AN ASSIGNMENT IS SUBMITTED TO THE

DEPARTMENT OF CONTRACT-II.

TOPIC:
RIGHTS AND REMEDIES OF UNPAID SELLERS
UNDER THE SALES OF GOODS ACT, 1930.

INDEX

1
 SR.NO TOPICS PG
NO.
1. INTRODUCTION 3

2. RIGHTS AND REMEDIES OF 4-10

UNPAID SELLER
3. RIGHTS AGAINST BUYER AND 11-17
GOODS
4. CONCLUSION 18
5. BIBLIOGRAPHY 19

INTRODUCTION1
As per Section 2(f) of the Indian Contract Act, the seller must transfer the goods
sold, and the buyer must pay the required amount in return, under the contract of
sale by them. This is known as Reciprocal Promise. In other words, any set of
promises made which forms the consideration or part of the consideration for each
other are called reciprocal promises and every contract of sale of goods consists of
reciprocal promises.

In every contract of sale, a seller is under an obligation to deliver the goods sold
and buyer is under an obligation to pay the requisite amount set or quid pro quo i.e
something in return, under the contract of sale, by them. This is known
1
https://blog.ipleaders.in/unpaid-seller-rights/

2
as reciprocal promise as per Section 2(f) of the Indian Contract Act. In other
words, any set of promises made which forms the consideration or part of the
consideration for each other are called reciprocal promises and every contract of
sale of goods consists of reciprocal promises.
In certain cases, when a buyer refuses or fails to pay the requisite amount to the
seller, the seller becomes an unpaid seller and can exercise certain rights against
the buyer. These rights are considered as seller’s remedies in case there is a breach
of contract by the buyer. These remedies can be against:
1. Buyer
2. Goods
According to Section 45(1) of Sale of Goods Act, 1930, the seller is considered as
an unpaid seller when:
 When the whole price has not been paid and the seller has an immediate right of
action for the price.
 When Bills of Exchange or other negotiable instrument has been received as
conditional payment, and the pre-requisite condition has not been fulfilled by
reason of the dishonour of the instrument or otherwise. For instance, X sold
some goods to Y for $50 and received a cheque. On presentment, the cheque
was dishonoured by the bank. X is an unpaid seller.

RIGHTS (REMEDIES) OF UNPAID SELLER2

(The unpaid seller has the rights/ remedies against goods and buyer both)
Rights of unpaid seller against goods Rights of unpaid seller against
buyer
1. Right of possession/ lien Suit for price
2. Right of stoppage of goods in transit Suit for interest and special
damages.
3. Right of resale Suit for damages for non-
acceptance
2
https://blog.ipleaders.in/unpaid-seller-rights/

3
 4. Suit for breach of contract

Three important rights of an unpaid seller against the goods

 Right of lien
 Right of stoppage of products in transit
 Right of resale

RIGHTS OF LIEN (SECTION 47)

“Lien” is the right to keep possession of products and refuse to give purchaser until
the fee is paid by the purchaser. An unpaid seller, in possession of products, is
entitled to work out his lien on the products within the following instances:

1. In which the goods were sold without any requirement as to credit score.
2. Where the goods were sold on credit however the term of credit has
expired.
3. In which the buyer will become insolvent even though the period of credit
began to expire.
In the case of the purchaser’s insolvency, the lien exists even though goods were
offered on credit and the duration of credit has not expired till the time. When the
products are offered on credit, the presumption is that the customer shall preserve
his credit suitable. If before payment the buyer turns insolvent, the seller is entitled
to exceed his rights and hold the products as security for the charge.

The unpaid seller’s lien is a possessory lien, the lien may be exercised so long as
the seller stays in ownership of the products. He may exercise his rights of lien but
he is holding the ownership of the goods as agent for the customer [Section 47(2)].
Any property in the transfer of files, identify that the products which are not
affecting these rights, supplied goods should stay inside the real possession of the
seller. In truth, when a belonging has passed to the consumer then the most
effective maintenance of products is technically known as “lien”.

