BY HARPREET KAUR, ADVOCATE
Written while pursuing MABL from NUJS, Kolkata
According to section 2(1) of Sale of Goods Act, 1930 (hereinafter referred to as SOGA) Seller is a person who sells the goods or agrees to sell the goods. Unpaid implies payment is not made or without payment.
Definition of an unpaid seller has been given under section 45 of SOGA. It says that an unpaid seller is a person who has not been paid yet either by cash or other negotiable instruments. In the case of negotiable instruments, the mere fact that it has been tendered by the buyer doesn’t mean that seller is not anymore an unpaid seller. He becomes an unpaid seller when even after tendering it, it is rejected by the bank or as the case may be. Section also provides that any person who is in the position of a seller e.g. his agent is also considered seller for the purposes of SOGA.
Although ownership of the goods is passed to the buyer after the sale of goods but an unpaid seller has certain rights.
An unpaid seller has two-fold rights which are as follows:
- Rights of unpaid seller against the goods.
- Rights of unpaid seller against the buyer personally.
RIGHTS OF AN UNPAID SELLER AGAINST THE GOODS SOLD
Under the SOGA, these rights are:
(1) a possessory lien (particular, not general);
(2) a right of stoppage in transitu; and
(3) a right of resale.
These rights have been provided in the provisions of S.46 of the SOGA which provides:
- 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.
Right of Lien:
For the recovery of price, an unpaid seller has a right to keep the goods in his own possession. Right of Lien means seller can withhold the delivery of goods to the seller till his payment is being made. In other words, ‘Lien’ is the right to retain possession of goods and refuse to deliver them to the buyer until the price due in respect of them is paid or tendered. Section 47 of SOGA deals with the right to Lien.
The SOGA provides for the conditions under which an unpaid seller will be able to exercise his right of lien i.e. where the goods are not sold on credit or if they were sold on credit and the term of the credit has expired or where the buyer becomes bankrupt.
In the case of buyer becomes bankrupt, the lien exists even though the goods were sold on credit and the period of credit has not yet expired. In cases where the goods have been sold on credit the presumption is that the buyer will pay the price. If, therefore, before payment the buyer becomes bankrupt, the seller is entitled to exercise his lien over the goods as security for the price.
The SOGA also provides that the seller can exercise this right notwithstanding that he is an agent, bailee or custodian for the buyer.
Example: X sells the goods to Y for Rs. 500. Y pays 250 and promises to pay the remaining 250 after two month. X has a right of lien on the goods.
This right of lien can be exercised only for the non-payment of the price and not for any other charges, i.e., maintenance or custody charges, which the seller may have to incur for storing the goods etc. Also, the right of lien extends to the whole of the goods in his possession even though part payment for those goods has already been made. In other words, the buyer is not entitled to claim delivery of a portion of the goods on payment of a proportionate price.
However, in those situations where goods have been partially delivered by the seller then he may exercise his right of lien on the remaining part unless there is an agreement in which he waives this right. This has been provided in S.48 of the SOGA.
In the case of Eduljee v. Café John Bros. the seller sold a second hand refrigerator to a buyer for Rs. 120 and it was further agreed that the seller will put that in order at a cost of Rs. 320. The buyer took the delivery of the refrigerator and admitted that it was working satisfactorily. Subsequently, two of its parts were delivered to the seller for further repairs. The seller now refused to deliver it back claiming a lien on them until the amount originally due had been paid. It was held that once the delivery of the refrigerator had been made to the buyer, the right of lien had come to an end and the same could not be revived by the seller again by getting the possession of those goods.
Termination of Lien
An unpaid seller loses his right of lien in the following cases:
If an unpaid seller himself waives his right of lien then it will be terminated.
2. Goods delivered to Buyer:
When a buyer or his agent or his any representative obtains the lawful possession of goods, unpaid seller’s right of lien automatically ends.
3. No Right of Disposal:
When an unpaid seller delivers the goods to the carrier/bailee without reserving the right to disposal with himself then his right of lien ends.
Section 49 of SOGA provides for the above-mentioned situations in which the seller loses his right of lien. It further provides that the right of Lien can still be exercised even though the seller has got a decree from a Court of Law for the payment of price.
