Unpaid Seller

Unpaid Seller Definition: In a transaction of sale it is not possible to avoid credit sales. In credit sales there is a risk of a debtor not paying the price of the goods even after the credit period is over. The seller of the goods therefore must possess some rights which he can use to secure payment of the price. If the recovery of the price is not possible due to the reason of bankruptcy of the buyer, he must have some other remedies. The Sale of Goods Act has made elaborate provisions regarding the rights of an unpaid seller.

The term 'unpaid seller' may be defined as the seller to whom the full price of the goods sold has not been paid. The legal definition of 'unpaid seller' is given in Section 45 of the Sale of Goods Act, as under: "The seller of the goods is deemed to be an unpaid seller within the meaning of this Act: (a) When the whole of the price has not been paid or tendered; (b) When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise. Features of the unpaid seller 1. He must sell goods on the cash basis and must be unpaid. 2. If he sells on credit basis, he is not an unpaid seller during the period of credit. 3. The term of credit has expired and the price has not been paid to him. 4. He must be unpaid wholly or partially. If a part of price remains unpaid, he is unpaid. 5. When the price is paid in the form of negotiable instruments and it has been dishonored. 6. If buyer offers payment and seller refuses to accept, the seller is not an unpaid seller. . Party A sells a car on cash basis to party B and the price has not been received yet.. 8. A sells good to B on 5 months credit period and B turns insolvent after 2 months. 9. A sells TV set to B on the same day cheque basis, the cheque is dishonored due to insufficient. SALE OF GOODS ACT Contract of Sale: Sale and agreement to sell (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price.

There may be a contract of sale between 1 part owner and another. (2) A contract of sale may be absolute or conditional. (3) Where, under a contract of sale, the property in the goods is transferred from the seller to the buyer, the contract is called a sale: but, where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 4) An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred. Capacity to buy and sell-sale of necessaries to persons incompetent to contract Capacity to buy and sell is regulated by the general law concerning capacity contract and to transfer and acquire property: Provided that, where necessaries are sold and delivered to an infant or minor or to a person who by reason of mental incapacity or drunkenness is incompetent to contract, he must pay a reasonable price therefor. Necessaries", in this section, means goods suitable to the condition in life of such infant or minor or other person and to his actual requirements at the time of the sale and delivery. Contract of sale, how made Subject to the provisions of this Act and of any Act in that behalf, a contract of sale may be made in writing or by word of mouth or partly in writing and partly by word of mouth or may be implied from the conduct of the parties. Provided that nothing in this section shall affect the law relating to corporations.

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Sale and agreement to sell goods on credit in course of retail trade to be accompanied by invoice (1)A sale of goods on creditor an agreement to sell goods on credit in the course of trade shall not be enforceable by action at the suit of the seller, unless- (a) at the time of the sale or agreement to sell, an invoice or docket, serially numbered, be made in writing in duplicate, both original and duplicate containing- (i) the serial number; ii) the date of the transaction; (iii) the name of the buyer; (iv) the nature and, except in the case of goods exempted from this provision by order of the Minister, the quantity of the goods, in the English language and in figures; and (v) the price in English words or figures; and b) at the time of delivery of the goods, the original or duplicate of the invoice or docket be delivered to the buyer or to some person to whom the goods may properly be delivered on his behalf: Provided that the provisions of this section shall not apply to an agreement to sell, over a period of time, goods of nature such as are commonly delivered at regular intervals, such as newspapers, bread or milk, or to any sale in pursuance of such agreement, where a written order signed by the buyer or his agent in that behalf is given to the seller at the time of the agreement to sell. 2) In this section- "docket" includes a packing note, delivery note or other printed form customarily used for recording the particulars of a sale; "sale or agreement to sell in the course of trade" means a sale or an agreement to sell to a person by or on behalf of a person who carries on the business of selling goods. Duties of seller and buyer 28. It is the duty of the seller to deliver the goods and of the buyer to accept and pay for them in accordance with the terms of the contract of sale. Payment and delivery prima facie concurrent conditions 9. Unless otherwise agreed, delivery of the goods and payment of the price are concurrent conditions, that is to say, the seller must be ready and willing to give possession of the goods to the buyer in exchange for the price and the buyer must be ready and willing to pay the price in exchange for possession of the goods. Rules as to delivery 30. -(1) Whether it is for the buyer to take possession of the goods or for the seller to send them to the buyer is a question depending in each case on the contract express or implied between the parties.

