The seller is an unpaid seller (of goods) in the following conditions [Section 45 (1)]: (a)If the whole of the

price (of the goods sold) has not been paid or tendered to him (seller); and (b)Where a bill of exchange or any other negotiable instrument has been received as a conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise. Further, the term seller includes any person who is in the position of a seller, like an agent of the seller.

An unpaid seller has the following two types of rights: (i) Rights against the goods (sold); and (ii) Rights against the buyer (in person).

The sellers rights against the goods (sold) are: (a) The right of lien on the goods; (b) The right of stoppage of the goods in transit; and (c) The right of re-sale of the goods.

Rights of Unpaid Sellers Lien on the Goods

In the present context the term lien means to retain possession of (the goods sold). An unpaid seller, who is (still) in the possession of the goods sold, has the legal right to retain them in his possession, and that too, (only) till the time the payment or the tender of the price of the goods are made to him by the buyer, in the following cases [Section 47]: (i) Where the goods have been sold without making any specific provision in regard to the credit (i.e. the sale being a credit sale); (ii) Where the goods are sold on credit terms, but such specified term of credit has expired; and (iii) Where the buyer has become insolvent.

Thus, an unpaid seller cannot exercise his right of lien on the goods sold, in the cases of the no-payment of any other charges (i.e. other than the non-payment of the price of the goods sold), like for the non-payment of the storage or handling charges for the storage of the goods sold and so on, though these charges are also payable by the buyer. Further, the unpaid sellers lien is in the nature of a particular lien, (and not a general lien, like that of a banker). The particular lien also signifies that this right of lien, enjoyed by the seller, can be exercised only and exclusively by the seller alone, and not by his assignee or his creditor, and so on.

Moreover, the unpaid sellers lien will also be available in the cases where he (seller) happens to be in the possession of the goods sold, in the capacity of an agent or a bailee of the buyer. Further, the right of lien will be available to the unpaid seller even in the cases where a part delivery of the goods sold, has already been made by the unpaid seller [Section 48], provided the circumstances, under which such part delivery of the goods sold has been made, do not indicate that there was already an agreement between the buyer and the seller that the unpaid sellers lien will be waived by the seller.

Loss of the Goods takes

Right of Unpaid Sellers Lien on the place

(a) Where the seller has delivered the sold goods to a carrier or some other bailee, for the purpose of transportation/transmission of the goods to the buyer concerned, provided the (seller) has not reserved his right of the disposal of the goods to himself. For example, when the seller take-out the railway receipt (R/R) or the transport receipt (T/R) in the name of the buyer or his (buyers) agent; (b) Where the buyer or his agent lawfully obtains the possession of the goods sold; (c) Where the seller waives his right of lien on the goods sold; (d) Where the seller consents to a sub-sale by the buyer; and (e) Where the seller takes a security from the buyer for the payment of the price of the goods sold, in lieu of his (sellers) right of lien.

But then, the unpaid seller does not lose his right of lien only due to the fact that he has obtained a decree from the Court for the payment of the price of the sold goods from the buyer [Section 49(2)]. In this context, it must be noted that the unpaid sellers lien is in the nature of a promissory lien, which signifies that once the possession of the sold goods is lost by the seller, his right of lien is also lost therewith.

Distinguishing Features

LIEN

STOPPAGE-INTRANSIT

The lien is available to A stoppage-in-transit is the unpaid seller only so available to the unpaid seller long the goods are in only after he has parted with his (unpaid sellers) the possession of the goods possession. sold. The lien is available to A stoppage-in-transit is the unpaid seller even inavailable to the unpaid seller the cases where the only in the cases where the buyer has not become buyer has become insolvent. insolvent.

Duration of Transit
The sold goods are in the course of transit from the time when these are delivered to the carrier, or to some other bailee, for the purpose of transportation / transmission of the goods to the buyer, and that too, only upto such time when the buyer or his agent (on his behalf) has not taken the delivery of the sold goods from the carrier, or some other bailee.