Right of Stopping the Goods in Transit:
The right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retain them till the full price is paid. In other words, if buyer has become insolvent, an unpaid seller has a right of stopping the goods in transit and can resume the same on the payment of price. This right has been provided in Section 50 of SOGA. This right is limited to the transit only, the moment the goods are delivered to the buyer, seller cannot exercise this right. Cave J. has explained the position as “the moment the goods are delivered by vendor to a carrier to be carried to the purchaser the transitus begins. When the goods have arrived at their destination and have been delivered to the purchaser or when the carrier holds them as warehouse for the purchaser or his agent and no longer as carrier, the transitus is at end.”
Moreover, Section 51 of SOGA provides that in case of goods are being delivered to carrier by land or water then till the time buyer or his agent takes the possession of goods from such carrier on land or on water, seller can exercise this right. If the buyer takes the possession that means transit has come to an end and hence, seller cannot exercise this right.
Example: A sells 100 Kgs of wheat to B but delivery will be two stages. A delivers 50 Kgs wheat in first week of January and will deliver remaining in last week of January. Later on he comes know that B has become insolvent. A can stop delivery of remaining in transit and can resume the same on the payment of price.
When the notice of stoppage in transitu is communicated to the carrier/bailee having possession of goods then such person must re-deliver the goods only as per the seller’s instructions and in such case, the cost of re-delivering the goods will be borne by the seller. This has been provided by Section 52(2) of SOGA.
Lord Cairns LJ in case of Schotsmans v. Lances and Yorks Rly. had made the following observation in this regard:
“The essential feature of stoppage in transit is that the goods should be in the possession of a middleman or some other person intervening between the vendor who has parted with and the purchaser who has not received them.”
In Turner v. Trustees of Liverpool Docks the cargo of cotton was put on the ship of the buyer but the goods were made deliverable to seller or their order. Patterson J. while giving judgment observed that unless the vendor protects himself by special terms, restraining the effect of such delivery, there is no doubt that delivery was made to him.
In the case of Litt v. Cowley after the receipt of notice to stop the goods, the carried by mistake delivered the goods to the buyer. It was held that the assignees of the insolvent buyer were bound to deliver it back to seller or be liable to pay damages.
Difference between Right of Lien and Stoppage in Transit
- The seller can exercise his right of lien when the buyer is in default irrespective of his solvency whereas right of stoppage in transit arises only when the buyer has become insolvent.
- Right of Lien can be exercised by the seller only when the goods are in actual/physical possession of the seller whereas right of stoppage in transit becomes available when the seller has parted with possession and the goods are in the custody of an independent carrier/bailee.
- The right of lien comes to an end once the seller hands over the possession of the goods to the carrier for the purpose of transmission to the buyer whereas right of stoppage in transit becomes available when the seller has parted with possession and the goods are in the custody of an independent carrier/bailee.
- The right of lien implies retaining the possession of the goods while the right of stoppage implies regaining possession of the goods.
3. Right of Resale:
An unpaid seller is considered the owner of the goods until he is not paid by the buyer. So he has a right to sell his goods subject to a few conditions.
The right of resale is very important right of an unpaid seller. In the absence of this right, the unpaid seller’s other right against the goods, namely, ‘lien’ and ‘stoppage in transit,’ is just futile because these rights only entitle the unpaid seller to retain the goods until paid by the buyer. If the buyer continues to remain in default, then what else the seller is expected to do with the goods, especially when the goods are perishable? Hence, Section 54 of SOGA, therefore, gives to the unpaid seller a limited right to resell the goods in the following cases:
(a) Where the goods are of a perishable nature; or
(b) Where such a right is expressly reserved in the contract in case the buyer should make a default.
Example: A agrees to deliver a homemade cake to C on credit. C does not pay. A can re-sell it to any other person.
In the case of RV Ward Ltd. V. Bignall, there was a contract for sale of 2 cars. The buyer defaulted in paying a price despite a reasonable notice. The seller then tried to resell but could find customer only for 1 car. He, then claimed damages for the balance price and advertising expense. Hon’ble Court held that when the seller resells the goods, the contract is rescinded and goods once again become his property. Thus, the unsold car became his property and he could not recover his price. But he could recover the shortfall in the sold car and the advertising expense.
