Rights of an Unpaid Seller


The Sales of Goods Act 1930 governs the contracts relating to sale of goods. This Act defines and amend the laws relating to sale of goods. Contracts of sale of goods are subject to the general principles applicable to all contracts under Indian Contract Act 1872

Who is a seller?

A person who sells something or agrees to sell something and gets some kind of consideration in return is known as a seller.

Who is an unpaid seller?

Sale Of Goods Act 1930 [1]describes unpaid seller as,the seller of the goods is deemed to be an unpaid seller when :-

  • The whole of the price has not been paid or tendered and the seller has an immediate right of action for the price.
  • A bill of exchange or the negotiable instrument was given as payment but the same has been dishonored.Unless this payment was an absolute, and not a conditional payment.

Illustrations :-

  1. A sold goods to B for Rs. 1000. B paid only Rs. 990 but failed to pay the balance.

Yes, A is an unpaid seller.

  1. A sold goods to B for Rs. 1000 and received a cheque. Cheque dishonored.

Yes, A is an unpaid seller.

  1. A sold goods to B for Rs. 1000 on one month credit. One month has not expired.

No, A is not an unpaid seller.

  1. A sold goods to B for Rs. 1000 on one month credit. One month has expired.

Yes, A is an unpaid seller.

All such persons who are in a position to sell, but have not got full payment of their goods are called unpaid sellers. In simple words an unpaid seller is the one who hasn’t received a partition or the whole of the consideration.

In every contract of sale, a seller is under an obligation to deliver the goods sold and on the other hand buyer is under an obligation to pay the said amount of the goods  or quid pro quo i.e something in return, under the contract of sale. This is known as reciprocal promise as per section 2(f) of the Indian Contract Act.

Since we have principle of equity or principle of unjust enrichment where nobody should get favoured unjustly at the expense of others, Unpaid sellers have some rights and remedies both against the goods sold and the buyer personally.

Rights of unpaid seller

The right of unpaid seller can be divided into two parts

  • Against the Goods

i. When the property in the goods has passed

ii. When property of good have not passed

  • Against the Property

The further rights have been discussed below-

Against the goods

Where the property in the goods has passed

●     Right to Lien(Section 47)

Lien means to retain the possession of goods, not the ownership. Here, a seller can take back the possession of goods from the buyer if he doesn’t pay the money on the due date ( even if the buyer become insolvent)

For example- A is a seller who sells goods to the buyer B for Rs. 1000 but B says to make payment after 30 days but later on, seller B finds that buyer B is not able to make payment due to insolvency, so he can take the goods back from the buyer.

Termination of lien (Section 49)

  1. By delivery to carrier – delivery of the goods to a carrier for the purpose of transmission to the buyer operates as a delivery to the buyer himself and therefore the right of lien is lost but the seller has a right to stoppage in transit.
  2. When the buyer or his agent lawfully obtains possession of the goods
  3. By waiver of his lien by the unpaid seller

In Valpy v Gibson [2]The goods sold were delivered to the buyer’s shipping agent and goods were returned to the seller gir repacking. During such packing the buyer became insolvent and as the seller being unpaid claimed to retain the goods bought it was held that he had lost the possession of the goods by delivery to the shipping agent.

●     Stoppage in transit (Section 51)

Right to stoppage in transit ( buyer is owner)

When the buyer of goods becomes insolvent, the unpaid seller who has parted the possession of goods has the right of stopping them in transit until the payment is made.

Here, ownership is with the buyer, but the goods are in possession of the seller or his agent.

For example – X sold goods to Y for Rs. 2 lakhs. Y said that he will make payment at the time of delivery, then X sends the goods through the truck, but on the way the seller receives a call from the buyer where he gets to know that Y is not able to make payment. X retains the possession of the goods by stopping the goods in transit.

Here, ownership is changed but the possession of goods is with the seller until the buyer makes the payment.

Bathell v Clark[3]

B who purchased goods from M/S Clark of Glasgow, instructed the seller to send the goods by a certain ship to Melbourne. Goods were railed to London and then shipped to Melbourne, A mate’s receipt being sent to buyer. On B becoming insolvent the seller gave notice to the rail company to stop delivery to the buyer but it was too late. Then they gave fresh notice to the shop owner’s claiming back the goods before the ship arrived. Receiver demanded the bill of lading from the master. Held the goods having been effectively stopped in transit.

