BUSINESS LAW

UNPAID SELLER
Desai Tejas -09
Ramnani Khusboo-33
Raulji Yuvraj-37
INTRODUCTION
• The Sale of Goods Act 1930 provides the
remedies available to both the seller and the
buyer in different possible circumstances.
• When a buyer and a seller has entered into a
contract, each party is to perform the promise
made to the other.
• If one of the parties does not perform one or
more of the promises made, then there is breach
of contract and the other party can have remedy
for the breach.
AN UNPAID SELLER
• The definition of ‘unpaid seller’ is provided in
section 45 of the Sale of Goods Act and it runs as
follows “the seller of the goods deemed to be an
unpaid seller is:
▫ when the whole of the price has not been paid
▫ 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.”
• Thus, a seller who has received only a part of the
payment is an unpaid seller.
AN UNPAID SELLER
• However, a seller is not an unpaid seller if the
buyer has tendered, i.e. offered to pay the price,
and the seller has refused to accept the payment.
In such a case, the seller will lose the rights of an
unpaid seller.
• The seller must not refuse to accept the payment
when tendered. If the price has been offered by
the buyer but the seller wrongfully refuse to
accept it, the seller is not considered as
an‘unpaid seller’.
ILLUSTRATION 1
Seema sold certain goods to Bindu for Rs.10,000.
Bindu made the payment by cheque. Seema
presented the cheque to the banker for payment
but it got dishonoured as there was not enough
money in the bank account of Bindu. Seema can
return the cheque to Bindu and claim the payment
as Seema is in the position of an ‘unpaid seller’.
ILLUSTRATION 2
Suresh sold certain quantity of jute to Jatin for
Rs.5000. Jatin paid Rs.2500 and failed to pay the
balance. In this case, Suresh is in position of an
‘unpaid seller’. The cost of the jute is Rs. 5,000,
and until Jatin makes the entire payment, Suresh
can claim the payment due to him
THE RIGHTS OF AN 'UNPAID SELLER'
• Rights against the goods.
• Rights against the buyer.
RIGHTS OF AN ‘UNPAID SELLER’
AGAINST THE GOODS:
• Where the property of goods has passed to the buyer
▫ Right of Lien
 The Right of Lien means the right to keep the
possession of the goods until the charges or the
price has been paid.
 This right is available to the unpaid seller where
the goods have been transferred to the buyer.
 Even if the seller has handed over the
documents of title to the buyer, the lien is not
affected
RIGHT OF LIEN CAN BE EXERCISED IF
• where the goods have been sold without
stipulation as to credit; or
• where the goods have been sold on credit but the
term of credit has expired; or
• when the buyer has become insolvent
TERMINATION OF LIEN
• The unpaid seller loses the right of lien as soon
he fails to have the possession of good
▫ when he delivers it to a carrier, or
▫ delivers to the buyer ,or
▫ by a waiver ,or
▫ when the buyer makes the payment.
CASE LAW 1:
• Valpy vs. Gibson:
The goods sold were delivered to the buyer’s shipping
agents, who had put them on board a ship. However,
the goods were returned to the sellers for repacking.
While they were still with the sellers for this purpose,
the buyer became insolvent and the sellers claimed to
retain the goods in the exercise of right of lien
because they were unpaid. However it was held that
he could not do so as he lost their lien by delivery of
goods to the shipping agent.
CASE LAW 2
• Jain Mills & Elec. Store v. State of Orissa:
A sold 100 bags of cement to B and delivered them to
the Railways for the purpose of transmission to the
buyer B. A obtained the railway receipt in B’s name
and sent the same to B to enable him to obtain the
delivery of the goods from the Railways. While the
bags of cement were in transit, the buyer (B) became
insolvent, and the seller (A) was still unpaid. In this
case, the seller’s right of lien is lost as the goods are
delivered to the carrier (Railways). However, he still
has the right of stoppage in transit
RIGHT OF STOPPAGE IN TRANSIT
• In certain situations an unpaid seller can have
the right to continue with the possession of
goods as long as they have not been delivered to
the buyer and may also have the right over them
till the buyer has made the payment.
▫ The seller must be unpaid;
▫ The buyer must be insolvent; and
▫ “The seller must have parted with the possession
of goods and the buyer must not have acquired it,”
i.e., goods should be in transit.
Illustration
• Amar of Ahmedabad sold certain goods to
Vikas of Delhi and delivered the goods to
Chauhan, a common carrier for the purpose of
transmission to Vikas. Before the goods could
reach him, Vikas became insolvent. In this case
Amar can stop the goods in transit by giving a
notice to Chauhan.
