In any contract for the sale of goods, both the seller and the buyer make reciprocal promises. The seller is obligated to deliver the goods, while the buyer is required to pay for them. When the buyer fails to fulfill their payment obligation, the seller becomes an “unpaid seller” and is entitled to certain legal rights.
As per Section 45(1) of the Sale of Goods Act, a seller is deemed to be an unpaid seller in the following conditions:
- If the whole price of the goods sold has not been paid or tendered.
- If a bill of exchange or any other negotiable instrument has been received as conditional payment, and the condition has not been fulfilled due to dishonor of the instrument or otherwise.
The term “seller” includes any person in the position of a seller, such as an agent of the seller.
Rights of unpaid seller:
- Rights against the goods sold
- Rights against the buyer personally
Rights against Goods are further divided into two:
- Rights of Lien (section 47):- Here goods are in possession of seller. Lien until payment or tender of price of such goods.
Where Lien can be exercised:
– goods sold without stipulation of credit
– goods sold on credit but term of credit has expired
– buyer has become insolvent
Where Lien cannot be exercised:
– without reserving the rights of goods
– where buyer or his agent has lawfully obtained the possession of goods
– in case of estoppel - Rights of Stoppage in transit (section 50):- This right can be exercised by the unpaid seller only when all the following conditions are fulfilled :
a. seller must be unpaid
b. parted with possession of goods
c. goods are in transit
d. buyer has become insolvent - Rights of Resale:- These are further divided into two-
a. Perishable : no need to inform if there is need to sale
b. Other Goods: notice of intention of resale shall be given to buyer if gods are being sold. buyer does not pay or tender within reasonable time.
Right against Buyer
- Suit for Process (section 55):- sue for the price if:
– Property in goods has passed to the buyer.
– Price payable on a certain day and not paid. - Suit for damages not acceptance (section 56):- Sue for damages if buyer wrongfully refuses to accept/pay for goods.
- Suit for interest and special damages (section 60):- when the contract is repudiated by the buyer before the date of delivery, claim interest and special damages for breach of contract.
RELEVANT CASE LAWS
Mysore Sugar Co. Ltd., Bangalore v. Manohar Metal Industries, Chikpet, Bangalore AIR 1982 Kant. 283
Facts: The Mysore Sugar Company (plaintiff), put certain items like copper ingots, copper scraps as well as brass tubes available with the company at Mandya, for sale. Buyer gave tender which was accepted by the plaintiff. The buyer made a default in taking the goods, the seller gave him a notice that if the buyer didn’t lift the goods within three days the contract would be cancelled. The Buyer did not lift the goods. The seller sought to recover the loss arising on resale. The seller made a resale after 3 months and claimed damages. The Civil Court disallowed the suit for damages.
Issue: Whether the resale is properly made and the delay in making resale is reasonable?
Judgement : The Court observed that it is needless to point out that a duty lies with the plaintiff to mitigate the damages. Even in view of Section 54(2) of SOGA, it was the duty of the plaintiff to see that resale was effected within a reasonable time, especially when the prices were falling for the relevant material. Three months delay, therefore, on the facts of this matter, is certainly inordinate and the re-sale has not taken place within a reasonable time as contemplated in Section 54(2) of SOGA. It is relevant to mention in this context that what the ruling price was in about September 1966 is not brought on record by the plaintiff, but he admitted that the prices were more at that time. The difference claimed as damages on the facts of this case, is also not much hence if the goods were re-sold in September 1966 within a reasonable time, the plaintiff would not have incurred any loss whatsoever.
At any rate, since the burden of proving the damages was on the plaintiff and he has not placed any evidence on record in that behalf, the learned Civil Judge has rightly proceeded to disallow the suit for damages.
The Court further said there has been an unreasonable delay in re-selling, on the facts of the present case, when the market price fell.Hence, the value realised on re-sale does not afford good ground to fix the damages.
The plaintiff has come to Court. The burden is on him to prove the alleged damages and since he has not placed any material evidence to show that he has suffered damages, he has failed to prove his contention and therefore learned Civil Judge has rightly given the verdict.
The Court further said that Section 54(2) of SOGA is a special law and Section 73 of Indian Contract Act, 1872 (ICA) is general law. Therefore, Section 54 prevails over Section 73 though both the sections are based on the same general principles. The Karnataka High Court dismissed the appeal and upheld the verdict of the Civil Judge.
James vs Griffin [(1837) 2 M&W 6231]
Here, the buyer ordered goods from the seller, who shipped them to the buyer’s location. Upon arrival, the buyer refused to accept the goods and stopped payment.
The court held that the goods were still in transit, allowing the unpaid seller to reclaim them. This case illustrates that goods remain in transit if the buyer refuses delivery, enabling the seller to exercise the right of stoppage-in-transit.
Asfar vs Blundell [(1896) 1 Q.B. 123]
In this case, the court considered goods that were perishable in nature. The court ruled that the term “perishable” includes goods that may deteriorate to the point of becoming non-merchantable.
This case is significant because it broadens the definition of perishable goods, allowing unpaid sellers to resell such goods without notice to the buyer.
PRESENT CASE
Q. 5/2022. Amit, as the unpaid seller, has a strong legal position to retain possession of the goods until he receives payment or tender of the price, even if Bhushan becomes insolvent. The official assignee’s claim to the goods would be subject to Amit’s lien.
Q. 5/2020. The seller cannot claim damages from X of Rs. 1500 as a 3 month delay in selling is clearly inordinate, and no notice was served by the seller upon X.
Part 2 — The unpaid seller has an absolute right to sell the goods for which the buyer defaulted in payment, even though the seller agreed to deliver it on 20th March. The unpaid seller can —
– sue the defaulting buyer for damage for breach of contract.
– resell the goods which are now his property.
Q. 8A/2018. The railway company cannot exercise the right of lien over the goods as it would be in violation of the right of stoppage-in-transit of the seller as given under section 52.
