Topic 10: RIGHTS OF UNPAID SELLERS

Introduction:
A contract of sale is just like any other contract, where both the parties need to perform their part of obligations. So it is the duty of the seller to deliver goods as pert he terms of the contract and it is the duty of the buyer to accept the delivery of goods and pay for them accordingly. In case any of the parties does not perform his part of the promise, it amounts to breach of contract and therefore the aggrieved party can sue the defaulting party.
Unpaid Seller:
Under Section 45, a seller is said to be unpaid:
i) When the seller does not receive whole or part of the price.
ii) Where the seller had a negotiable instrument such as a bill of exchange and that instrument has been dishonoured.
The seller remains an unpaid seller as long as any portion of the price remains unpaid.
For example: A seller draws a bill of exchange for a price of goods on the buyer. The buyer duly accepted it, but on the date of maturity, the buyer refused to pay. Held, the seller is an unpaid seller.



Rights of an Unpaid Seller:
Under Sale of Goods Act, the rights of an unpaid seller can be categories into two broad categories i.e. the rights against the goods and the rights against the buyer personally.

I. Rights of unpaid seller against the goods

1. Right of unpaid seller where the property has passed (Sec 46(1): when the seller has transferred the property in goods to the buyer, but the buyer makes a default in payment of price then the seller has the following right or remedies:

i) Right of Lien (Sec 47- 49): ‘Lien’ is the right to retain possession of goods until payment in respect of them is paid. Where the seller has the possession of the goods and the buyer has refused to pay for the price, he can retain the possession of the goods until he receives the payment from the buyer.
For example: ‘A’ sells to ‘B’ a certain quantity of sugar. It is agreed that three months of credit shall be given. ‘B’ allows the sugar to remain in ‘A’s warehouse till the expiry of the three months, and then does not pay for them. A may retain the goods for price.
Right to lien depends on having the possession of the goods no matter even if the ownership has been transferred to the buyer. But once the possession of goods is lost, the right to lien is also lost.
Unpaid seller losses right of lien when:
a) The goods are already delivered to buyer.
b) The goods are delivered to the carrier, without reserving right of disposal of goods.
c) The seller waives off his right to lien.
d) The buyer pays the price.



ii) Right of Stoppage in Transit (Sec 47): Right to stoppage in transit means stopping the goods in transit after the seller had parted with the goods and then retaining the possession of goods till his payment is received. It is an extension of right to lien.
For example: ‘A’ bought goods from ‘B’ and asked him to send it through the shipment. But ‘A’ become insolvent, so ‘B’ send notice to shipping company to stop the delivery, but still it was delivered to ‘A’. it was held that the official assignee of the buyer ‘A’ is bound to return the goods to the seller ‘B’ as the goods have been effectively stopped in transit.
iii) Right of Resell (Sec 54): Apart from right to lien and right to stoppage in transit, unpaid seller has got the right to resell the goods, which is the subject matter of the contract.
Right to re-sell can be exercised when:
a) The goods are of perishable in nature.
b) The seller has exercised his both right to lien and stoppage in transit but did not get his price.
c) The seller reserves a right to re-sell in case of default by the buyer.
2. Right of unpaid seller where the property has not passed (Sec 46(2):
i) Right to withholding delivery: Where the property in goods has not passed, the buyer can exercise the right to withhold delivery of goods until payment is received. This right is a mix of right to lien and right to stoppage in transit.

II. Rights of unpaid seller against the buyer

1. Suit for price (Sec 55): The seller can sue the buyer for receiving his payment irrespective of the fact whether the property in goods has passed to the buyer or not.
2. Suit for damages for non – acceptance (Sec 56):  Where the buyer refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance of goods. The measure of damages is the difference between contract price and market price on date of breach.
For example: A seller contracted to supply 100 units of machine bolt to a buyer @ 5,000 per unit. The sell sent the consignment, but the buyer refused to accept it. The seller had to sell the consignment to another buyer but @ 4,500. Held the seller could sue the buyer for damages of on-acceptance of goods @ 500 per unit as the difference in price as a contact date and the price at which he had sell goods.



3. Suit for damages of anticipatory breach by buyer (Sec 60): Where the buyer repudiates the contract before the due date, the seller may, either treat the contract as rescinded and sue for damages for anticipatory breach on the date of breach only or he may wait till the due date and then repudiate the contract on the due date.
4. Suit for interest (Sec 61(2): The seller may sue the buyer for interest amount on the price from the date when the payment was due. If the buyer does not pay the price in time and wrongfully delays the payment the court may award interest on price.
For example: In M.K.M. Moosa Bhai Amin vs. Rajasthan textile mills, the buyer delayed the payment of price by one year. Even though the contract did not stipulate payment of interest on delay, it was held by the court, that the buyer was bound to pay interest @ 6% p.a. for the period of delay.