A STUDY OF THE RIGHTS OF UNPAID SELLER UNDER THE SALE OF GOODS ACT, 1930
-PRACHI SINGH
BA LLB
HIMACHAL PRADESH NATIONAL LAW UNIVERSITY
INTRODUCTION
The Sale of Goods Act, 1930, is one of the most important legislative frameworks governing the
sale and purchase of goods in India. It outlines the rights, duties, and liabilities of both the buyer
and the seller in a contract of sale. In commercial transactions, goods often change hands in
exchange for monetary compensation, creating a binding legal relationship between the seller and
the buyer. However, in cases where the buyer fails to fulfil their obligations—particularly the
obligation to pay for the goods—the law must protect the seller's interests. This is where the
concept of an “unpaid seller” becomes significant.
An unpaid seller, as defined under the Act, is a seller to whom the price for the goods sold has
not been paid either in full or in part, or a seller who has accepted a negotiable instrument (such
as a cheque or bill of exchange) as payment, which has subsequently been dishonoured. The law
recognizes the vulnerabilities of such a seller and provides them with certain rights to protect
their financial interest in the goods they have parted with but for which they have not received
payment.
This is particularly important in commercial settings where transactions often involve large
quantities of goods or high-value products, and a default in payment could have significant
financial consequences for the seller. The provisions related to unpaid sellers under the Sale of
Goods Act, 1930, not only ensure justice but also help maintain the smooth functioning of trade
by providing legal certainty and protection.
In a rapidly evolving global economy, understanding the rights of an unpaid seller is vital, not
only for legal professionals but also for businesses and individuals involved in the sale of goods.
These rights, though rooted in an Act passed nearly a century ago, continue to hold immense
significance in contemporary commerce, providing crucial protections for sellers while
maintaining the equilibrium in buyer-seller relationships.
The scope of this paper is to examine these rights in detail, analyzing their relevance in
contemporary commerce and their practical enforcement through judicial interpretation. The
research will draw upon statutory provisions, case law, and legal interpretations to offer a
comprehensive understanding of the unpaid seller’s rights and their application in Indian law.
WHO IS AN UNPAID SELLER? (SECTION 45)
In a contract for the sale of goods, one of the fundamental elements is the payment of the price by
the buyer in exchange for the goods delivered by the seller. The legal concept of an unpaid seller,
as provided under the Sale of Goods Act, 19301
, addresses situations where the seller has not
received the full or agreed payment for the goods.
For example, a seller sells a computer to a buyer for ₹50,000. The buyer takes possession of the
computer but fails to pay the full price. In this case, the seller is an unpaid seller as per Section
45 of the Sale of Goods Act, 1930.
An unpaid seller is a person to whom the whole of the price has not been paid or tendered, or if
the price was paid through a bill of exchange or other negotiable instrument, the same has been
dishonoured2
. If the negotiable instrument had been received as a conditional payment, i.e.,
subject to the realisation thereof, and the condition cannot be fulfilled if the same has been
dishonoured, the seller is deemed to be an unpaid seller. If the payment rather than a conditional
one, the seller is not an unpaid seller even though the negotiable instrument is subsequently
dishonoured. A seller is an unpaid one when the whole of the price has not been paid to him. It
means that when only a part of the price has been paid (and not the whole of it), the seller is an
unpaid seller. It may also be noted that a person is an unpaid seller to whom neither the whole of
the price has been paid nor the same has been tendered. If the price has been tendered by the
buyer but the seller has wrongfully refused to take the same, he is not an unpaid seller. The
position of the seller's Agent may sometimes be the same as that of the seller for the purpose of
the exercise of rights conferred by this Chapter 3
.
This provision is designed to protect the seller in cases where the buyer either defaults on
payment or the mode of payment is dishonoured.
According to Section 45, an unpaid seller is defined in the following two circumstances:
1. Non-payment of the price:
The first scenario where a seller is regarded as unpaid is when the price of the
goods has not been paid or tendered. Here, the term "price" refers to the monetary
1 Sale of Goods Act, 1930, Section 45.
2 Sale of Goods Act, 1930, Section 45(1).
3 Sale of Goods Act, 1930, Chapter V .
6consideration agreed upon in exchange for the goods. Even if the goods have been
delivered, and part of the price has been paid, the seller is considered unpaid until
the entire price has been settled. The Act provides protection to sellers by ensuring
that the rights and remedies available to them are triggered when there is a failure
to pay in full.
2. Dishonour of negotiable instruments:
The second scenario occurs when a negotiable instrument, such as a cheque, bill
of exchange, or promissory note, has been accepted as conditional payment, and
this instrument has been dishonoured. In such cases, even though the seller
initially accepted the instrument as payment, the failure of that instrument (e.g., a
bounced cheque) to be honoured by the bank means the seller remains unpaid. As
a result, the seller retains the legal rights of an unpaid seller, as the payment
condition has not been fulfilled.
