The Sale of Goods Act, 1930

CHAPTER V
RIGHTS OF UNPAID SELLER AGAINST THE GOODS
As per Section 2(f) of the Indian Contract Act, the seller must transfer the
goods sold, and the buyer must pay the required amount in return, under
Page | 1 the contract of sale by them.

This is known as Reciprocal Promise. In other words, any set of promises

made which forms the consideration or part of the consideration for each
other are called reciprocal promises and every contract of sale of goods
consists of reciprocal promises.
Section 45 of the Sales of Goods Act defines the term ‘Unpaid Seller’ as
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 endorsed, or a consignor or agent who has himself paid, or is
directly responsible for, the price.

Under Section 45(1) of the Act, the word "unpaid seller" has been defined as
follows-
Unpaid Seller
The seller is called unpaid seller when,
(i) he is unpaid in respect of the goods sold,
(ii) Bill of exchange or any other negotiable instruments dishonoured, or
(iii) partly paid and partly unpaid.
The unpaid seller can exercise his right of action to receive the payment or
balance of payment from the buyer. Although, negotiable instruments like a
bill of exchange, cheque and promissory notes which are always presumed
to be conditional payment but when these negotiable instruments are
dishonoured then it is said that conditions for payment of price are not
fulfilled.
Though, under Section 45(2) of Act which provides extensive definition of
an unpaid seller in which rights of an unpaid seller would be similar to
those of the ordinary seller. Thus, the agent of the seller whose name is
 The Sale of Goods Act, 1930

endorsed in the bill of lading or such an agent or consignor who himself paid
the price or who is directly responsible for the payment are in a position of
the seller.
In M/s. Mewar Textiles Mills v. M/s. Sitaram Basanti Lal Jain, for Mewar
Page | 2 Textiles Mills a separate wagon was supplied by B and instead of mill the
price of coal was paid to mines. The Mills refused to take coal supplied to
them. Because, the delivery of the goods has not been taken, therefore, the
railway officials charged demurrage and retained the goods. 'B' filed the
petition for the recovery of he price and he argued that the price of coal was
paid instead of the mill. It was held that the case is maintainable and it
cannot be said that ‘B’ is seller under the Sale of Goods Act under the
Section 45. So , for compensation the petition can be filed against the mill.
46. Unpaid seller’s rights.—(1) Subject to the provisions of this Act and of
any law for the time being in force, notwithstanding that the property in the
goods may have passed to the buyer, the unpaid seller of goods, as such, has
by implication of law—
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in
transit after he has parted with the possession of them;
(c) a right of re-sale as limited by this Act.
(2) 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 similar to
and co-extensive with his rights of lien and stoppage in transit where the
property has passed to the buyer.

COMMENTS
The rights of an unpaid seller provided under Section 46 of the Act, however
it can be discussed under the following two
heads.
Rights of an unpaid seller:
A. RIGHT AGAINST THE GOODS, and
B. RIGHT AGAINST THE BUYER PERSONALLY
A. Right against the goods-
As provided under Section 46 to protect the interest of an unpaid seller the
rights conferred upon him, are-
1. A lien on the goods for price when an unpaid seller is in possession of
them.
 The Sale of Goods Act, 1930

2. When, the buyer becomes insolvent an unpaid-seller would have right of

stoppage of the goods in transit.
3. A right of re-sale as limited by the Act.
These rights of an unpaid seller are provisions of law. Thus, it does not
Page | 3 depend upon any express or implied agreement.

Unpaid Seller’s Lien

Three important rights of an unpaid seller against the goods

 Right of lien
 Right of stoppage of products in transit
 Right of resale

Rights of Lien (Section 47)

As per Section 47 of the act :

47. Seller’s 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.
“Lien” is the right to keep possession of products and refuse to give purchaser
until the fee is paid by the purchaser. An unpaid seller, in possession of
products, is entitled to work out his lien on the products within the following
instances:

1. In which the goods were sold without any requirement as to credit

score.
2. Where the goods were sold on credit however the term of credit has
expired.
3. In which the buyer will become insolvent even though the period of
credit began to expire.
In the case of the purchaser’s insolvency, the lien exists even though goods
were offered on credit and the duration of credit has not expired till the time.
 The Sale of Goods Act, 1930

When the products are offered on credit, the presumption is that the customer
shall preserve his credit suitable.