Duration (Period) of Transit ends

(a) When the goods have reached in the possession of the buyer or his agent or servant on his behalf; (b) When the buyer or his agent or servant obtains the delivery of the goods before they reach their specified destination (c) When the goods have reached their specified destination, and the carrier or some other bailee of the goods acknowledges to the buyer or his agent that he (carrier or some other bailee) holds those goods on behalf of the buyer or his agent. In this context, it is immaterial that a further destination of the goods was specified by the contract (d) When the carrier or some other bailee of the goods wrongfully refuses to deliver the goods to the buyer or his agent on his behalf

Duration (Period) of Transit ends

Contd Contd

(e) When the ship whereon the sold goods have been loaded by the seller, belongs to the buyer or else has been chartered by the buyer, the period of transit will be deemed to have ended the moment the sold goods are loaded on the ship, provided the seller had not reserved the right of the disposal of the goods. That is, where the seller had reserved the right of the disposal of the goods loaded on the ship, even if it (ship) belonged to the buyer or else had been chartered by the buyer, the period of transit will not be deemed to have ended in such cases. But then, where the buyer of the goods in transit has rejected the goods, and the carrier or some other bailee of the goods continues to hold those goods, the period of transit will not be deemed to have ended. The position will remain unchanged even if the seller of the goods has refused to take those goods back.

Effect of Change of Destination

Where the buyer and the seller have agreed that the sold goods must be delivered at a certain place, say, at Delhi, but subsequently the buyer has asked the seller that now the sold goods must be delivered at another place, say, at Chandigarh, the goods will be treated to be still in transit until the goods are taken delivery of by the buyer, or his agent on that behalf, at the subsequently changed destination, i.e. Chandigarh.

Effect of Part-Delivery In such cases, the remaining quantity of the goods may be stopped in transit by the seller, provided there was no agreement between the seller and the buyer that the seller will pass on the possession of the entire goods to the buyer by way of even a part-delivery of the goods.
Further, even in the cases where the buyer of such goods has sold the goods or disposed of the goods in some other manner (like by way of pledge or otherwise), the unpaid sellers right of lien or his right of stoppage of the goods in transit, will not get adversely affected unless the seller had agreed to that effect.

Exercise [Section

of the Right of Stoppage-in-Transit 52] by way of

(a)Taking the actual possession of the goods in transit; or (b)Giving notice of his intention to claim and exercise his right of stoppage of the goods in transit to the carrier or the other bailee of the goods, who happens to be in the actual possession of the goods at the material time.

Whom to give Notice of Stoppage-in-Transit?

Notice of stoppage-in-transit can be given by the seller either to the person (carrier or the other bailee of the goods), who happens to be in the actual possession of the goods at the material time, or to his principal. In the latter case, however, the notice will be deemed to effective when the principal, by the exercise of reasonable diligence on his (principals) part, may communicate (contents of) the notice to his agent or servant, so as to prevent the delivery of the goods to the buyer. Further, on receipt of such notice from the seller, the person (carrier or the other bailee of the goods is required to re-deliver the goods to the seller of the goods or as per the sellers direction, and realise the cost of such redelivery of the goods from the seller.

Effect of Sub-Sale or Pledge by the Buyer

As per the general rule, the unpaid sellers right of lien on the goods sold, and his right of stoppage of the goods in transit, do not get affected by any sale by the buyer or by disposal of the goods by him (buyer) in some other manner (like by pledge), unless and until the seller had consented to that effect [Section 53].

Exceptions to the General Rule

(a) Where the document to the title to the goods has been made out in the name of the buyer himself, or it has been lawfully transferred to any person as the buyer or owner of those goods, and where such person (as the buyer or owner of those goods) transfers such document to the title to the goods to another buyer, in good faith and for a valuable consideration, the unpaid sellers rights of lien or stoppage in transit regarding those goods gets forfeited and lost. [ Dreyfus & Co., (1943), K.B. 40]. (b) Where the document to the title to the goods has been made out in the name of the buyer himself, or it has been lawfully transferred to the buyer, and where such buyer transfers such document to the title to the goods to another bona fide buyer for consideration, by way of pledge, the unpaid sellers rights of lien or stoppage in transit regarding those goods can be exercised by the unpaid seller, only subject to the right of the pledgee (pawnee).

Right of Re-Sale [Section 54]

Where the unpaid seller has retained the possession of the goods in exercise of his right of unpaid sellers lien, or where he has resumed (regained) the possession of the goods from the carrier, in the event of such buyer being declared insolvent, such unpaid seller can resell the goods involved, in the following circumstances: (a) Where the goods so sold are perishable in nature, such unpaid seller can resell the goods involved, without giving any notice to the buyer. But, here, the term perishable also includes the goods which are commercially perishable in nature, i.e. which may deteriorate so as to make them non-merchantable. (b) However, where the goods so sold are not perishable in nature, such unpaid seller is required to ask the buyer to pay or to tender the price of the goods so sold to him, within a reasonable time, and only when the buyer fails to do so, such unpaid seller can resell the goods involved, and not otherwise.