In which the belonging goods have not exceeded the customer possession and the
same remains with the seller, then it will be very difficult to maintain that the seller

4
has a lien towards his own goods. The seller’s lien when an asset has not exceeded
the purchaser is called as a right of withholding shipping. For that reason, Section
46(2) states in which the belonging goods have not handed over to the customer,
the unpaid seller has a right to withhold the transfer.

The seller may additionally incur from storing the products inside the exercise of
his lien for the charge. This right of lien extends to the entire product on his own
despite the fact that the part price for the one’s items has already been made. In
other phrases, the consumer is not entitled to claim delivery of a part of the
products.

In addition, wherein an unpaid seller has made component shipping of the goods,
he may also exercise his rights of lien on the rest, except such element shipping has
been made under such instances as to reveal an agreement to waive the lien
(Section 48). Also, the lien can be exercised even though the seller has received a
‘decree’ for the rate of the products.[Section 49(2)].

WHEN IS LIEN LOST?

As already discovered, lien relies upon physical ownership of products. As soon as

the possession is misplaced, the lien is also misplaced. The unpaid dealer of goods
loses his lien thereon inside the following instances:

1. When he provides the products to a carrier or other bailee for the motive
of transmission to the customer without reserving the rights of possession
of the products.
2. When the buyer lawfully obtains ownership of the goods.
3. When the seller expressly or impliedly waives his rights of lien. An
implied waiver takes place while the seller offers a fresh time period of
credit or allows the customer to just accept an invoice of trade payable at
a particular date to a sub-sale which the purchaser may additionally have
made.

Accordingly, when a refrigerator after being bought, will be delivered to the

purchaser and if it no longer functions well, the buyer takes it again to the seller for
repairs, here we can say that the seller could not exercise his lien over the fridge.

5
RIGHTS OF STOPPAGE OF GOODS IN TRANSIT
The right of stoppage in transit method is the right of stopping the transit of the
goods even if they may be with a carrier for the cause of transmission to the buyer;
resuming the ownership of the customer and retaining possession until they made
the payment of the good.

Hence, this right is an extension of the right of lien because it entitles the seller to
regain ownership even if the seller has parted with the possession of the products.

WHEN CAN THIS RIGHT BE EXERCISED? (SECTION 50)

An unpaid seller can exercise this right in the simplest way when:

 The purchaser becomes insolvent

The buyer is said to be bankrupt when he has denied paying his debts inside the
normal route of business, or if he cannot pay his money then it will be
due. [Section 2(8)]

 The property has exceeded the buyer

If assets have not surpassed the buyer then this right is called the “right of
withholding shipping”.[Section 46(2)]

 The products are within the route of transit

This means that goods should be neither with the seller nor with the buyer nor with
their agent. The product has to be within the custody of a carrier as an
intermediary. At that time, the carrier needs not to be either a seller’s agent or
customer’s agent. Because, if he is the seller’s agent then the products are still in
the arms of seller in the eye of regulation and consequently there may be no transit,
and if he is the customer’s agent, the consumer gets transport in the attention of
law and hence query of stoppage does now not rise up.

DURATION OF TRANSIT (SECTION 51)

Since the right of stoppage in transit can be exercised simply as long as the goods
are inside the route of transit, it becomes important for the seller to recognize the

6
transit route where it starts and where it comes to the destination. When the transit
involves a stop, the right of stoppage can’t be exercised.

Items are deemed to be in course of transit from the time when they’re added to a
service or other bailee for the motive of transmission to the buyer till the purchaser
or his agent takes transport of them.

Thus, the transit continues as long as the products aren’t delivered to the customer
or his agent, irrespective of whether or not they should be mandatory at the
destination with the service expecting transmission or are in real transit.

When the transit is deemed to be at near the destination, then the seller can’t
exercise his right of stoppage in the following instances:

1. When the customer or his agent takes shipping after the products have
reached the destination.
2. When the buyer or his agent obtain delivery of the goods before their
arrival at the appointed destination.
3. While the products have arrived at their destination and the seller
acknowledges to the consumer or his agent that he holds the products on
his behalf.
4. When the products have arrived at their destination then the customer in
preference to shipping requests the seller to hold the products to some
further destination then the seller agrees to take them to the new
destination.
5. When the service wrongfully refuses to supply the goods to the
consumer’s agent.
6. When some part of shipping of the goods has been made to the customer
with the intention of handing over the whole of the products, transit can
be at a quit for the rest of the products.

