Rights Of An Unpaid Seller

Author: LawSphereX

Category: General Law

Published: 2026-08-23T20:59:03.672008+00:00

Updated: 2026-08-26T17:09:35.608+00:00

RIGHTS OF AN UNPAID SELLER

Uttara Muley, DES Shri Navalmal Firodia Law College

ABSTRACT

There are times where the buyer/ customer does not pay the price deliberately or due to negligence or some other reasons. There are also circumstances where the buyer becomes insolvent or does not pay the amount after he receives the goods. But what is the seller supposed to do in such situations? This article speaks about the rights of an unpaid seller in various situations and how the same can be enforced by him. Keywords: Buyer, seller, rights, lien, price Introduction: “The term ‘seller’ includes any person who is in the position of a seller, as, for instance, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price.

”1 The seller of goods is deemed to be an unpaid seller : (a) when the whole of the price has not been paid or tendered; (b) 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. 2 The unpaid seller has the following rights: Against Goods A. When the goods are passed to the buyer the following rights are available:

1 The Sale of Goods Act, 1930

2 The Sale of Goods Act, 1930

1. Unpaid seller's lien

2. Stoppage in transit

3. Transfer by buyer and seller(Resale)

B. When the goods are not passed to the buyer the following rights are available:

1. Withholding delivery

2. Any other right

Against Buyer

1. Suit for recovery of price

2. Rescind the contract

3. Suit for damages

4. Suit for interest

1. Unpaid seller's lien:

“A lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation. The owner of the property, who grants the lien, is referred to as the lienee and the person who has the benefit of the lien is referred to as the lienor or lien holder.”3 In other words, a lien is the right to retain the ownership of the goods and refuse to deliver them to the buyer until the due price is paid or tendered.4 Therefore, the right of possession/ lien is one of the rights that a supplier can assert. If the buyer fails to pay the price in the decided time period, then the unpaid seller has the right to keep the

3 “Lien - Wikipedia.” https://en.wikipedia.org/wiki/Lien.

4 Gunita Pahwa and Priya Dhankhar, Unpaid Seller’s Lien, https://www.mondaq.com/india/contracts-andcommercial-law/519392/unpaid-seller39s-lien

possession of the goods, also he can even refuse to deliver the goods until the due payment is paid. 5 Section 476 deals with the rights of lien. It provides for the conditions in which an unpaid seller could exercise his right of lien i. e. ● Where the goods are not sold on credit or ● If they were sold on credit and the term of the credit has expired or ● Where the buyer becomes bankrupt. Also, the supplier must know that he has a lien as long as the goods are in his possession. If the supplier does not have the products, his right of lien on products terminates. This was stated by the Delhi High Court in the case of Pawan Hans Helicopters Ltd. vs Aes Aerospace Ltd. 7 This right of lien can be exercised only for the non-payment of the price and not for any other charges (maintenance or custody charges, which the seller may have to incur for storing the goods, etc.

) Additionally, the right of lien extends to the whole of the goods in the seller's possession, even though part payment for those goods has already been made. Videlicet, the buyer is not entitled to claim delivery of a portion of the goods on payment of a proportionate price. 8 However, where the goods have been partially delivered by the seller, then in such a situation, he can exercise his right of lien on the remaining part unless there is an agreement in which he voluntarily waivers this right. This is provided in Section 48 of the SOGA. In the case of Eduljee v. Café John Bros. ,9 the seller had sold a second-hand refrigerator to a buyer for Rs. 120 and it was further agreed that the seller will put that in order for Rs. 320. The buyer accepted the delivery and acknowledged that the refrigerator was working satisfactorily.

Later, two of its parts were delivered to the seller for further repairs. The seller then refused to deliver the parts back claiming a lien on them until the amount originally due had been paid. It

5 Rights of an unpaid seller, https://blog.ipleaders.in/rights-of-an-unpaid-seller/

6 Section 47 of the Sale of Goods Act, 1930

7 2008 (2) ARBLR 63 Delhi

8 M. C. Kuchhal and Vivek Kuchhal, Business Law, 6th Edition.

9 AIR 1943 Nag. 249

was held that once the delivery of the refrigerator had been made to the buyer, the right of lien had come to an end and the same cannot be revived by the seller again by getting the possession of those goods.