Right of Re-Sale [Section 54]

Contd Contd

(c) Further, such right is also available to him in the cases where, under the contract of the sale of goods, he has expressly retained the right of resale of the goods, in the event of the buyer making a default. Thus, the original contract gets cancelled, but the unpaid seller still retains his right to claim damages from the original buyer for the breach of the contract. [Section 54 (4)]. But then, the unpaid seller must exercise his right of resale of the goods within a reasonable time, which will depend upon the facts of each case.

Notice of Re-Sale, When Necessary?

Such notice is necessary in all the cases except where the goods are of a perishable nature. Thus, if the unpaid seller resells the imperishable goods involved, without giving the required notice to the buyer, he will not be able to recover any damages from the buyer for the loss, if any, sustained by the unpaid seller in the case of reselling the goods. Further, he (unpaid seller) will have to pass on the profit, if any, accruing on the resale of such goods, to the buyer. But after giving the required notice, to the buyer, he will be able to recover the damages from the buyer for the loss, if any, and also to retain the profit, if any, accruing on the resale of such goods. This is so because, in such cases, the unpaid seller is not acting as an agent of the buyer concerned.

Measure of Damages and Gains

The damages in the case of the resale of the goods will be arrived at by subtracting the resale price realised, from the contracted price of the goods involved, plus the related expenses of the resale. But then, the buyer, who buys the goods on the resale, will acquire a valid title thereto, as against the original buyer, even in the cases where the unpaid seller had failed to give the required notice in case of imperishable goods.

Right Against the Buyer Personally

(a)Right to sue for the Price Where, under the contract, the property (ownership) in the goods sold has passed on to the buyer, and the buyer wrongfully neglects or refuses to pay the price of the goods bought by him, the seller can sue the buyer for realisation of the price of the goods sold. [Section 55]. Further, where, under the contract, the price of the goods sold is payable on a day fixed for payment, irrespective of the delivery of the goods to the buyer, and the buyer wrongfully neglects or refuses to pay the price of the goods bought by him, the seller may sue the buyer for realisation of the price of the goods sold, although the property (ownership) in the goods sold, has not passed on to the buyer, and the goods have not been appropriated to the contract.

Right Against the Buyer Personally

(b) Right to sue for the Damages Where the buyer wrongfully neglects or refuses to accept of the goods and pay for the goods bought by him, the seller may sue the buyer for damages for non-acceptance of the goods sold. Further, in the cases where the property (ownership) in the goods sold has not been passed on to the buyer, and the price of the goods sold was not payable without passing on the property (ownership) in the goods sold, the seller can sue the buyer only for the damages, and not for the realisation of the price of the goods sold. [Section 56]. Where the goods have been put up for sale by auction in lots, each lot will be, prima facie (on the face of it), treated as the subject matter of a separate contract of sale by auction [Section 64].

Sale at auction is deemed completed when the auctioneer announces its completion, customarily by way of falling of the hammer, or in some other customary manner. Usually the auctioneer announces the completion of the sale, three times. Before such announcement of the completion of the sale by the auctioneer three times, any bidder can withdraw his bid. The right to bid may be reserved expressly by the seller or by some other person on his (sellers) behalf. Where such right is so reserved expressly, but not otherwise, the seller or some other person on his (sellers) behalf may also bid at the auction. But where it has not been expressly notified to be subject to the right to bid by or on behalf of the seller, it will be unlawful for the seller to bid for himself or even to employ some other parson to bid on his (sellers) behalf at such auction. Such auction will, accordingly, be treated as fraudulent.

Similarly, if the auctioneer knowingly takes any bid from the seller personally, or even from some other person employed by the seller for this purpose, it will be deemed to be unlawful even for the auctioneer. Such auction will, accordingly, be treated as fraudulent. Sale by auction must be notified to be subject to a reserved or upset price (i.e. below this reserved minimum price the goods will not be sold by auction). Where the seller makes use of any pretended (feigned or false) bidding, so as to raise the price of the goods under auction, such sale by auction will be treated as voidable at the option of the buyer thereof. Thornett vs. Haines [(1846) 15 M.&W 367]