Rights of an Unpaid Seller and Remedies for Breach of Contract

Theoretical overview

Unpaid seller: if a seller who is unable to get payment even after the delivery of the goods and also if seller is failed to receive either money or instrumental benefit in return then the seller is known as unpaid seller.

 For example, ‘A’ is the seller who has sold some goods to ‘B’ for $45 and received a cheque in return from ‘B’. On payment, the cheque got dishonoured by the bank, so ‘A’ here becomes an unpaid seller.

As per section 45(1) of the Sale of Goods Act, 1930, a seller is deemed to be an unpaid seller when: –

• When full price has not been paid and the seller has an immediate right to take action for the price.
• When bills of exchange or other negotiable instruments have been received by way of conditional payment, and the pre-requisite condition has not been met due to dishonour of the instrument.

Rights Of Unpaid Seller Against goods

Section 47 defines the rights of unpaid seller.

1. Right of Possession/Lien:- If the buyer fails to pay the price within the decided time, then unpaid seller has the right to keep the goods in his possession and he can refuse to deliver the goods until the due payment is paid. According to section 47 of sales of goods act . A lien is a right that a seller of goods can exercise when the buyer has not paid the cost of the goods, allowing the seller to retain possession of the goods as an agent or bailee for the buyer. Seller can retain his possession under these circumstances: –
   1. If the buyer becomes insolvent even within the decided period for payment,
   2. If the goods have been sold on credit basis and the term of credit has expired,
   3. If the goods are sold on cash basis, but payment is unpaid
   4. Goods sold by way of credit unconditionally.

Termination  of lien

Section 49 of sales of goods act defines termination of lie:

The lien of unpaid seller terminated in the following ways:

1. When the seller delivered the goods to the carrier for the purpose of delivery of goods to the buyer.
2. When buyer or his agent legally obtained the possession of the goods.
3. When the seller has waived his lien on the goods.

Right to stoppage of goods in transit

According to section 50 if the seller has delivered to goods to the carrier for transmission to the buyer and the goods are in transit , if he finds out that the buyer become insolvent then the seller has right to stop the goods in transit and retain the possession of goods till he received the payment.

The seller has right of stoppage of goods in transit in following circumstances:

1. When the seller is unpaid.
2. When the buyer become insolvent.
3. The property must have passed from the seller to buyer

The transit came to end in following ways:

1. When the buyer or his agent has received the goods.
2. If the carrier or bailee wrongfully refuse to deliver the goods to the buyer or his agent.
3. After arrival of goods at the destination the carrier or bailee acknowledges to the buyer or his agent that he holds them on his behalf.
4. Right to re- sale (section 54):- an unpaid seller has right to re-sell the goods.

Section 54 defines the general rule for re-sale of goods by unpaid seller.

• An unpaid seller may exercise his rights against a good resale under the following conditions and circumstances: –

If the goods are perishable in nature then in such cases, the seller does not have to inform the buyer of his intention of resale. Unpaid seller can resell them immediately without the notice to the buyer. But in case of non-perishable items unpaid seller needs to send notice to the buyer for reselling them.

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.

If there is a loss in the resale of the goods, the unpaid seller can claim the loss from the buyer, conversely, if there is a profit, the buyer cannot claim it.

Where unpaid seller gives the notice to buyer and buyer still don’t pay for it.

If the buyer becomes insolvent.

The seller has the exclusive right to resell the goods in certain cases, if the buyer fails to pay, and then the buyer cannot claim a profit on the resale if no notice is given.

Rights Of Unpaid Seller Against Buyer

1. Suit for the Price: –

• Section 55(1)  stated that seller can sue buyer, when any goods are delivered to the buyer and the buyer has wrongly disregarded or refused to pay the amount which was agreed by him in the terms and conditions of the contract, because once the property is passed to the buyer, he is bound to pay the price.
• Whenever the seller has delivered all his goals to the buyer, and the buyer refuses to pay the amount then the seller can use of his right and file a case against the buyer by non-payment for his goods. The sales of goods act clearly explain that the seller has to receive the payment from the buyer after delivering the goods.
• According to clause 2 of section 55(2), In case the due date of payment has passed and the goods also have not yet been delivered, the seller can still sue the buyer for wrongful neglect or refusal on his part.

