Sale of Goods Act: Unpaid Seller Rights

Unpaid Seller

• The Sale of Goods Act of 1930 addresses rights for unpaid sellers.
• A seller is considered 'unpaid' when the price hasn't been fully paid or a received negotiable instrument is unmet upon maturity.
• In a sale contract, the seller must deliver goods, and the buyer must pay.
• The seller has rights if the buyer fails to pay or refuses payment.
• Rights exist against both the goods and the buyer.
• An 'unpaid seller' includes anyone in the position of a seller, such as an agent or consignor responsible for the price.

Rights of an Unpaid Seller

• Rights are granted by law, even if the property in goods has transferred to the buyer.
• The unpaid seller, has a lien on goods for the price while possessing them.
• In case of buyer insolvency, the seller can stop goods in transit after relinquishing possession.
• A right to resell as limited by this Act - [Sub-section (1)].
• An unpaid seller can withhold delivery if property hasn't passed to the buyer, similar to lien and stoppage rights if property had passed.

Rights of Unpaid Seller Against Goods

• Sellers can be categorized into those where property in goods has passed to the buyers and those where it has not.
• Unpaid sellers can take action against goods.

Seller's Lien (Section 47)

• An unpaid seller can retain goods until payment.
• The seller's lien is possessory and lasts while in possession.
• A seller can also exercise the right of lien even when in possession of the goods as agent or bailee for the buyer.
• Exercising a lien is possible if goods were sold without credit, credit term expired, or the buyer becomes insolvent.

Part Delivery (Section 48)

• Exercising a lien on remaining goods is possible even after unpaid seller made part delivery of the goods.
• This may not be possible if part delivery implies waiving lien.

Termination of Lien (Section 49)

• The lien is lost when goods are delivered to a carrier for transmission to the buyer without reserving disposal rights.
• Lien ends when seller waives it, or buyer/agent lawfully obtains goods, or seller leads third parties to believe the lien doesn't exist (Estoppel).
• Obtaining a decree for the price doesn't automatically forfeit the lien rights.

Right of Stoppage in Transit (Sections 50-52)

• This means to stop goods in transit to regain possession until full payment.
• Right is an extension of lien, allowing sellers to repossess goods after relinquishing them.
• Conditions for exercise are - the seller must be unpaid, parted with possession, goods in transit, and the buyer has become insolvent.
• The right is per the Act's provisions.

Duration of Transit (Section 51)

• Goods are in transit from when delivered to a carrier until the buyer/agent takes delivery.
• Transit ends when the buyer or bailee obtains delivery.
• Transit ends when the buyer intercepts before arrival, with or without carrier consent.
• Acknowledgement by the carrier to buyer/agent also ends transit, unless a right to disposal is reserved.
• Transit ends when goods are delivered to a ship chartered by the buyer.
• Part delivery terminates transit for remaining goods to be delivered.
• If the carrier wrongfully refuses to deliver the goods to the buyer, transit ends.

How Stoppage in Transit is Effected (Section 52)

• An unpaid seller stops transit by retaking possession or notifying the carrier/bailee.
• The notice can be to the person in possession or their principal, ensuring timely communication to prevent delivery to the buyer.
• The carrier or bailee must redeliver per the seller's directions, with expenses borne by the seller.

Distinction Between Right of Lien and Right of Stoppage in Transit

• Lien is to retain possession, stoppage is to regain it.
• Lien requires the seller to have possession, stoppage requires the seller to have relinquished possession to a carrier, but the buyer hasn't acquired it.
• Lien can be used even if the buyer isn't insolvent, unlike stoppage in transit.
• Right of stoppage begins when the right of lien ends.
• Lien ends when goods leave the seller's possession; stoppage ends upon delivery to the buyer.
• Stopping goods in transit is essentially an extension of the lien right.

Effects of Sub-Sale or Pledge by Buyer (Section 53)

• Lien or stoppage rights aren't affected by the buyer's selling or pledging unless the seller agrees.
• A second buyer cannot be in a better position than the first.
• Stoppage rights are lost if the buyer transfers the title or pledges the goods in good faith for consideration.
• Stoppage rights are defeated if the buyer has transferred the document of title or pledges the goods to a sub-buyer in good faith and for consideration.

Exceptions to Defeat of Unpaid Seller's Rights

• Rights are lost when the seller consents to the sale, mortgage, or disposition by the buyer.
• Rights are lost when the buyer transfers documents of title to a good faith purchaser for value.
• If a transfer is a sale, lien or stoppage rights are defeated.
• If the transfer is a pledge, rights can be exercised subject to the pledgee’s rights.
• The pledgee may be required to first utilize the pledger's other goods or securities to settle claims.
• The contract isn't rescinded when a seller stops transit.
• The buyer can still claim delivery if they pay the price.

