to pay, seller may sue for price.
- Suit for Damages for Non-Acceptance (Section 56)
- If buyer refuses to accept and pay for goods, seller can sue for damages.
- Suit for Repudiation (Section 60)
- If buyer repudiates before due date, seller can sue for damages due to anticipatory breach.
- Suit for Interest (Section 61)
- Seller may recover interest if mentioned in contract or under usage of trade.
Mind Map (Text Form)
Unpaid Seller Rights
→ Against Goods
→→ Right of Lien
→→ Right of Stoppage in Transit
→→ Right of Resale
→ Against Buyer
→→ Suit for Price
→→ Suit for Damages
→→ Suit for Repudiation
→→ Suit for Interest
Key Case Laws
- M/S Shakti Bhog Foods Ltd. v. Kola Shipping Ltd. (2009)
- Discussed seller’s lien and rights under transit.
- Valpy v. Gibson (1847)
- Established principle of right to sue for price.
- Great Indian Peninsula Railway Co. v. Hanmandas (1881)
- Clarified stoppage in transit.
Situation-Based Questions
Q1. A seller delivers goods to a carrier for delivery to the buyer but the buyer becomes insolvent while goods are in transit. Can the seller recover the goods?
A: Yes, under the right of stoppage in transit, if the buyer becomes insolvent, the seller can stop the goods during transit.
Q2. The seller sends goods on credit for 30 days. On the 31st day, payment is not made. Can the seller exercise lien?
A: Yes, once the credit period expires and payment is not made, the seller can exercise the right of lien if goods are still in possession.
Q3. The buyer receives goods and later becomes insolvent. Can the seller reclaim the goods?
A: No, once the buyer has obtained possession, the seller cannot exercise lien or stoppage in transit.
FAQs
Q1. What is the difference between lien and stoppage in transit?
A: Lien is exercised when the seller retains possession of goods. Stoppage in transit is exercised when goods are in the possession of a carrier and the buyer has become insolvent.
Q2. Can an unpaid seller sue for both price and damages?
A: Generally, the seller can sue for the price if the property in goods has passed. If not, the seller can sue for damages instead.
Q3. Is notice necessary for resale?
A: Yes, in cases where resale is not for perishable goods, the seller must give notice to the buyer before resale.
Q4. What happens if goods are resold without notice?
A: The seller may lose the right to recover loss from the original buyer and the resale may not transfer a good title unless buyer is bona fide.