HOW IS THE RIGHT STOPPAGE EXERCISED? (SECTION 52)

The unpaid seller may additionally exercise his right of stoppage in transit both:

7
 1. Through taking real possession of the goods.
2. By means of giving a declaration to the seller in whose possession the
products are.
Such words can be given to the person in real ownership of the goods. Within the
latter case, the word must accept well in advance to permit the superior to talk
together with his agent or servant in time, for transport to the customer.

If with the addition of a mistake he offers the products to the purchaser, he may be
responsible for the conversion. The fees of redelivered are to be tolerated by the
seller.

DIFFERENCE BETWEEN THE RIGHT OF LIEN AND RIGHT OF

STOPPAGE IN TRANSIT?

The principal points of difference among these rights of an unpaid seller are as
follows:

1. The seller’s lien attaches when the purchaser is in default, whether or not
he is solvent or bankrupt. The right of stoppage in transit arises best while
the customer is bankrupt.
2. Lien is to be held only when the goods are in actual possession of the
seller at the same time as the right of stoppage is available, when the
seller has half part with his own and the products are within the custody
of an independent service.
3. The right of lien comes as soon as the seller has possession over the
products to the carrier for the motive of transmission to the purchaser.
On the other hand, the right of stoppage in transit starts after the seller has
introduced the goods to a carrier for the purposes of transmission to the buyer and
maintains until the customer has acquired the ownership. The right of lien includes
preserving the possession of the goods when the right of stoppage includes
regaining ownership of the goods.

RIGHT OF RESALE. (SECTION 54)

8
The right of resale is a completely valuable right given to an unpaid seller. Within
the absence of this right, the unpaid seller’s other rights in opposition to the goods,
specifically, “lien” and “stoppage” in transit could no longer have been used due to
the fact, this rights only entitle the unpaid dealer to keep the products until paid
with the aid of the buyer.

If the customer maintains to stay in default, should the predicted price maintained
in order to retain the goods indefinitely, especially while the products are
perishable?

Largely, this cannot be the aim of the regulation. Section 54, therefore, offers to
the unpaid supplier a confined right to resell the goods inside the following lines:

1. In which the goods are of a perishable nature.

2. In which this type of right is expressly reserved inside the settlement in
case the buyer needs to make default.
3. In which the seller has given a promise to the buyer of his purpose to
resell and the customer does not pay the price within an affordable time.
If on a resale there is a loss to the seller, he can get better from the defaulting
customer. However, if there is a surplus at the resale, the seller can preserve it with
him because the customer cannot be allowed to take advantage of his personal
identity. But, no word of resale [as required in 3 above] is given to the customer,
the right of the seller to assert loss and maintain a surplus, if any, is reversed.

In different words, if the unpaid seller fails to present the observation of resale to
the buyer, he can not recover the loss from the customer. For this reason, it’ll be
visible that giving of observing to the purchaser, when so required that very
necessary to make him responsible for the breach of settlement.

It’s so due to the fact this kind of observation gives an opportunity to the purchaser
that pays the charge and has the products.

It is vital that the absence of observation when so required affects the rights of the
unpaid supplier himself best as mentioned above and it does not have an effect on
the name of the following customer who gathers an excellent title to the goods.

9
Section 54(3) particularly announces- “Where an unpaid seller has exercised his
right of lien or stoppage in transit in transit resells the products, the customer
acquires a terrific identify thereto as in opposition to the unique purchaser,
however, that no note of the resale has been given to the original customer”.

RIGHTS AGAINST BUYER AND GOODS WITH CASE LAWS.3

Rights against buyer

1- Suit for the price

3
https://blog.ipleaders.in/rights-of-an-unpaid-seller/

10
When any goods are passed on to the buyer and the buyer has wrongfully
neglected or refused to pay as per the terms and conditions of the contract, the
seller may sue him as per the Section 55(1) because once the property has been
passed the buyer is bound to pay the price.
But in the case due date of payment has been passed and goods had not been
delivered yet, the seller can sue the buyer for the wrongful neglect or refusal on his
part according to clause 2 of Section 55.
In case the price is due in foreign currency the damages must be calculated at the
rate of exchange prevailing at the time when the price was due not on the
judgement date.