 Differences between Right of Lien
and Right of Stoppage in Transit
Right of Lien
This right can be exercised when the goods
are in actual possession of the seller.
This can be exercised even when the buyer
has the capacity to pay but does not pay.
This comes to an end as soon as the goods
are no longer in the possession of the seller.
This right comes to an end when the goods
are no longer in the possession of the seller.
This right is exercised to retain possession of This right is to regain (take back) the
goods.
Right of Stoppage in Transit
This can be enforced so long as the goods are
in the possession of the intermediary or
carrier or agent between the seller and the
buyer.
This takes place when the buyer becomes
insolvent.
This comes to an end as soon as the goods
are delivered to the buyer.
This starts when the right of lien ends, and
continues to hold till the delivery of goods to
the buyer.
possession of the goods.
sub-sale
• In case of sub-sale or pledge by buyer on unpaid
seller’s right of lien and stoppage in transit
• The unpaid seller’s right of lien or stoppage in
transit is not affected by sale or disposal of goods
by the buyer, except
▫ Seller’s consent
▫ Transfer of documents of title
Illustration:
• Amarender sold 200 tons of iron to Vikram. Amarender
handed over the iron to a shipping company and sent the bills
of lading to Vikram, who then obtained a loan from his friend
Chauhan and pledged with him the bill of lading as security
against which the loan would be repaid. While the goods were
in transit, Vikram became insolvent and Amarender became
the unpaid seller. In this case, the right of stoppage by
Amarender will depend on the right of Chauhan, who is the
pledgee. In fact, Chauhan will continue to have charge of the
goods as the loan has to be recovered by him. In this
illustration, assume that along with the bill of lading Vikram
also pledges some securities with Chauhan. In such a
situation, then Amarender can ask Chauhan to make good the
amount due to him by selling the securities and then make
Amarender liable for the balance amount.
Right of Re-sale
• Where the goods are of perishable and will lose
value in a short time
• Where the unpaid seller has used his right of lien
or of stoppage in transit and gives notice to the
buyer of his decision to resell the goods.
• Where the seller expressly reserves his right of
resale
Rights of an Unpaid Seller where the
Ownership of the Goods has not passed
to the Buyer.
• 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. This right is similar to and goes along
with the unpaid seller’s right of lien and
stoppage in transit where the property has
passed to the buyer
• Seller has the right to hold back delivery of the
goods until the price is paid even though the sale
was on credit.
Rights against the buyer
• Suit for price.
▫ Illustration: Rama sold 100 grams of silver to
Shyama for Rs.2, 000/- The payment was to be
made within two months of the sale. Shyam was
unable to pay the price within the agreed period of
two months. Here Rama can file a suit against
Syama for the recovery of the price of silver
Rights against the buyer
• Suit for damages for non-acceptance of the
goods.
▫ Where there is a ready market for the goods, the
extent of damages is to be ascertained by the
difference between the contract price and the
market price at the date of the breach.
▫ Where the goods do not have a ready market, the
measure of damages will be the estimated loss
directly and naturally arising, in the ordinary
course of events, from the breach of contract.
Case Law 3:
• Thompson Ltd. v. Robinson [1]:
• R contracted to buy a ‘Vanguard’ car from T Ltd.
who was a car dealer. R refused to accept
delivery. It was held that T Ltd. was entitled to
damages for the loss of their bargain i.e. the
profit they would have made as they had sold
one car less than they otherwise would have
sold.
Rights against the buyer
• Suit for damages for repudiation of contract before
the due date of delivery of goods.
▫ Illustration: Hira agreed to sell to Mira 20 bags of jute
at the rate of Rs. 100 per bag. According to the
contract, the jute was delivered on 1st January 2016.
However, before this date, Mira informed Hira that
she will not accept any jute from Hira. Since Mira
refused, Hira sold the bags of jute to Jira at the rate of
Rs. 90 prer bag; as this was the prevailing market
price.In this case, Hira can file a suit against Mira for
the recovery of damages of Rs. 10 per bag, as Hira had
to suffer a loss to that extent.
• Suit for interest and special damages.
Buyer's Remedies Against Seller
• Suit for damages for non-delivery of goods.
• Suit for specific performance.
• Suit for breach of warranty.
• Repudiation of contract before the due date.
• Interest by way of damages
References
• Gogna P.P.S. (1999): A Text book of Mercantile
Law, S.Chand & Co.
• Tulsian P.C. (2007): Business Law, Tata
McGraw Hill, New Delhi.
• www.helplinelaw.com
• www.consumer-law.lawyers.com
• http://vle.du.ac.in/mod/book/view.php?id=959
7&chapterid=15169