Introduction:
The contract is an inevitable aspect of every single person’s life. We engage in contracts in all spheres of our lives, regardless of whether we realize it or not. For example, we have phones, and we check emails regularly, whereby we are in contract with the Phone Company and Google. Moreover, online retailing, banking, visiting restaurants, booking cabs, and so on forms the contractual relationship. Thus, contracts have a pivotal part to play in our daily lives. In India, umbrella legislation that governs all sorts of the contract is the Indian Contract Act, 1872. It describes the contract under its Section 2 (h) as a legally enforceable agreement.
Primarily, an agreement represents the fundamental principles as follows, Consensualism i.e. creating and accepting the obligations via exchanging promises, offer, acceptance, and consideration. Since the definition of contract has the word enforceable by law, besides, it denotes free consent[1], the capacity of the parties[2], and the lawful consideration[3]. But, primarily, why do we need such a law to govern contracts since the majority of contracts involve unexamined legal relationships? It is not a res Integra question.
Generally, the contracts are Fait accompile, howbeit the law involves in the event of a dispute in executing the already agreed terms of the contract. For instance, if a man purchases a book from a book shop, he is under an agreement, and the same binds the buyer and the seller. Here, the seller provides the book to the consumer, and the consumer is obliged to pay the prescribed price, the consideration will be both the book and its price. Indeed, the Act of 1872 addresses the same as Reciprocal promise[4]. If the purchase has done seamlessly, then the law has no cause to involve. But in case of any malpractices or default in performing the promised deed, then the law would come into force.
Therefore, to ensure ethical approaches and fair practice in the matters of selling/purchasing of goods, The Sale of Goods Act has passed on 1 July 1930. Prior to that date, the law governing the sale of goods was contained in Chapter VII of the Indian Contracts Act, 1872. The sea change in the trade and commerce practices has necessitated the passage of an Act, which specifically dealt with the sale of goods. With the enactment of such an Act, Section 65 of the Sale of Goods Act repealed Chapter VII (Sections 76 to 123) of the Indian Contracts Act.
Hence, concerning the contract of sale, the contractual relationship exists between the seller and the buyer. Therefore, both the parties to the contract are bound to perform specific duties. Sensu lato, a seller is obliged to deliver the sold goods to the buyer, and the buyer has to accept and pay for it. Per contra, if either party fails to perform their duties as per the contract, he will face legal consequences. Let’s take the seller, who has been denied from the payment of the delivered goods, he terms as the unpaid seller, and the Act bestows him with certain rights.
Unpaid seller:
Who is a seller?
The Sale of Goods Act defines ‘Seller’ under Section 2(13) as, a person who sells or agrees to sell goods. Thus, not only the person who actually sells the product but even the person who agrees to sell the same will be considered as a seller under the light of this Act.
Definition of unpaid seller:
Section 45 of the Act defines unpaid seller as a seller,
- When the whole of the price has not been paid or tendered;
- When a bill of exchange or other negotiable instrument has been received as conditional payment and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.
Thus, a seller is an unpaid seller when he has neither paid nor benefited by any negotiable instrument in return for the delivered goods, due to the buyer’s fallacy. Thus, in order to render a favor to such deceived unpaid seller, the Sale of Goods Act bestows him with two kinds of rights,
- Rights against the buyer,
- Rights against the goods
But it is a prerequisite to be noted that the definition of seller extends to the seller’s agent or consignor, who is responsible for the price can also exercise the rights of the seller[5].