2- Suit for damages

In case there is a wrongful refusal on the part of buyer for acceptance of goods and
payment of money, the seller can sue him for damages of non-acceptance as
per Section 56. For calculating the quantum of damages Section 73 and 74 of the
Indian Contract Act applies.
In case the goods have a ready market, the seller has to resell the goods and buyer
have to pay the losses if incurred. If the seller does not resell the goods the
difference between contract and market price at the day of breach is taken as a
measure for damages. If the difference between them is nil seller gets nominal
value.
There is a duty of mitigation on the part of the seller, which means that injured has
to make reasonable efforts to minimise the loss from that breach. For instance, if
the seller can resale the goods, the difference in price in contract and resale price is
given to the seller but if the seller deliberately refuses to resale the goods and its
market value reduces then the buyer will not be liable for the exaggerated loss.
The nature of the duty of mitigation has been explained by the supreme court in
case of M. Lachia Shetty V Coffee Board, where, a dealer who bid at an auction of
coffee had been accepted, refused to carry out the contract, consequently, coffee
was reauctioned at next best bidding price and dealer who refused the bid have to
give the difference in the amount of loss to the board.

11
3- Suit for interest
As stated under Section 61, where 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.
If there is no contract to the contrary, the court of law may award interest to the
seller at such rate as it thinks fit on the amount of the price from the date on which
amount is payable.

4- Repudiation of the contract before the due date

According to Section 60, the rule of anticipatory breach contract applies, wherein,
if buyer repudiates the contract before the date of delivery the seller can consider
the contract as rescinded and can sue for damages of the breach.
According to this Section, if one party repudiates before due date other has two
courses of action. Either he may immediately accept the breach and bring the
action of damages the contract is rescinded and damages will be assessed
according to the prices then prevailing or he can wait for the date of delivery. In
the second case, the contract is open at risk and will be a benefit to both parties.
May be the party changes is mind and agree to perform and damages will be
assessed according to prices on the day of delivery.

Rights against goods

a- Lien
Lien is a right which seller of goods can exercise when a buyer has not paid the
price of goods, under this right seller can retain the possession of goods as an agent

12
or bailee for the buyer. The seller can retain his possession as per Section 47 under
the following circumstances:
1. In case the buyer is insolvent.
2. When the term of goods sold on credit is expired.
3. Goods sold without any stipulation as to credit.

When the goods are sold on credit the right to lien is suspended during the term of
credit and lien exist only for the price of goods, not any additional charges.
According to Section 48 if the seller has delivered a part of unpaid goods he can
exercise his right of lien on rest. In Grice V Richardson, the sellers had delivered
a part of the three parcels of tea comprised in the sales, and they had not been paid
for the part which remained with them. They were allowed to keep it till the
payment of the price. Where, however, a part of goods delivered which show an
agreement to waive the lien, the seller cannot the remainder.
Termination of lien takes place when the seller losses the possession of goods. As
per Section 49, under following circumstances right of lien is terminated-
1- 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 from the conduct of the seller.
2- When buyer or agent lawfully obtains possession of goods.- Once the buyer
got the possession of goods from the seller, all the rights of the seller in respect to
goods are ceased even if the price is not paid. The seller can recover the price as a
normal debt because the acceptance of possession gives absolute, unqualified and
indefeasible right of goods to the buyer. When the goods are given again to the
seller for repair he can not access the right of lien.
3- When the seller delivers goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the goods.
When the seller has delivered goods to the carrier for transmission, his right of lien
is ceased but the right to stoppage in transit is still accessible by him. In case seller
regains possession of goods in transit by stoppage his right to lien is revived.
Like in Valpy V Gibson, the goods were delivered to the buyer’s shipping agent,
who had put them on board a ship. But the goods were returned to the seller for
repacking, while they were still with the sellers the buyer became insolvent and