Part Delivery (Section 48)

Page | 4
48. Part delivery.—Where an unpaid seller has made part delivery of the
goods, he may exercise his right of lien on the remainder, unless such part
delivery has been made under such circumstances as to show an agreement
to waive the lien.
Wherein an unpaid seller has made component shipping of the goods, he
may also exercise his rights of lien on the rest, except such element shipping
has been made under such instances as to reveal an agreement to waive the
lien.
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.
(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.
When is lien lost?
As already discovered, lien relies upon physical ownership of products. As
soon as the possession is misplaced, the lien is also misplaced. The unpaid
dealer of goods loses his lien thereon inside the following instances:

1. When he provides the products to a carrier or other bailee for the

motive of transmission to the customer without reserving the rights
of possession of the products.
2. When the buyer lawfully obtains ownership of the goods.
3. When the seller expressly or impliedly waives his rights of lien. An
implied waiver takes place while the seller offers a fresh time period
of credit or allows the customer to just accept an invoice of trade
payable at a particular date to a sub-sale which the purchaser may
additionally have made.

Accordingly, when a refrigerator after being bought, will be delivered to the

purchaser and if it no longer functions well, the buyer takes it again to the
seller for repairs, here we can say that the seller could not exercise his lien
over the fridge.
 The Sale of Goods Act, 1930

Stoppage in Transit
50. Right of stoppage in transit.—Subject to the provisions of this Act,
when the buyer of goods becomes insolvent, the unpaid seller who has parted
with the possession of the goods has the right of stopping them in transit, that
Page | 5 is to say, he may resume possession of the goods as long as they are in the
course of transit, and may retain them until payment or tender of the price.
Section 50 of the Act, which provides rights of stoppage in transit to the
unpaid seller in respect of the goods sold, however this right of stoppage in
transit is subject to fulfilment of the following essential conditions-
1. The seller must be unpaid seller.
2. The buyer to become insolvent. 3. The goods to be in transit.
4. The property must have passed to the buyer.
The goods are in transit means that the seller has parted with the
possession of the goods but the buyer has not acquired, even not his agent,
it may be in the possession of a carrier, i.e., an independent middleman.

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
 The Sale of Goods Act, 1930

such part delivery has been given in such circumstances as to show an

agreement to give up possession of the whole of the goods.
Duration of Transit (Section 51)
Goods are in the course of transit from the time the seller delivers them to a
Page | 6 carrier or a bailee for transmission to the buyer until the buyer or his agent
takes delivery of the said goods.

Some scenarios of the transit ending:

 The buyer or his agent obtain delivery before the goods reach the
destination. In such cases, the transit ends once the delivery is
obtained.

 Once the goods reach the destination and the carrier of bailee
informs the buyer or his agent that he holds the goods, then the
transit ends.

 If the buyer refuses the goods and even the seller refuses to take
them back the transit is not at an end.

 In some cases, goods are delivered to a ship chartered by the

buyer. Depending on the case, it is determined that if the master is
functioning as an agent or carrier of the goods.

 If the carrier or other bailee wrongfully refuses to deliver the goods

to the buyer or his agent, the transit ends.

 If a part-delivery of the goods has been made and the unpaid seller
stops the remaining goods in transit, then the transit ends for
those goods. This is provided that there is no agreement to give up
the possession of all the goods.

52. How stoppage in transit is effected.—(1) The unpaid seller may

exercise his right of stoppage in transit either by taking actual possession of
the goods, or by giving notice of his claim to the carrier or other bailee in
whose possession the goods are. Such notice may be given either to the
person in actual possession of the goods or to his principal. In the latter case
the notice, to be effectual, shall be given at such time and in such
circumstances that the principal, by the exercise of reasonable diligence, may
communicate it to his servant or agent in time to prevent a delivery to the
buyer.
(2) When notice of stoppage in transit is given by the seller to the carrier or
other bailee in possession of the goods, he shall re-deliver the goods to, or
 The Sale of Goods Act, 1930

according to the directions of, the seller. The expenses of such re-delivery shall
be borne by the seller.
How Stoppage is Affected (Section 52)
There are two ways of stopping the transit of goods:
Page | 7

1. The seller takes actual possession of the goods

2. If the goods are in the possession of a carrier or other bailee, then

the seller gives a notice of stoppage to him. On receiving the notice,
the carrier or bailee must re-deliver the goods to the seller. The
seller bears the expenses of the re-delivery.
Effect of Stoppage
Even if the unpaid seller exercises his right of stoppage in transit, the contract
stays valid. The buyer can ask for delivery of the goods after making the
payment.

