Understanding the Concept of Unpaid Seller
In every sale transaction, the seller expects payment from the buyer in return for the goods sold. But what happens when the buyer fails to make payment or tenders only part of it? To protect sellers from financial loss, the law confers special rights upon them. Such a seller is legally recognized as an “Unpaid Seller.”
The concept of the Unpaid Seller is governed by Sections 45 to 54 of the Sale of Goods Act, 1930, which is based on principles from the English Sale of Goods Act, 1893. This legal framework ensures fairness by empowering the seller to reclaim goods, stop their delivery, or sue for payment if the buyer defaults.
In this essay, we will understand who qualifies as an unpaid seller, and the rights available to such a seller under the Sale of Goods Act, 1930 — both against the goods and against the buyer personally.
Definition of Unpaid Seller (Section 45)
Under Section 45(1) of the Sale of Goods Act, 1930, a seller is deemed to be an unpaid seller in two cases:
- When the whole of the price has not been paid or tendered, or
- 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 due to dishonour or failure of payment.
Thus, a seller becomes “unpaid” not only when no payment is made but also when payment fails due to dishonour of cheque or non-acceptance of a bill.
The term “seller” includes any person who is in the position of a seller, such as an agent of the seller or a consignor who has paid or is responsible for the price.
Example:
If A sells goods worth ₹50,000 to B, and B’s cheque bounces, A becomes an unpaid seller under the law. Even though A parted with the goods, the failure of payment restores his special rights.
Rights of an Unpaid Seller
The rights of an unpaid seller are broadly divided into two categories under Section 45(2):
- Rights Against the Goods, and
- Rights Against the Buyer Personally.
Let’s examine each in detail.
1. Rights Against the Goods
(a) Right of Lien (Sections 46(1)(a) & 47)
A lien means the right to retain possession of goods until payment is made. The unpaid seller who is still in possession of the goods can exercise this right even if the ownership has already passed to the buyer.
This right can be exercised:
- When goods are sold without any credit term,
- When goods are sold on credit but the term has expired, or
- When the buyer becomes insolvent.
However, the lien is lost when the seller delivers the goods to a carrier without reserving ownership rights, or when the buyer lawfully obtains possession.
Example:
If A sells goods to B on a 30-day credit, and before the term expires B becomes insolvent, A can retain the goods under his right of lien.
(b) Right of Stoppage in Transit (Sections 46(1)(b) & 50)
This right applies when the seller has already parted with the goods but discovers that the buyer has become insolvent before the goods reach him. The seller may stop the goods in transit and resume possession until payment is made.
To exercise this right:
- The buyer must be insolvent.
- The goods must still be in transit.
The right ends when the buyer or his agent obtains delivery or when the carrier acknowledges holding goods on behalf of the buyer.
Example:
If A sends goods to B by rail, and before delivery learns that B is insolvent, A can instruct the carrier to stop the goods — exercising the right of stoppage in transit.
(c) Right of Resale (Section 54)
When the buyer defaults and the unpaid seller rightfully retains possession, he can resell the goods under certain conditions:
- If the goods are perishable, or
- After giving notice to the buyer of his intention to resell, and the buyer still fails to pay within a reasonable time.
The unpaid seller can recover damages if the resale price is lower and can retain the profit if the resale price is higher.
Example:
A sells perishable fruits to B, who fails to pay. A can immediately resell them to avoid loss and recover the difference if sold at a lower price.
2. Rights Against the Buyer Personally
Even if the seller no longer possesses the goods, he still has personal rights against the buyer under the Act.
(a) Right to Sue for Price (Section 55)
If ownership has passed to the buyer and payment is not made, the unpaid seller may sue for the price of goods.
If payment is linked to a specific date irrespective of delivery, the seller can sue even if goods have not been delivered.
Example:
A sells machinery to B, ownership passes immediately, but B fails to pay. A can file a suit for the price under Section 55.
(b) Right to Sue for Damages (Section 56)
If ownership has not passed but the buyer wrongfully refuses to accept the goods, the seller can sue for damages for non-acceptance. The damages are measured by the difference between the contract price and market price on the date of breach.
Example:
A contracts to sell cotton at ₹200/kg. B refuses to accept delivery when the market price falls to ₹150/kg. A can sue for ₹50/kg as damages.
(c) Right to Sue for Interest (Section 61)
The unpaid seller may also claim interest on the price from the due date of payment until realization, provided such right is specified by contract or recognized by usage of trade.
Example:
If the payment was due on April 1, and the buyer delays payment till May 1, the seller can claim interest for that period.
Real-Life Example: The Case of Stoppage in Transit
In Valpy v. Gibson (1847), the court upheld the seller’s right to stop goods in transit when the buyer became insolvent before delivery. This principle protects sellers from losing both the goods and the price in cases of buyer default.
Similarly, in Browne v. Hare (1858), the seller successfully exercised the right of resale after the buyer failed to pay within a reasonable time. These cases highlight the legal protection given to sellers under commercial law.
Distinction Between Rights Against Goods and Against Buyer
| Basis | Rights Against Goods | Rights Against Buyer |
|---|---|---|
| Nature | Real (connected with the goods) | Personal (against the buyer) |
| Sections | 46–54 | 55–61 |
| Possession Required | Yes | Not required |
| Examples | Lien, Stoppage, Resale | Suit for Price, Damages, Interest |
Mnemonic to Remember the Rights of an Unpaid Seller — “L.S.R.P.D.I.”
Use the mnemonic “L.S.R.P.D.I.” to easily recall the rights of an unpaid seller:
- L – Lien (Sec. 47)
- S – Stoppage in Transit (Sec. 50)
- R – Resale (Sec. 54)
- P – Suit for Price (Sec. 55)
- D – Damages for Non-Acceptance (Sec. 56)
- I – Interest on Price (Sec. 61)
Mnemonic Sentence:
“Loyal Sellers Recover Payment Despite Insolvent buyers.”
This simple phrase helps students remember that even if the buyer defaults, the law protects the seller’s right to recover through lien, stoppage, resale, and legal remedies.
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Understand the Rights of an Unpaid Seller under the Sale of Goods Act, 1930 with detailed explanations, examples, and case laws at Lawgnan.in. Our platform simplifies complex legal topics like lien, stoppage in transit, and resale into clear, exam-oriented study notes for law students and judiciary aspirants. Learn how Sections 45–54 protect sellers from financial loss and empower them to recover dues fairly. Lawgnan provides structured content, easy mnemonics, and expert insights to help you master commercial law with confidence. Visit Lawgnan.in today and make your legal learning smarter and easier!
