Unpaid Seller and His Rights under the Sale of Goods Act, 1930

An unpaid seller is defined under Section 45 of the Sale of Goods Act, 1930, as a seller who has
not received the whole of the price due in respect of the goods sold. This includes:
1. Sellers who have received a part payment but not the full amount.
2. Sellers whose payment is not honored (e.g., dishonored cheques).

Rights of the Unpaid Seller

The rights of an unpaid seller can be categorized into two main groups:
1. Rights against the goods
2. Rights against the buyer personally

Rights Against the Goods

The seller has certain rights related to the goods themselves:
A) Right of Lien (Section 47):
 The unpaid seller has the right to retain possession of the goods until the payment
is made. This right is applicable as long as the seller is in possession of the goods.
 The seller’s lien is exercisable provided the property in the goods has passed to
the buyer because “an owner cannot have a lien on his own goods”.
B) Right to Stoppage in Transit (Section 50):
 The seller can stop the goods in transit if he learns that the buyer is insolvent. This
right allows the seller to reclaim possession of the goods before they reach the
buyer.
C) Right of Re-sale (Section 54):
 The unpaid seller may re-sell the goods if they remain unpaid after giving notice
to the buyer. The seller must act in good faith and follow reasonable procedures in
the resale.

Rights Against the Buyer Personally

The seller also have following rights against the buyer:
A) Right to Sue for Price (Section 55):
 If the property in the goods has passed to the buyer and the buyer fails to pay, the
seller can sue for the price of the goods.
B) Right to Claim Damages (Section 56):
 The seller can claim damages for non-acceptance if the buyer wrongfully refuses
to accept the goods.
Unpaid Seller’s Right of Lien
The right of lien is a legal right of an unpaid seller to retain possession of goods until the
payment is made. This right is granted under Section 47 of the Sale of Goods Act, 1930, and
serves as a security for the payment due from the buyer.

Nature of Right of Lien

1) Right of Lien is linked with possession (Possessory rights)
 The lien is a right to retain the possession. It is, therefore, necessary that the seller
is still in possession of the goods. Transfer of title does not affect the exercise of
this right, rather it is a right which is exercised after the property in goods has
passed to the buyer but the seller remains unpaid.
 Even where the seller issued to the buyer delivery orders thereby converting
himself from an owner into a bailee for the buyer, his lien was not defeated.
Section 47(2) clearly declares that “the seller may exercise his lien
notwithstanding that he is in possession of goods as agent or bailee for the buyer”
2) Right of lien is in respect of all those goods which are with the seller
 If the buyer has made part payment of price he cannot insist that proportionate
amount of goods should be delivered to him.
3) Right of lien can be exercised only for non-payment of price
 If some other charges, for example the warehouse charges for keeping the goods,
are due to the seller, he cannot exercise the right of lien.
4) Exercise of right of lien does not automatically rescind the contract of sale
 Right of lien is exercised to compel the buyer to pay the unpaid price of the goods
and does not automatically rescind the contract of sale.

Effect of part delivery of goods (Section 48)

If the seller has delivered a part of the goods he can exercise his right of lien over the remainder
unless the part delivery was made under such circumstances as to show that he had waived the
right of lien. Thus where delivery of a part is intended as a delivery of the whole, the lien is lost.

Termination of lien (Section 49)

The right of lien is terminated or lost under the following circumstances:
1) By payment of price
 The right of lien comes to an end when the seller ceases to be an unpaid seller i.e.
when the buyer pays or tenders the price to the seller. However, according to
Section 49(2), unpaid seller does not lose his lien by reason only that he has
obtained a decree for the price of the goods.
 2) By delivery to carrier
 Delivery of goods to a carrier for the purpose of transmission to the buyer without
reserving right of disposal is a delivery to the buyer himself. Thus delivery to a
carrier puts an end to lien. However, the seller still has the right of stoppage in
transit.
 If the seller regain possession of goods from the carrier by exercising his right of
stoppage in transit, his lien revives. But if he takes back the goods from the carrier
for any other purpose, the lien does not revive. For example, if the goods were
delivered to the carrier but returned to seller for repacking, right of lien can no
more be exercised.
3) When buyer or his agent lawfully obtains possession of the goods
 When the buyer or his agent lawfully obtains the possession of goods the right of
lien comes to an end. However, where the buyer has obtained possession without
the consent of seller or by committing some wrongful act, the seller’s lien is not
defeated.
 If the buyer once obtains the possession of goods, the right of lien comes to an
end, and such a right cannot be exercised even if the seller again gets back the
possession of those goods. For example, if washing machine after being sold is
delivered back to seller for repairs, the seller could not exercise his lien even if he
remains unpaid.
4) By Waiver
 The seller may, if he so likes, waive his right. Waiver may be express or implied
from the conduct of the seller.
 An implied waiver takes place when the seller delivers a part of goods to the
buyer or his agent under the circumstances which show that he does not want to
exercise his right of lien, or when the seller assents to a sub-sale made by the
buyer.
5) Disposition of the goods by the buyer with seller’s assent or to a transferee in good
faith
 Right of lien is defeated when the seller assents to a sub-sale made by the buyer.
 Right of lien is also defeated when the buyer having lawfully obtained possession
of document of title to goods transfers the same to a transferee in good faith and
for consideration and the transfer is by way of a ‘sale’.

