An unpaid seller is one to whom the whole of the price has not been paid or tendered, or who has received a bill of exchange or other negotiable instrument as conditional payment and the condition has not been fulfilled by reason of dishonour or otherwise (S.45). The Act gives him two sets of remedies: rights against the goods and rights against the buyer personally.
Legal Framework
| Provision | Subject | Key Rule |
|---|---|---|
| S.45 | Unpaid seller defined | Whole price unpaid or untendered, or conditional payment dishonoured |
| S.46 | Rights of an unpaid seller | Lien, stoppage in transit, resale; and where property has not passed, a right of withholding delivery |
| S.47 | Seller's lien | The unpaid seller in possession may retain the goods where the sale is without credit, the credit term has expired, or the buyer is insolvent |
| S.49 | Termination of lien | Lien is lost by delivery to a carrier without reserving the right of disposal, by the buyer or his agent lawfully obtaining possession, or by waiver |
| S.50 | Right of stoppage in transit | Where the buyer becomes insolvent, the unpaid seller who has parted with possession may resume possession while the goods are in transit |
| S.51 | Duration of transit | Transit begins when goods are delivered to a carrier and ends when the buyer or his agent takes delivery |
| S.52 | How stoppage is effected | By taking actual possession, or by giving notice to the carrier or his principal |
| S.54 | Effect of resale | A resale on default passes good title to the new buyer, and the seller may recover any loss or retain any profit in defined circumstances |
Rights Against the Goods
1. Right of Lien (S.47 to S.49)
The unpaid seller who is in possession of the goods is entitled to retain possession until payment or tender of the price, in three cases:
| Case | Explanation |
|---|---|
| Goods sold without any stipulation as to credit | Payment is due at once, so retention is justified |
| Goods sold on credit but the term has expired | The indulgence has run out |
| The buyer becomes insolvent | The seller need not part with goods to an insolvent estate |
Characteristics of the seller's lien:
| Feature | Content |
|---|---|
| Possessory | Depends entirely on possession; lost when possession is lost |
| Available even where property has passed | Possession, not ownership, is the basis |
| For the price only | Not for storage or other charges, unless agreed |
| Not lost by obtaining a decree | S.49(2) preserves the lien |
| Partial delivery | Part delivery does not destroy the lien over the remainder unless it shows an intention to waive |
Facts: Goods were sold and property passed to the buyer, but the seller retained possession and the price was unpaid. The buyer purported to deal with the goods.
Held: The seller was entitled to retain the goods until payment. Although property had passed, the right to possession remained with the seller so long as the price was unpaid. The buyer's right to possession is conditional on payment.
Relevance: The classical statement that the seller's lien survives the passing of property. Cite where a buyer argues that ownership entitles him to immediate delivery.
2. Right of Stoppage in Transit (S.50 to S.52)
Where the seller has parted with possession and the buyer becomes insolvent, the unpaid seller may resume possession of the goods while they are in transit and retain them until payment.
| Requirement | Explanation |
|---|---|
| The seller must be unpaid | Within S.45 |
| The buyer must be insolvent | Insolvency in the commercial sense, being unable to pay debts as they fall due |
| The goods must be in transit | Neither still with the seller nor yet delivered to the buyer |
| The seller must not have parted with the documents of title to a bona fide transferee | S.53(1) protects such a transferee |
Duration of transit (S.51): Transit begins when the goods are delivered to a carrier for transmission to the buyer, and ends when the buyer or his agent takes delivery. Transit also ends if the carrier acknowledges holding the goods as the buyer's agent, or if the buyer rejects the goods and the carrier continues to hold them for the seller.
Facts: Goods were held by a warehouseman. A delivery order was given and the sub-buyer paid. The question concerned the point at which the seller's rights against the goods ended and the sub-buyer's position prevailed.
Held: Once the goods were held on the buyer's account and the documents were dealt with in favour of a bona fide sub-buyer, the seller's right to stop was defeated. The transit had come to an end and the sub-buyer's title prevailed.
