Unpaid seller : Meaning

By: Ms. Manan Dardi

Email id: manan.dardi@vips.edu
Unpaid Seller: Meaning

• A person who has sold goods to another person but has not been paid
for the goods or been paid partially is called unpaid seller.

• For Example: Abhinav purchased goods worth Rs.20,000 from

Bhavesh. The ownership has already been transferred to Abhinav. But
Abhinav has not paid whole price or paid Rs.15000 to Bhavesh. Here,
Bhavesh is an unpaid seller
Unpaid Seller: Definition (Section 45)
• According to Section 45(1) of Sale of Goods Act, 1930, the seller is considered as an unpaid seller when:

• a- When the whole price has not been paid and the seller has an immediate right of action for the price.

• b- When Bills of Exchange or other negotiable instrument has been received as conditional payment, and the pre-

requisite condition has not been fulfilled by reason of the dishonour of the instrument or otherwise. 

• For instance, X sold some goods to Y for $50 and received a cheque. On presentment, the cheque was dishonoured by

the bank. X is an unpaid seller.

• Unpaid Seller also includes a person who is in a position of a seller i.e agent, consignor who had himself paid or is

responsible for the price.

The unpaid Seller has the following rights:

• In certain cases, when a buyer refuses or fails to pay the requisite amount to

the seller, the seller becomes an unpaid seller and can exercise certain rights
against the buyer. These rights are considered as seller’s remedies in case
there is a breach of contract by the buyer. These remedies can be against:

• Buyer

• Goods
Right against the goods (Sec 46)

• When the buyer has not paid the full or partial price of the goods
supplied to him, then the seller who has transferred the ownership of
goods to the buyer has the following rights with regard to the goods.

a) Right of lien

b) Right of stoppage of goods in transit

c) Rights of re-sale.
a) Right of Lien

Lien is the right to retain possession of goods until payment in respect

of them is paid.

According to section 47 if the seller of goods has not been paid and the

ownership of goods has been transferred to the buyer but the goods are

in the position of the seller the seller has the right to retain the goods till

he receives the price of goods from the buyer.

Cont…

• According to Section 48 if the seller has delivered a part of unpaid

goods he can exercise his right of lien on rest.

• In Grice V Richardson, the sellers had delivered a part of the three

parcels of tea comprised in the sales, and they had not been paid for
the part which remained with them. They were allowed to keep it till
the payment of the price.
Cont…

• Termination of lien takes place when the seller losses the possession of
goods. As per Section 49, under following circumstances right of lien is
terminated-

1. When the seller delivers the goods to a carrier for the purpose of
transmission to the buyer.

2. When the buyer or his agent lawfully obtains the possession of goods.
Cont…

3. When the seller has waived his lien on the goods.

.
b- Stoppage

• When the goods have been transferred to carrier or bailee for the purpose of transmission to the
buyer, who has become insolvent, the seller has the right to stop the goods in transit in order to
protect himself against the loss that may arise due to insolvency. As per Section 50, there are four
essential requirements for stopping the goods in transit:

• Unpaid seller.

• Buyer insolvent.

• Property should have passed to the buyer.

• Property should be in course of transit.

Duration of transit

• Section 51 lays down the rules and regulations related to commencement and end
of the transit.

• The carrier may hold the goods-

1. As seller’s agent: In this case, there is no transit because the goods are under
the seller’s lien.

2. As buyer’s agent: In this case the seller cannot exercise his right of stoppage in
transit because the buyer has acquired possession.
Cont…

• 3. As an independent contractor: In this case the seller has and can

exercise the right of stoppage in transit, it is not necessary that the
goods should be actually moving.
For example 
• In the case of Great Indian Peninsula v Hanmandas, the seller
consigned the goods with the GIP Ry Co for transportation to the
buyer. On the arrival at the destination, the company had delivered the
goods to the buyer who had loaded them on his cart, but the cart had
not yet left the railway compound when a telegram was received by
the company to stop the goods. The company did not do so and were
sued by the seller in damages. It was held that the transit had ended as
soon as the goods were handed over to the buyer.
The transit comes to an end in the
following cases
1. Interception by the buyer- When the buyer or the agent takes the
delivery of the goods from the carrier, the transit ends even before their
arrival at the appointed destination.
Cont…