STOPPAGE IN TRANSIT
Stoppage in transit refers to the right of a unpaid seller to stop goods in transit after they have
been delivered to the carrier or other bailee for the purpose of transmission to the buyer but
before they have reached the buyer. This right is particularly relevant when the seller has reason
to believe that the buyer may not fulfill their payment obligations due to Insolvency.
This right is founded upon the plain reason that one man’s goods shall not be applied to the
payment of another man’s debt.
Conditions for exercising right of Stoppage in Transit
This right has been conferred under Section 50 of the Sale of Goods Act, 1930 which lays down
the following conditions:
1. Seller should be an unpaid seller.
2. The buyer should have become insolvent.
3. The property (ownership) should have passed to the buyer.
4. The goods should be in the course of transit.
In course of transit
 It is necessary for exercising right of Stoppage in Transit that goods shall be in the course
of transit. Whether the goods are in transit, is sometimes difficult to ascertain.
 The goods may be in the custody of a carrier and yet they may not be in transit.
Contrarily, they may not be with carrier and yet they may be in transit. Much depends
upon the capacity in which the carrier holds the goods. If he holds them as seller’s agent,
there is no transit because the goods are under the seller’s lien. If he holds them as
buyer’s agent, there is no transit because the buyer has acquired possession. It is only
when he holds the goods as an independent contractor i.e. in his own right as a carrier or
bailee, that there is transit in law and that there is question of Stoppage in Transit.
 Rules regarding commencement and end of transit has been provided under Section 51.
Commencement and end of Transit
A. Delivery to the buyer
 Goods are deemed to be in course of transit from the time when they are delivered
to a carrier or other bailee for the purpose of transmission to the buyer, until the
buyer or his agent takes delivery of them. Thus transit ends when the goods are
delivered to the buyer or his agent.
B. Interception by the buyer
 The transit ends when the buyer or his agent takes delivery of the goods from the
carrier before their arrival at the appointed destination
C. Acknowledgement to the buyer
 When the goods have arrived at their appointed destination and the carrier
acknowledges to the buyer or his agent that he is now holding the goods on his
behalf and continues in possession of them as bailee for the buyer, the transit is at
an end. This is deemed to be ‘constructive delivery’ of the goods to the buyer. It is
immaterial that the goods are still with the carrier or that the buyer has indicated a
further destination.
D. Rejection by the buyer
  If the goods are rejected by the buyer and the carrier or other bailee continues in
possession of them, the transit is not at an end.
E. Delivery to ship chartered by the buyer
 Where the goods are delivered to a ship chartered by the buyer, it is a question of
fact in each case whether the carrier is acting independently or as agent of the
buyer. If it is acting as an agent of the buyer, the transit ends as soon as the goods
are loaded on board the ship.
F. Wrongful refusal to deliver
 When the carrier wrongfully refuse to deliver the goods to the buyer or his agent,
the transit is at an end. The carrier by his wrongful act of refusing to deliver the
goods cannot extend the period of transit.
G. Part delivery
 Where the goods have been delivered in part, the seller may stop the remainder of
the goods, unless the part delivery shows an agreement to give up the possession
of the whole. This means that the right of stoppage in transit, when waived, comes
to an end.

How right of Stoppage in Transit is effected

Procedure for exercising right of Stoppage in Transit is provided under Section 52. It provides
for following two modes:
I. By taking actual possession of the goods
 The seller should take prompt action upon discovering the buyer’s
Insolvency and may take back the actual possession of the goods.
II. Notice to the carrier or other bailee
 The seller must notify the carrier or bailee of their intention to stop the
goods. This notice can be verbal or written.
 Notice may be given to the person in actual possession or to his principal,
in which case there should be reasonable time to enable the principal to
communicate with his agent.
 When notice of stoppage in transit is given by the seller to the carrier or
other bailee in possession of the goods, he shall re-deliver the goods to, or
according to the directions of, the seller. The expenses of such re-delivery
shall be borne by the seller.
 After a proper notice has been duly served, the carrier if fails to protect the
seller’s right can be made liable for conversion.
RESALE