Rights of the unpaid seller:
Rights against the goods,
Lien: (Section 47-49)
The seller can exercise his Right of lien against the defaulted buyer. Application of this Right permits the seller to block such goods or deny giving up its possession until the whole or pendency in payment has been received from the buyer. The Act prescribes the circumstances under which the unpaid seller can exercise these rights are as follows[6],
(a) The sale of goods is on a cash basis i.e. there is no stipulation in the sale contract as to credit – Thus, since the good has not been sold on credits, the seller may expect the buyer to pay its price in return during delivery. Withal, as per Section 32, if both parties to the contract consented, the exchange of goods and payment shall take place concurrently. The seller could exercise his Right of lien when the buyer refuses to afford the price[7]. Such a lien is a possessory lien i.e. the seller plays the role of bailee or agent of the buyer (Section 47(2)). Per contra, if the seller has happened to deliver the goods to the buyer, later he cannot reclaim the goods in order to exercise his Right of lien[8].
(b) The good has been sold on credit, wherein the term period of the same was expired – When the period of credit expires, the price of the goods will become due. Hence, though the seller had agreed to sell it on credit, subsequently, with its expiration he may refuse to give up possession unless and until the payment has been made.
(c) The buyer went insolvent – Even though the goods were sold on credits, the seller shall invoke his Right of lien, when the buyer attains insolvency before the credit expiration date and shipment.
Stoppage in transportation: (Section 50-52)
This Right of stoppage good in transit enables the unpaid seller to regain possession of the goods even when the same had been shifted to the carrier for the purpose of transmitting it to the buyer. Thus, it implies that only after repossessing the goods, the seller shall employ his Right of restraining the goods. However, according to Section 54(1), it will not amount to rescission of the sale of goods contact.
To exercise this Right the following conditions should be satisfied,
- The seller must be an unpaid seller i.e. partially/wholly unpaid as per Section 45,
- The buyer became insolvent and must fall under the ambit of Section 2(8),
- The goods must be in the course of transportation.
As mentioned, to exercise this right, the goods must be in the hands of the carrier or any other middle man i.e. within the duration of the transit. Section 51(1) provides that, the goods are considered to be in the course of transmission from the period when the seller parted with the goods and handed over it to any middleman to deliver them to the buyer.[9] Thus, the transit continues unless and until the buyer or his agent takes the delivery of those goods.[10]
It should be noted that the unpaid seller might also resell the goods following the non-payment by the buyer.
Right to resale: (Section 54)
After exercising the right of lien or stoppage in transit, the seller might hold back the goods until the buyer pays the sum. But if the buyer continues to stay in default, the unpaid seller may resell those goods.
To exercise this Right the following conditions should be satisfied,
- It should be perishable natured goods. Section 54(2)
- Notice has been given to the buyer expressing his intention to resell those goods; this is the ramification of the buyer’s payment default. Regardless of the served notice, if the buyer refuses to pay off the default within a reasonable time, then the seller shall apply this Right to benefit himself. Section 54(2)
- The seller’s right of resale is the ramification of the buyer’s non-payment. Hence even when the original contract is canceled by the reselling, the seller may claim damages. Mysore Sugar Co. Ltd Bangalore v. Manohar Metal Industries,[11] Section 54(4)
Profit or loss in Resale: in general, if the seller happened to make a profit out of the resale, he is not obliged to pay it to the original buyer. Per contra, if the resale amounts to lose then the seller is entitled to claim compensation equivalent to the difference between the contract price and the market price from the defaulted buyer.[12]
In the case of R V Ward V Bignall, the seller had two cars, following the non-payment of the original buyer, the intended to resell them.
Afterward, he sold one car but unable to sell the other one. Consequently, he claimed to recover damages and advertising expenses from the original buyer. But, the court held that the seller is entitled to recover the loss incurred of the resold car and the advertisement fee but not the money of the unsold car.
Further, it is noteworthy that the seller is entitled to recover compensation for such loss, if only if he had resold those goods within a reasonable period.
For instance, the case of wherein the seller made resale on 30.12.1966, since the buyer failed to lift those goods despite the prior notice given on 12.9.1966. Consequently, the unpaid seller resold the goods and suffered loss arisen out such resale. When he claimed damages from the original buyer, the court rejected his claim and stated that the incurred loss is the result of three months delay in resale, where the original buyer has no role to play.
