Understanding Unpaid Seller Rights and Remedies
Unpaid Seller: Rights and Remedies
An “unpaid seller” refers to a seller who has not received the full payment for goods sold, or to whom a negotiable instrument (e.g., a cheque) has been given as conditional payment and the condition has not been met.
Conditions for Being an Unpaid Seller
A seller is considered unpaid under the following circumstances:
- The full price has not been paid or tendered.
- A negotiable instrument given as conditional payment has been dishonored.
- The buyer becomes insolvent before payment is made.
Rights of an Unpaid Seller
An unpaid seller has the following rights, even if ownership of the goods has passed to the buyer:
1. Seller’s Lien
The seller has the right to retain possession of the goods until payment is received, under these conditions:
- Goods sold without any credit terms.
- Credit period has expired for goods sold on credit.
- Buyer becomes insolvent.
Cases Where a Lien Arises
A lien arises in situations where:
- Goods are sold for cash with no fixed time for payment or delivery.
- Goods are sold on credit, but the credit period has expired.
- The buyer becomes insolvent.
Possession and Termination of Lien
The seller’s lien depends on actual possession of the goods. The lien is lost when:
- Goods are delivered to a carrier without reserving the right of disposal.
- The buyer lawfully obtains possession of the goods.
- The seller waives the lien.
2. Right of Stoppage in Transit
If the buyer becomes insolvent, the unpaid seller can stop the goods while they are in transit to the buyer.
3. Right of Resale
The unpaid seller has the right to resell the goods under certain conditions, as specified in the Sales of Goods Act.
Delivery to Carrier or Bailee
Generally, when goods are delivered to a carrier for transport to the buyer, ownership passes to the buyer. However, if the seller reserves the right of disposal, ownership does not pass until the condition is met.