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-II
SANA WASIM
1
INDIAN SALES
OF GOODS ACT,
1930
RIGHTS OF AN
UNPAID SELLER
2
AGAINST THE
GOODS
ACKNOWLEDGEMENT
We profusely thank Mr Eqbal Hussain for his constant guidance and
encouragement. His democratic ways have helped me in my professional
growth. We are indebted to him for his valuable suggestions and
guidance.
INDEX
1.
2.
3.
4.
INTRODUCTION
UNPAID SELLER
UNPAID SELLERS RIGHTS
LIEN
SECTION 47
LIEN AND PART DELIVERY
TERMINATION OF LIEN
5. STOPPAGE IN TRANSIT
SECTION 50
DURATION OF TRANSIT
WHEN TRANSIT COMES TO AN END
EFFECT OF PART DELIVERY
EFFECT OF REJECTION OF GOODS BY THE BUYER
HOW THE RIGHT IS EXERCISED
6. RE-SALE
NOTICE OF RE-SALE
LOSS OR PROFIT ON RE-SALE
MEASURE OF DAMAGES ON RE-SALE
WHEN IS THE RE-SALE PROPERLY MADE
TITLE OF THE NEW BUYER
7. BIBLIOGRAPHY
INTRODUCTION
It has been observed that the seller and the buyer are bound to perform
certain duties. Broadly speaking, the sellers duty is to deliver the goods
and the buyers duty is to accept and to pay for them, in accordance with
the contract. If either party does not perform his duty in a proper way, he
can be made liable. In case the buyer does not accept to pay for the
goods, the unpaid seller, apart from having the right to sue the buyer for
the breach of the contract, can exercise the following rights against the
goods:
1. Lien
2. Stoppage in transit
3. Re-sale
UNPAID SELLER
It may be noted that the rights against the goods can be exercised
only by an unpaid seller as defined in
Section 45 in The Sale Of Goods Act, 1930
45. " Unpaid seller" defined.(1) the seller of goods is deemed to be an" unpaid seller" within the
meaning of this Act(a) When the whole of the price has not been paid or tendered;
(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.
(2) In this Chapter, the term" seller" 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 indorsed, or a consignor or agent
who has himself paid, or is directly responsible for, the price.
An unpaid seller is a person to whom the whole of the price has not
been paid or tendered, or if the price was paid through a bill of
exchange or other negotiable instrument, the same has been
dishonoured. If the negotiable instrument had been received as a
conditional payment, i.e., subject to the realisation thereof, and the
condition cannot be fulfilled if the same has been dishonoured, the
seller is deemed to be an unpaid seller. If the payment rather than
conditional one the seller is not an unpaid seller even through the
negotiable instrument is subsequently dishonoured.
A seller is an unpaid one when the whole of the price has not been
paid to him. It means that when only a part of the price has been
paid (and not the whole of it) the seller is an unpaid seller. It may
also be noted that a person is an unpaid seller to whom neither the
whole price has been paid nor the same has been tendered. If the
price has been tendered by the buyer but the seller has wrongfully
refused to take the same, he is not an unpaid seller.
The position of the sellers Agent may sometimes be the same as
that of the seller for the purpose of the exercise of rights conferred
by this Chapter. For example, 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, can exercise the
rights of an unpaid seller.
7
UNPAID SELLERS
RIGHTS
Notwithstanding that the property in the goods may have passed to
the buyer, the unpaid seller can exercise the following rights against
the goods
Even if the property in the goods has not been passed to the buyer, the
unpaid seller has right of withholding delivery of the goods and this right
would be similar to and co-extensive with the right of the lien or stoppage
in transit where the property has passed to the buyer.
LIEN
The right of lien is one of the rights against the goods which the unpaid
seller can exercise. Lien means retaining the goods or refusing to deliver
them until the price in respect of them has been paid by the buyer. By
way of exercise of this right the seller can refuse to deliver the goods to
the buyer until the payment of the price even through the ownership in
the goods has already passed to the buyer. By a mere exercise of this
right, the contract of sale of goods is not automatically rescinded.