Apart from any such contract express or implied, the place of delivery is the seller's place of business if he has one, and if not, his residence: Provided that, if the contract be for the sale of specific goods which to the knowledge of the parties when the contract is made are in some other place, then that place is the place of delivery. (2) Where, under the contract of sale, the seller is bound to send the goods to the buyer but no time for sending them is fixed, the seller is bound to send them within a reasonable time. 3) Where the goods, at the time of sale, are in the possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf: Provided that nothing in this section shall affect the operation or the issue or transfer of any document of title to goods. (4) Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. (5) Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller.

Rights of an Unpaid Seller (A) Rights against the Goods: Unpaid seller's rights against the goods may be discussed under the following two heads, namely: 1. Where the ownership of the goods has transferred to the buyer: In this case, the unpaid seller has the following rights: (a) Right of lien. (b) Right of stoppage of goods in transit. (c) Right of resale. 2. Where the ownership of the goods has not transferred to the buyer: In this case, the unpaid seller has the right of withholding the delivery of goods sold. (B) Rights against the Buyer: Unpaid seller has the following rights against the buyer: a) Suit for price. (b) Suit for damages. (c) Suit for interest. (d) Suit for repudiation of contract. The Unpaid seller of goods who is in possession of them is entitled to retain his possession until payment or tender of the price in following cases, namely: (a) Where the goods have been sold without any stipulations as to credit, (b) Where the goods have been sold on credit, but the term of credit has expired, and (c) Where the buyer becomes insolvent. " This right can be exercised by the unpaid seller if the following conditions are satisfied: (i)The unpaid seller must be in actual possessions of the goods sold. ii) The unpaid seller can retain the goods only for the payment of the price of the goods. The right of lien is linked with the possession of the goods and not with the title of the goods. Thus, the goods must be in actual possession of the seller. It is, however, not necessary that he should possess the goods as an owner. He can exercise the right of lien, even if he is possessing the goods as an agent or bailee for the buyer [Section 47 (2)]. The important legal provisions relating to the unpaid seller's right of lien may be stated as under: 1.

Where the goods are sold without any stipulation as to credit (i. e. in case of cash sale), the unpaid seller may retain the goods if the buyer fails to pay the whole price [Section 47(1)(a)]. He cannot retain the goods for any other charge e. g. maintenance,charge of storage during the exercise of lien. 2. Where the goods are sold on credit, the unpaid seller may retain the goods if the buyer fails to pay the whole price after the expiry of credit period. [Section 47 (1) b)] 3. Where the buyer becomes insolvent, the unpaid seller may retain the possession of the goods until the whole price is paid.

It is so because, the law does not compel a person to deliver the goods to an insolvent [Section 47 (1) (c)]. 4. Where the unpaid seller has delivered a part of the goods, he may exercise his lien on the remaining part of the goods. But where the part delivery is made under the circumstances which show an agreement to waive a lien, the seller cannot retain the goods [Section 48]. 5. The right of lien is indivisible in nature. And, the seller cannot be compelled to deliver a part of the goods on payment of proportionate price of the goods. 1.

By delivery of goods to the carrier: The unpaid seller loses his right of lien over the goods when the goods are delivered to some person ( a carrier or other bailee) for the purpose of transmission to the buyer [Section 49 (1) (a)] 2. By delivery of goods to the buyer: The unpaid seller also loses his right of lien when he delivers the goods to the buyer or his agent [Section 49 (1) (b)]. 3. By waiver of the lien; The right of lien is for the benefit of the seller. If he like, he may waive his right. And by waiver, the lien is lost [Section 49 (1) (c)]. The waiver may be express or implied.

