The Sale of Goods Act, 1930 states an unpaid seller is a seller who has not been paid the full price of the goods that have been sold or who has received a bill of exchange or any other negotiable instrument as a conditional payment, and the condition on which it was received has not been fulfilled.
The Sale of Goods Act, 1930 defines an unpaid seller as a seller who has not been paid the full price of the goods that have been sold or who has received a bill of exchange or any other negotiable instrument as a conditional payment, and the condition on which it was received has not been fulfilled.
Section 2(f) of the Indian Contract Act states that the seller must transfer the goods sold, and the buyer is required to pay the required amount in return, under the contract of sale by them. This is known as Reciprocal Promise. Thus, any set of promises made which forms the consideration or part of the consideration for each other is called reciprocal promises and every contract of sale of goods consists of reciprocal promises.An unpaid seller has 3 rights against the goods:
- Right of lien
- Right of stoppage of products in transit
- Right of resale
Right of lien (Section 47)
“Lien” is the right to keep possession of products and refusal to give purchaser the product until the fee is paid by the purchaser. An unpaid seller, who is in possession of products, is entitled to work out his lien on the products in the following instances:
- In which the goods were sold without any requirement as to credit score.
- Where the goods were sold on credit however the term of credit has expired.
- In which the buyer will become insolvent even though the period of credit began to expire.
If there is a case of the purchaser’s insolvency, the lien exists even though goods were offered to them on credit and the duration of credit has not expired till the time. When the products are offered to them on credit, the presumption is that the customer shall ensure his credit is suitable.
If before payment the buyer becomes insolvent, the seller is entitled to extend his rights and hold the products as security for the charge.
The seller who is unpaid will have a lien as a possessory lien; the lien will be exercised so long as the seller stays in ownership of the products. He may choose to exercise his rights of lien but he is holding the ownership of the goods as agent for the customer [Section 47(2)]. In which the 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 has a lien towards his own goods.
The seller may further incur from storing the products inside the exercise of his lien for the charge. This right of lien is extended 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 words, the consumer is not entitled to claim delivery of a part of the product he has purchased.
Further, wherein an unpaid seller has made component shipping of the goods, he may also choose to exercise his rights of lien on the rest, except such element shipping has been made under such instances as to reveal an agreement for waiver of the lien (Section 48).
The lien can also be exercised even though the seller has received a ‘decree’ for the rate of the products.[Section 49(2)].
When do you lose a lien?
As mentioned above, lien relies upon purely on physical ownership of products. As soon as the possession is misplaced, the lien is also lost. The unpaid dealer of goods loses his lien in the following instances:
- 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.
- When the buyer lawfully obtains ownership of the goods.
- When the seller expressly or impliedly waives his rights of lien. An implied waiver happens when 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 further have made.
Rights of Stopping of Goods in Transit
The right of stoppage in transit is the right to stop 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 keeping possession until the payment of the good is made.
This right is a further 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 choose to exercise this right in the simplest way when:
- The purchaser becomes insolvent: The buyer is 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 the assets in question have not surpassed the buyer then this right is called the “right of withholding shipping”.[Section 46(2)]
- The products are in the route of transit: Goods should be neither with the seller nor with the buyer nor with their respective agents. The product has to be in the custody of a carrier in the form of an intermediary. Further, the carrier needs not to be either a seller’s agent or customer’s agent. This is due to the fact that if he is the seller’s agent then the products are still in the arms of seller in the eye of regulation and thus there may be no transit, and if he is the agent of the consumer, the consumer gets transport as law and hence question of stoppage does now not arise.
Transit Duration (Section 51)
Since the right to stoppage during 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 transit route where it starts and where it comes to the destination. It is to be noted that when the transit involves a stop, the right of stoppage cannot be exercised.
Items are said 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 charge of the transport of them.
When the transit is said to be at near the destination, then the seller isn’t allowed to exercise his right of stoppage in the following instances:
- When the customer or his agent takes shipping after the products have reached the destination.
- When the buyer or his agent get delivery of the goods before their arrival at the appointed destination.
- 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.
- 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.
- When the service wrongfully refuses to supply the goods to the consumer’s agent.
- 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 further exercise his right of stoppage in transit:
- Through taking real possession of the goods.
- By means of giving a declaration to the seller in whose possession the products are.
Such declaration can be given to the person in real ownership of the goods. In the second case, the declaration 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 gives the purchaser the products, he is then responsible for the conversion. The fees of redelivered goods are to be born by the seller.
What is the difference between the right of lien and right of stoppage in Transit?
The main points of difference among these rights of an unpaid seller are as follows:
- 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 mostly while the customer is bankrupt.
- 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 of his own and the products are within the custody of an independent service.
- 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.
The right of stoppage in transit on the other hand 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 of the goods. The right of lien also includes preserving the possession of the goods when the right of stoppage includes regaining ownership of the goods.
Right of resale
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, and these 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:
- In which the goods are of a perishable nature.
- In which this type of right is expressly reserved inside the settlement in case the buyer needs to make default.
- 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.
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”.Conclusion
Any set of promises made to form the consideration or parts 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.
#tags: Unpaid Seller, Negotiable Instrument, Lien
January 13, 2021