2. Termination of lien:

Lien may be used while a purchaser has obtained a “decree” for the price of the products. 10 As stated above, lien relies only on the physical possession of the products. So, after the possession is lost the lien is also lost. Section 49 thus prescribes that the unpaid supplier loses his right of lien under the subsequent conditions: a. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods11 When a supplier has supplied the products to the carrier, the supplier's right of the lien is terminated. But he has the right to stoppage in transit which can be used in these situations. It states that within the event, if the supplier retrieves the possession of the goods in transit by stoppage, he re-establishes his right to a lien. b.

When the buyer or his agent lawfully obtains possession of the goods12 When the purchaser receives and acknowledges the products, all the rights of the supplier regarding the products come to an end whether or not the price is paid. But, the supplier can recover the price as common debt since acceptance of possession gives the purchaser, absolute, unqualified and unfailing right of the products. If the products are returned to the supplier for repairing, the right of lien cannot be claimed by him again. c. By waiver of lien13 The right of lien under any sales contract is absolute, and therefore the supplier includes a right to waive his right, it can be in the form implied or expressed by the supplier’s conduct.

10 Section 49 (2) of the Sale of Goods Act, 1930

11 Section 49 (1) (a) of the Sale of Goods Act, 1930

12 Section 49 (1) (b) of the Sale of Goods Act, 1930

13 Section 49 (1) (c) of the Sale of Goods Act, 1930

Section 4914 provides for the above-mentioned15 situation in which the seller loses his right of lien. Additionally, it also states that the right of lien can be exercised when the seller has got a decree from the Court of Law for the payment of price.16

3. Stoppage in transit:

The right of stoppage in transit means the right of stopping the goods by an unpaid seller while they are in transit, for regaining the possession of the products and to retain them until the whole amount is paid.17 When an unpaid supplier has distributed the products, and if the buyer becomes insolvent, the unpaid seller may request the carrier to return the products as he has a right of stopping the goods in transit and can resume the same on the payment of price. This right is given in Section

50 of SOGA. However, this right is limited to transit only, the moment the products are

delivered to the consumer, the seller cannot exercise this right. Cave J. has described the situation as “the moment the goods are delivered by vendor to a carrier to be carried to the purchaser the transitus begins. When the goods have arrived at their destination and have been delivered to the purchaser or when the carrier holds them as warehouse for the purchaser or his agent and no longer as carrier, the transitus is at end.”18 In compliance with Section 50, there are certain specific criterias for the stoppage of products:19 ● Unpaid supplier ● Insolvent purchaser. ● Products have passed to the purchaser. ● Products are in the course of transit. Moreover, Section 51 provides that in case the goods are being delivered to the conveyor by

14 Section 49 of the Sale of Goods Act

15 Supra note 7

16 Business Law 3, http://www.cvs.edu.in/upload/BUSINESS%20LAW3.pdf

17 Akshaya V, Rights of an Unpaid Seller, https://lexpeeps.in/rights-of-an-unpaid-seller/

18 Bethell v. Clark, 19 QBD 553 at pg. 561

19 Eduljee vs John Bros, AIR 1943 Nag. 249.

land or water then till the time buyer or his agent takes possession of goods from such carrier on land or on water, the seller can exercise this right. And if the buyer takes possession of the goods it means that the transit has come to an end and hence, the seller cannot exercise his right. Example: A sells 100 Kgs of wheat to B but delivery will be two stages. A delivers 50 Kgs wheat in the first week of January and will deliver the remaining in the last week of January. Later on he comes to know that B has become insolvent. A can stop the delivery of remaining wheat in transit and can resume the same on the payment of price. The course of transit relies on the middleman’s ability to carry the products. As in the case of Schotsmans v Lancashire & Yorkshire Rly Co.

, the middleman should be between the supplier who has distributed the products and the purchaser who hasn’t yet received the products. Further, Section 52 (2) speaks that when the notice of cessation in transit is conveyed to the carrier/bailee having possession of goods then that person must re-deliver the goods only as per the seller’s instructions and in such case, the cost of re-delivering the goods must be borne by the seller. In the case of Schotsmans v. Lances and Yorks Rly. Lord Cairns LJ had made the following observation: “The essential feature of stoppage in transit is that the goods should be in the possession of a middleman or some other person intervening between the vendor who has parted with and the purchaser who has not received them. ” In the case of Litt v.

