rights of unpaid seller

Tanveer Ahmad Gomal University MBA (B&F) 2nd Term | Rights of unpaid seller 1

Rights of unpaid seller

The seller of goods is deemed to be unpaid (Sec. 45-1)

I. When whole of the price has not been paid of tendered.

II. When the bill of exchange or negotiable instrument has been received as a condition of

payment and the condition on which it was received has not been fulfilled by the reason on

dishonor of the instrument or otherwise.

Features of the unpaid seller

I. He must sell goods on the cash basis and must be unpaid.

II. If he sells on credit basis, he is not an unpaid seller during the period of credit.

III. The term of credit has expired and the price has not been paid to him.

IV. He must be unpaid wholly or partially. If a part of price remains unpaid, he is unpaid.

V. When the price is paid in the form of negotiable instruments and it has been dishonored.

VI. If buyer offers payment and seller refuses to accept, the seller is not an unpaid seller.

Example:

I. Party A sells a car on cash basis to party B and the price has not been received yet.

II. A sells good to B on 5 months credit period and B turns insolvent after 2 months.

III. A sells TV set to B on the same day cheque basis, the cheque is dishonored due to insufficient

funds. A is an unpaid seller.

Rights of an unpaid seller

The unpaid seller has following rights.

1) Rights against the goods.

i. Rights of lien

ii. Right of stoppage of goods in transit

iii. Right of rescale

2) Rights against buyer personally

i. Suit for price

ii. Suit for damages for non-acceptance

iii. Suit for special damages and interest

Rights of lien

The right of lien means lawfully right to retain the goods possession until the full price is received. An

unpaid seller can exercise his right of lien in following cases. Sec 47-49


I. Where the goods have been sold on the cash basis.

II. Where the goods have been sold on credit basis and the term of credit has expired.

III. Where the buyer has become insolvent even if the period of credit has not been expired.

Other rules to satisfy the conditions for this right are

I. The unpaid seller must be in actual possession of the goods sold.

II. It can be exercised even If the documents of title have been delivered to the buyer.

III. It can be exercised for the price and not for other expenses

IV. If the seller delivers some goods, it can be exercised on the remaining.

Termination of right of lien

Seller’s right of lien is terminated in following cases.

I. When he delivers the goods to the carrier or other bailey for transmission to the buyer

II. When the buyer or his agent lawfully obtains the possession of the goods

III. When seller waives his right of lien on the goods

IV. The right of lien once lost will not be restored

V. When the buyer further sells the goods and the seller agrees

Example:

A seller “S” sells a TV set to “B” and delivers it to “B” and since the TV set was not functioning properly,

“B” delivered it back to “S” for the repairs. It was held that “S” can not exercise his right of lien over TV

set.

Right of stoppage of goods in transit

It means stoppage of goods while they are in transit to take possession until the price is paid (sec. 50-52)

Unpaid seller can stop the goods in transit in the following cases.

I. While the buyer becomes insolvent

II. While the goods are out of actual possession of seller, but have not reached buyer’s possession

i.e. goods are in transit with career.

III. The unpaid seller can stop the goods in transit only for payment of the price of the goods and

not for any other charges.

The unpaid seller can not stop goods in transit in following cases.

I. When the goods reaches the destination.

II. While the buyer or his agent takes possession of delivery even if it is not reached destination.

III. In case the carrier is agent of the buyer, the transit comes to an end the instance carrier receives

the goods and seller can not stop the transition

IV. Carrier’s wrongful refusal to deliver goods to the buyer.

Example:


“A” sells TV set to “B”. “A” delivers the TV to the carrier to carry it to “B”. Later on gets news that “B”

has become insolvent; “A” can stop delivery.

Right of resale

If a buyer fails to pay or offer the price within a reasonable time, the unpaid seller has the right to resell

the goods in the following circumstances.

a) Where the goods are of perishable nature.

b) Where the unpaid seller has exercised his right of lien or stoppage in transit and gives a notice

to buyer of his intension of resell the goods.

c) Where the unpaid seller has expressly reserved his right of resale.

d) Where seller gives notice to the buyer of his intension to resell and the buyer does not pay

within a reasonable time, he can

a. Recover loss on resale of the goods, if any

b. Retain any surplus on resale of goods, if any

However if the seller sells with out the notice to the buyer, he can not

a. Recover any loss of the goods, if any

b. Retain any surplus on the resale of the goods, if any

Example:

a) “X” sells vegetable to “Y” on credit, “Y” does not pay, “X” can resell to any other person.

b) “M” sells 100 blankets to “N” and gives him one week for payment. “N” does not pay. “M” can

resell those to any other person.

Rights against the buyer personally

The unpaid seller has following rights against the buyer

Suit for price

Where ownership of the goods has passed to the buyer and the buyer refuses to pay the price according

to the terms of the contract, the seller can sue the buyer for price, irrespective of delivery of the goods.

(Sec. 55)

Example:

Suit for damages for non-delivery

Where the buyer refuses to accept and pay for the goods, the seller may sue him for damages for non-

acceptance. The seller can recover damages only and not the full price (Sec. 56)

Example:

Tanveer Ahmad Gomal University MBA (B&F) 2nd Term | Buyer’s right against seller 4

Suit for special damages and interest

The seller can sue the buyer for special damages where the parties are aware of such damages at the

time of contract. The unpaid seller can recover interest at a reasonable rate on the total unpaid price of

goods, from the time it was due until it is paid. (Sec. 61)

Buyer’s right against seller

Suit for damages for non-delivery

When the seller wrongfully refuses to deliver the goods to the buyer, the buyer may sue the seller for

damages for non-delivery (Sec. 57)

Example

Suit for specific performance

Where there is a breach of contract for sale of specific goods, the buyer may file a suit for specific

performance. The remedy is granted when subject matter of the contract is rare goods, say, a picture by

a dead painter (Sec. 58)

Example:

Suit for damages for breach of warranty

Where there is a breach of warranty, the buyer is entitled to sue for damages if he had paid the price to

the seller. But if he has not paid the price yet, he may ask the seller for a reasonable reduction in the

price. (Sec. 59)

Example:

Suit for cancellation and damages for breach of contract

Where there is a breach of contract by the seller, the buyer may avoid the contract and claim damages.

Suit for recovery of price with interest.

If the buyer has already paid the price to the seller and the seller does not deliver the goods to the

buyer, he can sue the seller for refund of price and interest at a reasonable rate. (Sec. 61)

Example:

rights of unpaid seller

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