Unpaid seller and remedies for breach

1. Who is an unpaid seller: section 45

The seller is an unpaid seller (a) when the whole of the price has not been paid or tendered; or (b) when a bill of exchange or other negotiable instrument has been received as conditional payment and the condition has not been fulfilled by reason of its dishonour or otherwise (section 45(1)). A seller who has received part of the price is still unpaid. “Seller” includes any person in the position of a seller, such as an agent to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid or is directly responsible for the price (section 45(2)).

2. Rights against the goods: section 46

Notwithstanding that property may have passed to the buyer, the unpaid seller has by implication of law (a) a lien on the goods for the price while he is in possession of them; (b) in case of the buyer's insolvency, a right of stopping the goods in transit after he has parted with possession; and (c) a right of resale as limited by the Act. Where property has not passed, he has, in addition, a right of withholding delivery similar to and co-extensive with these rights (section 46(2)).

3. Lien: sections 47 to 49

The unpaid seller in possession may retain the goods until payment or tender of the price (section 47(1)):

• (a) where the goods have been sold without any stipulation as to credit;
• (b) where they have been sold on credit, but the term of credit has expired; or
• (c) where the buyer becomes insolvent.

He may exercise the lien even though he holds the goods as agent or bailee for the buyer (section 47(2)). The lien is a possessory lien for the price only, not for storage charges. Where he has made part delivery, he may retain the rest unless the part delivery shows an agreement to waive the lien (section 48).

Loss of lien (section 49). The seller loses his lien (a) when he delivers the goods to a carrier or other bailee for transmission to the buyer without reserving the right of disposal; (b) when the buyer or his agent lawfully obtains possession; or (c) by waiver. He does not lose it by reason only that he has obtained a decree for the price (section 49(2)).

4. Stoppage in transit: sections 50 to 52

When the buyer becomes insolvent, the unpaid seller who has parted with possession may resume possession of the goods while they are in the course of transit, and retain them until payment (section 50). Three conditions: the seller is unpaid; the buyer is insolvent (he has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, section 2(8)); and the goods are in transit.

Duration of transit (section 51). Goods are in transit from the time they are delivered to a carrier for transmission to the buyer until the buyer or his agent takes delivery from the carrier. Transit ends: if the buyer obtains delivery before arrival at the destination; if after arrival the carrier acknowledges to the buyer that he holds the goods on his behalf (attornment); or if the carrier wrongfully refuses to deliver to the buyer. Transit does not end if the buyer rejects the goods and the carrier keeps them. Part delivery does not end transit of the remainder unless it shows an agreement to give up possession of the whole.

How exercised (section 52). By taking actual possession or by giving notice of the claim to the carrier in possession. The notice must be given in time for the principal to prevent delivery. The carrier must then redeliver according to the seller's directions, at the seller's expense.

Sub-sale or pledge by the buyer (section 53). The seller's lien or right of stoppage is not affected by a sale or other disposition by the buyer, unless the seller has assented. But where a document of title has been lawfully transferred to the buyer and he transfers it to a person who takes in good faith and for consideration, a sale defeats the seller's rights, and a pledge leaves them subject to the pledgee's rights.

5. Resale: section 54

• A contract of sale is not rescinded merely by the exercise of lien or stoppage (s.54(1)).
• Where the goods are of a perishable nature, or where the seller gives the buyer notice of his intention to resell and the buyer does not pay or tender within a reasonable time, the seller may resell and recover from the original buyer damages for any loss. If he resells without notice, he cannot recover the loss, and the buyer is entitled to any profit made on resale (s.54(2)).
• The second buyer gets a good title as against the original buyer even if no notice was given (s.54(3)).
• Where the seller expressly reserves a right of resale on the buyer's default, the original contract is rescinded on resale, without prejudice to his claim for damages (s.54(4)).

6. Rights against the buyer personally

• Suit for price (section 55). (1) Where property has passed and the buyer wrongfully neglects or refuses to pay according to the contract, the seller may sue for the price. (2) Where the price is payable on a day certain irrespective of delivery and the buyer wrongfully fails to pay, the seller may sue for the price although property has not passed and the goods have not been appropriated.
• Damages for non-acceptance (section 56). Where the buyer wrongfully neglects or refuses to accept and pay, the seller may sue for damages. The measure under section 73 of the Contract Act is ordinarily the difference between the contract price and the market price on the date fixed for acceptance.

7. Buyer's remedies

• Damages for non-delivery (section 57). Where the seller wrongfully neglects or refuses to deliver, the buyer may sue for damages, ordinarily the difference between the market price at the time and place of delivery and the contract price. If he has paid the price, he recovers it as money paid for a consideration that has failed (section 61(1)).
• Specific performance (section 58). In a suit for breach of contract to deliver specific or ascertained goods, the court may direct that the contract be performed specifically, without giving the seller the option of retaining the goods on payment of damages. Section 58 is subject to the Specific Relief Act, 1963. After the 2018 amendment of that Act, specific performance is enforced as a rule (section 10), subject only to sections 11(2), 14 and 16, and the old test of inadequacy of damages is gone. It is still appropriate chiefly for unique goods, such as a rare painting or a special machine, since for ordinary goods the buyer will normally buy elsewhere and claim the difference.
• Breach of warranty (section 59). Where there is a breach of warranty by the seller, or the buyer elects or is compelled (section 13) to treat a breach of condition as a breach of warranty, he cannot reject the goods, but may set up the breach against the seller in diminution or extinction of the price, or sue for damages. Doing the first does not bar a suit for further damage.
• Anticipatory breach (section 60). Where either party repudiates the contract before the date of delivery, the other may treat the contract as subsisting and wait till that date, or treat it as rescinded and sue at once for damages. This is the rule of Hochster v. De La Tour (1853). If he chooses to wait, he takes the risk of a supervening event that discharges the contract (Avery v. Bowden, 1855), and damages are measured at the date of delivery.
• Interest and special damages (section 61). Nothing in the Act affects the right of the seller or buyer to recover interest or special damages where recoverable by law, or to recover money paid where the consideration has failed. The court may award interest on the price from the date of tender of the goods or the date the price was payable. Special damages follow the rule in Hadley v. Baxendale (1854), now section 73 of the Contract Act: loss arising naturally, or which the parties knew when contracting to be likely.

8. Problem

S of Bengaluru sells 200 bags of coffee to B of Mumbai on 30 days' credit and dispatches them by rail, the railway receipt being made out in B's name. While the goods are on the way, S learns that B has stopped paying his creditors. B has meanwhile sold the goods to C, who has not received any document of title. What can S do?

Issue. Whether S can stop the goods in transit despite the sub-sale to C.

Law. Sections 45, 50, 51 and 52; section 53 on sub-sales; section 54 on resale.

Application. S is unpaid (the price is unpaid, whether or not the credit has expired). B has ceased to pay his debts in the ordinary course and is insolvent within section 2(8). The goods are with the railway and B has not taken delivery, so they are in transit. S did not assent to the sub-sale, and the railway receipt was not transferred to C, so section 53 does not defeat S.

Conclusion. S may stop the goods by notice to the railway at the station where they are or to its head office in time to prevent delivery, and retain them until paid. If B still does not pay after notice, S may resell under section 54(2) and claim any loss from B; C's remedy is against B.

How this is examined

Essay: “Who is an unpaid seller? Explain his rights”, set in most years. Arrange it as section 45, then rights against the goods (lien, stoppage, resale), then rights against the buyer (sections 55, 56, 60, 61). Short notes: stoppage in transit, termination of lien, anticipatory breach, buyer's remedies. The goods-in-transit problem with an insolvent buyer is answered as above.