Where the goods are perishable in nature and the unpaid seller notifies the buyer of his intention to resell them, if the buyer doesn’t pay within a reasonable time, the seller can resell the goods. Seller can also recover from the original buyer any damages incurred due to his breach of the contract under Section 54 (2) of SOGA.
In Mysore Sugar Co. Ltd Bangalore v. Manohar Metal Industries the buyer having made a default in taking the goods, the seller gave him a notice on 12.09.1966 that if the buyer did not lift the goods within three days, the contract would be treated as cancelled. The buyer did not lift the goods. The seller made a re-sale 30.12.1966. Seller sought to recover the loss from the re-sale. It was held that there was inordinate delay of over 3 months in making re-sale after the notice to buyer and due to such delay, particularly in the falling market as in the present case, the value realized on re-sale did not afford the ground for fixing the damages. If the re-sale had been properly made in September 1966, the seller would have suffered no loss, and therefore, seller’s claim for compensation was rejected.
According to the provision of Section 53 of SOGA, the unpaid seller’s right of lien or stoppage in transitu is not defeated by any resale done by the buyer to a third party without the seller’s consent. In case of transfer of goods by buyer, the unpaid seller’s right of lien or stoppage in transit can be exercised subject to rights of transferee. When pledgee sells goods, the unpaid seller is entitled to receive the surplus sale proceeds.
In the case of Knight v. Wiffen A sold 80 maunds of barley out of a large stock lying in his granary to B. Out of his purchase, B sold 60 maunds to C before the goods had been ascertained and C obtained delivery order and presented it to A, who informed to C that the barley will be given to him in the due course. Subsequently, B became insolvent and A wanted to exercise the right of lien over barley which he had sold to B. It was held that A had assented to sub-sale of 60 maunds of barley, therefore he could not exercise his right of lien over those 60 maunds of barley, though such a right could be exercised in respect of remainder i.e. other 20 maunds.
Further, in the case of P.S.N.S Ambalavana Chettiar & Co. v. Express Newspapers Ltd. Hon’ble Supreme Court of India has held that for the purpose of measure of damages under SOGA, the re-sale is properly made if the property in the goods re-sold had passed to the original buyer. On the other hand, if the property in the goods has not passed to the original buyer, the re-sale is not properly made and therefore, the damages are not awarded accorded to Sale of Goods Act (difference between the contract price and the re-sale price) but they are awarded according to the formula under the Indian Contract Act (difference between the contract price and market price on the date of breach of contract).
RIGHTS OF UNPAID SELLER AGAINST THE BUYER PERSONALLY
The unpaid seller can take following actions against the buyer personally:
Sue for Price:
The unpaid seller has also a right to claim the price from the buyer for the goods. It has been provided under Section 55 of SOGA. It provides that where the property in the goods have already been delivered to buyer and seller remains unpaid owing to the negligence or deliberate refusal of the buyer then seller may sue the buyer for the price of the goods.
Example: D sold a watch to F for Rs. 1000. F refused to pay. D can sue F for price of the watch.
Damages for Non- Acceptance:
According to Section 56 of SOGA if Buyer refuses to accept the goods and pay the price of the goods then seller can sue him for damages for non-acceptance. The damages are calculated in accordance with the rules contained in Section 73 of the Indian Contract Act, that is, the measure of damages is the estimated loss arising directly and naturally from the buyer’s breach of contract.
Suit for specific performance:
According to Section 58 of SOGA subject to Specific Relief Act, seller may also sue buyer for specific performance of contract in case of a breach of contract and the decree passed can be unconditional without giving the defendant the option of retaining the goods on payment of damages.
4. Suit for Interest & Special Damages:
According to Section 61 of SOGA, the unpaid seller can recover the reasonable interest on the unpaid price goods sold. The seller can also sue the buyer for special damages where both the parties are aware of such loss at the time of contract.
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.
 Supra Note 2.
 Supra note 3.
 AIR 1943 Nag. 249
 Supra note 3.
 Bethell v. Clark, 19 QBD 553 at pg. 561
 (1851)6 Ex. 543
 (1816) 2 Marsh 457
 (1967)2 All E.R. 449
 AIR 1982 Kant 283
 (1870) 5 QB 660
 AIR 1968 SC 741