Unpaid Seller - Rights

14. Who is an unpaid seller? State and explain the rights available to an unpaid seller.

A seller of goods is deemed to be an unpaid seller –
a.  when the whole of the price has not been paid or tendered; or
b.  when a conditional payment was made by a bill of exchange or other negotiable instrument and the instrument has been dishonored. In other words, an unpaid seller is one who has sold goods on cash terms and has not received the whole of the price. It does not include a seller who has sold goods on credit, unless the period of credit has expired and the whole price has not been paid. A seller is an unpaid seller even if a part of the price remains unpaid. 

Rights of an unpaid seller: An unpaid seller has two-fold rights, namely – 
· Rights against goods; and 
· Rights against the buyer personally. 
Rights of unpaid seller against goods

An unpaid seller has the following rights against goods notwithstanding the fact that the property in goods has passed to the buyer.

1. Right of lien,
2. Right of stoppage of goods in transit
3. Right of resale

Right of lien

‘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. An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following conditions:
a) Where the goods have been sold without any stipulation as to credit;
b) Where the goods have been sold on credit, but the period of credit has expired; and
c)  Where the buyer becomes insolvent, even though the period of credit may not have expired.

The right of lien can be exercised only for the non-payment of the price and not for any other charges, e.g. maintenance or custody charges which the seller may have incurred in respect of the goods

As already stated, lien depends on the physical possession of goods. Once the possession is lost, the lien is also lost. In following cases, the unpaid seller loses his right of lien:
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 goods; or
b) When the buyer or his agent lawfully obtains possession of the goods; or
c)  When the seller expressly or impliedly waives his right of lien.

Right of stoppage of goods in transit

It is a right of stopping further transit of the goods while they are with a carrier for the purpose of transmission to the buyer, resuming possession of the goods and retaining the possession until the price is paid. Thus, in a way this right is an extension of the right of lien.

An unpaid seller can exercise this right only when-
a. The buyer becomes insolvent;
b. The property (ownership) has passed to the buyer;
c.  The goods are in the course of transit.

It must be noted that this right can be exercised only when the goods are still in transit to the buyer; and this right comes to end when the buyer has obtained possession of the goods. Therefore, it is necessary to know as to what is the duration of transit. (To know about duration of transit, students are advised to refer to short notes.)

Right of Resale

The third right available to unpaid seller is the right of resale. It is called right of resale because there has been already a sale by which the ownership has passed to the buyer. This right is perhaps more valuable than the other two rights. In the absence of this right, the other rights would be useless for the simple reason that other two rights entitle the unpaid seller only to retain or regain possession of goods. However, if the buyer continues to be in default, the seller would be helpless particularly in the case of perishable goods. An unpaid seller can 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; or
c)  Where the seller has given notice to the buyer of his intention to resell and the buyer does not pay or tender the price within a reasonable time.

If on a resale, there is a loss to the seller, he can recover the same from the defaulting buyer. But if there is a surplus, the seller can keep it with him because the defaulting buyer cannot take advantage of his own wrong. However, if no notice is given by the seller to the buyer of his intention to resell (notice is required when the goods are not perishable and right of resale is not expressly reserved in the contract of sale), the seller cannot recover any loss that he may incur on resale. Additionally, if he makes any surplus on the resale, he has to share it with the buyer.

Rights of unpaid seller against buyer personally

In addition to the rights against the goods which we have discussed above, the unpaid seller has the following rights against the buyer personally: 1. Suit for price. Where the property in the goods has passed to the buyer, the seller is entitled to sue for price, whether the possession is with the buyer or the seller. Similarly, where the price is payable on a certain day irrespective of delivery, the seller may sue for the price, if it is not paid on that day, although the property in goods has not passed.2. Suit for damages for non-acceptance. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller has a right to sue the buyer for damages for non-acceptance. Here, the seller seeks to recover the loss sustained by him due to breach of contract by the buyer rather than the price of the goods.

The Act lays down the rules for calculating the damages payable to seller in such case. Accordingly, where there is a ready market for the goods, the damages would be equal to the difference between the contract-price and the market-price. Where there is no available or ready market for the goods, the measure of damages would depend on the facts of each case. Such damages may be equal to the full price of the goods plus reasonable charge for the care and custody of the goods.