Transfer by buyer and seller

53. Effect of sub-sale or pledge by buyer.—(1) Subject to the provisions of
this Act, the unpaid seller’s right of lien or stoppage in transit is not affected
by any sale or other disposition of the goods which the buyer may have made,
unless the seller has assented thereto:
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, and that person
transfers the document to a person who takes the document in good faith and
for consideration, then, if such last mentioned transfer was by way a sale, the
unpaid seller’s right of lien or stoppage in transit is defeated, and, if such last
mentioned transfer was by way of pledge or other disposition for value, the
unpaid seller’s right of lien or stoppage is transit can only be exercised subject
to the rights of the transferee. (2) Where the transfer is by way of pledge, the
unpaid seller may require the pledgee to have the amount secured by the
pledge satisfied in the first instance, as far as possible, out of any other goods
or securities of the buyer in the hands of the pledgee and available against
the buyer.
Pledge by the Buyer (Section 53)
Unless the seller agrees, the right of lien or stoppage is unaffected by the
buyer selling or pledging the goods. The principle is simple: the second buyer
cannot be in a better position that the seller (first buyer). However, if the buyer
transfers the document of title or pledges the goods to a sub-buyer in good
faith and for consideration, then the right of stoppage is defeated.

There are two exceptions to make note of:

 The Sale of Goods Act, 1930

a. The seller agrees to resale, mortgage or other disposition of the goods

If the seller agrees to the buyer selling, pledging or disposing of the goods in
any other way, then he loses his right to lien.

Page | 8 b. Transfer of the document of title of goods by the buyer

When the seller transfers the document of title of goods to the buyer and the
buyer further transfers it to another buyer who purchases the goods in good
faith and for a price, then:

 If the last mentioned transfer is by way of sale, the original seller’s

right of lien and stoppage is defeated.

 If the last mentioned transfer is by way of a pledge, the original

seller’s right of lien or stoppage can be executed subject to the
rights of the pledgee.

54. Sale not generally rescinded by lien or stoppage in transit.—(1)

Subject to the provisions of this section, a contract of sale is not rescinded by
the mere exercise by an unpaid seller of his right of lien or stoppage in transit.
(2) Where the goods are of a perishable nature, or 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, the unpaid seller may, if the buyer does not
within a reasonable time pay or tender the price, re-sell the goods within a
reasonable time and recover from the original buyer damages for any loss
occasioned by his breach of contract, but the buyer shall not be entitled to any
profit which may occur on the re-sale. If such notice is not given, the unpaid
seller shall not be entitled to recover such damages and the buyer shall be
entitled to the profit, if any, on the re-sale.
(3) Where an unpaid seller who has exercised his right of lien or stoppage in
transit re-sells the goods, the buyer acquires a good title thereto as against
the original buyer, notwithstanding that no notice of the re-sale has been
given to the original buyer.
(4) Where the seller expressly reserves a right of re-sale in case the buyer
should make default, and, on the buyer making default, re-sells the goods, the
original contract of sale is thereby rescinded, but without prejudice to any
claim which the seller may have for damages.
The right of resale is an important right for an unpaid seller. If he does not
have this right, then the right of lien and stoppage won’t make sense. An
unpaid seller can exercise his right of resale under the following conditions:

 Goods are perishable in nature: In such cases, the seller does

not have to inform the buyer of his intention of resale.
 The Sale of Goods Act, 1930

 Seller gives a notice to the buyer of his intention of resale:

The buyer needs to pay the price of the goods and ask for delivery
within the time mentioned in the notice. If he fails to do so, then
the seller can resell the goods. He can also recover the difference
between the contract price and resale price if the latter is lower.
Page | 9 However, if the resale price is higher, then the seller keeps the
profits.

 Unpaid seller resells the goods post exercising his right of

lien or stoppage: The subsequent buyer acquires a good title to
the goods even if the seller has not given a notice of resale to the
original buyer.

 Resale where the right of resale is reserved in the contract of

sale: If the contract of sale specifies that the seller can resell the
goods if the buyer defaults, then the seller reserves his right of
sale. He can claim damages from the original buyer even if he does
not give a notice of resale to him.

 Property in the goods has not passed to the buyer: The unpaid
seller can exercise his right of withholding delivery of goods. This is
similar to the right of lien and is called quasi-lien.

Right of Lien vs. Rights of Stoppage in Transit

Features Right of Lien Rights of Stoppage in

Transit
Essence Retain possession Regain possession
Who has the The seller. The carrier or other
possession of the bailee. The buyer
goods? should not have
received the goods.
Buyer insolvent Not a mandatory The right can be
requirement exercised only when the
buyer becomes
insolvent.

In simple words, the right of stoppage in transit begins when the right of lien
ends.