Rights of unpaid sellers
Rights of an Unpaid Seller under the Sale of Goods Act, 1930
The Sale of Goods Act, 1930, provides comprehensive guidelines on the rights of an unpaid seller. These rights can be categorized into two main types: rights against the goods and rights against the buyer personally.
Meaning of an Unpaid Seller [Sec 45(1)(2)]
A seller is considered an 'unpaid seller' when:
- Whole price is unpaid: The entire price has not been paid or tendered.
- Dishonored negotiable instrument: A bill of exchange or other negotiable instrument (such as a cheque) received as conditional payment has been dishonored.
The term 'seller' includes:
- Any person in the position of a seller: This includes agents of the seller, consignors, or agents who have paid or are responsible for the price.
Rights of an Unpaid Seller against the Goods (Sections 46-52, 54-56)
When the property in the goods has passed to the buyer, the unpaid seller has the following rights:
- Right of Lien [Sections 47, 48, 49]
- Meaning: The right to retain possession of goods until full payment is received.
- Circumstances for Exercising Lien:
- Goods sold without credit.
- Credit period expired.
- Buyer becomes insolvent.
- Other Provisions:
- Seller can exercise lien even if goods are held as an agent or bailee for the buyer.
- Lien can be applied to the remainder of goods if partial delivery has been made.
- Lien remains even if the seller has obtained a decree for the price.
- Loss of Lien:
- Delivery to a carrier or bailee without reserving disposal rights.
- Buyer or agent obtains lawful possession.
- Seller waives the lien.
- Buyer disposes of goods with seller's consent.
- Document of title transferred to a person who takes it in good faith and for consideration.
- Right of Stoppage of Goods in Transit [Section 50]
- Meaning: The right to stop goods in transit, regain possession, and retain them until full payment.
- Conditions:
- Seller has parted with possession.
- Goods are in transit.
- Buyer is insolvent.
- Right of Resale [Sections 46(1) and 54]
- Circumstances for Resale:
- Goods are perishable.
- Express right of resale reserved.
- Unpaid seller has exercised lien or stoppage and notified the buyer, who does not pay within a reasonable time.
- Circumstances for Resale:
Rights against the Goods Where Property has not Passed to the Buyer
- Right of Withholding Delivery [Section 46(2)]
- When the property in goods has not passed to the buyer, the unpaid seller has the right to withhold delivery. This right is similar to lien and stoppage in transit.
Rights against the Buyer Personally
In addition to the rights against the goods, the unpaid seller has the following personal rights against the buyer:
- Suit for Price [Section 55]
- The seller can sue for the price if:
- The property in goods has passed to the buyer.
- The sale price is payable on a specific day regardless of delivery, and the buyer wrongfully neglects or refuses to pay.
- Typically used when goods are manufactured to a special order and unsaleable otherwise.
- The seller can sue for the price if:
- Suit for Damages for Non-Acceptance [Section 56]
- The seller can sue for damages if the buyer wrongfully neglects or refuses to accept and pay for the goods.
- Suit for Interest [Section 61(2)]
- The seller may sue for interest from the date payment was due if there is a breach of contract by the seller.
Important Points to Remember
- Rights against Goods: Include lien, stoppage in transit, and resale, which protect the seller’s interest in case of non-payment.
- Rights against Buyer Personally: Enable the seller to take legal action to recover the price or damages for non-acceptance.
- Conditions for Exercising Rights: Specific conditions must be met for the seller to exercise these rights, emphasizing the importance of understanding the buyer's financial status and terms of the contract.
By understanding these rights, sellers can better protect their interests in transactions, ensuring they have recourse if the buyer fails to fulfill their payment obligations.