Section 45 also extends the concept of an unpaid seller beyond the direct seller to include "any
person who is in a position of a seller." This means that in addition to the original seller of the
goods, anyone acting on behalf of the seller, such as an agent or consignor, is also considered an
unpaid seller if they have not received the due payment.
The broader interpretation of the term "unpaid seller" under Section 45 ensures that the seller’s
agent or any intermediary acting in a similar capacity can also invoke the protections of the Act.
This is especially important in scenarios involving large commercial transactions, where multiple
parties may be involved in the sale process. For example, a consignor who ships goods to a buyer
may be in the position of a seller if the buyer has not paid for the goods. Similarly, an agent who
has been authorised to sell goods on behalf of the seller can claim the rights of an unpaid seller if
payment is not received.
Section 45 of the Sale of Goods Act, 1930, provides a clear and comprehensive definition of an
unpaid seller, ensuring that sellers and those acting in similar capacities are protected from
financial loss in the event of non-payment. The rights granted to unpaid sellers are fundamental
in maintaining fairness in commercial transactions, allowing sellers to safeguard their interests
while balancing the rights of buyers within the framework of the law. It is this legal protection
that ensures commercial transactions can proceed with a measure of trust and security for sellers.
7RIGHTS OF AN UNPAID SELLER (SECTION 46)
An unpaid seller, as defined under Section 45, is granted specific statutory rights against both the
goods and the buyer personally.
Section 46 of the Sale of Goods Act, 1930 states, “ Unpaid seller’s rights.—(1) Subject to the
provisions of this Act and of any law for the time being in force, notwithstanding that the
property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by
implication of law—
(a) a lien on the goods for the price while he is in possession of them;
(b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has
parted with the possession of them;
(c) a right of resale as limited by this Act.
(2) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to
his other remedies, a right of withholding delivery similar to and co-extensive with his rights of
lien and stoppage in transit where the property has passed to the buyer.”
These rights are intended to offer protection and remedies for the seller, ensuring that they are not
unduly disadvantaged by a buyer's failure to make payment. These rights help maintain balance
in commercial transactions by addressing situations where the buyer does not fulfil their
contractual obligations, ensuring that the unpaid seller can either reclaim their goods or seek
compensation for financial loss.
Notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller
can exercise the following rights against the goods-
(i) a lien on the goods for the price while he is in possession of them; (Secs. 47-49);
(ii) a right of stopping the goods in transit, while the goods are in transit and the buyer has
become insolvent; (Secs. 50-52);
(iii) a right of re-sale of the goods. (Sec. 54).
Even if the property in the goods has not passed to the buyer, the unpaid seller has right of
withholding delivery of the goods and this right would be similar to and co-extensive with the
right of lien or stoppage in transit where the property has passed to the buyer. These rights aim to
balance the interests of both parties in the contract. These rights will further be elaborated.
RIGHT OF LIEN (SECTION 47-49)
The right of lien is a vital tool for an unpaid seller within the framework of the Sale of Goods
Act, 1930. It enables a seller to retain possession of goods and refuse delivery until the buyer
meets payment obligations. This right, outlined under Sections 47 to 49 of the Act, emphasises
the importance of securing seller rights in commercial transactions, even when the ownership has
already passed to the buyer. The lien safeguards sellers from incurring losses when payment
terms are not fulfilled, serving as a means to incentivize timely payments from buyers. This right
can be especially critical in situations where sellers face potential losses by transferring goods
without a guarantee of payment. Although exercising lien does not rescind the contract of sale
, it temporarily halts the buyer’s right to possession, empowering the seller to manage the risk
associated with non-payment.
CONDITIONS FOR EXERCISING THE RIGHT OF LIEN
The right of lien can be exercised in various scenarios, primarily dependent on the terms of sale,
the nature of the goods, and the buyer’s payment status. These conditions include:
1. Sale Without Stipulation as to Credit: In cases where goods are sold on a cash basis,
without any arrangement for credit, the right of lien comes into immediate effect if the
buyer fails to pay upon delivery. According to Section 32 of the Act, payment and
delivery are concurrent unless otherwise agreed. This implies that sellers can retain goods
if payment is not forthcoming at the time of sale. The seller thus has a direct lien over the
goods, preventing the buyer from obtaining possession until payment is made. For
instance, if a buyer purchases goods on cash terms but attempts to delay payment, the
seller may lawfully refuse to transfer the goods.