Rights against the buyer,
Right to sue for price:
Basically, the buyer is obliged to pay the price of goods that have been delivered to him as per the contract. The issue arises only when the buyer neglects or refuses to pay for it. Then the unpaid seller relies on his rights to recover damages or restitution. Besides exercising his right against the goods, an unpaid seller can take legal actions against the buyer to recover the good’s price. (Section 55(1))
If it is the case where the goods were sold on credits until the expiry of such period no seller can sue the buyer for cost recovery.[13]
Further, Section 55(2) provides that if the buyer fails to make the payment on the stipulated date, the seller is entitled to recover the good’s price, even though the delivery of the same has not been done. Indeed, the same was held in the case of Dunlop v. Groat.[14]
Right to sue for interest:
Section 61 of the Act provides that, if an agreement exists between the parties regarding interest rate, then the buyer is bound to pay it at the time of payment. But if in the absence of such agreement, the court may award interest reasonable to the price from the date of tender or stipulated payment day.[15]
Right to sue for damages:
As mentioned earlier, according to Section 55(2), the buyer is bound to accept and pay for the goods delivered to him. In the default of the payment, the unpaid seller is entitled to sue the buyer for the price as given under Section 55 of the Act. Withal, Section 56 permits the seller to sue the buyer for damages in the event of non-acceptance of the goods. For example, the perishable goods will get damage if the buyer refuses to accept the ordered goods. Comprehensively, it the suit for recovering compensation for caused damage rather than an action claim for its price.
The case of Bungo Steel Furniture v. Union of India[16], wherein there was a contract exists between the appellant and respondent regarding the bin supply. The appellant filed a suit qua the contract was terminated by the respondent, even before they started manufacturing the bins. It was held by the court that, the present case would not fall under the ambit of Section 55 since there is no transfer of possession. Per contra, the seller is entitled to recover damages from the buyer for wrongful refusal to accept the goods.
Conclusion:
Apart from the explained rights, the unpaid seller has an additional right to file a suit for anticipatory breach of contract in the case of mere rejection of contract before the delivery date for no genuine reason. As per Section 60 of the Act, the seller can sue the buyer for damages, where the buyer repudiates the contract without prior notice and information.
Therefore, the aforementioned is the brief about the unpaid seller’s rights granted by the Sale of Goods Act, 1930. Irrespective of the granted rights of the unpaid seller, this Act further bestows certain rights for the buyer as well. Every contract of sale composes consideration from both the parties resulting in reciprocal promise, similarly both the parties to the contract have certain rights to prevent suffering losses.
References,
- https://blog.ipleaders.in/rights-of-an-unpaid-seller/
- https://blog.ipleaders.in/unpaid-seller-rights/
- https://www.vedantu.com/commerce/rights-of-unpaid-seller-against-buyer
[1] The Indian Contract Act, 1872, S 15-22.
[2] The Indian Contract Act, 1872, S 11 & 12.
[3] The Indian Contract Act, 1872, S 23.
[4] The Indian Contract Act, 1872, S 2(f).
[5] The sale of Goods Act, 1930, S 45(2).
[6] The sale of goods Act, 1930, S 47.
[7] Miles v. Gorton, (1834) 2 C &M 504, at p. 511: 39 R.R. 820.
[8] M/s. Jain Mills and Electrical store v. State of Orissa, A.I.R. 1991 Ori. 117.
[9] Schotsmans v Lancashire & Yorkshire Rly co.
[10] Bethell v. Clark, 19 Q.B.D. 533, at P. 561.
[11] A.I.R. 1982 Kant. 283.
[12] Hirji bharmal v. Bombay Cotton Ltd., A.I.R 1958 Bom 411.
[13] Helps v. Witerbottom, (1831) 2B & Ad. 431:36 R.R.609.
[14] (1854)2 C &K. 153:80 R.R. 834.
[15] The sale of Goods Act, 1930, S 61(2)(a).
[16] A.I.R. 1967 S.C 378.
