Unpaid Seller – CA Foundation Law Study Material

This Unpaid Seller – CA Foundation Law Study Material is designed strictly as per the latest syllabus and exam pattern.

Unpaid Seller – CA Foundation Business Law Study Material

Question 1.
What are the rights of the buyer against the seller in case of breach of contract by him, under the provisions of the Sale of Goods Act, 1930?
Answer:
A buyer has the following rights against the seller for breach of contract under the Sale of Goods Act.

1. Suit for non-delivery [Sec. 57]
Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery. This remedy would be available even if the property has passed to the buyer.

2. Specific performance [Sec. 58]
Where a property has passed to the buyer, he also can exercise another right, viz., a right to sue for specific performance, and its limits are regulated by the Specific Relief Act. In such cases, the court may in its discretion grant a decree ordering the seller to deliver those specific or ascertained goods which formed the subject matter of the contract. It should be noted that the remedy is discretionary and will only be granted if the damages are not an adequate remedy or the goods are unique, e.g., a rare book, a picture, or a rare piece of jewelry.

3. Breach of Warranty [Sec. 59]
Where there is a breach of warranty by the seller (Le. defects in the goods delivered) or where the buyer elects or is compelled to treat any breach of a condition on the part of the seller as a breach of warranty, the buyer has the following remedies:

  • He may claim a deduction from the price.
  • He may refuse to pay the price altogether if the loss equals the price.
  • If the loss exceeds the price, he may not only refuse to pay the price but also claim the excess or
  • He may sue the seller for damages for the breach of the warranty in addition to the right to claim diminution or extinction of the price.

4. Suit for Anticipatory breach [Sec. 60]
The buyer has the right to sue the seller for damages for anticipatory breach of contract Section 60 lays down that where the seller repudiates the contracts before the date of delivery, the buyer may either treat the contract as subsisting and wait till the date of delivery or he may treat the contract as rescinded and sue for damages for the breach.

5. Suit for interest and recovery of the price [Sec. 61]
If the buyer has already paid the price and the seller fails to deliver the goods, the buyer is entitled to file a suit for the refund of the price. In such a suit, the buyer may also claim interest or special damages from the defaulting seller. In the absence of any other contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of price from the date on which the payment was made.

Unpaid Seller – CA Foundation Law Study Material

Question 2.
Explain ‘Right of lien’ as the right of the unpaid seller against the goods in case of breach by the buyer, under the Sale of Goods Act, 1930.
Answer:
The ‘unpaid seller has a lien on the goods for the price while he is in possession until the payment or tender of the price. A lien is a right to retain possession of goods until payment of the price. He is entitled to lien in the following three cases, namely:-

  • where goods have been sold without any stipulation as to credit; ie. cash sale.
  • where goods have been sold on credit but the term of credit has expired; or
  • where the buyer becomes insolvent.

Rules:

  1. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer.
  2. If the goods have been sold on credit, the seller cannot refuse to part with possession unless the term of credit has expired.
  3. Lien can be exercised for non-payment of the price, not for any other charges.
  4. Effect of part delivery (Sec. 48): When an unpaid seller has made part delivery of the goods he can exercise a lien on the balance of the goods not delivered unless the part delivery was made under such circumstances as to show an intention to waive the lien.
  5. The seller can abandon or waive the lien if he so desires.
  6. Termination of lien (Sec. 49): If possession is lost, the lien is lost. The unpaid seller of goods loses his lien thereon in the following cases:

(a) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the right of disposal of the goods;
(b) when the buyer or his agent lawfully obtains possession of the goods; and
(c) where the seller has waived the right of lien. The unpaid seller does not lose his lien by reason only that he has obtained a decree for the price of the goods.

Unpaid Seller – CA Foundation Law Study Material

Question 3.
What are the rights of unpaid sellers against the buyer personally, under the Sale of Goods Act, 1930?
Answer:
1. Suit for the Price [Sec. 55]
Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods.

Where the property in goods has not passed to the buyer, the seller as a rule cannot file a suit for the price and his remedy is to claim damages.
According to section 55(2), where under a contract of sale the price is payable on a certain day irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the Goods has not passed and the goods have not been appropriated to the contract.

2. Suit for damages for non-acceptance [Sec. 56]
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance.

3. Suit for damages for repudiation of the contract [Sec. 60]
Where the buyer repudiates the contract before the date of delivery, the seller may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.

4. Claim for interest and special damages [Sec. 61]
The seller may recover interest or special damages in any case where by law interest or special damages may be recoverable.

Question 4.
Explain the rules with respect to Auction Sales.
OR
Referring to the provisions of the Sale of Goods Act, 1930 state the rules provided to regulate the “Sale by Auction.”
Answer:

Rules of Auction Sale (Sec. 64) Following rules have been laid down to regulate the sales by auction:
Sale of goods in lots Where goods are put up for sale in lots, each lot is prima facie deemed to be the subject of a separate contract of sale.
Completion of Sale An auction sale is complete when the auctioneer announces its completion by the fall of the hammer or in another customary manner, and until then the bidder has the right to revoke or retract his bid.
Seller’s Right to Bid Unless the auction is notified to be subject to a right to bid on behalf of the seller, it is not lawful – (i) for the seller to bid himself or to employ any person to bid at such sale on his behalf and (ii)  for the auctioneer to, knowingly take any bid from the seller or any such person. Any contravention of this rule renders the sale fraudulent.
Pretended bidding If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer. However, the seller may expressly reserve the right to bid at the auction and in such case, the seller or anyone person on his behalf may hide at the auction.
Reserve Price The seller may notify that the auction will be subject to a reserve or upset price, that is, the price below which the auctioneer will not sell.

