Rights of Unpaid Seller and Remedies For Breach of Contract


In a contract, there is always a reciprocal promise which is defined under section 2(f) of Indian Contract Act. Even in the contract of sale, both buyer and seller must perform their duties. And if the buyer does not pay the seller his dues, the seller becomes an unpaid seller. Such rights are the seller’s remedy against breach of contract by the buyer. 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. Such rights of the unpaid seller are in addition to the rights to the goods sold by him. This means that such an unpaid seller has certain rights against the buyer and goods.

So to make proper Justice to the unpaid seller, the sales of goods act provided two kinds of Rights for unpaid seller. They are: –

  • Rights of unpaid seller against the buyer and
  • Rights of unpaid sellers against the goods.

Who is Unpaid Seller?

Meaning of Unpaid Seller: – If a seller, who is unable to get the payment even after delivering the goods and also if the seller fails to receive either money or instrumental benefit in return of his goods due to misleading of the buyer is known as an 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 dishonor of the instrument or otherwise. For example, ‘X’ sold some goods to ‘Y’ for $50 and received a cheque. The cheque was dishonored by the bank on presentment. Here, ‘X’ is an unpaid seller.
Rights Of Unpaid Seller

Rights Of Unpaid Seller Against goods

  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 the Indian contract 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: –
    • If the buyer becomes insolvent even within the decided period for payment,
    • If the goods have been sold on credit basis and the term of credit has expired,
    • If the goods are sold on cash basis, but payment is unpaid
    • Goods sold by way of credit unconditionally.
  • When goods are sold on credit the right of lien is suspended during the period of credit and the lien exists only for the price of the goods, and not any additional charges.
  • According to section 48 of Indian contract act, if the seller has given a portion of the unpaid goods, he can exercise his right of lien at rest.
    • In the case, Grice vs. Richardson court held that, if the sellers gave a portion of the three parcels of tea to the buyer and the rest are with seller, and the buyer had not paid for the portion seller had.  Seller was allowed to keep it until buyer paid the price. However, a portion of the delivered goods that shows an agreement to waive the lien, the seller cannot remainder.
  • According to section 49 of Indian contract act, the lien terminates when the seller loses possession of the goods. The right to lien gets terminated in the following ways: –
    • Waiver of lien: – The right of lien is an implied right attached by law in every contract of sale, the seller has the autonomy to waive this right, it may be expressed or implied by the conduct of the seller. This means that it’s specifically mentioned in the contract that seller can’t retain the possession of the goods even if the price has not been paid.
    • When the buyer or agent legally obtains possession of the goods: – Once the buyer gets possession of the goods from the seller, all rights of the seller in respect of the goods are forfeited even if the price is not paid. The seller can recover the price as a normal debt because the acceptance of possession gives the buyer a full, unqualified and irrevocable right to the goods. When the goods are returned to the seller for repair, he cannot access the right of lien.
    • When the seller delivers the goods to a carrier or other surety for the purpose of transmission to the buyer without reserving the right to dispose of the goods.
  • When the seller has delivered the goods for transmission, his right of lien has ceased but the right to stop in transit is still accessible by him. If the seller intercepts and takes possession of the goods in transit, his right of lien is revived.

  1. Right of Stoppage of Goods In Transit
  • If a buyer fails to pay the price within the decided time, then unpaid seller has the right to stop the goods in transit. The right of stoppage in transit means that an unpaid seller has the right to stop the goods while they are in transit, regain possession, and retain them till he receives the full price.
  • When the goods are transferred to the carrier or the surety for the purpose of transmission (transport) to the buyer, who has become insolvent, the seller has the right to stop the goods in transit to protect himself from damages arising out of the bankruptcy. As per Section 50 in The Sale of Goods Act, 1930, there are three essential requirements to prevent goods in transit: –
    • When seller is unpaid either wholly or partially,
    • When the buyer becomes insolvent or bankrupt,
    • Goods must be in the course of transit, the goods must not be in the possession of the seller and have not reached the buyer’s possession as well
  • In the case Schotsmans vs. Lancashire & Yorkshire Rly co., the court held that the route of transit depends on the ability of the middlemen to hold the goods. The middleman must be the person intervening between the seller who has parted with the goods and the buyer who has not yet received the goods.
  • The right to stoppage in transit is exercised by the unpaid seller: –
    • By actual possession of the goods sold.
    • By sending a notice of claim to the carrier or other bailee in possession of the goods sold. A notice of claim may be sent either to the principal or to the person in possession of the goods.
  • Talking about the period of transit, the Act states that the goods sold are considered to be in transit from the time they are delivered to the carrier or any other bailee for the purpose of transmission to the buyer. The carrier may hold the goods as either the buyer’s agent or the seller’s agent. Seller may exercise this right but transit is terminated if: –
    • The buyer or his agent receives the delivery of the goods,
    • When buyer or his agent obtains the delivery of the goods before their arrival at the appointed destination hence, the transit comes to an end,
    • Acknowledgement to the buyer by the carrier/ courier company that they are holding the goods on buyer’s behalf, then also transit comes to an end.
    • If part of the goods are delivered to the buyer then the transit comes to an end for the remainder of the goods as well.
    • If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent, the transit ends.
  1. Right to Resale
  • The unpaid seller has the right to resell the goods. The right that the seller in a contract of sale has to resell the goods if the buyer does not pay the price as agreed.
  • Exercising a right of lien or withholding does not void the contract but resells the goods. Without the right of resale, the lien and the right of stagnation would not be of much use as the seller can only retain the goods under these rights unless the buyer pays back the full amount.
  • 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) of Indian contract act 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.
  1. Suit for Interest: –
    • According to section 61 of the Indian contract act, 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.
  1. Suit for Damages for Non-Acceptance: –
    • According to section 53 of Indian contract 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.
  1. Suit for breach of contract before the due date: –
    • According to section 60 of the Indian contract act, 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.

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.

  1. 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 fulfill 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.

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