2. Expiry of Credit Period: If goods are sold on credit, the seller’s lien becomes actionable
upon the expiration of the agreed credit period. Once the payment is due and remains
unpaid, the seller can retain the goods. The Act specifies that when the credit period ends,
the seller is no longer obligated to part with goods without payment. For example, if a
seller agrees to a 30-day credit period, upon the 31st day, the seller may refuse to deliver
the goods until the payment is received.
3. Insolvency of the Buyer: Another situation that activates the lien is if the buyer becomes
insolvent before taking delivery. Even if the goods were sold on credit, the seller can
immediately exercise lien rights. Insolvency here is defined under Section 2(8) as the
Sale of Goods Act, 1930, Section 54(1).
buyer’s inability to pay debts as they fall due. The presumption behind credit sales is that
the buyer will remain solvent; if this fails, the seller is entitled to protect their interest by
retaining the goods until payment. For instance, if a buyer purchases goods with a 60-day
credit but is declared insolvent on the 30th day, the seller may lawfully withhold delivery.
● In all cases, the seller’s possession of the goods is essential to the lien. Should the seller
lose possession through voluntary transfer, lien rights are no longer enforceable unless
expressly stipulated otherwise.5 Lien is a right which can be exercised in respect of all
those goods which are with the seller. If the buyer has made part payment of the price, he
cannot insist that a proportionate amount of goods should be delivered to him. The right
of lien can be exercised if the seller is still in possession of the goods even though his
capacity is not that of the seller but only that of an Agent or bailee for the buyer.
Once
this right has come to an end, it cannot be revived even if the seller gets the possession of
the same goods again.
According to Sec. 48, if a seller delivers part of the goods, they may still retain the right of lien
over the remainder unless circumstances indicate they waived this right. Part delivery may imply
a waiver if it appears the seller intended to treat it as delivery of the whole. For instance, if a
seller delivers 20 bags of a 100-bag wheat order, they can maintain lien over the remaining 80.
However, if the buyer weighs the entire order but only takes part of it, this partial delivery may
end the lien on the undelivered goods, as would the delivery of an essential part of machinery,
implying transfer of the entire lot.7
TERMINATIONS AND LIMITATIONS OF THE RIGHT OF LIEN
The right of lien, while empowering, is limited in scope and subject to several termination
conditions. Section 49 of the Act elaborates on the scenarios where lien rights are extinguished:
1. Payment of Price:
The right of lien comes to an end when the seller ceases to be an unpaid seller, i.e., when
the buyer pays or tenders the price to the seller. It has been noted under Sec. 47(1) that the
unpaid seller is entitled to exercise his right of lien until payment or tender of the price in
respect of certain goods, the payment or tender of the price, therefore, terminates the
seller's right to retain the goods. Merely obtaining the decree does not mean the payment
of the price and, therefore, Sec. 49(2) states that an unpaid seller, having a lien on the goods, does not lose his lien by reason only that he has obtained a decree for the price of
the goods.
2. Delivery to Carrier:
If the seller delivers goods to a carrier for buyer transmission without reserving a right to
dispose of them, the lien ceases. The right of lien is tied to possession, so once goods are
handed over to a third party for transit, the seller forfeits control. This aspect of the lien
emphasises the seller’s discretion in protecting rights when entrusting goods to carriers. If
the seller intends to maintain lien, a reservation of right to control must be explicitly
stated. For the termination of the lien, the delivery to the carrier or some other bailee must
have been made without reserving the right of disposal of the goods. If the seller has
reserved the right of disposal, i.e., a right of not delivering the goods to the buyer until he
fulfils the required condition, generally that condition being the payment of the price, the
seller can exercise his right of lien.
3. Possession Obtained by the Buyer:
The buyer or an authorised agent’s possession of goods ends the lien, effectively
transferring full control and title to the buyer. Should the buyer already possess the goods
at the time of sale (e.g., as a bailee), the seller cannot assert lien rights over them. If,
however, the seller regains possession through other circumstances, lien rights cannot be
reactivated. Thus, where a refrigerator after being sold was delivered to the buyer and
since it was not functioning properly, the buyer delivered two of its parts to the seller for
repairs, it was held that the seller could not exercise his lien over those parts.8
4. Waiver:
Lien can also be waived, either expressly or implicitly. According to Sec. 46(1)(a), an
unpaid seller gets his right of lien by implication of law. A party to a contract may waive
his rights, expressly or impliedly, according to Sec. 62. Sec. 49(1)(c) expressly provides
that the right of lien comes to an end by waiver thereof. Such a waiver may be presumed
when the seller allows a period of credit to the buyer, or delivers a part of the goods to the
buyer or his Agent under the circumstances which show that he does not want to exercise
his right of lien, or, when the seller assents to a sub-sale which the buyer may have made.