Section 47 in The Sale Of Goods Act, 1930
47. Sellers lien.(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.
(2) The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer.
(1) When the goods have been sold without any stipulation as
to credit, i.e., the sale of the goods has been on cash basis. It has
already been observed under section 32 that if there is no agreement to
the contrary, the payment of the price and the delivery of the goods are
concurrent conditions. It means that if the goods have not been sold on
credit, the seller expects that the buyer shall pay the price against the
goods. The seller can refuse to deliver them to the buyer, or in other
words, he can exercise the right of lien over the goods, if the buyer is not
ready and willing to pay the price in exchange for the goods. The position
in this regard has been thus stated by Bayley B:
the general rule of law is, where is a sale of goods, and nothing is
specified as to the delivery or payment, although everything may have
been done so as to divest the property out of the vendor, and as to throw
upon the vendee all risk attendant upon the goods, still there results to
10
the vendor out of the original contract a right to retain the goods until
payment of the price.
(2) When the goods have been sold on credit, the seller can
exercise the right of lien on the expiry of the period of credit. As soon
as period of credit expires the price becomes due and the seller can
exercise the right of lien thereafter. Even though originally the seller had
agreed to sell them on credit but now since the price has become payable
because of the expiry of the period of credit, the seller can refuse to part
with the goods until he is paid for them. For example, on 1st January, A
sells a horse to B, the buyer having a right to take the delivery at any time
he likes and the price is payable on 1st March. If the buyer has not taken
the delivery of the horse by 1st March and he demands the delivery after
this date, the seller can refuse to part with the horse until the buyer pays
for them.
(3) The seller can also exercise the right of lien when, before the delivery
of the goods to him, the buyer becomes insolvent. Even though the
seller had sold the goods on credit and the period of credit has not yet
expired but the buyer has become insolvent, the sellers right of lien can
be exercised. When the goods are sold on credit, the presumption is that
the buyer shall maintain his solvency. If that condition can no more be
satisfied, the seller is entitled to the exercise of this right.
The lien is a right to retain the possession. It is, therefore, necessary that
the seller is still in possession of the goods. Transfer of title does not
affect the exercise of this right, rather it is a right which is exercised after
the property in the goods has passed to the buyer. If the seller has handed
the delivery order to the buyer but the buyer has not yet got the delivery,
actual or constructive, the seller may exercise the right of lien. It is,
however, necessary that the transfer of the delivery order to the buyer
should not have been made under the circumstances as to show that the
seller had waived his right of lien. If the delivery order is transferred to the
buyer under the circumstances which indicate the waiver of the lien, the
right comes to an end.
The basis of the right is the non-payment of the price and therefore if
the buyer is willing to pay the price, there is no question of exercise of the
right of lien. If the buyer pays the price, the right of lien which might have
existed earlier is terminated. It may, however, be noted that the right of
lien is a right which can be exercised only for the non-payment of the
11
price. If some other charges, for example, the warehouse charges, are due
to the seller, he cannot exercise the right of lien. For the recovery of such
charges, the sellers only remedy is a personal action against the buyer.
12
13
TERMINATION OF LIEN
Section 47 in The Sale Of Goods Act, 1930
47. Sellers lien.(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.
(2) The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer.
The unpaid sellers right to lien may be lost in any of the following ways:
(1) By payment of price- the right of lien comes to an end when the
seller ceases to be an unpaid seller, i.e., when the buyer pays or
tenders the price to the seller. It has been noted under section 47(1)
that the unpaid seller is entitled to exercise his right on lien until
payment of tender of the price in respect of certain goods , the
payment or tender of the price , therefore , terminates the sellers
right to retain the goods. Merely obtaining the decree does not mean
the payment of the price and, therefore, section 49(2) states that an
unpaid seller, having a lien on the goods, does not lose his lien by
reason only that he has obtained a decree for the price of the goods.