• 2. Acknowledgement to the buyer- The transit is considered to come to

an end when the goods arrive at the appointed destination and the carrier
acknowledges to the buyer or his agent that he is now holding the goods
on his behalf. It is immaterial if the gods are still in the carrier or the
buyer has indicated another destination. In order to put an end to the
original contract of carriage, a very clear acknowledgement is required.
Example
• In the case of Whitehead v. Anderson, a quantity of timber was consigned on board. When
the ship arrived at the destination, the buyer went bankrupt. The buyer’s agent came to the
board and told that he has come to take possession. The captain said that he will deliver only
when the freight is paid. Before this could be done, the seller sent a notice to stop and asked
to send the goods to be delivered to the agent of the seller. The court said that since the
transit has not ended, the carrier was within his rights in returning the goods to the seller.
The captain agreed to deliver the goods on a condition and if the condition is not fulfilled,
the buyer does not acquire the constructive possession of goods.
Cont…

• 3. Rejection by the buyer– When the buyer rejects the goods and the carrier or
other bailee continues to possess them, the goods are held to be still in transit.

• 4. Delivery to ship charted by the buyer- It is a question of fact whether the

carrier is acting independently or as an agent of the buyer at the time when the
goods are delivered to a ship charted by buyer. As soon as the goods are
loaded on the ship, the transit ends if the carrier is acting as an agent of the
buyer.
Cont…
• Rosewear china clay co ltd, re, the contract was for the sale of china clay at FOB
Fowey. The buyer chartered a ship and instructed the seller to load to the goods at
Fowey, which was accordingly done. The destination of the ship was not told to the
seller nor any bill of lading signed. The seller gave notice stopping the goods.

• 5. Wrongful refusal to delivery- When the carrier wrongfully denies delivering the
goods to the buyer or his agent the transit is at the end. It is obvious that goods should
have arrived at their destination because otherwise, the carrier has the right to refuse to
deliver them.
Cont…
• In the case of Bird v. Brown, the court discussed as to when it is wrongful to refuse the
delivery of goods. In this case, the goods arrived at the destination but the buyer has
become insolvent. A merchant was acting for the seller who gave stop notice to the seller
without authority.

• Subsequently, the trustee of the buyer demanded the goods as the buyer was insolvent.
The carrier refused to deliver the goods and handed them to the merchant. The court said
that after the formal demand for goods by the trustee, there could be no valid stoppage in
transit.
Cont…

• 6. Part delivery- in the case when the goods have been delivered partly,
the seller has a right to stop the delivery of the rest of the goods unless the
part delivery shows an agreement to the possession of the whole. 

• For instance, A sells to B 20kg of wheat, 10kg has been transferred to B

but rest 10kg is still in transit, in case B fails to pay A has a right to stop
the goods in transit.  
c- Resale (Sec 54)

• Exercising the right of lien or stoppage does not rescind the agreement but reselling of goods does and
without this right, the other two rights of lien and stoppage would not be of much usage because he can
only retain goods under these right till the buyer pays back the money.

• The unpaid seller can exercise his right under following conditions and circumstances-

• 1- Seller before reselling the goods needs to send a notice to the buyer except in the case of perishable
goods, giving him last chance to pay the price and take back the goods within a reasonable time. If the
buyer does not pay the money back seller has the right to resell the goods. If the seller fails to give notice
of his intention to resell, he cannot claim damages from the buyer and he has to give any profit.
Cont…

• 2- Sometimes the seller reserves exclusive right to resale the goods if

the buyer makes a default in payment, in such cases the buyer cannot
ask for profit on resale if no notice is served and seller has the
exclusive right to resale.
THANK YOU