This right is contained in Section 50 of the Sale of Goods Act, which provides that where the buyer becomes insolvent, and the unpaid seller has parted with the possession of the goods, he can stop the goods in transit until the price is paid or tendered (I. e. , offered) to him. The right can be exercised if the following conditions are satisfied: (a)The buyer has become insolvent. (b) The goods are in the course of transit, i. e. , the goods have gone out of the actual possession of the seller. But they have not reached in the possession of the buyer. c) The unpaid seller can stop the goods in transit only for the payment of the price of the goods. Duration of Transit The duration of transit is the period between the commencement and end of transit. The transit commences from the time when the goods are delivered to the middleman (i. e. , carrier or other bailee), and it continue till the buyer or his agent takes the delivery of the goods [Section 51 (1)]. The important provisions relating to duration of transit are as follows: (a) Where the goods are rejected by the buyer and the carrier continue to have the possession of the goods, the transit does not come to an end [Section 51 (4)]. b) Where the goods are delivered in parts, the seller may stop the remainder of goods unless the delivery of part of the goods shows an intention to give up the possession of the whole of the goods [Section 51 (7)]. (c) Where the goods are delivered to a ship chartered by the buyer, then it is a question of fact in each case whether the carrier is acting independently or as an agent of the buyer. If the circumstances show that the carrier is acting as an agent of the buyer, then the transit comes to an end as soon as the goods are loaded on board the ship [Section 51 (5)]. Termination (or Loss) of Right of Stoppage in Transit

Under the following circumstances, the transit comes to an end and the right of stoppage in transit is lost. 1. Interception by the buyer: Sometimes, the buyer or his agent takes the delivery of the goods from the carrier (middleman) before the goods arrive at the appointed destination. In such cases, the transit comes to an end. [Section 51 (2)]. 2. Carrier's acknowledgement to the buyer: Sometimes, after the arrival of the goods at the appointed destination, the carrier acknowledges to the buyer or his agent that now he is holding the goods on buyer's behalf. In such cases, the transit comes to an end. Section 51 (3)]. 3. Carrier's wrongful refusal to deliver the goods to the buyer: (Section 51(6)) The important point here is that the refusal should be wrongful i. e. without any just cause. Eg. If the carrier refuse to deliver the goods because of non payment of freight charges, the refusal is not wrongful. Unpaid seller's right of resale is contained in Section 54 (2) of the Sale of Goods Act, which provides that if the buyer fails to pay or offer the price within a reasonable time, the unpaid seller has the right to resell the goods in the following circumstances: (a) Where the goods are of perishable nature, b) Where the unpaid seller has exercised his right of lien or stoppage in transit and gives a notice to the buyer of his intention to resell the goods. And also (c) Where the unpaid seller has expressly reserved his right of resale. 1. Where the goods are perishable: The seller may resell the goods to another person within a reasonable time. The term 'reasonable time' is a. 2. Where the seller expressly reserves his right of resale: It may be noted that in such cases, the seller is not required to give notice of resale.

He is entitled to recover damages from the original buyer even if no notice of resale is given. 3.. Where the unpaid seller has exercised his right of lien or of stoppage in transit and gives notice to the buyer of his intention to resell the goods: If after the receipt of such notice, the buyer does not pay or tender the price within a reasonable time, the seller may resell the goods. In such cases, on the resale of the goods, the seller is also entitled to: (a)Recover the difference between the contract price and resale price, from the original buyer, as damages. b)Retain the profit if the resale price is higher that the contract price. However, if the goods are resold by the seller without giving any notice to the buyer, the seller cannot recover the loss suffered on resale. Moreover, if there is any profit on resale he must return it to the original buyer, i. e. , he cannot keep such surplus with him [Section 54 (2)]. In this sense, the notice of resale becomes obligatory, i. e. legally compulsory. Right of Withholding Delivery and Rights against Buyer

Right of Withholding Delivery: Sometimes the ownership of the goods sold is not transferred to the buyer. In such cases the seller has the right of Withholding Delivery of the goods sold, if the buyer fails to pay the price. It may be noted that this right is in addition to other remedies available to the seller. This right is similar to and co-extensive with the right of lien and stoppage in transit [Section 46 (2)]. Rights against the Buyer The unpaid seller has the following rights against the buyer : 1. Suit for price:

Where the buyer fails to pay the price of the goods in terms of the contract, the seller can file a suit against the buyer for recovery of the price [Section 55]. 2. Suit for damages for non-acceptance of goods: Where the seller is ready and willing to deliver the goods to the buyer, but the buyer wrongfully neglects or refuses to accept the goods and pay for them, then the seller may bring a legal action against the buyer for the recovery of damages suffered due to non-acceptance of the goods [Section 56]. 3.

