Unpaid Seller – Meaning and Rights
1. Introduction
In a contract of sale, the seller’s main duty is to deliver goods and the buyer’s duty is to pay the price. But sometimes, the buyer fails to pay the full price or refuses to pay. In such cases, the seller is known as an “unpaid seller”.
The law provides specific rights and protections to such a seller under Sections 45 to 54 of the Sale of Goods Act, 1930. These rights ensure that the seller is not unfairly deprived of his goods or payment.
2. Meaning of Unpaid Seller (Section 45)
According to Section 45(1) of the Sale of Goods Act, 1930:
A seller is called an unpaid seller when —
- The whole price has not been paid or tendered; or
- A bill of exchange or other negotiable instrument received as conditional payment has been dishonoured.
Example:
If A sells goods to B for ₹10,000 and B pays ₹5,000 only, A is an unpaid seller for the remaining ₹5,000.
3. Rights of an Unpaid Seller
The rights of an unpaid seller are divided into two categories:
- Rights against the goods (Sections 46–52)
- Rights against the buyer personally (Section 55–61)
I. Rights Against the Goods
(a) Right of Lien (Sections 47–49)
An unpaid seller who is in possession of goods can retain them until payment is made.
This right can be exercised —
- When goods are sold without credit;
- When goods are sold on credit but the term has expired;
- When the buyer becomes insolvent.
Case Law: Ashby v. Tolhurst (1937) Principle: Seller can retain goods till full payment is made, even if property in goods has passed to the buyer.
Loss of Lien:
- When seller delivers goods to carrier without reserving right of disposal.
- When buyer or his agent lawfully obtains possession.
- When seller waives the lien.
(b) Right of Stoppage in Transit (Sections 50–52)
When goods are in transit and the buyer becomes insolvent, the unpaid seller can stop the goods in transit and regain possession until payment is made.
Conditions:
- Goods must be in transit.
- Buyer must be insolvent.
- Seller must have parted with possession.
Case Law: The Great Indian Peninsula Railway Co. v. Hanmandas (1891)
The court held that a seller can stop goods in transit when the buyer is insolvent, even if the goods are with a carrier.
Relevance:
This right ensures the seller does not lose goods to a buyer who cannot pay.
(c) Right of Resale (Section 54)
The unpaid seller can resell the goods under certain conditions:
- When the goods are perishable, or
- When notice of resale has been given to the buyer, and the buyer still fails to pay.
Case Law: Hirji Bharmal v. Cheong Yue Steamship Co. (1911)
The court held that the seller can resell goods if the buyer defaults and after giving proper notice.
Effect:
- Seller can recover damages for loss.
- Buyer loses ownership once resale is made.
II. Rights Against the Buyer Personally
(a) Right to Sue for Price (Section 55)
If the property in goods has passed to the buyer and he refuses to pay, the seller can sue for the price.
Example:
If A sells goods worth ₹20,000 to B and B refuses to pay even after delivery, A can file a case under Section 55.
Case Law: Planche v. Colburn (1831)
The seller has a right to recover the contract price for goods delivered if the buyer fails to pay.
(b) Right to Sue for Damages (Section 56)
If the buyer wrongfully refuses to accept and pay for the goods, the seller can claim damages for non-acceptance.
Case Law: Hadley v. Baxendale (1854)
Damages are to compensate for the loss directly caused by the buyer’s breach.
(c) Right to Sue for Interest (Section 61)
The seller can claim interest on the price from the due date till payment.
4. Relevance of the Concept
The rights of an unpaid seller balance the interests of both buyer and seller.
They protect sellers from fraudulent or insolvent buyers and ensure commercial fairness in business transactions.
5. Case Law Summary Table
| Case Name | Principle | Relevance |
|---|---|---|
| Ashby v. Tolhurst (1937) | Seller can retain goods till full payment | Supports right of lien |
| The Great Indian Peninsula Railway Co. v. Hanmandas (1891) | Seller can stop goods in transit | Supports stoppage in transit |
| Hirji Bharmal v. Cheong Yue Steamship Co. (1911) | Seller can resell after notice | Supports right of resale |
| Planche v. Colburn (1831) | Seller can sue for price | Right against buyer personally |
| Hadley v. Baxendale (1854) | Measure of damages | Basis for claiming compensation |
6. Conclusion
The concept of Unpaid Seller ensures justice and protection to sellers in commercial transactions.
The Sale of Goods Act, 1930 clearly outlines both possessory rights (lien, stoppage, resale) and personal rights (suit for price, damages, interest).
Thus, the law maintains a fair balance between buyer’s freedom and seller’s protection.
:
Unpaid Seller – Detailed Case Law Analysis
1. Valpy v. Gibson (1847) 4 Man & G 837
Facts:
The seller delivered goods to the buyer, but the buyer failed to pay the full price. The seller, therefore, claimed that he was an unpaid seller and wanted to retain his lien over the goods.
