Rights of an Unpaid Seller

Rights of an Unpaid Seller

Rights of an Unpaid Seller

1. (a). Rights of an Unpaid Seller against the Goods

(i) Where the Property in the Goods has Passed to the Buyer

a. Right of Lien: An unpaid seller has a right to retain the goods till he receives the price. But to exercise this lien

i. He must be in possession of goods

ii. The goods must have been sold without any stipulation as to credit or where goods have been sold on credit, the terms of credit must have expired. He can also exercise the right of lien when the seller becomes insolvent.

iii. It must be remembered that the right of lien depends on actual possession. Thus where the seller has transferred to the buyer the documents of title to the goods, his lien is not affected so long as he continues to be in possession of the goods.

For eg.‘A’ has sold the 10 TV sets to ‘B’ and transferred the documents of title to the goods to ‘B’ by courier service. But goods are under the custody of ‘A’ ready for despatching to booking office. Meantime, ‘B’ became insolvent. In this case, ‘A’ can retain the goods.

Where an unpaid seller has made a part delivery of the goods, he has lien on the reminder. However, if delivery of a part is intended as a delivery of the whole, then this lien is lost.

Right of Lien is Lost

(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 goods. eg. ‘X’ of Delhi sold some goods to ‘Y’ of Bombay and took the railway receipt in the name of ‘Y’ and sent the railway receipt to ‘Y’. In this case, ‘X’ has not reserved the right of disposal of goods. (or)

(b) When the buyer or his agent lawfully obtains possession of them. In other words, buyer took delivery from booking office (or)

(c) When the seller waives his right of lien

Right of Stoppage in Transit

Where the seller has delivered the goods to a carrier or other bailee for the purpose of transmission to the buyer, but the buyer has not acquired them, then the seller can stop the goods and regain the possession. In other words, goods must be neither with the seller nor with the buyer but should be in the hands of a carrier. Further, the buyer must have become an insolvent.

Termination of Right of Stoppage

This right to stop the goods comes to an end:

(a) When the goods are delivered to the buyer or his agent or

(b) When, on arrival of the goods at the appointed destination, the carrier communicates to the buyer or his agent that he is holding the goods on his behalf

c. Right of Resale

The unpaid seller can resell the goods Where they are of a perishable nature or

After exercising his right of lien or stoppage in transit, even though he has given intimation to the buyer of his intention to resell, buyer has not tendered the price within a reasonable time.

Where the seller has expressly reserved the right of resale in the contract itself

I. (b). Where the Property in the Goods does not pass to the Buyer

Right of an Unpaid Seller against the Buyer Personally

(i) Suit for price: Where the ownership in the goods has passed to the buyer and the buyer refuses to pay for the goods, the seller can file case against the buyer for the price

(ii) Suit for Damages for Non-acceptance: Where the buyer wrongfully refuses to accept the goods, the seller can sue him for damages for non-acceptance of the goods.

(iii) Suit for Cancellation of the Contract before the Due Date: Where the buyer cancels the contract before the date of delivery, the seller may either treat the contract as continuing or wait till the due date or he can file a case against buyer immediately.

(iv) Suit for Interest: Where there is a specific agreement between buyer and seller regarding charging interest on the price, the seller can recover interest from the buyer from the due date of contract till the date of payment of purchase price. If there is no specific agreement, the seller can charge interest from such day as he may notify to the buyer.

For Own Thinking

(a) Find out whether the following transactions can be included under the Contract of Sale:

i. X agreed to sell 100 shares to Y for Rs. 10,000.

ii. X agreed to sell his building for Rs. 1,00,000 to Y

iii. X agreed to exchange with Y 100 kg of rice valued at Rs. 20 per kg for 200 Kg of wheat valued at Rs. 12 per kg. and pay the difference in cash.

iv. X agreed to transfer some jewellery to his prospective wife out of love and affection.

v. X agree to buy a painting from an artist

vi. X supplied a piece of cloth to a tailor to stitch a suit for him. The tailor agreed to supply lining materials and buttons.

vii. X agreed to pledge his goods valued at Rs. 1,00,000 with Y

(b) Clues: Students are advised to understand the meaning for goods and the essential elements of contract of sale.