Suit for damages for repudiation of the contract before the due date of delivery of goods: Where the buyer repudiates (i. e. , puts an end to) the contract before the due date of delivery of the goods, the seller has the following options [Section 60]: (i) He may not immediately take any action against the buyer, and treat the contract as subsisting and wait till the date of delivery of goods. (ii) He may immediately treat the contract as repudiated and bring the legal action against the buyer for the recovery of the damages. . Suit for interest: Where the seller tenders the goods, but the buyer fails to accept and pay for them, then the seller may file a suit for the recovery of the price. In such a suit, the seller may also claim the interest on the amount of price payable by the buyer The court may award the interest from the date of tender of the goods or from the date when the price if payable. The rate of interest to be awarded is at the discretion of the court.

It may however, be noted that the interest can be recovered by the seller only when he is entitled to recover the price. Thus, when the seller's only remedy is for damages, he cannot file a suit for interest [Section 61]. Reservation of right of disposal (Section 25). - 1. Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of disposal of the goods until certain conditions are fulfilled.

In such case, notwithstanding the delivery of the goods to a buyer or to a carrier or other bailee for the purpose of transmission to the buyer, the property in the goods does not pass to the buyer until the conditions imposed by the seller are fulfilled. 2. Where goods are shipped or delivered to a railway administration for carriage by railway and by the bill of lading or railway receipt, as the case may be, the goods are deliverable to the order of the seller or his agent, the seller is prima facie deemed to reserve the right of disposal. . Where the seller of goods draws on the buyer for the price and transmits to the buyer the bill of exchange together with the bill of lading or, as the case may be, the railway receipt, to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading or the railway receipt if he does not honour the bill of exchange; and, if he wrongfully retains the bill of lading or the railway receipt, the property in the goods does not pass to him. Explanation. In this section, the expressions" railway" and" railway administration" shall have the meanings respectively assigned to them under the Indian Railways Act, 1890 . ] (9 of 1890 . ) Buyer’s right against seller Suit for damages for non-delivery When the seller wrongfully refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery (Sec. 57) Suit for specific performance Where there is a breach of contract for sale of specific goods, the buyer may file a suit for specific performance.

The remedy is granted when subject matter of the contract is rare goods, say, a picture by a dead painter (Sec. 58) Suit for damages for breach of warranty Where there is a breach of warranty, the buyer is entitled to sue for damages if he had paid the price to the seller. But if he has not paid the price yet, he may ask the seller for a reasonable reduction in theprice. (Sec. 59) Suit for cancellation and damages for breach of contract Where there is a breach of contract by the seller, the buyer may avoid the contract and claim damages. Suit for recovery of price with interest

If the buyer has already paid the price to the seller and the seller does not deliver the goods to thebuyer, he can sue the seller for refund of price and interest at a reasonable rate. (Sec. 61) Examples A case of an unpaid seller Case 1 Sir, If a sale deed has been entered saying that the consideration has been paid via a Demand Draft (i. e. issued by the Bank on account of loan). However the demand draft has not actually been encashed, as the loan was subsequently cancelled. However believing on the fact the DD will be encashed the seller signed the Sale Deed.

Now as the amount is not actually paid, what can be the means to get the unpaid money? If in the suit for recovery of balance amount the buyer is unable to pay the remaining consideration, then what other relief can be provided by the court of law? The buyer got the loan sanctioned by concealing certain facts, so the DD was issued. However before the disbursement the Bank came to know of the facts and the loan got cancelled. That is how the DD could not be encashed. The Bank had issued the DD on the basis of certain facts. However certain important facts were concealed by the buyer from the Bank.

Just before the DD could be encashed the Bank came to know the facts and they cancelled the DD. As a result the seller could not get the consideration. Case 2 Please my fellow mates i need urgent help on this   Mr. J sells and consigns certain goods to Mr. S for cash and sends the Railway Receipt to him. Mr. S becomes insolvent and while the goods are in transit, he assigns the Railway Receipt to Mr. N who does not know that Mr. S is insolvent. Mr. J being an unpaid seller wants to exercise his rights. Advise:   (a) whether Mr. J can exercise the right of stoppage of goods in transit ? b) would your answer be different if Mr. N was aware of Mr. J’s insolvency before the assignment of the Railway Receipt in favour of Mr. N ? (a)Mr. J cannot exercise the right of stoppage of goods in transist, because the goods are being taken by Mr. N in good faith and for consideration. (b)Yes, Mr. J in this case can exercise his right of stoppage of goods in Transit, as Mr. N has not acted in good faith. (Refer to section 27 of The Sale of Goods Act, 1930) Ref: http://www. caclubindia. com/forum/unpaid-seller-142227. asp#. UKXVHIdJNGQ

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