Who is an Unpaid Seller? (Section 45)

An "unpaid seller" is essentially a seller who has not received the full price for goods sold. This status arises in two primary situations- first, when the buyer has failed to pay or tender the entire price; and second, when payment was made via a negotiable instrument (like a cheque) which has since been dishonored. It's crucial to note that the seller loses this status if the buyer properly tenders payment and the seller refuses it. This definition is the foundation for all subsequent rights.

What are the Rights of an Unpaid Seller?

An unpaid seller is vested with two categories of rights: rights against the goods themselves (Jus in rem), which are actionable even if ownership has passed to the buyer, and rights against the buyer personally (Jus in personam), which are remedies for breach of contract.

A. Rights Against the Goods:

1. Right of Lien (Sections 47-49): This is the seller's right to retain possession of the goods until the price is paid. It's a possessory right, meaning it exists only as long as the seller holds the goods. The seller can exercise lien if the goods were sold without credit, the credit period has expired, or the buyer becomes insolvent. The lien can apply to remaining goods after partial delivery, unless the partial delivery indicates a waiver. Lien terminates upon delivery to a carrier without reservation of disposal, lawful possession by the buyer, or by the seller's waiver. Importantly, obtaining a court decree for the price does not automatically end the lien. For instance, in Eduljee v. John Bros., a seller couldn't revive a lien after delivering goods, as their subsequent possession for repairs was not to re-establish the lien.

Case: Morvi Mercantile Bank Ltd. v. Union of India (AIR 1965 SC 1954)

Facts: The seller dispatched goods by railway. The railway receipt (a document of title) was endorsed by the seller to a bank against an advance. The buyer later became insolvent. The question arose whether the bank, as an endorsee, could claim the goods against the unpaid seller's right of lien/stoppage in transit.

Decision: The Supreme Court held that the right of lien and stoppage in transit are defeated when a document of title to goods (like a railway receipt or bill of lading) has been lawfully transferred to any person as buyer, and that person transfers it by way of sale to another who takes it in good faith and for consideration. However, if the transfer is by way of pledge, the unpaid seller's rights are subject to the rights of the pledgee. This case emphasizes the interplay of Section 53 (effect of sub-sale or pledge by buyer) with the unpaid seller's rights.

Case Example on Waiver: Eduljee v. John Bros. (1940) AIR Nag 311

Facts: A refrigerator was sold and delivered to the buyer. It malfunctioned, and the buyer returned it to the seller for repairs. The buyer subsequently failed to pay the price. The seller tried to exercise a lien over the refrigerator.

Decision: The court held that the seller could not exercise a lien. The initial delivery to the buyer terminated the lien. The subsequent return for repairs did not revive the seller's original right of lien, as the possession was for a specific purpose (repairs), not to re-establish the seller's general lien for the price. This highlights that once lost, a lien does not automatically revive.

2. Right of Stoppage in Transit (Sections 50-52): This powerful right allows an unpaid seller to stop goods while they are in the hands of a carrier or bailee, midway to the buyer, and regain possession. This right is triggered specifically when the buyer becomes insolvent, and the goods are in the course of transit. Transit begins upon delivery to the carrier and generally ends when the buyer or their agent takes delivery, the carrier acknowledges holding goods on the buyer's behalf, or the carrier wrongfully refuses delivery. To affect this, the seller must either take actual possession or give notice to the carrier. The case of S.L. Trading Co. v. Indian Railways underscored that for such a notice to be effective, it must be timely and communicate to the person actually in charge of the goods before delivery.

Case Example: S.L. Trading Co. v. Indian Railways (AIR 1980 Cal 163)

Facts: Goods were booked from one station to another. The consignee (buyer) became insolvent. The unpaid seller sent a notice of stoppage in transit to the railway authority at the destination. However, before the notice was effectively communicated to the person in actual charge of the goods, the goods were delivered to the buyer's agent.

Decision: The court emphasized that for the right of stoppage in transit to be effective, the notice must be given to the carrier in such circumstances that the carrier can, with reasonable diligence, communicate it to their servant or agent in actual possession of the goods. If the goods are delivered before such communication, the right is lost. This underlines the practical importance of timely and effective communication.

3. Right of Resale (Section 54): This is a key remedy allowing the unpaid seller to sell the goods to another party, effectively mitigating losses. For perishable goods, the seller can resell immediately without notice. For non-perishable goods, the seller must give notice of their intention to resell, and if the buyer fails to pay within a reasonable time, the seller can proceed. If the contract explicitly reserves a right of resale, no notice is needed. If the resale yields less than the original contract price, the seller can recover the shortfall as damages from the original buyer. Conversely, if the resale fetches a higher price, the seller can keep the surplus. Crucially, as seen in Bhajan Singh Hardit Singh & Co. v. Karson Agency (India), this right is distinct and allows the seller to recover losses incurred from non-acceptance after a valid resale. However, sellers must act within a "reasonable time" for resale to claim damages, as highlighted by cases like Mysore Sugar Co. v. Manohar Metal Insurance, where unreasonable delay can negate the claim.

Case: Bhajan Singh Hardit Singh & Co. v. Karson Agency (India) & Ors. ( 1967 )

Facts: This case dealt with the interplay of the right of resale under Section 54(2) and the right to sue for price under Section 55. The unpaid seller, after the buyer's refusal to accept delivery, chose to resell the goods and then sued for the shortfall.

Decision: The Supreme Court affirmed that an unpaid seller has the statutory right to resell the goods within a reasonable time to mitigate losses. The court clarified that the right of resale under Section 54(2) is a distinct remedy and does not bar the seller from also suing for damages for non-acceptance, including the shortfall from the resale. This case firmly establishes the independent nature of the right of resale as a remedy.

B. Rights Against the Buyer Personally:

1. Suit for Price (Section 55): The seller can sue the buyer for the full price of the goods primarily when the ownership (property) of the goods has passed to the buyer, and the buyer wrongfully refuses to pay. It's also available if the contract stipulates payment on a specific day, irrespective of delivery or property transfer. This is distinct from a suit for damages, aiming to recover the agreed-upon price.

2. Suit for Damages for Non-Acceptance (Section 56): If the buyer wrongfully refuses to accept and pay for the goods, the seller can sue for damages. These damages are typically measured by the difference between the contract price and the market price on the date of breach, adhering to the principles of Section 73 of the Indian Contract Act. The seller has a duty to mitigate their losses.

3. Repudiation Before Due Date (Anticipatory Breach - Section 60): If the buyer repudiates the contract before the delivery date, the seller has the option to either treat the contract as immediately broken and sue for damages, or wait until the original date of performance before suing.

4. Suit for Interest (Section 61): The seller can claim interest on the unpaid price if the contract provides for it. Even without an express agreement, the court may award reasonable interest from the date the payment was due or demanded, compensating the seller for the delayed use of their money