Ownership of mortgaged goods. Till such time as the ownership is not transferred to the
purchaser, the hirer normally continues to be the owner of the goods.9
6. Disposition of Goods by the Buyer:
According to Sec. 53, the unpaid seller's right of lien or stoppage in transit is not affected
by any sale or other disposition of the goods by the buyer. Should the buyer transfer the
goods’ title to a third party, the unpaid seller’s lien generally persists except in two cases:
(i) if the seller consents to the transfer, or (ii) if the buyer lawfully transfers a title
document in good faith. These exceptions underscore the importance of buyer
transparency and good faith in resale or sub-sale situations.
Unpaid seller’s lien on goods:
From Section 46(1)(a), it is seen that notwithstanding that the property in the goods has
passed to the buyer, the unpaid seller of goods has, as such, by implication of law, a lien
on the goods for the price while he is in possession of them. The unpaid seller has a right
to detain the goods in his custody until the whole of the price is paid. A lien necessarily
pre-supposes that the property in the goods has passed, as the seller cannot be said to
possess a right of lien on his own property, which is in the nature of a right of distress
over the property of another.
In conclusion, the right of lien represents a critical mechanism by which unpaid sellers can
safeguard their interests under the Sale of Goods Act, 1930. Through Sections 47–49, sellers are
provided with a way to protect their financial position, ensuring that goods are only transferred
when proper payment has been secured. The right of lien reinforces the seller’s role in
commercial transactions, ensuring that they retain leverage even when ownership technically
shifts to the buyer, thereby balancing equity and efficiency within India’s legal framework for
goods sales.
STOPPAGE IN TRANSIT (SECTION 50-52)
The right of stoppage in transit is a remedy available to an unpaid seller under the Sale of Goods
Act, allowing the seller to regain control of goods if the buyer becomes insolvent after the goods
are in transit but before they reach the buyer. This right essentially allows the seller to intercept
the goods while they are still with a carrier or intermediary, thereby preventing the buyer from
taking possession until payment is made. Under Section 54(1) of the Act, the exercise of this
right does not cancel the contract or revert ownership of the goods back to the seller; rather, it
grants the seller a lien over the goods. This allows the seller to retain the goods until payment is
made, with the potential to resell them if the buyer fails to pay.
CONDITIONS FOR THE EXERCISE OF THE RIGHT OF STOPPAGE IN TRANSIT:
For an unpaid seller to successfully exercise the right of stoppage in transit, three essential
conditions must be met:
Unpaid Seller: The seller must be an unpaid seller as per the definition in Section 45 of
the Sale of Goods Act. This means that the seller has not received the full payment for the
goods supplied.
Insolvency of the Buyer: The buyer must be insolvent. Insolvency is defined under
Section 2(8) as the condition where the buyer has stopped paying debts in the ordinary
course of business or is unable to pay debts as they fall due.
Goods in Transit: The goods must be in transit, which occurs once the seller has handed
over the goods to a carrier for delivery to the buyer. The right of stoppage can be
exercised only if the goods are still under the control of the carrier and have not been
delivered to the buyer or the buyer’s agent.
The duration of the transit, and thus the duration for which the seller can exercise the right of
stoppage in transit, depends on the precise legal interpretation of when the transit begins and
ends.
BEGINNING OF TRANSIT:
Under Section 51(1), transit begins when the goods are delivered to the carrier for the purpose of
transmission to the buyer. This marks the point when the seller loses control over the goods, but
retains the right to reclaim them under certain circumstances. The carrier's role is crucial; the
seller’s right to exercise stoppage in transit applies only when the carrier is acting in their
capacity as a neutral party, not as the agent of the buyer or the seller. The carrier’s role
determines the status of the goods and whether the right of stoppage can be exercised.
● Carrier as the Buyer’s Agent: If the carrier is acting as the buyer's agent, the seller
cannot exercise the right of stoppage in transit. This is because the buyer, through their
agent, is already in possession of the goods.
● Carrier as the Seller’s Agent: If the carrier is acting as the seller's agent, the seller is
considered to be in constructive possession of the goods and can exercise additional rights
such as the right of lien.
● Neutral Carrier: The seller may exercise the right of stoppage in transit if the carrier is
not acting as an agent for either the buyer or the seller, but simply as a neutral third party
carrying out the delivery.
DURATION OF TRANSIT:
The right of stoppage in transit can be exercised so long as the goods are in transit. It becomes
important, therefore, to know as to what is the duration of transit, i.e., when the transit begins and
when it comes to an end. Sec. 51 provides the rules regarding the same. According to sub-sec.
