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Published by: Caroline Joy Fletcher on Jul 10, 2011
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1. INTRODUCTON In a transaction of sale it is not possible to avoid credit sales.

In credit sales there is a risk of a debtor not paying the price of the goods even after the credit period is over. The seller of the goods therefore must possess some rights which he can use to secure payment of the price. If the recovery of the price is not possible due to the reason of bankruptcy of the buyer, he must have some other remedies. The Sale of Goods Act has made elaborate provisions regarding the rights of an unpaid seller. 2. DEFINITION The term µunpaid seller¶ may be defined as the seller to whom the full price of the goods sold had not been paid. The seller of goods is deemed to be unpaid (Sec. 45-1) (1) The seller of goods is an ³unpaid seller´: (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 conditions on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise. (2) The term ³seller´ 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 endorsed, or a consignor or agent whohas himself paid, or is directly responsible for, the price. 3. FEATURES OF THE UNPAID SELLER I. He must sell goods on the cash basis and must be unpaid. II. If he sells on credit basis, he is not an unpaid seller during the period of credit. III. The term of credit has expired and the price has not been paid to him. IV. He must be unpaid wholly or partially. If a part of price remains unpaid, he is unpaid. V. When the price is paid in the form of negotiable instruments and it has been dishonored. VI. If buyer offers payment and seller refuses to accept, the seller is not an unpaid seller. 1

May & Baker² case. sold a quantity of citric acid crystals to one P. A seller of goods who received only part of the payment for the goods is an unpaid seller. (b) In the above example if B accepts a bill of exchange and it is dishonored by him on due date. ¹ Goldshede v. agreed to take them back and refunded the price to P. paid. L Co. cheque is not an unpaid seller. therefore.´ The Court held that they have to return the goods since P is not an unpaid seller. L Co. 2 . The latter gave a cheque to M & B.000/ . ³In J. bill of exchange.to B on credit of 5 months. for the payment was already done in complete¹. The goods were not of the contract quality.Lyons & Co. Negotiable instrument is something given as conditional payment. v. promissory note. ² J..Lyons & Co. This cheque was dishonoured and.L. Cottrell(1836) 2 M & W 20: 6 LJ Ex 26. P bought. then the seller becomes unpaid seller. A seller of goods who received a negotiable instrument e. 50. But when negotiable instrument is given as absolute payment.Illustrations (a) Z sells goods worth Rs. who resold the goods to M & B.. therefore. and rejected the goods. if the negotiable instrument gets dishonored. in refund of the price.g. A shall be considered as an unpaid seller.L. After 5 months B did not pay the price. Z shall be regarded as an unpaid seller. v. M & B sought to retain the goods till their price was refunded. But before delivery of the goods. May & Baker(1923) 129 LT 413: [1923] 1 KB 685. the seller won¶t become an unpaid seller.

The goods have been sold on credit. but the term of credit has expired or c. Sanders3 case. where ± a. The buyer becomes insolvent. he has no right to the possession. Right of Lien ± 'Lien is the right to retain possession of goods until certain charges in respect thereof are paid. the Court ruled that ³The buyer has no right to have possession of the goods till he pays the price. and payment or a tender of the price is a condition precedent on the buyer¶s part and until he makes such payment or tender. In Bloxam v. The goods have been sold without any stipulation s to credit. Rights Against The Goods 1.4. 948: 28 RR 525 3 . RIGHTS OF AN UNPAID SELLER I. Where the property in the goods has passed to the buyer. The seller¶s right in respect of the price is not a mere lien which he will forfeit if he parts with the possession. Sanders 4 B & C 941.´ Where the goods have been sold on credit. The seller may exercise his right of lien notwithstanding that he in possession of the goods as agent or bailee for the buyer. b. 1. 3 Bloxam v. the right of lien shall remain suspended over the period of credit and shall revive on the expiry of that period. but grows out of his original ownership and dominion. An unpaid seller who is in possession of the goods is entitled to retain them until payment of the price.

(28 Bom. because his lein thereon (shares) had already ceased the moment he had delivered the shares to the buyer. before the cheque. (b) When the buyer or his agent lawfully obtains possession of the goods. and had also delivered those share certificates to the buyer along with the share transfer deed duly signed by him. Wadilal4. The payment was. 4 Bharneha v. Wadilal. (2) The unpaid seller of goods. however made by the buyer by means of a cheque. could be realized by the seller. It was held in this case that the seller of the shares did not have any lien on the share certificates so sold and delivered to the buyer along with the share transfer deed duly signed by him. In the case titled Bharneha v.C) a person had sold some of his shares to another person (buyer). L. However. not lose his lien by reason only that he has obtained a decree for the price of the goods The right of lien is linked with possession of the goods and not with the title. L. if the buyer has further transferred the documents of title to a bona fide purchaser the seller's lien is defeated. representing the payment of the price of the shares. having a lien thereon.R777P. It is not affected even if the seller has transferred the documents of title till he remains in possession of the goods.R777P.Termination of Lien (1) The unpaid seller of goods losses 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. the buyer had become insolvent. (c) By waiver thereof.C) 4 . Subsequently.(28 Bom.