13
seller being unpaid seller claimed to retain the goods in the exercise of their lien. It
was held that they have lost their lien by delivery to the shipping agent. On the
contrary, when the seller has reserved the rights of disposal his right of lien
continues till the end of the transit. And the seller cannot lose his right to lien just
because he has obtained a decree for the price of goods.

b- Stoppage
When the goods have been transferred to carrier or bailee for the purpose of
transmission to the buyer, who has become insolvent, the seller has the right to
stop the goods in transit in order to protect himself against the loss that may arise
due to insolvency. As per Section 50, there are four essential requirements for
stopping the goods in transit:
 Unpaid seller.
 Buyer insolvent.
 Property should have passed to the buyer.
 Property should be in course of transit.

The course of transit depends upon the capacity of middleman to hold the goods.
Middleman should be an intervening person between the seller who has parted
with the goods and the buyer who has not yet received the goods as held in the case
of Schotsmans v Lancashire & Yorkshire Rly co.
Section 5 lays down the rules and regulations related to commencement and end of
the transit, this Section is divided into seven sub-Sections which solve all the
issues related to commencement and end of transit:
1- Delivery to the buyer- Goods are considered to be in transit from the time
when they are delivered to the carrier or other bailee for the purpose of
transmission to the buyer, till the goods are received by the buyer himself or his
agent takes delivery of them.
For example, in the case of Great Indian Peninsula v Hanmandas, the seller
consigned the goods with the GIP Ry Co for transportation to the buyer. On the
arrival at the destination, the company had delivered the goods to the buyer who
had loaded them on his cart, but the cart had not yet left the railway compound
when a telegram was received by the company to stop the goods. The company did

14
not do so and were sued by the seller in damages. It was held that the transit had
ended as soon as the goods were handed over to the buyer.
But when the buyer denies accepting the delivery even when it has been landed at
the place of destination, the transit does not end. This happened in the case
of James v Griffin where on arrival of goods at the port of destination in the river
Thames, the buyer sent his son to have goods landed, but told him that on account
of his insolvency he did not intend to receive the goods and would like the seller to
have them. When goods were so lying the seller’s instruction to stop them was
received. The buyer’s trustee in bankruptcy claimed the goods. It was held that the
goods were still in transit.
2- Interception by the buyer- When the buyer or the agent takes the delivery of
the goods from the carrier, the transit ends even before their arrival at the
appointed destination. In case the carrier delivers the goods before the arrival of
the buyer, although it is wrongful and the carrier may be held liable for the
damages but the transit ends here.
In the case of Lyons v. Honffnung, the buyer takes his seat as a passenger in a
ship which was carrying the goods. The court said that this does not amount to
delivery to the buyer before their arrival at the appointed destination.
3- Acknowledgement to the buyer- The transit is considered to come to an end
when the goods arrive at the appointed destination and the carrier acknowledges to
the buyer or his agent that he is now holding the goods on his behalf. It is
immaterial if the gods are still in the carrier or the buyer has indicated another
destination. In order to put an end to the original contract of carriage, a very clear
acknowledgement is required.
In the case of Whitehead v. Anderson, a quantity of timber was consigned on
board. When the ship arrived at the destination, the buyer went bankrupt. The
buyer’s agent came to the board and told that he has come to take possession. The
captain said that he will deliver only when the freight is paid. Before this could be
done, the seller sent a notice to stop and asked to send the goods to be delivered to
the agent of the seller. The court said that since the transit has not ended, the
carrier was within his rights in returning the goods to the seller. The captain agreed
to deliver the goods on a condition and if the condition is not fulfilled, the buyer
does not acquire the constructive possession of goods.