(1), the goods are deemed to be in the course of transit from the time when they are delivered to a
carrier or other bailee for the purpose of transmission to the buyer. The transit continues until the
buyer or his Agent in that behalf takes delivery of them from such carrier or other bailee. It
means that so long as the goods are with a carrier, the transit continues.
In order that the right of stoppage in transit can be validly exercised, the carrier carrying the
goods must be a middleman rather than either the buyer's Agent or the seller's Agent. If the
carrier is the buyer's Agent, delivery of the goods to him would defeat the right of stoppage in
transit. On the other hand, if he is the seller's Agent, the possession of the seller's Agent is the
possession of the seller and he can exercise even the right of lien over those goods. It is only
when the carrier has the capacity of a carrier that the goods are deemed to be in transit for the
purpose of the exercise of this right.
END OF TRANSIT:
The transit of goods is deemed to continue until the buyer or their agent takes delivery of the
goods from the carrier or bailee. The transit ends when the goods reach the buyer’s possession,
14either physically or constructively, through an acknowledgment by the carrier that the goods are
being held for the buyer.
● Buyer Takes Delivery: If the buyer takes actual possession of the goods before they
reach the designated destination, the transit ends immediately. The buyer may make such
arrangements with the carrier to take delivery before the goods arrive at the final
destination, which effectively ends the transit.
● Carrier Acknowledges Holding Goods for Buyer: If the carrier, upon the arrival of the
goods at the destination, acknowledges that they hold the goods on behalf of the buyer or
their agent, the transit is deemed to end. A mere indication that the goods will be
delivered after payment of freight does not suffice to end the transit.
● Carrier Wrongfully Refuses Delivery: If the carrier wrongfully refuses to deliver the
goods to the buyer, the transit is still considered to be ongoing. This situation arose in the
case of Bird v. Brown, where the carrier refused delivery and it was ruled that the right of
stoppage in transit had ended only when the goods were demanded and the carrier’s
refusal to deliver was deemed wrongful.
SPECIAL CIRCUMSTANCES IN STOPPAGE IN TRANSIT:
Certain situations complicate the application of the right of stoppage in transit. For instance, if
the goods are partially delivered to the buyer, the seller may still exercise the right of stoppage in
transit over the remainder of the goods. This was confirmed in Section 51(7), which states that
the right of stoppage applies to goods that have not been fully delivered.
If the buyer rejects the goods after they arrive at the destination, the transit continues, as the
rejection does not terminate the transit. The goods remain in the possession of the carrier or
bailee, and the seller can still exercise their right to reclaim them. However, if the seller waives
their right over the goods after part delivery, the right of stoppage is extinguished.
CASE LA W: CARRIER’S ROLE AND BUYER’S INSTRUCTIONS:
The rights of the seller are further illustrated in various case laws. For example, in the case of
Schotmans v. Lancashire & Yorkshire Ry. Co.,
the delivery of goods to a ship chartered by the
buyer and the possession of the bill of lading by the buyer indicated that the seller had transferred
possession to the buyer, which precluded the seller from exercising the right of stoppage in
transit. Similarly, in Turner v. The Trustees of Liverpool Docks, even though the goods were
placed on a ship belonging to the buyer, the fact that the bill of lading made the goods deliverable
to the seller’s order meant that the transit was still considered to be ongoing.
EFFECT OF REJECTION OF GOODS BY THE BUYER:
If the buyer rejects the goods upon arrival at their destination, the transit is not considered to be at
an end if the carrier or bailee still holds the goods. According to Sec. 51, sub-sec. (4), if the goods
are rejected by the buyer and the carrier or other bailee continues in possession of them, the
transit is not deemed to be at an end. Even if the seller refuses to accept the goods back, the
transit continues until the buyer or their agent takes delivery or the carrier acknowledges holding
the goods on the buyer's behalf. Therefore, if the buyer refuses to take delivery and does not want
the carrier to hold the goods, they remain in transit.
SALE TRANSACTION:
It cannot be said that the sale transaction on credit basis can be treated to be loan advanced to the
purchaser of the goods during the course of the business engaged in the trade. Therefore, the
amount sought to be recovered by the plaintiffs is not falling in the definition of loan in any
manner nor the plaintiffs can be said to be a money-lender engaged in the business of
money-lending by admitting that from the traders, he is obtaining promissory notes to secure his
trade money.
12
HOW THE RIGHT IS EXERCISED:
The Act does not specify a particular form for exercising the right of stoppage in transit, but it
requires the seller to either physically take possession of the goods or issue a notice of stoppage
to the carrier or bailee holding the goods.13 This notice must clearly express the seller's intention
to countermand delivery, preventing the goods from being delivered to the buyer. The seller’s
right is not contingent on proving justification for stoppage, and if the seller wrongfully prevents
delivery, they could be liable for damages. Notice can be given either directly to the person in
possession or their principal. For the notice to be effective when given to the principal, it must be
timely and diligent enough to prevent delivery. If the principal fails in this duty and the goods are
delivered despite the buyer’s insolvency, the carrier may be liable for conversion.