Transit comes to an end

1. If the buyer obtains delivery before the arrival of the goods at their destination.

2. If, after the arrival of the goods at their destination, the carrier acknowledges to the buyer that he holds the goods on his behalf, even if further destination of the goods is indicated by the buyer.

3. If the carrier wrongfully refuses to deliver the goods to the buyer.

●     Right to re- sale (Section 54)

  1. If a buyer is not able to pay the money then seller can sell the goods to other person without asking buyer ( if goods are perishable, and if non perishable then only after giving a prior notice)
  2. If the seller makes profit by reselling them, then he is not liable to pay surplus of any to the buyer.
  3. If occurring loss then the seller must claim first by giving prior notice to the buyer for the loss occurred.

For example – A seller sells a bike to Y. Buyer Y says he will make payment after 30 days but Y is unable to make payment on the due date. Here the seller can re- sell the bike to another person by giving Y a prior notice.

In the case of R v Ward V Bignall[4], there was a contract of sale of two cars, vanguard and zodiac for 850$. The buyer deposited 25$ but afterwards did not pay the price despite a reasonable notice. The seller then tried to resell but could be sold only at a vanguard for 359 $. He then claimed damages for 475$ representing the balance of price and 22$ as advertising expenses. Court held that once the seller resells the goods the contract is rescinded and he cannot claim the money but he can ask for advertising expenses and a shortfall in the price of the vanguard.

Where the property in the goods has not passed

●     Withholding delivery

When the property in goods has not passed to the buyer, the seller has a right to withhold the delivery of goods.

For example – K sold goods to M for Rs. 5,000 for which he received a cheque and paid it into the bank. But during the delivery period he finds that the cheque is bound from the bank. So the seller K withholds the delivery of goods until the payment is made.

●     Stoppage in transit

In this, the seller has not transferred the ownership and can stop the delicious goods which are on the way, as the seller comes to know during delivery that the buyer is not able to pay the money.

For example – A sold goods to B. B says that he will make payment during delivery. The  seller sends the consignment to the buyer. But during the transportation of goods the buyer says he is not able to make payment on delivery.

Here the seller is the owner itself as he has not transferred the ownership of goods. So the seller stops sending the goods to the buyer.

Against the buyer personally

●     Suit for price (Section 55)

When any goods are sold to the buyer and the buyer has deceitfully neglected or refused to pay as per the terms and conditions of the contract, the seller has the right to sue him under Section 55(1).

In case the due date of payment has been passed and goods had not been delivered yet, the seller can still sue the buyer for the wrongful neglect or refusal under Section 55(2)

●     Suit for damages (Section 56)

In case of the wrongful refusal on the part of buyer for acceptance of goods and payment of money, the seller has the right to sue the buyer for damages of non acceptance under section 56.

In M Lachia Shetty v Coffee Board, the dealer who bid at an auction of coffee had been accepted, later refused to carry out the contract. The coffee was re-auctioned and the dealer who refused the bid earlier had to give the difference in the amount of loss to the board.

●     Reputation of contract (Section 60)

If the buyer repudiates the contract before the date of delivery the seller can treat the contract as rescinded and can sue the buyer for damages of the breach as per section 60.

According to this section, if one party repudiates before due date then other has two course of action:-

  1. He may immediately accept the breach and bring the action of damages the contract is rescinded and damages will be assessed according to the prices or
  2. He can wait for the date of delivery.

●     Suit for interest (Section 61)

If there lies a specific agreement between the buyer and seller with regards to interest on the goods price from the date on which payment becomes due under section 61, the seller may recover interest from the buyer. But if there were no such agreement the seller may charge interest from the day he notifies the buyer.



  1.  When the goods are sold on credit and the credit period is not expired, the seller of goods is called?
  2. What are the conditions required to be an unpaid seller?
  3. The essence of ‘Right to lien’ is to ?
  4. What is the purpose behind the enactment of Sales of Goods 1930?

[1] Section 45(1)

[2] (1847) 4 CB 837

[3] (1910) 12 BOMLR553

[4] (1967) 1 QB 534

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