In this article, Vatsala Sharma discusses the duties of an unpaid seller under the Sale of Goods Act.

Introduction

The Sale of Goods Act, 1930 expressly lists down the rights and duties of both the buyer and the seller. It also contains express provisions relating to what an unpaid seller is and what his rights are. What it lacks is an enumeration of duties that might arise of the seller who is unpaid. By a careful and thorough reading and understanding of the provisions relating to unpaid seller under the act, one might come across certain implied duties of the unpaid seller which he is entitled to fulfill in order to establish his rights as a seller who is “unpaid”.

Unpaid seller under the Sales of Goods Act, 1930

In a general sense, an unpaid seller is the one who has sold his goods but has not received the full price of the goods he has sold by the customer or the carrier. Here it is also important to note that the seller remains unpaid even if a part of the payment remains unpaid. For example, if A sells a bike to B worth 50,000 and B pays 48,000 but fails to pay 2,000. A still is an unpaid seller.

Talking legally, an unpaid seller as according to the Sale of Goods Act, 1930 is the person or the seller of the goods who has been left “unpaid” in the following cases:

  1. When the whole price of the goods sold by the seller has not been paid or tendered to him by the buyer. For example, A buys a chair worth rupees 4000 from B but refuses to pay the amount, the rights of B as an unpaid seller arises.
  2. In the case when a bill of exchange or other negotiable instrument has been received as a conditional payment by the seller and the conditions on which it was received has not been fulfilled because the dishonor of the instrument has occurred. For example, A buys a television set from B and the payment has been made via cheque to B, but later the cheque bounces due to the insufficiency of funds in the account.

A seller also includes any person who is in the position of working as a seller. This also includes any agent of the seller to whom any bill of lading has been signed or any consignor or agent who has himself paid. For instance, A buys a washing machine from B, B delivers it to A’s house through C, A is liable to pay C.

Duties of an Unpaid Seller

Though there is no express provision relating to the duties of an unpaid seller under the Sale of Goods Act of 1930, there are certain implied duties which can be understood through the provisions and those are as follows:

Duty to inform the buyer in case of dishonor of cheque or other negotiable instrument.

  • It is the duty of the seller that he informs the buyer of the dishonor of cheque before exercising his rights as an unpaid seller. As according to Negotiable Instrument Act, Section 138 (2), after the dishonor of the cheque has occurred, it is the duty of the payee or the holder to give a notice in writing to the drawer of cheque within 30 days of the information by the bank that the cheque has been dishonored and thus make a demand for such payment.
  • It is also the duty of the holder of cheque to present it to the bank within six months from the date on which it is drawn or within the validity period of the cheque.
  • Therefore, it is important to understand that the seller cannot directly exercise his right to lien, right to stoppage in transit, or right to re-sell without informing the buyer about the default.

Duty to deliver back the goods after the payment has been made after the exercise of right to stoppage in transit.

  • In general it is the duty of the seller to deliver the goods and the buyer to accept them which may be altered by changing the terms and conditions of the contract.
  • But in case of an unpaid seller, he has the right to stop the goods in transit and the right to lien if there is any default in the payment by the buyer.
  • In case the default is rectified, the duty of the seller to deliver the goods resumes and he shall deliver the goods as according to the terms and conditions of the contract. He is also bound to deliver them within a reasonable period of time.

Duty to give notice to the carrier or bailee in possession of the goods, or to his principal for stoppage in transit.

  • Section 52 of the act empowers the unpaid seller to exercise his right to stoppage in transit by taking actual possession of the goods or by giving a notice of his claim to the carrier or bailee who is in the possession of the goods.
  • In case of the notice, the duty of the seller arises that he must give the notice within a reasonable time and under such circumstances that the principal can communicate the prevention of the delivery to the buyer by exercising his reasonable diligence. The carrier shall then, re-deliver the goods to the seller according to his directions.

Duty to maintain the goods in a deliverable state.

  • When the seller exercises his right to stoppage in transit or right to lien, he needs to make sure after the default is rectified, that the goods are in deliverable state and of the same quality and quantity as promised in the contract as the sale is not generally cancelled by the mere exercise of right to lien or stoppage in transit.

Duty to give notice to the buyer of his intentions to re-sell.

  • The unpaid seller has the right to re-sell the goods in the cases when the goods are of perishable nature or when he sends a notice to the buyer during the exercise of his right to lien or stoppage that he intends to re-sell the goods.
  • If even after the notice the buyer does not make the payment within a reasonable time, the seller has the right to re-sell the goods and recover the damages for any loss due to breach of contract from the buyer.
  • If the seller does not give such a notice to the buyer, he shall not be entitled to recover the damages from the buyer.

Duty to exercise his right to lien and right to withhold delivery only for payment of price.

  • The right to lien can be exercised by the unpaid seller only for the price due by the buyer and not for any other charges like rent for maintenance or other expenses.
  • Also, his right to withhold the property expires as and when the payment is made.

