An unpaid seller is someone who has sold goods but has not received full payment for them or whose payment has been dishonored, like a bounced cheque. The Sale of Goods Act, protects the rights of an unpaid seller to ensure they can recover their payment or control the goods until they are paid.
The rights of an unpaid seller can be divided into two categories:
- Rights Against the Buyer
- Rights Against the Goods
1. Rights of an Unpaid Seller Against the Buyer
1. Right to Sue for the Price
If the seller has delivered the goods and the buyer has not paid as agreed, the seller can take legal action to recover the price. This applies when ownership of the goods has already been transferred to the buyer. Example: A wholesaler delivers 50 sacks of wheat to a retailer, but the retailer does not pay. The wholesaler can file a case to get the money.
2. Right to Sue for Damages
If the buyer refuses to accept the goods or breaches the contract, the seller can claim compensation for the loss. The amount depends on the financial damage caused to the seller. Example: A seller makes custom furniture for a buyer, but the buyer refuses to take it. The seller can claim damages for the materials and time lost.
3. Right to Sue for Interest
If the buyer delays payment and there is an agreement for interest on late payments, the seller can claim both the price and interest for the delay. Example: A buyer delays payment for a shipment of goods by three months. The seller can claim interest in addition to the price if it was agreed beforehand.
4. Right to Cancel the Contract
If the buyer fails to pay or refuses to perform their duties, the seller can cancel the contract. This allows the seller to stop further obligations and recover the goods if possible. Example: A seller agrees to sell a car on installment payments. If the buyer stops paying, the seller can cancel the agreement and reclaim the car.
2. Rights of an Unpaid Seller Against the Goods
1. Right of Lien (Holding the Goods)
If the seller has not received payment, they can keep the goods until the buyer pays. This is called a lien. The seller loses this right if they deliver the goods to the buyer or their agent. Example: A seller refuses to hand over a washing machine to a buyer who has not paid the full price.
2. Right to Stop Goods in Transit
If the goods are in transit (being transported to the buyer) and the buyer becomes insolvent (unable to pay debts), the seller can stop the goods and take them back. The seller must inform the carrier or transporter to stop delivery. Example: A seller sends goods by truck to a buyer who declares bankruptcy during the delivery. The seller can stop the truck and reclaim the goods.
3. Right to Resell the Goods
If the buyer does not pay for the goods within a reasonable time, the seller can sell them to someone else. This applies especially to perishable goods or when the seller has informed the buyer of the resale. Example: A seller agrees to sell apples to a buyer but resells them to another customer because the original buyer did not pay.
4. Right to Withhold Delivery
The seller can refuse to deliver the goods until payment is made. This right applies when the goods are still with the seller and the buyer fails to pay as per the agreement. Example: A seller withholds delivery of a sofa until the buyer clears the pending payment.
The Conditions for Exercising These Rights
The unpaid seller can exercise their rights under these conditions:
- The buyer has not paid for the goods, and the payment is overdue.
- The buyer refuses to accept the goods.
- The buyer becomes insolvent or bankrupt.
These rights allow the seller to recover their payment, minimize losses, or retain control over the goods when the buyer defaults.
The rights of an unpaid seller protect them from financial loss and unfair treatment. Against the buyer, the seller can sue for payment, claim damages, or cancel the contract. Against the goods, the seller can keep the goods (lien), stop them in transit, or resell them.
For example, if a retailer refuses to pay for a shipment of goods, the wholesaler can withhold delivery, stop the shipment, or even resell the goods to another buyer. These rights ensure that business dealings are fair and that sellers are not left unpaid for their work or products.