Cargo Fleet Iron Co. Ltd. Ltd. Ltd. the transit is at an end.5 case. Lancashire and Yorkshire Railway Co. (2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination.2. Lancashire and Yorkshire Railway Co.´ 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. v. Cargo Fleet Iron Co. Ltd. The right of stoppage in transit is available to an unpaid seller. when the buyer becomes insolvent and the goods are in transit.6 case. or some person intervening between the vendor who has parted with and the purchaser who has not yet received them. The seller has the right to resume possession of the goods while they are in the course of transit and to retain them until payment or tender of the price. 5 Booth Steamship Co. The buyer is said to be 'insolvent' when he has ceased to pay his debts in the ordinary course of business.´ It is not necessary that the goods should be actually moving.[1916] 2 KB 570. the Court held that ³The essential feature of a stoppage in transitu is that the goods should be in the possession of a middleman. v. In Booth Steamship Co. 580 Schotsmans v.(1867) 2 Ch App 332: 36 LJ Ch 361 6 5 . arises to an unpaid seller after he has parted with the possession of the goods. or cannot pay his debts as they becomes due whether he has committed an act of insolvency or not. until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee. the Court held that ³It is a right founded upon the plain reason that one man¶s goods shall not be applied to the payment of another man¶s debts. In Schotsmans v. Right of Stoppage in transit ± The right of stoppage of goods 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. (2) Whether notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods.(3) If. the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer. after the arrival of the goods at the appointed destination. shall be given at such time and in such circumstances. that the principal. it is a question depending on the circumstances of the particular case. The expenses of such re-delivery shall be borne by the seller. 6 . even if the seller has refused to receive them back. Such notice may be given either to the person in actual possession of the goods or to his principal. the transit is deemed to be at an end. or according to the directions of. or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. the seller. to be effectual. the remainder of the goods may be stopped in transit. may communicate is to his servant or agent in time to prevent a delivery to the buyer. How Stoppage in Transit is Effected (1) The unpaid seller may exercise his right to stoppage in transit either by taking actual possession of the goods. by the exercise of reasonable diligence. the transit is not deemed to be at an end. (5) When goods are delivered to a ship chartered by the buyer. (6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. whether they are in the possession of the master as a carrier or as agent of the buyer. 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. (4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them.(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf. he shall re-deliver the goods to. In the later case the notice.

because the seller cannot continue to hold the goods indefinitely. An unpaid seller may resell the goods -1. 4. Right of withholding Delivery ± Where the property in the goods has not passed to the buyer. and 3. when after giving a notice to the buyer of his intention to resell the goods.3. without giving any notice to the buyer. Right of Resale ± The rights of lien and stoppage in transit. Resale was conducted after the last extended period. No notice to the buyer is required in that case. Still he failed to take away what he purchased. The Court held that the resale was done after waiting a reasonable period. of the resale. In case of other goods. v. When the goods are of perishable nature. 2. Where the property in the goods has not passed to the buyer. the buyer failed to take away the quantity of tobacco purchased by him. the unpaid seller has the right to withhold delivery of the goods. would not have been of much value if he seller had no right to resell the goods.(1998) 5 Andh LT 331 AP (DB) 7 . Where the seller has expressly reserved the right of resale in the contract. extension of time was given. In Andhra Pradesh Tobacco Growers Co-operative Union Ltd. Section 54 provides an unpaid seller with a limited right to resell the goods. On his application. v. 7 Andhra Pradesh Tobacco Growers Co-operative Union Ltd. 2. Anjaneya Tobacco Co.7 case. Anjaneya Tobacco Co. the buyer does not pay the price within a reasonable time. which is similar to and co-extensive with his rights of lien and stoppage in transit which he would have had if the property had passed.