(b) Find out whether the following contracts of sale amount to sale or agreement to sell:

i. X entered into a contract for sale entire crop of rice cultivated in his farm.

ii. A railway administration agreed to sell coal-ash that might accumulated during the period of the contract.

iii. X entered into a contract for sale of some goods in a particular ship to be delivered on the arrival of the ship

iv. X entered into a contract for sale of a painting only if Z, its present owner sells it to him.

Key Terms

Sale Ownership Property Conditions Warranties Insolvency Contingentc Lien

For Own Thinking

State whether the seller is an unpaid seller or not in the following cases:

X sold some goods to Y for Rs. 10,000. Y paid Rs. 9,900 but failed to pay the balance

X sold some goods to Y for Rs. 10,000 and received a cheque for the full price as conditional payment. On presentment, the cheque was dishonoured by the bank.

X sold some goods to Y for Rs. 10,000 on a credit of one month. One month has not yet expired.

X sold some goods to Y for Rs. 10,000 on a credit of one month and one month has expired and the price remains unpaid.

X sold some goods to Y for Rs. 10,000 on a credit of one month. Y became insolvent during the period of credit.

Case Study

(i) X purchased a hot water bottle from Y, retail chemist. X asked Y if it would stand boiling water. The chemist told him that the bottle was meant to hold hot water. The bottle burst when water was poured into it and injured his wife. State whether seller is liable for the injury suffered by the buyer and the consequent compensation, give your reasons.

(ii) X asked a car dealer to suggest him car suitable for touring purposes. The dealer suggested a ‘Buggati Car’. Accordingly, X purchased it but found it unsuitable for touring purpose. State whether the car dealer is liable for breach of condition?

(iii) X, a dealer sold a plastic catapult to B. While using the catapult in the usual manner, it broke due to the fact that the materials used in its manufacture were unsuitable. As a result, the boy who was using it, blinded in one of his eyes. State whether the seller is liable or not.

(iv) X bought from Y a heap of wheat the weight of which is 1000 kg at the rate of Rs. 8 per kg. and agrees to pay the price on the first day of the next month and the wheat is to be delivered at X’s godown on the following day. A fire broke out and the entire quantity of wheat was destroyed. State whether X is liable to pay the price or not. Why?

(v) X bought from Y a heap of wheat (weight 100 kg) at the rate of Rs. 8 per kg. and Y had to put the wheat in bags to deliver it to X. Y filled some bags in X’s presence, but before the remainder could be filled, a fire broke out and the entire quantity of wheat was destroyed. State whether X is liable to pay the price or not. Why?

(vi) X bought from Y a heap of wheat at a rate of Rs. 8 per kg and Y had to weigh the wheat. Before weighing was completed, the wheat was destroyed by fire. State whether X is liable to pay the price or not. Why?

Clues: Students are advised to read thoroughly the implied warranties and conditions for the cases 1 to 3 and rules relating to transfer of ownership for cases 4 to 6.

If anyone finds any article or goods on the highways he or she is supposed to be bailee of the goods and takes care of the goods as if it were his own. If true owner is traced he or she must restore the goods to him. He or she should not use the goods for his own purpose. If he uses such goods he is found to be guilty of criminal misappropriation of the property under section 403 of the Indian Penal Code. The finder of the lost goods can recover all reasonable expenses from the true owner. The finder can sell the goods if the true owner cannot be found out or if the true owner refuses to pay the lawful charges of the finder.

Mere possession of the goods does not make the possessor the owner of the goods possessed. A person may possess the goods by borrowing from others; or from finding it on the highways or by mortgage or by pledge or by bailment or by lease or by hire and so on. These transactions do not confer ownership rights to the possessor. It is only when the ownership is transferred that the person becomes absolute owner. The owner possesses every right to hold the goods against the whole world. In this context, you have to understand that purchase means buying the ownership of the goods bought for consideration and sales means selling the ownership over the goods for consideration.