Cowley20, after the receipt of notice to stop the delivery of the goods was sent, the conveyors carried the delivery of the goods to the buyer by mistake. It was held that the assignees of the insolvent buyer were bound to deliver it back to the seller or be liable to pay damages. The rules on starting and ending of the transit are provided in section 51 which are as follows: a. Delivery to purchaser The products will be regarded as in transit from the moment they are delivered to the carrier or

20 (1816) 2 Marsh 457

other bailee until they’re delivered and acknowledged by the purchaser himself or his agent. 21 However, if the purchaser declines to simply accept the transfer although it’s been delivered the transit won't terminate. 22 b. Interception by the purchaser The transit terminates after the purchaser, or his agent in that behalf takes the delivery of the product from the carrier before they arrive at the appointed destination. 23 Although it’s wrong and also the carriers could also be liable for penalties, transit ends when the carrier delivers the products before the purchaser’s arrival. c. Supplier’s acknowledgement Transit is regarded as stopped when the products reach the destination and are acknowledged to the purchaser or agent that he retains the products on behalf of them.

If the products are either in the carrier or if the purchaser suggested another destination, it is not considered. A particular acknowledgement is needed to bring an end to the original carriage contract. 24 d. Rejection by the purchaser If the purchaser rejects the products and his agent or the carrier still possess them, then the products are considered to be in transit even if the supplier does not accept to take back the products himself. 25 e. Delivery to ship charted by the purchaser When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer. 26 f. Wrongful refusal to delivery

21 Section 51 (1) of Sale of Goods Act, 1930

22 James v Griffin, 192 N.C. 285 (286).

23 Section 51 (2) of Sale of Goods Act, 1930

24 Section 51 (3) of Sale of Goods Act, 1930

25 Section 51 (4) of Sale of Goods Act, 1930

26 Section 51 (5) of Sale of Goods Act, 1930

The carrier has the right to refuse the delivery. If the carrier wrongfully refuses to deliver the products to the purchaser or his agent, the transit is deemed to be stopped.27 g. Part delivery If the products are partly delivered, the supplier is entitled to prevent the delivery of the rest of the products in transit until the said delivery shows an agreement to the possession of the whole.28

4. How stoppage of products in transit is effected:29

The unpaid seller may exercise his right by taking actual possession of the products or even by stoppage notice to the person who is in possession of the goods. The carrier or bailee shall resend the products to the supplier upon receiving such notice. The supplier must pay the redelivery charges. The contract is valid whether or not the unpaid supplier exercises his right of stoppage of products in transit.

5. Right of resale:

An unpaid seller is considered the owner of the goods until the buyer does not pay him. So the seller has a right to sell his goods subject to a few conditions.30 The right of resale is a very important right of an unpaid seller. In the absence of this right, the unpaid seller’s other right against the products, viz., ‘lien’ and ‘stoppage in transit,’ are just useless because these rights only entitle the unpaid seller to retain the products until he’s paid by the customer. But what if the buyer continues to remain in default? Hence, Section 54 of SOGA, thus, gives the unpaid seller a limited right to resell the goods in the following cases: (a) Where the products are of a perishable nature; or (b) Where such a right is expressly reserved in the contract in case the customer should make a default.31

27 Section 51 (6) of Sale of Goods Act, 1930

28 Section 51 (7) of Sale of Goods Act, 1930

29 Section 52 of Sale of Goods Act, 1930

30 Rights of an Unpaid Seller under the Sale of Goods Act, https://blog.ipleaders.in/unpaid-seller-rights/

31 Section 49 (c) of the Sale of Goods Act, 1930

In the case of RV Ward Ltd. v. Bignall, there was a contract for the sale of two cars. The buyer defaulted in paying a price despite a valid notice. The seller then tried to resell but could find customer for only one car. Then he claimed damages for the balance price and advertising expense. The Hon’ble Court held that when the vendor resells the products, the contract is rescinded and goods all over again become his property. Thus, the unsold car became his property and he couldn't recover his price. But he could recover the shortfall within the sold car and also the advertising expense. Section 54 (2) of SOGA states that “Where the goods are perishable in nature and the unpaid seller notifies the buyer of his intention to resell them, if the buyer doesn’t pay within the decided time, the seller can resell the products.