Section 49 in The Sale Of Goods Act, 1930
49. Termination of lien.(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.
14
(2) 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.
(2) By delivery to the carrier- since a right of lien is right to retain
possession so long as the seller continues in possession, the right would
obviously come to an end when the seller loses the possession. The seller
loses the possession when he delivers the goods to the carrier or other
bailee for the purpose of transmission to the buyer without reserving the
right of disposal of goods. It may be noted that the right of lien continues
so long as the unpaid seller retains the possession and comes to an end
as soon as the delivery of the goods is made to the carrier or some other
bailee as stated above, whereas the right of stoppage in transit begins
when the seller parts with the possession of the goods by delivering them
to a carrier or some other bailee for the purpose of transmission to the
buyer. Thus, delivery of the goods to a carrier or other bailee for the
purpose of transmission to the buyer results in end of lien.
(3) By the buyer obtaining possession of the goods- when the
buyer or his agent lawfully obtains the possession of the goods the right
of lien comes to an end. If the buyer, at the time of the contract of sale, is
already in the possession of the goods, although as a bailee or a seller,
the seller cannot exercise his right of lien in respect of those goods. If the
buy once obtains the possession, the right of lien comes to an end, and
such a right cannot be exercised even if the seller again gets back the
possession of those goods. Thus, in Eduljee v. Caf John Bros., AIR 1943
Nag 249 , where a refrigerator after being sold was delivered to the buyer
and since it was not functioning properly, the buyer delivered two of its
parts to the seller for repairs, it was held that the seller could not exercise
his right of lien over those parts.
(4) By waiver- unpaid sellers right of lien is also lost by waiver thereof.
According to section 46(1) (a), an unpaid seller gets his right of lien by
implication of law. A party to a contract may waive his rights, expressly or
implied, according to section 62. Section 49(1)(c) expressly provides that
the right to lien comes to an end by a waiver thereof. Such a waiver may
be presumed when the seller allows a period of credit to the buyer, or
delivers a part of the goods to the buyer or his agent under the
circumstances which show that he does not want to exercise his right of
lien, or, when the seller assents to a sub-sale which the buyer may have
made.
(5) By Disposition of the goods by the buyer- according to section
53, the unpaid sellers right of lien or stoppage in transit is not affected by
any sale or other disposition of the goods by the buyer. This general rule is
subject to two exceptions:
15
16
STOPPAGE IN
TRANSIT
It is one of the rights which, as already mentioned, an unpaid seller can
exercise against the goods. This right means that when the goods have
already been delivered to the carrier for being transmitted to the buyer,
the carrier at the sellers request is to deliver the goods back to the seller
and not deliver to the buyer even though the buyer might have got the
possession of document of title to the goods. Under such a right,
therefore, the unpaid seller regains the possession of the goods after they
had once been delivered to a carrier for the purpose of transmission of the
buyer. The exercise of this right according to section 54(1), does not result
in the rescission of the contract or revesting of the property in the goods
in the seller. It only means that the seller after getting back the goods
from the carrier as a right to retain them until the buyer pays for them. If
the buyer still fails to pay, the unpaid seller may even resell the goods.
For the purpose of exercise of this right, the following conditions are to be
satisfied:1. Seller should be an unpaid seller as defined in section 45.
2. The buyer should be insolvent within the meaning of section 2(8),
i.e., a person who has ceased to pay his debts in the ordinary course
of his business, or cannot pay his debts as they become due,
whether he has committed an act of insolvency or not.