Once the carrier receives the notice, they must return the goods to the seller, or they risk liability
for conversion. However, while the seller regains possession, they do not regain ownership or
cancel the sale; they only regain possession during the buyer’s insolvency.
EFFECT OF SUB-SALE OR PLEDGE:
A buyer may sometimes sell or dispose of the goods they purchased before paying for them. In
such cases, the question arises whether the unpaid seller can exercise their right of lien or
stoppage in transit. Under Section 53(1), the unpaid seller’s rights are generally unaffected by
any sale or disposition made by the buyer. Therefore, even if the buyer sells the goods to a third
party, the seller retains the right to exercise lien or stoppage in transit, and the new buyer has no
right to the goods unless the seller consents.
However, two exceptions exist:
1. Seller’s Assent to Sub-sale or Pledge: If the seller consents to the buyer’s disposal of the
goods, they waive their right to stop the goods in transit. This is established through the
principle of estoppel, which prevents the seller from denying the buyer’s right to transfer
goods once they have assented to the sub-sale. For instance, in Knight v. Wiffen,14 A (the
seller) was found to have assented to the sale of 60 maunds of barley by B to C, and thus
could not exercise a right of lien over these goods, even though the sale was incomplete.
Assent to a sub-sale or pledge must be explicit and clear. Mere knowledge that the buyer
is selling or disposing of goods does not constitute consent. The seller’s actions must
reflect an intention to waive their rights, and any consent must be given voluntarily and
unambiguously.
2. Transfer of Document of Title: Under Section 53(1) proviso, if the buyer has lawfully
obtained possession of the document of title to the goods and transfers it to another person
(a sub-buyer or pledgee), the unpaid seller’s rights can be affected, provided the transferee
acts in good faith and for consideration. If the buyer sells the goods to the transferee, the
unpaid seller loses the right to stop the goods in transit. However, if the buyer pledges the
goods, the unpaid seller can still exercise their rights subject to the transferee’s interests.
Section 53(2) provides further protection for the unpaid seller in cases where the buyer
pledges the document of title together with other goods.
17RIGHT OF RESALE OF GOODS
The right of resale is an essential protection granted to an unpaid seller after exercising their right
of lien or stoppage in transit. After invoking either of these rights, the seller can retain goods
until payment is made. If the buyer does not pay within a reasonable time, the seller may resell
the goods under certain conditions:
(i) where the goods are of perishable nature. [Sec, 54(2)]; or
(ii) where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice
to the buyer of his intention to re-sell. [Section 54(2)]; or
(iii) where the seller expressly reserves a right of resale in case the buyer should make default.
[Sec. 54(4)].
NOTICE OF RESALE: Before resale, the unpaid seller must provide reasonable notice to the
buyer, except in the case of perishable goods. This allows the buyer a final chance to pay or, if
they cannot, to oversee the resale. A timely notice ensures fair resale and allows the buyer to
witness the sale process since any loss from the resale will ultimately be borne by them.
However, no notice is required for perishable goods.
LOSS OR PROFIT ON RESALE: On resale, the seller may incur a loss (sale price lower than
the original contract price) or make a profit (sale price higher than originally agreed). If the resale
is properly conducted—within a reasonable time and with due notice—the seller can recover
losses from the buyer but is not obligated to return any surplus profit. This rule prevents a
defaulting buyer from benefiting from a breach. For example, if the original contract price is Rs.
20,000 and the resale price is Rs. 15,000, the seller can claim Rs. 5,000 as compensation from the
buyer. Conversely, if the resale fetches Rs. 25,000, the seller keeps the Rs. 5,000 profit. However,
if the seller fails to give notice when required, they lose the right to claim compensation for
losses or to retain the surplus.
In cases of unreasonable delay in resale, which worsens the loss, the seller’s compensation is
limited to the difference between the contract price and the market price at the time a timely
resale should have been made. Courts, as in Mysore Sugar Co. Ltd. v. Manohar Metal
Industries, have held that undue delay, especially in a falling market, invalidates claims for
compensation due to depreciation during the delay period. If the delay in reselling the goods is
not due to the fault on the part of the seller, e.g., the buyer from time to time requested for the
extension of time for making the payment, and ultimately did not pay and thus there was some
delay in re-selling the goods, the delay in making the re-sale is not unreasonable.