Duty to bear the expenses of redelivery when exercising his right to stoppage in transit.

  • It is well explained in section 52 clause 2 that when the carrier or other bailee who is in the possession of the goods in transit, redelivers those goods to the seller on account of notice given by him, he shall bear the expenses of such redelivery. That is to say that the costs of redelivery shall be borne by the seller himself and not the bailee or the carrier.

Duties arising in case of a sub-sale or pledge by the buyer.

  • Duty not to exercise his right to stoppage in transit and lien in contradiction to the rights of transferee:

There are cases when the buyer without establishing his legal title or making the whole payment, makes a sub-sale or pledges the goods to a third party. In such cases, the rights of an unpaid seller that is his right to stoppage in transit, right to lien and right to re-sell are defeated and he can only exercise such rights upto the extent that it does not affect, or in any case harm the rights of the third party whether he is a transferee or a buyer of such goods.

  • Duty to satisfy the amount secured by pledge to the pledgee out of any other securities of the buyer:

As already mentioned above, a seller cannot in any way affect the rights of a third party when a sub-sale or pledge is made by the buyer without establishing his legal title on the goods. The third party being an innocent party, who bought the goods in good faith, has his rights secured. Therefore, when the transfer of such goods is by way of pledge, the unpaid seller has a duty to satisfy the amount secured by the third party. He can do so by any manner or by way of any other goods of the buyer.

Duty to exercise his right to lien only when he is in the possession of them.

  • It is clear from the statute book that an unpaid seller has a lien on the goods for the price “while he is in possession of them”. Therefore, in case when the unpaid seller does not have possession of the goods, he cannot have lien on such goods. This has also been upheld by the Hon’ble High Court of Delhi in the judgment of Pawan Hans Helicopters Ltd. vs. Aes Aerospace Ltd.
  • However in the case of Suchetan Exports Pvt. Ltd. vs. Gupta Coal Ltd. and Ors. The Hon’ble Supreme Court held that wherein the contract for sale expressly provides that the seller would retain its lien over the goods and title would pass to the buyer on payment of the full price of the goods, then the unpaid seller of the goods is entitled to exercise lien over the goods, even if the possession of the goods may not be with the unpaid seller.10

Comparison between the Rights and Duties of a seller

For a better and thorough understanding of other duties of seller, whether paid or unpaid here is a comparative study of his right and duties:

  RIGHT   DUTIES
1. He can reserve the right of disposal of the goods until certain conditions are fulfilled. [sec 25 (1)] 1 He is liable to make necessary arrangements for the transfer of property in the goods to the buyer.
2. He can assume the acceptance of the goods by the buyer in following cases:
(i)  The buyer conveys his acceptance;
(ii) Does an act adopting the sale; or
(iii)Retains the goods without giving a notice of rejection, beyond the specified date (or reasonable time), in a sale on approval. (sec 24)
2. To ascertain and appropriate the goods to the contract of sale
3. To deliver the goods only on an application of delivery by the buyer ( sec 35) 3. To pass the title of the goods absolutely and effectively to the buyer.
4. Delivery of the goods can be made  in installments, when so agreed [Section 39 (1)] 4. Delivery of goods in accordance with the terms of the contract (Section 31)
5. Exercise of right to lien and retain possession of the goods, until payment of the price is made.[Section 47 (1)] 5. Ensuring that the goods supplied conform to the implied/express conditions and warranties.
6. Exercise the right of stoppage in transit and resume possession of the goods, until payment of the price (Section 49 clause 2 and Section 50) 6. To put the goods in a deliverable state and to deliver the goods when applied for by the buyer (Section 35)
7 To resell the goods under certain and suitable circumstances. (Section 54) 7 To deliver the goods within the time specified in the contract or within a reasonable time and a reasonable hour. [ sec 36 (2) and (4)]
8 To withhold delivery of the goods when the property in the goods has not passed to the buyer [sec 46 (2)] 8 To bear all expenses of and incidental to making a delivery (that is upto the stage of putting the goods into a deliverable state [Section 36(5)]
9 To sue the buyer for price when the property in the goods has passed to the buyer or when the price is payment on a certain day, in terms of the contract, and the buyer fails to make the payment  (sec 55) 9 To deliver the goods in the agreed quantity. [Sec. 37 (1)].
    10 To deliver the goods in installments only when so desired by the buyer. [Sec 38 (1)]
    11 To arrange for insurance of the goods while they are in transmission or custody of the carrier. [Sec. 39 (2)].
    12 To inform the buyer in time, when the goods are sent by a sea route, so that he may get the goods insured  [Sec. 39 (3) ]

Conclusion

An unpaid seller in addition to these duties and liabilities have some other moral duties such as to check for the possible reasons of non-payment and rectify them in case he finds any error on his part. Thus, it must be understood that the unpaid seller cannot arbitrarily exercise his 3 given rights but must also provide reasonable and appropriate opportunity to the buyer to rectify his errors and thus ultimately fulfill the contract in a better-coordinated way.

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