15
4- Rejection by the buyer– When the buyer rejects the goods and the carrier or
other bailee continues to possess them, the goods are held to be still in transit. This
will also include the case when the seller himself refuses to take back goods.
5- Delivery to ship charted by the buyer- It is a question of fact whether the
carrier is acting independently or as an agent of the buyer at the time when the
goods are delivered to a ship charted by buyer. As soon as the goods are loaded on
the ship, the transit ends if the carrier is acting as an agent of the buyer.
Thus, for instance, Rosewear china clay co ltd, re, the contract was for the sale of
china clay at FOB Fowey. The buyer chartered a ship and instructed the seller to
load to the goods at Fowey, which was accordingly done. The destination of the
ship was not told to the seller nor any bill of lading signed. The seller gave notice
stopping the goods.
6- Wrongful refusal to delivery- When the carrier wrongfully denies delivering
the goods to the buyer or his agent the transit is at the end. It is obvious that goods
should have arrived at their destination because otherwise, the carrier has the right
to refuse to deliver them.
In the case of Bird v. Brown, the court discussed as to when it is wrongful to
refuse the delivery of goods. In this case, the goods arrived at the destination but
the buyer has become insolvent. A merchant was acting for the seller who gave
stop notice to the seller without authority.
Subsequently, the trustee of the buyer demanded the goods as the buyer was
insolvent. The carrier refused to deliver the goods and handed them to the
merchant. The court said that after the formal demand for goods by the trustee,
there could be no valid stoppage in transit.
7- Part delivery- in the case when the goods have been delivered partly, the seller
has a right to stop the delivery of the rest of the goods unless the part delivery
shows an agreement to the possession of the whole. For instance, A sells to B
20kg of wheat, 10kg has been transferred to B but rest 10kg is still in transit, in
case B fails to pay A has a right to stop the goods in transit.

c- Resale
Exercising the right of lien or stoppage does not rescind the agreement but
reselling of goods does and without this right, the other two rights of lien and
16
stoppage would not be of much usage because he can only retain goods under these
right till the buyer pays back the money.
The unpaid seller can exercise his right under following conditions and
circumstances-
1- Seller before reselling the goods needs to send a notice to the buyer except in
the case of perishable goods, giving him last chance to pay the price and take back
the goods within a reasonable time. If the buyer does not pay the money back seller
has the right to resell the goods. If the seller fails to give notice of his intention to
resell, he cannot claim damages from the buyer and he has to give any profit.
2- If there is any loss in the resale of goods he can claim the loss from the buyer,
on the contrary, if there is profit buyer cannot claim it.
3- Seller gives rightful ownership to buyer after the resale it does not matter notice
of resale is given or not to defaulted buyer.
4- Sometimes the seller reserves exclusive right to resale the goods if the buyer
makes a default in payment, in such cases the buyer cannot ask for profit on resale
if no notice is served and seller has the exclusive right to resale.
For instance, R V Ward V Bignall, there was a contract of sale of two cars,
vanguard and zodiac for 850$. The buyer deposited 25$ but afterwards did not pay
the price despite a reasonable notice. The seller then tried to resell but could be
sold only a vanguard for 359$. he then claimed damages for 475$ representing the
balance of price and 22$ as advertising expenses. Court held that once the seller
resells the goods the contract is rescinded and he cannot claim the money but he
can ask for advertising expenses and a shortfall in the price of the vanguard.

CONCLUSION

17
The seller becomes an unpaid seller when either he had not been paid in full or the
buyer has failed to meet the maturity of bills of exchange or any other negotiable
instrument accepted by seller as a condition precedent. Under this situation, the
seller can resell the goods if he had exercised the right of lien or stoppage in
transit, after giving notice to the buyer and the new buyer will have good title over
the goods. In this case, the seller has the right to sue the buyer for failure to pay the
required amount as well as a lien. On the contrary, if the seller fails to deliver
goods to the buyer, he may sue the seller for non-performance and can claim
damages or specific performance. Any set of promises made to form the
consideration or part of the consideration for each other are called reciprocal
promises and every contract of sale of goods consists of reciprocal promises. The
seller’s remedy, in this case, is a suit for damages rather than an action for the full
price of the goods.

18
 BIBLIOGRAPHY

References
1. Law of Sales of Goods Act, Avtar Singh.
2. Business laws, CA Foundation.
Webliography-

 http://www.shareyouressays.com/english-essays/three-important-rights-
of-unpaid-seller-against-the-goods/92211

 https://mercantilelaws.blogspot.com/2012/05/rights-of-unpaid-
seller.html

19