3. The goods should be in transit.
The goods are in transit from the moment they are delivered to the carrier
for the purpose of transmission to the buyer. It is, however, necessary that
the carrier must have got the possession of the goods in his capacity as a
carrier. This might take the goods for transmission in carrier to different
capacities:
The may be the buyers agent. When the possession has been
received by the carrier as the buyers agent, there is no question of
exercise of the right of stoppage in transit because when the buyer
or his agent has got the possession if the goods, the seller cannot
exercise any right in respect of them;
17
The carrier may be the sellers agent. If the carrier is the sellers
agent then the seller is himself deemed to be in constructive
possession of the goods and he can exercise even the right of lien in
respect of them;
The carrier may be neither the buyers agent nor the sellers agent
but may be holding the goods as a carrier. If he is in possession of
the goods in that capacity then the right of stoppage in transit can
be exercised by the seller.
18
Duration of transitThe right of stoppage in transit can be exercised so long as the goods are
in transit. It becomes important, therefore, to know the duration of transit,
i.e., when the transit begins and when it comes to an end. Section 51
provides rules regarding the same.
Section 51 in The Sale Of Goods Act, 1930
51. Duration of transit.(1) 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.
(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.
According to sub-section 1, the goods are deemed to be in transit when
they are delivered to the carrier or the bailee for the purpose of
transmission to the buyer. The transit continues until the buyer or his
19
agent in that behalf take the delivery of them from such carrier or bailee.
It means that so long as the goods are with a carrier, the transit
continues.
20
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23
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RE-SALE
This is a very valuable right given to an unpaid seller after he has
exercised his right of lien or stoppage in transit. After exercising the
right of lien or stoppage in transit, the seller has to retain the goods
unless the buyer pays the price. If within a reasonable time after the
exercise of such a right, the buyer does not pay the price the unpaid
seller may re-sell them, under any of the following circumstance:
Where the goods are of perishable nature. [Section 54(2)];
Where the unpaid seller who has exercised his right of lien or
stoppage in transit gives notice to the buyer of his intention to
re-sell, [Section 54(2)];
Where the seller expressly reserves a right of re-sale in case the
buyer should make default. [Section 54(4)].
25
NOTICE OF RE-SALE
Before making a re-sale, the unpaid seller is required to give a reasonable
notice of re-sale to the buyer. No such notice is, however, required if the
goods are of perishable nature. Such a notice gives an opportunity to the
buyer either to fulfil his part of the obligation by making an arrangement
for the payment of the price and have the goods, or, if he cannot pay,
then to supervise the sale to see that the same is properly made, because
the loss on re-sale is ultimately borne by the buyer. Notice of re-sale
should be reasonable. It must be given within a reasonable time after the
breach of contract and should also give him reasonable opportunity for
either fulfilling the contract or supervising the sale.
contract. Since no one can take advantage of his own wrong, such surplus
can be retained by the seller himself. Thus, if the original buyer agreed to
pay Rs. 20,000 for certain goods, and on re-sale fetches Rs. 25,000, the
seller can retain the profit of Rs. 5,000 with himself.
27
MEASURE OF DAMAGES ON
RE-SALE
According to section 54(2), on the re-sale being properly made, the unpaid
seller can recover from the original buyer damages for any occasioned
by his breach of contract. The loss which, in such a case, is occasioned
by the seller is the difference between the contract price and the resale price, and the measure of damages, therefore, is the difference
between the contract price and the sale price. It may be noted that the
measure of the damages in case of re-sale is different from that for breach
of any other contract, because in other cases, the damages are governed
by the provision contained in section 73 of the Indian Contract Act,
according to which the measure of damages is the difference between
the contract price and the market price prevailing on the date of
the breach of contract. Since the re-sale is to be made after giving
notice to the buyer, the re-sale may not be made on the date of the
breach of contract, and on re-sale the seller may recover different price
than prevailing on the date of breach of contract.
It may be observed that the criterion of allowing difference between
contract price and re-sale price is followed by applying section 54(2)
of the Sale of Goods Act, if the re-sale has been made properly. If
the re-sale has not been properly made then the damages are
allowed according to the formula under section 73 of the Indian Contract
Act. i.e., the difference between the contract price and the market
price is allowed by way of damages.
Act (difference between the contract price and the market price on the
date of breach of contract).
29
30
BIBLIOGRAPHY
31