Relevance: Illustrates both the ending of transit and the protection of a bona fide transferee of documents of title under S.53.
Why stoppage requires insolvency but lien does not: Lien is exercised while the seller still has the goods, so it disturbs nothing; withholding delivery until paid is a modest self-help remedy. Stoppage, by contrast, intercepts goods already sent and disrupts a transaction in motion, potentially prejudicing carriers and sub-buyers. The law therefore reserves it for the case where the seller faces the concrete risk of an insolvent estate.
3. Right of Resale (S.54)
| Situation | Seller's position |
|---|---|
| Goods are of a perishable nature | May resell without notice |
| Notice of intention to resell given and the buyer does not pay within a reasonable time | May resell and recover any loss on resale |
| Resale without notice where notice was required | Resale is valid as to title, but the seller cannot recover any loss and must account for any profit |
| Express right of resale reserved in the contract | Seller may resell and claim damages |
Effect on title (S.54(3)): Where an unpaid seller who has exercised his lien or stopped goods in transit resells them, the new buyer acquires good title as against the original buyer, even though no notice of resale was given. This is an exception to nemo dat quod non habet.
Why notice matters to the seller's money claim but not to the buyer's title: Notice gives the original buyer a last opportunity to pay and protects him from a hasty sale at an undervalue. Failing to give it costs the seller his claim for the shortfall and his right to keep any surplus. It does not, however, unsettle the position of the new buyer, who should not be required to investigate whether notice was given.
4. Right of Withholding Delivery (S.46(2))
Where property in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co-extensive with his rights of lien and stoppage in transit.
Rights Against the Buyer Personally
| Right | Provision | Content |
|---|---|---|
| Suit for the price | S.55(1) | Where property has passed and the buyer wrongfully neglects or refuses to pay |
| Suit for the price on a day certain | S.55(2) | Where the price is payable on a day certain irrespective of delivery, even if property has not passed |
| Suit for damages for non-acceptance | S.56 | Where the buyer wrongfully neglects or refuses to accept and pay |
| Suit for repudiation before due date | S.60 | The seller may treat the contract as subsisting and wait, or treat it as rescinded and sue for damages |
| Suit for interest and special damages | S.61 | Interest on the price from the date of tender or the date the price was payable |
Why the availability of a suit for the price turns on the passing of property: A claim for the price is a claim for the agreed contractual sum, which presupposes that the seller has performed his essential obligation of transferring ownership. Where property has not passed, the seller has not delivered what he promised, so his claim sounds in damages for loss of bargain rather than in debt. S.55(2) creates a narrow exception where the parties fixed a day certain for payment independent of delivery.
Illustrations
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Lien survives passing of property: A sells B a specific machine, property passing at once, but retains possession pending payment. B demands delivery without paying. Applying Bloxam v Sanders (1825) and S.47, A may retain the machine until paid, although B is the owner.
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Lien lost by delivery to a carrier: A hands goods to a transporter for delivery to B without reserving any right of disposal. Under S.49(1) the lien is gone, since possession has been parted with.
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Stoppage in transit: A dispatches goods by rail to B. Before they reach B, A learns that B has suspended payments to creditors generally. Under S.50 A may stop the goods in transit by giving notice to the railway under S.52.
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Transit ended, stoppage unavailable: On similar facts, B's clearing agent has already collected the goods from the railway before A's notice. Under S.51 transit ended on delivery to B's agent, and A can no longer stop them.
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Bona fide transferee of documents defeats stoppage: A ships goods and endorses the bill of lading to B, who endorses it for value to C, who takes in good faith. Applying S.53 and Mount Ltd v Jay and Jay (1960), A's right of stoppage is defeated by C's title.
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Resale of perishables without notice: A holds a consignment of fish under lien after B's default. Under S.54(2) A may resell immediately without notice, the goods being perishable, and recover any loss from B.