” Seller also can endure from the buyer any damages incurred because of his breach of the contract. According to the provision of Section 53 of SOGA, the unpaid seller’s right of lien or stoppage in transit is not defeated by any resale done by the buyer to a third party without the seller’s consent. In case of transfer of goods by buyer, the unpaid seller’s right of lien or stoppage in transit may be exercised subject to rights of transferee. When a pledgee sells goods, the unpaid seller is entitled to receive the excess sale proceeds. 32 In the case of Knight v. Wiffen33 A sold 80 maunds of barley out of an outsized stock lying in his granary to B. Out of his purchase, B sold 60 maunds to C before the products had been ascertained and C obtained delivery order and presented it to A, who informed C that the barley was going to be given to him within the due course.

Subsequently, B became an insolvent and A wanted to exercise his right of lien over barley which had been sold to B. It was held that A

had assented to the sub-sale of 60 maunds of barley, therefore he couldn't exercise his right of lien over those 60 maunds of barley, though such a right could be exercised in respect of remainder i.e. other 20 maunds. Further, in the case of P.S.N.S Ambalavana Chettiar & Co. v. Express Newspapers Ltd.34 The Supreme Court of India has held that “for the purpose of measure of damages under SOGA, the re-sale is properly made if the property in the goods resold has passed to the original buyer. On the other hand, if the property in the goods has not passed to the original buyer, the re-sale

32 Unpaid sellers business law https://www.slideshare.net/kinnar32/unpaid-seller-business-law

33 (1870) 5 QB 660

34 AIR 1968 SC 741

is not properly made and therefore, the damages are not awarded according to Sale of Goods Act but they are awarded according to the formula under the Indian Contract Act.” Rights of unpaid seller against the buyer personally:

1. Suit for recovery of price:

The unpaid seller has also a right to claim the price from the customer for the products sold to him. It has been provided under Section 55 of SOGA. It provides that where the property within the goods has already been delivered to the buyer and seller remains unpaid due to the negligence or deliberate refusal of the buyer then, the seller may sue the buyer for the price of the products. Example: A sold a book to B for Rs. 1000. F refused to pay. A can sue B for the price of the book.

2. Damages for Non-Acceptance:

According to Section 56 of SOGA if the buyer refuses to accept the goods and pay the price of the goods then the seller can sue him for the damages of non-acceptance of goods. The damages are calculated in accordance with the rules present in Section 73 of the Indian Contract Act, i.e, the measure of damages is the estimated loss arising directly and naturally from the buyer’s breach of contract.

3. Suit for specific performance:

According to Section 58 of SOGA subject to the Specific Relief Act, the seller can also sue the buyer for the specific performance of contract and in case of a breach of the contract and the decree passed can be unconditional without giving the defendant the option of retaining the goods on payment of damages.

4. Suit for Interest & Special Damages:

According to Section 61 of SOGA, the unpaid seller can recover a reasonable interest on the unpaid price of the goods sold. The seller can also sue the buyer for special damages where

both the parties are aware of such loss at the time of contract. 35 Conclusion When either the buyer has not been paid entirely or if the maturity of the exchange bill or any other legal document agreed the buyer does not meet a precedent requirement, the seller shall be considered as an unpaid seller. This ensures that, after the notice is given to the buyer, the seller can resell the goods after he has exercised the right to the lien, and therefore the new buyer has fair rights over the products. The supplier is entitled to sue the purchaser if the required amount and the lien are not paid. If the carrier cannot deliver the goods to the purchaser, he may sue the carrier for failure to comply and may seek damages or such outcomes.

35 Write a note on Unpaid Seller or Discuss the rights of unpaid seller against the goods and also tell those circumstances under which he looses the lie https://studypoints. blogspot. com/2011/08/write-note-on-unpaidseller-or-discuss_1659. html