MEASURE OF DAMAGES ON RESALE: Under Sec. 54(2), damages from resale equal the
difference between the original contract price and the resale price. This differs from the general
damages rule under Sec. 73 of the Indian Contract Act, where damages are the difference
between the contract price and market price on the date of the breach. If resale is conducted
without proper notice, damages are calculated under Sec. 73’s formula, not Sec. 54(2). It may be
observed that the criterion of allowing difference between the contract price and resale price is
followed by applying Section 54(2) of the Sale of Goods Act, if the resale has been properly
made. If the resale has not been properly made, then the damages are allowed according to the
formula under Section 73 of the Indian Contract Act, i.e., the difference between the contract
price and the market price, is allowed by way of damages.
V ALIDITY OF RESALE: In several cases, including P .S.N.S. Ambalavana Chettiar & Co. v.
Express Newspapers Ltd.,
18 the courts have held that a resale is “properly made” under the Sale
of Goods Act only if ownership (property) in the goods had passed to the original buyer. If not,
damages are calculated under the Indian Contract Act, using the difference between the contract
price and the market price at the time of breach. However, this interpretation is debated, as the
Sale of Goods Act doesn’t specifically restrict resale when ownership hasn’t passed. Logically, if
the seller can resell goods already transferred in ownership, they should also retain resale rights if
they still own the goods. Hence, resale prompted by buyer default should be valid, regardless of
ownership transfer, and damages should follow Section 54(2). This viewpoint suggests the need
to reconsider current judicial interpretations.
TITLE OF THE NEW BUYER: As per Sec. 54(3), the new buyer acquires a good title against
the original buyer, even if the original buyer was not notified of resale, as long as the resale
conditions are met. This overrides the general rule (Sec. 27) that one cannot transfer a better title
than they own, offering legal protection to the new buyer. Sec. 54(1) asserts that exercising lien
or stoppage in transit does not end the contract; the sale agreement persists unless formally
cancelled. Under Sec. 54(4), if the seller explicitly reserves the resale right in case of buyer
default, resale also terminates the contract. This allows the seller to claim damages, preserving
their rights even after resale.
RIGHTS OF AN UNPAID SELLER AGAINST THE BUYER (SECTION
55-61)
Suit for price: Section 55 under the Sale of Goods Act, 1930
Section 55(1) of the Act provides that if the ownership of the goods has been passed to the buyer,
and the buyer wrongfully omits to pay for the goods, the seller is empowered to sue the buyer for
the price of the goods. The seller is authorised to bring an action in the court to recover the
payment.
Section 55(2) of the Act provides for the scenario of a contract of sale where the price is payable
on a fixed date irrespective of the delivery of the goods. In such a case, the sub- section permits
the seller to bring a suit against the buyer for wrongful neglect or refusal on his part to pay for
the goods, if the due date of payment has already expired, even if the goods have not been passed
to the buyer.
In the case of Gordon vs. Whitehouse (1856) 4 WR 231, it was held that when the contract
between the parties provides that the buyer must pay by a bill which will be due in the future, and
the buyer fails to provide the bill. In this case, the seller can only demand payment when the bill
would have been due. Until the bill becomes due, the seller can only ask for damages from the
buyer for breach of contract.
Action for damages for non-acceptance: Section 56 under the Sale of Goods Act, 1930
Section 56 of the Act provides that if the buyer wrongfully neglects or refuses to accept and pay
for the goods, then the seller may bring an action against the buyer for damages for
non-acceptance.
In order to calculate the quantum of damages, Sections 73 and 74 of the Indian Contract Act,
1872 can be used. In order to calculate the damages, the following should be taken into
consideration:
• difference between the contract price and the resale price of the goods if the goods have been
resold;
• if not resold, the difference between the contract price and the market price at the time of the
breach;
• Steps taken by the seller to mitigate the loss.
One of the landmark Supreme Court rulings that talks about the duty of the nature of mitigation is
M. Lachia Setty & Sons Ltd. Etc. Etc vs. The Coffee Board (1980). In this matter, a coffee
auction was taking place where a dealer bid for the same. His bid was accepted. However, he
declined to perform the contract. Owing to this, the coffee had to be auctioned at the second
highest bidding price following the one that was cancelled. Consequently, the dealer responsible
for refusing to carry out the contract ended up paying the difference in losses suffered by the
board between the highest bidding price and the second highest bidding price.
In the case of Mysore Sugar Co. Ltd. vs. Manohar Metal Industries (1982), the buyer agreed to
pay for the goods, however, he failed to complete the purchase which led to the breach of the
contract between the parties. The unpaid seller resold the goods to another party due to the said
breach. Subsequently, the unpaid seller sued the buyer for a difference in price. They claimed that
it was damages which arose from the breach. The court held that in order to claim damages based
on resale, the resale must take place within a "reasonable time" after the breach. In this case, the
resale was delayed for 3 months which was held to be unreasonable.