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Resale without required notice: A resells non-perishable goods without giving B notice and realises Rs. 20,000 less than the contract price. Under S.54 the new buyer's title is good, but A cannot recover the Rs. 20,000 shortfall from B. Had the resale produced a surplus, A would have had to account for it.
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Suit for the price versus damages: A sells specific goods to B, property passing on contract, and B refuses to pay. A may sue for the price under S.55(1). Had the goods been unascertained with property not passed, A's remedy would be damages for non-acceptance under S.56.
Recall Check
- Who is an unpaid seller under S.45?
- Why does the right of stoppage in transit require the buyer's insolvency while the right of lien does not?
- What is the consequence of reselling without notice where notice was required?
Key Cases
Bloxam v Sanders (1825) Bloxam v Sanders 1825
Issue: Whether a seller retaining possession may withhold goods from a buyer in whom property has vested but who has not paid.
Rule: The seller's right to retain possession survives the passing of property; the buyer's right to possession is conditional on payment.
Held: The seller was entitled to retain the goods until paid.
Mount Ltd v Jay and Jay (Provisions) Co Ltd (1960) Mount v Jay and Jay 1960
Issue: When transit ends and whether a bona fide transferee of documents of title defeats the seller's right of stoppage.
Rule: Stoppage is unavailable once transit has ended or where documents of title have passed to a bona fide transferee.
Held: The sub-buyer's title prevailed over the seller's claim.
Distinctions
| Basis | Lien (S.47) | Stoppage in Transit (S.50) |
|---|---|---|
| Possession | Seller still has the goods | Seller has parted with possession |
| Insolvency of buyer | Not required | Required |
| Nature of the right | Right to retain | Right to resume possession |
| Duration | While possession continues | While the goods are in transit |
| How exercised | By simply retaining | By taking possession or giving notice to the carrier (S.52) |
| Basis | Suit for the Price (S.55) | Suit for Damages (S.56) |
|---|---|---|
| Property | Must have passed, unless a day certain was fixed | Property need not have passed |
| Measure | The agreed contract price | Loss caused by non-acceptance |
| Character | A claim in debt | A claim for loss of bargain |
| Mitigation | Not applicable | The seller must mitigate, ordinarily by reselling |
| Basis | Rights Against the Goods | Rights Against the Buyer |
|---|---|---|
| Nature | Real, exercisable over the goods themselves | Personal, exercisable against the buyer |
| Provisions | S.46 to S.54 | S.55 to S.61 |
| Depends on possession or transit | Yes | No |
| Value where the buyer is insolvent | High, since the goods themselves answer the claim | Low, since the seller ranks as a creditor |
Flashcards
Who is an unpaid seller?
Under S.45, a seller to whom the whole price has not been paid or tendered, or who received a negotiable instrument as conditional payment which has been dishonoured.
Name the unpaid seller's rights against the goods.
Lien (S.47), stoppage in transit (S.50), resale (S.54), and where property has not passed, withholding delivery (S.46(2)).
In what three cases may the unpaid seller exercise a lien?
Where the goods were sold without any stipulation as to credit, where the credit term has expired, and where the buyer becomes insolvent.
Does the seller's lien survive the passing of property?
Yes. Bloxam v Sanders (1825) held that the right to retain possession continues while the price is unpaid.
How is the lien lost?
By delivery to a carrier without reserving the right of disposal, by the buyer or his agent lawfully obtaining possession, or by waiver (S.49).
When does transit begin and end?
Transit begins on delivery to a carrier for transmission to the buyer and ends when the buyer or his agent takes delivery (S.51).
What is the effect of a resale by an unpaid seller on the new buyer's title?
Under S.54(3) the new buyer acquires good title as against the original buyer, even if no notice of resale was given.
When can a seller sue for the price rather than damages?
Where property has passed and the buyer refuses to pay (S.55(1)), or where the price was payable on a day certain irrespective of delivery (S.55(2)).