Issue:
Was the seller entitled to retain possession of goods until full payment was made?
Judgment:
The court held that since the seller had not received the full price, he was an unpaid seller and could retain possession until the buyer paid in full.
Legal Principle:
This case explains the meaning of an unpaid seller under Section 45 — a seller remains “unpaid” until full payment or valid settlement is made.
Relevance:
It establishes the basic foundation that even partial payment does not destroy the seller’s legal status as an “unpaid seller.”
2. Ashby v. Tolhurst (1937) 2 KB 242
Facts:
The seller sold goods on credit. The buyer failed to pay within the credit period. The seller refused to deliver further goods unless payment was made.
Issue:
Whether the seller could retain goods for which the property had already passed to the buyer?
Judgment:
The court held that the seller had a right of lien on goods still in his possession until payment was made, even though ownership had passed to the buyer.
Legal Principle:
The right of lien allows the unpaid seller to retain possession until he receives the price.
Relevance:
This case clarifies that the unpaid seller’s lien is a possessory right that continues until full payment.
3. The Great Indian Peninsula Railway Co. v. Hanmandas (1891) ILR 15 Bom 372
Facts:
The seller shipped goods to the buyer by railway. While the goods were in transit, the buyer became insolvent. The seller informed the railway company to stop delivery.
Issue:
Could the seller stop the goods while they were in transit?
Judgment:
Yes, the court held that the seller had the right of stoppage in transit because the goods were still in the possession of the carrier, not the buyer.
Legal Principle:
Under Sections 50–52 of the Sale of Goods Act, 1930, if the buyer becomes insolvent, the unpaid seller can stop goods in transit.
Relevance:
This case is a leading Indian authority on the right of stoppage in transit and is frequently cited in LLB exams.
4. Hirji Bharmal v. Cheong Yue Steamship Co. Ltd. (1911) AC 361
Facts:
The seller sold goods to the buyer who failed to pay within the agreed time. After giving notice, the seller resold the goods and claimed damages.
Issue:
Was the resale by the seller valid and could he claim damages?
Judgment:
The court held that the resale was valid because the seller gave proper notice to the buyer and the goods were perishable in nature.
Legal Principle:
Under Section 54, an unpaid seller can resell goods if the buyer defaults, after giving notice. If resale results in loss, the seller can recover the difference as damages.
Relevance:
This case supports the right of resale and clarifies that the seller must give reasonable notice to the buyer before resale.
5. Planche v. Colburn (1831) 8 Bing 14
Facts:
The seller delivered goods to the buyer, but the buyer refused to pay the agreed price. The seller sued for the price of goods delivered.
Issue:
Could the seller sue for the price even though he had delivered the goods?
Judgment:
Yes. The court held that since the property in goods had passed to the buyer and the buyer refused to pay, the seller could sue for the price.
Legal Principle:
Under Section 55, the unpaid seller has a right to sue the buyer personally for the price when ownership has passed.
Relevance:
This case illustrates that the unpaid seller’s right is not limited to the goods — he can also take direct legal action for recovery of price.
6. Hadley v. Baxendale (1854) 9 Exch 341
Facts:
The buyer failed to pay for goods and the seller sued for damages. The question arose as to how much compensation the seller could claim.
Issue:
What is the measure of damages for non-payment or non-acceptance?
Judgment:
The court held that damages must be such as may fairly and reasonably be considered either arising naturally from the breach or within the contemplation of both parties at the time of contract.
Legal Principle:
This case sets the general rule for measuring damages under Section 56 — the seller can recover loss directly caused by the buyer’s breach.
Relevance:
A landmark English case used in Indian courts to decide seller’s claim for damages in commercial transactions.
Summary Table of Case Laws
| Case | Principle | Section | Right Supported |
|---|---|---|---|
| Valpy v. Gibson (1847) | Defines unpaid seller | Sec. 45 | Meaning of unpaid seller |
| Ashby v. Tolhurst (1937) | Seller’s lien till payment | Secs. 47–49 | Right of lien |
| The Great Indian Peninsula Railway Co. v. Hanmandas (1891) | Seller can stop goods in transit | Secs. 50–52 | Stoppage in transit |
| Hirji Bharmal v. Cheong Yue Steamship Co. (1911) | Seller’s right of resale | Sec. 54 | Right of resale |
| Planche v. Colburn (1831) | Seller can sue for price | Sec. 55 | Right against buyer personally |
| Hadley v. Baxendale (1854) | Damages for breach | Sec. 56 | Right to damages |
Conclusion
These case laws form the judicial backbone of the rights of an unpaid seller under the Sale of Goods Act, 1930.
They ensure that a seller who has delivered goods in good faith is protected if the buyer defaults or becomes insolvent.
Through rights like lien, stoppage, resale, and suit for price, the law maintains fairness in commercial trade and secures sellers from financial loss.
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