Define an Unpaid Seller. What Are His Rights?
Introduction
In business transactions, especially in the sale of goods, it is common that the seller may not receive full payment immediately. If a seller does not receive payment as agreed, the law gives him certain rights to protect his interest. Such a seller is known as an unpaid seller. The Sale of Goods Act, 1930 defines who an unpaid seller is and lists out his rights in case of default by the buyer.
Who is an Unpaid Seller?
According to Section 45(1) of the Sale of Goods Act, 1930, a seller is said to be an unpaid seller:
- When the whole of the price has not been paid or tendered
- When a bill of exchange or other negotiable instrument received as conditional payment has been dishonoured
Therefore, an unpaid seller is someone who has not received the agreed payment from the buyer, either in cash or via valid instrument.
Example:
A sells goods worth ₹10,000 to B on credit. B fails to pay the amount on the due date. A becomes an unpaid seller and can take legal action to recover the dues or reclaim the goods, depending on the situation.
Rights of an Unpaid Seller
The rights of an unpaid seller are divided into two broad categories:
1. Rights Against the Goods
- Right of Lien: If the seller still has possession of the goods and the buyer has not paid, the seller can retain possession until payment is made.
- Right of Stoppage in Transit: If the goods have been sent to the buyer but are still in transit, and the buyer becomes insolvent, the seller can stop the goods and regain possession.
- Right of Resale: The unpaid seller has the right to resell the goods if the buyer fails to pay within a reasonable time. This is allowed especially when the goods are perishable or a notice has been given.
2. Rights Against the Buyer Personally
- Right to Sue for the Price: The seller can file a case in court to recover the amount due.
- Right to Sue for Damages: If the buyer wrongfully refuses to accept and pay for the goods, the seller can sue for compensation for the loss suffered.
- Right to Sue for Repudiation: If the buyer cancels the contract before delivery, the seller can claim damages for breach of contract.
Conditions for Using These Rights
- There must be a valid sale of goods contract
- The seller must not have received full payment
- The goods should not be delivered fully to the buyer in some cases (like lien or stoppage)
Important Case Law:
K.B. Motilal vs. Janki Das: The court held that if the seller had exercised the right of lien and had not delivered the goods, he could also resell them and recover damages.
Conclusion
The concept of an unpaid seller protects the interests of sellers in a business environment where credit sales are common. The law allows the unpaid seller to retain goods, stop delivery, resell, and even take legal action to ensure justice. Understanding these rights is crucial for all business persons engaged in buying and selling of goods.