Right of Re-Sale (Section 54)

• Resale rights allow an unpaid seller to resell goods, enhancing the value of lien and stoppage rights.
• Exercising the right to re-sell the goods is possible under the following conditions:
  • If goods are perishable, the buyer need not be informed of the intention of resale.
  • When notice is given to buyer of intent to resell, if the buyer doesn't pay within a reasonable time, the seller resells.
  • The seller can recover the contract price less resale price as damages, and retain profits if resale price is higher.
  • The seller retains profits or recovers damages only if notice of resale was given.
  • New buyer acquires good title when the unpaid seller resells by exercising lien/stoppage rights, notice of resale doesn't have to be given to the original buyer.
  • The seller may resell on buyer's default if resale rights are expressly reserved.
  • Notice of resale is not required if rights are expressly reserved.
  • Entitlement to recover damages from the original buyer exists even if no resale notice is given.
• The unpaid seller also has a right of withholding delivery of the goods.
• The seller has an additional right similar of quasi-lien, if the property in goods has not passed to the buyer

Rights of Unpaid Seller Against the Buyer (Sections 55-61)

• Unpaid sellers can enforce rights against goods and the buyer.
• The rights against the buyer are the seller's remedies for breach of the contract of sale, which are rights in personam that complement rights against the goods.

Suit for Price (Section 55)

• The seller can sue for the price if the property has passed to the buyer, who refuses to pay.
• Such action is also possible if the price is payable irrespective of delivery, and the buyer wrongfully neglects or refuses to pay such price.

Suit for Damages for Non-Acceptance (Section 56)

• If the buyer refuses to accept and pay, the seller can sue for damages.(Section 73 of the Indian Contract Act, 1872 applies)

Repudiation of Contract Before Due Date (Section 60)

• The seller can rescind the contract and sue for damages if the buyer repudiates before the delivery date ("anticipatory breach").

Suit for Interest (Section 61)

• The seller may recover interest if there is agreement on paying interest on the price.
• The seller can charge interest on the price as he may notify the buyer, when there is no agreement to this effect.
• The Court may award interest to the seller at a rate it deems fit, from the date the price was payable in the absence of a contract to the contrary.

Remedies of Buyer Against the Seller

• Buyer rights exist when the seller breaches the contract by failing to deliver, repudiating, or delivering non-conforming goods.
• Rights include: Damages for non-delivery, suit for specific performance, breach of warranty, repudiation of contract before due date, and interest.

Damages for Non-Delivery (Section 57)

• Buyers can sue for damages when the seller refuses to deliver.

Suit for Specific Performance (Section 58)

• The buyer can appeal to the court for specific performance if the seller commits of breach of the contract of sale.
• This remedy is allowed by the court subject to these conditions:
  • the contract must be for the sale of specific and ascertained goods
  • the power of the court to order specific performance is subject to provisions of Specific Relief Act of 1963
  • It empowers the court to order specific performance where damages would not be an adequate remedy
  • It will be granted as remedy if goods are of special nature or are unique

Suit for Breach of Warranty (Section 59)

• If there is a breach of warranty, the buyer may set up breach to reduce the price or sue for damages.

Repudiation of Contract Before Due Date (Section 60)

• If either party repudiates contract before the delivery date, the other can either treat the contract as subsisting and wait till the date of delivery, or may treat the contract as rescinded and sue for damages for the breach.

Suit for Interest

• The court may award interest at such rate as it thinks fit on the amount of the price to the buyer in a suit filed by him for the refund of the price from the date on which the payment was made.

Auction Sale (Section 64)

• An auction is selling to the highest bidder publicly.
• An auctioneer is an agent governed by agency law, acting on behalf of the seller, but may sell their own property without disclosure.
• Rules to regulate the sale by auction are:
  • Each lot constitutes a separate contract when goods are in lots.
  • Completion occurs upon the fall of hammer. (any bidder may retract from his bid, until such announcement is made).
  • Reserved price (The sale may be notified to be subject to a reserve or upset price)
  • Sellers can reserve the right to bid.
  • Sale is voidable if the seller uses pretended bids to raise the price.

Inclusion of Increased or Decreased Taxes in Contract of Sale (Section 64A)

• After a contract is made but before it has been carried out, tax revision takes place.
• A tax is imposed, increased, decreased, or remitted.
• The parties would become entitled to readjust the price of the goods accordingly, in respect of any goods without any stipulations to the payment of tax.
• The following taxes are applied on to the sale or purchase of goods:
  • Any duty of customs or excise on goods
  • Any tax on the sale or purchase of goods
• The buyer pays an increased tax rate or takes advantage of tax cuts, the provision can be excluded by contrary agreement. Thus, seller may add the increased taxes in the price.