Suit for Interest --The seller may recover interest or special damages whereby law interest or special damages may be recoverable. 4. Where under a contract of sale the price is payable on a certain day irrespective of delivery or passing of property. 8 . The damages will be assessed according to the prices prevailing on the date of breach. Rights Against the Buyer Personally (Seller's Remedies Against buyer for Breach of Contract)² Besides.Where the buyer wrongfully neglects or refuses to pay for the goods. 2. the seller is entitled to sue him for the price. The seller enjoys the following rights in personam (also known as remedies for breach of contract). the seller may sue him for the price. otherwise he shall be liable to damages assessed according to the prices on the day stipulated for delivery. The seller may treat the contact as rescinded and sue the buyer for damages. 1. 5. The contract remains open at the risk and for the benefit of both the parties. 2. the seller may sue him for damages for non-acceptance. viz. unless the seller has assented thereto.5. This is also known as 'damages for anticipatory breach'.When the property in the goods has passed to the buyer. The seller may treat the contract as subsisting and wait till the date of delivery. Effect to sub-sale or pledge by buyer. If the buyer subsequently chooses to perform there shall be no damages.(1) Subject to the provisions of this Act. and the buyer refuses or neglects to pay on that day. Suit for Damages for Repudiation of contract before date of delivery Where the buyer repudiates the contract before the date of delivery. and the buyer wrongfully neglects or refuses to pay the price. 3. the above rights against the goods. the unpaid seller¶s right of lien or stoppage in transit is not affected by any sale or other disposition of the gods which the buyer may have made..1. Suit for Price -. Suit for Damages for Non-Acceptance -. the seller may adopt any of the following two courses of action. an unpaid seller have certain rights against the buyer personally.

the unpaid seller¶s right of lien of stoppage in transit is defeated. and. the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit. the unpaid seller may. the buyer acquires a good title thereto as against the original buyer. out of any other goods or securities of the buyer in the hands of the pledge and available against the buyer. but without prejudice to any claim which the seller may have for damages. (2) Where the goods are of a perishable nature.(1) Subject to the provisions of this section. the original contract of sale is thereby rescinded. the buyer making default. Sale not generally rescinded by lien or stoppage in transit. re-sells the goods. if the buyer does not within a reasonable time pay or tender the price. if such last mentioned transfer was by way of pledge or other disposition for value. (4) Where the seller expressly reserves a right of re-sale in case the buyer should make default. notwithstanding that no notice of the re-sale has been given to the original buyer. and on. 9 . If such notices is not given. if any. on the re-sale. but the buyer shall not be entitled to any profit which may occur on the re-sale. if such last mentioned transfer was by way of sale. a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or stoppage in transit.Provided that where a document of title to goods has been issued or lawfully transferred to any person as buyer or owner of the goods. the unpaid seller¶s right of lien or stoppage in transit can only be exercised subject to the rights of the transferee. the unpaid seller may require the pledge to have the amount secured by the pledge satisfied in the first instance. 6. as far as possible. then. and that person transfers the document to a person who takes the document in good faith and for consideration. re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract. or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notices to the buyer of his intentions to re-sell. (3) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods. (2) Where the transfer is by way of pledge.

charge or other security. interest. or Any legal proceedings or remedy in respect of any such right.CONCLUSION Nothing in this Act or in any repeal affected thereby shall affect or be deemed to affect. notwithstanding anything contained in this Act. or Any enactment relating to the sale of goods which is not expressly repealed by this Act. or Anything done or suffered before the commencement of this Act. obligations or liability already acquired. title. The provisions of this Act relating to contracts of sale do not apply to any transaction in the form of a contract of sale which is intended to operate by way of mortgage. title. interest. 10 . or Any rule of law not inconsistent with this Act The rules of insolvency relating to contracts for the sale of goods shall continue to apply thereto. accrued or incurred before the commencement of this Act. obligation or liability. pledge. Any right.

11 . Uttar Pradesh: Eastern Book Company. 3 of 1930). Rights of Unpaid Seller Against the Goods. Rights of Unpaid Seller Against the Goods. Bharuka (Editor)) (2007) The Sale of Goods Act.) Chapter 3. Pages: 18-20. India: LexisNexis Butterworths (A Division of Reed Elsevier India Pvt Ltd. Bare Act with Short Comments. 1930 (Act No. Rights of Unpaid Seller Against the Goods. Pages: 168-189. Chapter V. Justice G.BIBLIOGRAPHY 1. (Dr. Pages: 359-420. 4. Sections 45-54. C. Avtar Singh. Ltd. Pollock and Mulla. (2009) Allahabad: Law Publishers (India) Pvt. (2000) Law of Sale of Goods & Hire Purchase. (5/e) Lucknow. 2. (7/e) New Delhi. The Sale of Goods Act. Chapter 7.

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