Exam Scenario
Problem: Vandana sells two consignments to a wholesaler on 30 days' credit. Consignment A, specific bales of cotton, remains in her godown awaiting collection; property passed on contract. Consignment B, machine parts, is dispatched by road on 5 June. On 12 June, before either consignment reaches the wholesaler and before the credit period expires, Vandana learns that the wholesaler has suspended all payments and creditors are pressing. She wishes to retain Consignment A and recover Consignment B. She also discovers that the wholesaler had already endorsed the transport documents for Consignment B to a sub-buyer, who paid full value in good faith. Advise Vandana.
Step 1: Establish that Vandana is an unpaid seller
Apply S.45. No part of the price has been paid or tendered, so she is an unpaid seller and the rights listed in S.46 are open to her.
Step 2: Retain Consignment A under the lien
Apply S.47. She retains possession, so the right of lien is available.
Ordinarily a lien cannot be exercised during a subsisting credit period, but S.47(1)(c) expressly permits it where the buyer becomes insolvent, and suspension of payments with creditors pressing is insolvency in the commercial sense. She may therefore retain Consignment A notwithstanding that the 30 days have not expired.
Applying Bloxam v Sanders (1825), it is no answer for the wholesaler to say property has passed to him: the right to possession is conditional on payment.
Step 3: Test stoppage in transit for Consignment B
Apply S.50. Possession has been parted with and the buyer is insolvent, so the right of stoppage in transit is prima facie available, exercisable under S.52 by notice to the road carrier.
Then identify the obstacle. Under S.53(1) the right of stoppage is defeated where the seller has assented to a transfer of the documents of title to a bona fide transferee for value.
The wholesaler endorsed the transport documents to a sub-buyer who paid full value in good faith. Applying Mount Ltd v Jay and Jay (Provisions) Co Ltd (1960), the sub-buyer's title prevails and Vandana's right to stop is defeated as against him.
Step 4: Set out the practical outcome consignment by consignment
| Consignment | Right invoked | Available? | Result |
|---|---|---|---|
| A, cotton bales in her godown | Lien, S.47(1)(c) | Yes, insolvency overrides the unexpired credit term | Retain, then resell after notice under S.54 |
| B, machine parts in transit | Stoppage, S.50 with S.52 | No, defeated by S.53(1) | Prove in the insolvency as an unsecured creditor |
Vandana keeps Consignment A under her lien and may resell it after notice under S.54, recovering any shortfall from the wholesaler. She cannot recover Consignment B.
The lesson is that rights against the goods are worth far more than rights against an insolvent buyer, and that a seller should be slow to release documents of title before payment.
A subsisting credit period does not bar the lien. S.47(1)(c) lets the seller retain on the buyer's insolvency even before the credit term expires, so do not stop at "the 30 days have not run".
Insolvency here is commercial, not adjudicated. Suspension of all payments with creditors pressing is enough. No insolvency order is needed.
Passing of property is no defence to the lien. Bloxam v Sanders (1825) is the answer to a wholesaler who claims delivery as owner.
Stoppage dies with the documents. S.53(1) and Mount Ltd v Jay and Jay (1960) defeat the seller once documents of title reach a bona fide transferee for value, even though the goods are still in transit.
Notice on resale matters to the money, not to the title. Under S.54(3) a resale passes good title even without notice, but a seller who omits required notice loses his claim for the shortfall and must account for any profit.
Conclusion. Vandana may retain Consignment A under her lien and resell it after notice, recovering any shortfall from the wholesaler. Consignment B is lost to the bona fide sub-buyer, and for that part of the price she ranks as an unsecured creditor in the insolvency.
See Also
- Remedies for Breach of Contract of Sale : the seller's personal remedies and the buyer's corresponding rights.
- Passing of Property in Goods : why the passing of property determines whether the seller sues for the price or for damages.
- Termination of Bailment and Lien : the general law of lien with which the seller's lien may be compared.