Suit for repudiation of contract before due date: Section 60 under the Sale of Goods Act,
1930
Non payment of goods generally amounts to a repudiation of contract. Hence, in a case where the
buyer fails to pay the amount, the contract will stand repudiated. Therefore, when the contract
stands repudiated before the date of delivery, as per the provisions of Section 60 of the Act, the
seller can sue for damages for the breach. In the case of Garnac Grain Co. Inc. vs. HMF Faure
and Fairclough Ltd., (1968), the plaintiff considered the refusal of the defendant to be an
immediate breach of the contract. The court held that in order to determine the market price, the
relevant date is the one that is set for delivery, not the date when the breach of the contract took
place or when the plaintiff accepted the breach of the contract. It is the duty imposed upon the
plaintiff to mitigate the losses.
Suit for recovery of interest: Section 61 under the Sale of Goods Act, 1930
Section 61 of the Act provides that the seller can claim interest on the due amount from the
buyer. The interest can be claimed from the date from which the payment becomes due. In the
case of Andhra Cotton Mills Ltd. vs. Sri Lakshmi Ganesh Cotton Ginning Mills (1966), the seller
filed a suit only for the recovery of the interest, not the principal amount. The Andhra Pradesh
High Court held that even if a suit is filed solely for recovery of interest, the court is empowered
to grant it under Section 61 of the Act.
CONCLUSION
The Sale of Goods Act, 1930, plays a crucial role in safeguarding the rights of unpaid sellers,
ensuring they are not left vulnerable when buyers fail to make payments. The Act provides
sellers with a set of strong protections, such as the right of lien, right of stoppage in transit, and
right of resale. These rights help sellers either retain control over their goods or recover
payment, allowing them to protect their financial interests.
The right of lien allows the seller to hold onto the goods until payment is made, while the right
of stoppage in transit lets them regain possession if the goods are still on their way to the buyer.
If necessary, the seller can also resell the goods to someone else under the right of resale. If the
goods have already been delivered, the seller has the legal option to sue the buyer for the price
or for any damages caused by non-payment.
Together, these rights give unpaid sellers a solid foundation to protect themselves in various
situations, such as when the buyer becomes insolvent or simply refuses to pay. The flexibility of
these remedies ensures that sellers are not unfairly burdened by a buyer's failure to meet their
obligations, whether the goods are still in transit or have already been handed over.
In conclusion, the Sale of Goods Act, 1930, offers a balanced approach to protecting the
interests of both sellers and buyers. By understanding the rights and remedies available to
unpaid sellers, sellers can take proactive steps to mitigate the risks associated with non-payment
and ensure that their commercial endeavours are protected. However, it is crucial for sellers to
be aware of the limitations and conditions attached to these remedies to effectively exercise their
rights and avoid potential disputes.
In essence, the Sale of Goods Act, 1930, provides a balanced framework that promotes fairness
in trade by giving sellers the tools they need to secure payment for their goods. These legal
protections are essential for building trust in commercial transactions and ensuring that sellers
do not bear the full risk of buyer defaults. Through this Act, sellers can confidently engage in
trade, knowing that their rights are protected if things go wrong.
BIBLIOGRAPHY
1. Alok Kumar. Journal of the Indian Law Institute, vol. 53, no. 2, 2011, pp. 395–97.
2. Avtar Singh. Law of Sale of Goods. Eastern Book Company, 2018.
3. Dr. R. K. Bangia. The Sale of Goods Act. Allahabad Law Agency. 2017.
4. Indian Kanoon - Search engine for Indian Law, https://indiankanoon.org/.
5. “Legal Search.” Manupatra, https://www.manupatrafast.com/Feature/law-legal-search
.aspx.
6. “RIGHTS OF UNPAID SELLERS”. JOURNAL OF LEGAL RESEARCH AND
JURIDICAL SCIENCES, https://jlrjs.com/rights-of-unpaid-sellers/.
7. “Rights of Unpaid Seller.” Legal Service India, https://www.legalserviceindia.com/legal/
article-14788-rights-of-unpaid-seller.html.
8. Sale of Goods Act, 1930, No. 3, Acts of Parliament, 1930.
9. “SCC Online® | Case Finder®.” SCC Online, https://www.scconline.com/case-finder.
10. Subodh Asthana. “Rights of an Unpaid Seller under the Sale of Goods Act.” iPleaders, 4
November 2024, https://blog.ipleaders.in/unpaid-seller-rights/.
-PRACHI SINGH
BA LLB 3rd Semester
HIMACHAL PRADESH NATIONAL LAW UNIVERSITY
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