WHO IS AN UNPAID SELLER?

A seller or an unpaid seller as we can say has been defined under Chapter V of the Sale of Goods Act, 1930 (hereinafter referred to as the Act). In every contract of sale, a “seller” is under no accountability to deliver the goods sold but the “buyer” is accountable to pay the indispensable amount set or quid pro quo. [meaning: something in return] A seller becomes an “unpaid seller” when the buyer refrains from or denies to pay.

Pertaining to Section 45(1) of the Act, a seller is said to be an unpaid seller when-

• The price has not been proffered or paid.
• A bill that has been exchanged I.e,, cheque or any such negotiable instruments as such has been dishonored.

Illustration: A sold his car for one lakh to B and received a cheque. The cheque was dishonored. A became an unpaid seller.

In such cases where a seller is facing the aforementioned clauses, they have a right to exercise the same against the buyer who refrained from paying the requisite amount. Such rights are taken as “seller’s remedies”; where there is a breach of contract by the buyer the remedies can be against the buyer and the goods.

A “seller” also includes a person who is in the position of a seller, (that can be an agent) or consignor who had himself paid or is responsible for the price.

RIGHTS OF THE SELLER AGAINST BUYER

A suit for the price

When a buyer has wrongfully refrained from or neglected to pay, after the goods are passed, as per their terms and conditions prior formed in the contract, the seller might prosecute him u/s 55(1) of the Act since once the property or goods have been passed, the buyer is accountable to pay. However, in cases where the due date of payment has passed and the goods still have not been delivered, the seller, yet may prosecute the buyer u/s 55(2) of the Act for his negligence or refusal.

A suit for damages

In cases where there is an unjust or inappropriate refusal to accept the goods and payment of money on the part of the buyer, the seller may prosecute him to get damages of nonacceptance u/s 56 of the Act. Nonetheless, the quantum of damages will be calculated according to Sections 73 and 74 of the Indian Contract Act, 1872. In case the goods already have a steady market and the seller has to resell the goods, the buyer has to pay for the losses (if incurred). There shall be a duty of mitigation on the seller’s part. The duty of mitigation refers that the injured has to make a clear and reasonable endeavor to cut back on the loss from that breach. [Read M. Lachia Shetty & sons Ltd. Etc. v. Coffee Board,  1981 AIR 162].

A suit for interest

Section 61 of the Act specifies that where there is a legally binding contract between the Seller and the Buyer, keeping in mind to the interest on the price of goods since the date on which the payment the buyer owes to the seller, the seller may recover such interest from the buyer.

Refusal of the contract before the date due

The rule for the breach of anticipatory contract applies u/s 60 of the Act, where, if the buyer repudiates or declines, or refuses the contract before the date of delivery, the seller may consider the contract to be revoked by the buyer and the seller may also prosecute the buyer for damages of the breach.

As per the aforementioned section, if any parties repudiate or refuse before the due date, the opposite parties have two actions in hand. One is to accept the revocation and prosecute the other party for damages of the breach and accordingly, damages will be accessed pertaining to the prices then convincing. The next is to wait for the date of delivery. In the late course of action, the contract is at risk and might be beneficial to both parties to the contract.

RIGHTS AGAINST GOODS

Section 46 of the Act specifies the Rights of an Unpaid Seller against goods whose goods or property has not been transferred to the buyer yet. The Unpaid Seller has the following rights:

Right of Lien

Right of Lien can be simply put as “Right to Keep Possession” of goods or property unless the Seller receives the due price.

Section 47 of the Act specifies that an unpaid seller or an agent or bailee of the buyer, in possession of goods has all the right to keep the possession of the goods or property unless the payment of the price prior in the below-mentioned cases-

• Where the goods have already been sold without stipulated time or credit.
• Where the buyer becomes liquidated.
• Where goods were sold on credit but the credit has expired.

Nonetheless, u/s 48 of the Act, authorizes the seller to exercise his right to lien on the rest wherein cases where a partial deliver of goods has been made.

Right to Stoppage of Goods in Transit

In cases where the seller delivered the goods to the carrier for the purpose of transmitting the same to the buyer, but, in the meanwhile the buyer becomes bankrupt or liquidated; the seller has all the right to stop and retain the goods in transit. Hence, the seller gains back the possession of the goods only if they were in transit. [Read Great Indian Peninsula v. The Municipal Corporation of Bombay (1914) BOMLR 104]

Nonetheless, the seller can only exercise this right against goods only if he attains the following criteria:

• If the goods were not in the possession of the seller.
• The goods must be in transit.
• The buyer must have become liquidated or bankrupt.

Right to Resale the Goods

According to Section 46(1) of the Act, the unpaid seller may resale the property or goods, if they are:

• Perishable in nature. (like poultry, fish, milk, etc.)
• When the unpaid seller exercised his right to lien, and right to stoppage of goods in transit and gave written notice to the buyer for the seller’s intention to resale the goods.

[Read R V Ward v. Bignall (1967) EWCA Civ J0217-3]

Right to Withhold Delivery

U/s 46(2) of the Act, the seller has the right to withhold delivery, apart from other aforementioned remedies, if the goods or property has not been passed to the buyer.

CONCLUSION

The seller becomes an unpaid seller when the buyer does not meet the expectations of maturity bills of exchange or any negotiable instruments as such accepted by the seller or when the seller has not been paid fully. Nonetheless, to not make the seller vulnerable, certain rights I.e., rights against the buyer and rights against goods have been provided by the Sales of Goods Act, 1930, to protect a seller’s interest. Conversely, if the seller fails to deliver the goods to the buyer, the seller may be prosecuted by the buyer for non-performance and damages may be claimed for the same.