An unpaid seller is the one who has not received payment from the buyer for the goods or services they provided. In such a case, the seller has certain rights, such as the right to retain possession of the goods, stop their delivery, or resell them, depending on the circumstances and applicable laws.
As per the Sales of Goods Act, 1930, Section 45 defines an unpaid seller as a seller who has not yet received the full price for the goods or a part thereof and includes any person who is in the position of a seller, e.g., an agent or a consignor. In other words, an unpaid seller is a seller who has not been paid for the goods they have sold, either in full or in part.
Law in India on Unpaid Seller Rights
In India, the rights of unpaid sellers are primarily governed by the Sales of Goods Act, 1930. The Act is a comprehensive legislation that sets out the rights and obligations of buyers and sellers in relation to the sale of goods. The Act applies to all kinds of goods, including movable goods, whether they are sold for cash or on credit.
The Sales of Goods Act, 1930 has been enacted based on the principles of English common law, with certain modifications to suit the Indian legal system and commercial practices. The Act has been amended from time to time to reflect changing business practices and to provide better protection for the rights of buyers and sellers.
The Act provides detailed provisions on various aspects of the sale of goods, including the formation of contracts of sale, conditions and warranties, transfer of property in goods, the performance of the contract and remedies for breach of contract. The Act also contains specific provisions relating to the rights of unpaid sellers.
Rights of the Unpaid Seller
Right to Withhold Delivery of the Goods
This means that till the said amount has been received by the seller he is not obliged to get the product transferred to the buyer of the same. Only once he has received the payment for the product he is expected to transfer the possession of the product to the buyer of the same.
For example, If A has received an order from a customer B for a large quantity of products and If the B fails to pay for the products upfront, A has the right not to deliver the product till the said amount has been transferred to him.
Right to Stop Delivery of the Goods in Transit
This means that even when the goods are in transit and the seller has not yet received the payment for the product he has full right to stop the delivery of the product till such time full payment has been received.
For example, If A is a distributor and retailer B has ordered for certain quantity of biscuits and A has send the product out for delivery in good faith but even after 2 days the payment has not yet been received by A and the goods still being in transit, he can halt the delivery process till such time the full payment has been received.
Right to Resell the Goods
It is at the wish of the seller to resell the goods in the transaction to recover the losses borne by him as the buyer has not paid for the product. But, the seller is suppose to take care of two things, such as
- The price of resale of goods need not be lower to the actual market price of the product.
- The seller is to sell the goods in order to recover losses and not just to punish the buyer.
For example, imagine that you are a wholesaler of industrial equipment, and you have provided a large quantity of equipment to a retailer. If the retailer fails to pay for the equipment within a reasonable time, you can resell the equipment in order to recover the value of the products.
Right to Sue the Buyer
If the buyer still fails to pay for the goods or services that the seller has provided, you have the right to sue them for the price of the goods or services. In addition, you may also be able to sue the buyer for any damages or losses that you have suffered as a result of their failure to pay.
For example, If a seller of a cake has made a cake as per the specifications of the buyer but has not yet received the payment for the same, the cake seller is free to resell the cake to someone else, with an intention of recovering the loss incurred and not to punish the buyer.
Right to Lien
Lastly, as an unpaid seller, you also have the right to retain possession of the goods until the said payment has been received. This is known as a lien, and it means that the seller can hold onto the goods until the buyer pays for them.
For example,if a buyer has specified the car details he wants in his car and does not turn up with his payment then the seller has the right to retain the possession of the car till th ebuyer has done his part of the payment.
Duties of an Unpaid Seller
Mitigating Damages
The unpaid seller is expected to be mitigating damages. This means that the unpaid seller is to take all the possible measures to lower the extent of damages caused. Mitigating actually means lowering the extent of the potential damage to be caused. If the seller is of good intent he will always try to decrease the losses from his end.
Delivering Goods in Good Condition
The unpaid seller even if he is unhappy with the delay in the payments, but if in future the buyer shows up with the payment of the product he is to deliver the said product in the condition which he is expected to. He must retain the goods under his custody with utmost care of the product.
Notice of Intended Resale to be Provided
If there is a case where the seller is to be selling the goods for retaining the losses incurred by him then he is to send a notice to the buyer in writing, mentioning the exact date, and place where the sale is to be conducted.
Proceeds of Resale should be Accounted
The seller is to keep exact records of the resale of the products, so that incase if he is questioned in future he has proper justification of it.
Delivering Goods to the Buyer
If the buyer pays for the goods after the seller has withheld delivery or stopped delivery in transit, he is then supposed to reinitiate the delivery of the goods to the buyer. He cannot continue to withhold delivery or stop delivery in transit if the buyer has rightly paid for the goods.
Refund of any Overpayment
If the buyer has overpaid for the goods or services that the seller has provided, he is expected to refund the overpayment. This is true even if the overpayment was made by mistake from the side of the buyer.