2. Suit for Interest: –

• According to section 61 when there is a specific agreement between buyer and seller with regards to interest on the price of goods from the date on which payment becomes due, the seller may recover interest from a buyer. But if there were no such agreement the seller may charge interest from the day he notifies the buyer.
• Generally, the buyer and seller will make a contract or agreement to provide goods at one particular time, and the payment will be made after being sure. Of time with interest rate. This contract is made with the acceptance of both parties. But if the buyer refuses to pay interest or less rate of interest during the time of payment, then the seller has a right to sue for the interest for goods which he has delivered earlier.
• If there is no contract to the contrary, the Court may award interest to the seller at such rate as it deems fit on the amount of value from the date on which the amount is due.

3. Suit for Damages for Non-Acceptance: –

• According to section 53 of sales of good act, if there is a wrongful refusal on the part of the buyer to accept the goods and pay the money, the seller can sue him for damages of non-acceptance.
• This right is beneficial to the seller when the buyer refuses to take the goods, and it causes certain damage to the goods then the seller can file against the buyer for the damage of goods because of his non-acceptance. For example, food products, dairy products will get damaged if the buyer refuses to take them, once the order has been placed.
• There is a duty of mitigation on the part of the seller, which means that the loss must make reasonable efforts to minimize the damage caused by that breach. For example, if the seller can resell the goods, the difference between the contract and the resale value is passed on to the seller, but if the seller intentionally refuses to resell the goods and its market value is reduced, the buyer will not be liable for loss.

4. Suit for breach of contract before the due date: –

• According to section 60 the anticipatory breach of contract rule applies, in which, if the buyer rejects the contract before the date of delivery, the seller may treat the contract as void and sue for breach of damages.
• If the buyer refuses to continue the contract or if he rejects the contract in the middle itself without any prior notice and genuine reason, the seller has the right to sue for the contradiction of the contract before the due date. It is also available in the Indian contract act due to the name of anticipatory breach of contract. Breach of contract means quitting either of the parties from the contract without any reason or any information.

Relevant sections

1. section 45(1) of the Sale of Goods Act, 1930, a seller is deemed to be an unpaid seller when: – 

• When full price has not been paid and the seller has an immediate right to take action for the price.
• When bills of exchange or other negotiable instruments have been received by way of conditional payment, and the pre-requisite condition has not been met due to dishonour of the instrument.

2. Section 47 A lien is a right that a seller of goods can exercise when the buyer has not paid the cost of the goods, allowing the seller to retain possession of the goods as an agent or bailee for the buyer.
3. Section 49 of sales of goods act defines termination of lie.
4. Section 50 Right to stoppage of goods in transit
5. Section 54 Right to resale
6. Section 55(1)  stated that seller can sue buyer, when any goods are delivered to the buyer and the buyer has wrongly disregarded or refused to pay the amount which was agreed by him in the terms and conditions of the contract, because once the property is passed to the buyer, he is bound to pay the price.
7. section 55(2), In case the due date of payment has passed and the goods also have not yet been delivered, the seller can still sue the buyer for wrongful neglect or refusal on his part.
8. section 61 when there is a specific agreement between buyer and seller with regards to interest on the price of goods from the date on which payment becomes due, the seller may recover interest from a buyer. But if there were no such agreement the seller may charge interest from the day he notifies the buyer.
9. According to section 53 of sales of good act, if there is a wrongful refusal on the part of the buyer to accept the goods and pay the money, the seller can sue him for damages of non-acceptance
10. section 60 the anticipatory breach of contract rule applies, in which, if the buyer rejects the contract before the date of delivery, the seller may treat the contract as void and sue for breach of damages.

Important case laws

1. RV Ward vs. Bignall:

Facts of the case: – The contract of sale was for two cars worth $850. The buyer deposited $25 but later did not pay the price, despite giving proper notice. The seller then tried to put the cars on resale but was only able to resell one car for $359. Seller claimed damages of $475 as balance value and $22 as advertising expense.

Judgement of the case: – In this case, the court held that once the seller resells the goods, the contract is void and he cannot claim the money, but ask for reduction in advertising expenses and the cost of the car sold.

2. Lachia Shetty vs. Coffee Board

Facts of the case: – In this case, a dealer bidding at the coffee auction was first accepted and later refused to fulfil the contract. This caused the coffee to be re-auctioned at the next best bidding price.

Judgement of the case: – In this case, the court asked the dealer to pay the difference in the amount of damages to the board.

Points to remember

1. if a seller who is unable to get payment even after the delivery of the goods and also if seller is failed to receive either money or instrumental benefit in return then the seller is known as unpaid seller.
2. The unpaid seller has three rights against goods which are right to lien, right to stoppage of transit, right to resale.
3. The unpaid seller has right against the buyer which are suits for price, suits for damages, suits for interest, suits for breach of contract before the due date.