Unpaid Seller – CA Foundation Law Study Material

Question 5.
What is meant by the right of stoppage in transit? How can it be affected by the seller?
Answer:
When the buyer of goods becomes insolvent, and the goods are in course of transit to the buyer, the seller can resume possession of the goods from the carrier. This is known as the right of stoppage in transit. The right is exercisable by the seller only if the following conditions are fulfilled:

  • The seller must be unpaid.
  • He must have parted with the possession of goods.
  • The goods must be in transit.
  • The buyer must have become insolvent.

The right of stoppage means the right to stop further transit of the goods to resume possession and to retain the same till the price is paid.

The two modes of stoppage in transit are

  • By taking actual possession of the goods or
  • By giving notice to the carrier not to deliver the goods to the buyer or his agent.

When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of, the seller. The expenses of such re-delivery shall be borne by the seller.

Question 6.
Under the provisions of the Sale of Goods Act, 1930, when are the goods considered to be in transit? When does the transit come to an end?
Ans. The goods are deemed to be in course of transit from the time they are delivered to a carrier or other bailee for the purpose of transmission to the buyer until the buyer or his agent takes delivery of them.
When does transit end?
1. Delivery before destination: If the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination, the transit is at an end. [Sec. 51(2)]

2. Attornment by the carrier to the buyer: If after the arrival of the goods at the appointed destination, the carrier expressly or by implication enters into a new agreement to hold the goods for the buyer (for purpose of custody), the original transit comes to an end. [Sec. 51(3)]

3. Goods rejected by the buyer: If the goods are rejected by the buyer and they continue to be in possession of the carrier or other bailee, then the transit continues even if the seller has refused to receive them back. [Sec. 51(4)]

4. Delivery on a ship chartered by the buyer: When the goods are delivered to a carrier who is acting as an agent of the buyer, e.g. when goods are delivered to a ship chartered by the buyer, the transit comes to an end as soon as the goods are loaded on board the ship. [Sec. 51 (5)]

5. Wrongful refusal by the carrier to deliver: If the carrier wrongfully refuses to deliver the goods to the buyer, the transit is at an end. [Sec. 51(6)]

6. Part delivery. Where the part delivery of the goods has been made to the buyer the remainder of the goods may be stopped in transit unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.

Unpaid Seller – CA Foundation Law Study Material

Question 7.
Differentiate between Right of lien and stoppage in transit.
Answer:

BASIS RIGHT OF LIEN RIGHT OF STOPPAGE IN TRANSIT
Objective To retain the possession of goods. To regain the possession of goods handed over by the seller to a carrier for the purpose of transmission to the buyer.
Buyers’ Status This right can be exercised when the buyer has not paid the price, irrespective of the fact whether or not he is insolvent. This right can be exercised only in the event of the buyer’s insolvency.
Possession of Goods To exercise this right, the goods should be in the actual/ constructive possession of the seller. This right can be exercised when the seller has parted with the possession of goods. The goods should be in the custody of the carrier/bailee and the goods should not have been delivered to the buyer or his agent.
End Point The termination of the Right of lien is the starting point of the Right of Stoppage in transit. Right of Stoppage in transit begins when the right of lien ends.
Person acting The right of lien is generally exercised by the seller himself. Right of Stoppage in transit is generally exercised by the seller through the carrier/bailee in possession of goods.

Question 8.
Stale the circumstances in which the unpaid seller has the right of resale.
Ans. The unpaid seller who has retained possession of the goods in the exercise of his right of lien or who has resumed possession from the carrier upon insolvency of the buyer can resell the goods:

  • If the goods are of a perishable nature, without any notice to the buyer, and
  • In other cases after notice to the buyer, calling upon him to pay or tender the price within a reasonable time, and upon failure of the buyer to do so.

If the money realized upon such resale is not sufficient to compensate the seller, he can sue the buyer for the balance. But if he receives more than what is due to him, he can retain the excess. A resale does not absolve the buyer from his liabilities to compensate the seller for damages he may have suffered.

Unpaid Seller – CA Foundation Law Study Material

Question 9.
Mr. D Sold some goods to Mr. E for ? 5,00,000 on 15 days credit. Mr. D delivered the goods. On the due date, Mr. E refused to pay for it. State the position & rights of Mr. D as per the Sale of Goods Act, 1930.
Answer:
Hint: An unpaid seller is one who has not yet received the whole price under the contract of sale.
When such a seller has transferred the possession of goods to the buyer, then he cannot exercise his rights against the goods, he can only exercise his rights against the buyer which are as follows:

  1. Suit for price: The seller can sue the buyer for the price.
  2. Suit for damages for non-acceptance: The seller can sue for damages resulting from buyers’ refusal to accept & pay for goods.
  3. Suit for interest: The unpaid seller has a right to sue the buyer for interest on account of the delay in payment of the price.

Thus in the given case Mr. D, the unpaid seller is entitled to all the above remedies against Mr. E.

Question 10.
Ashu of Bombay enters into an agreement with Jay of New Delhi to supply five motor-cycles to be delivered to the latter at New Delhi. Ashu sends these motorcycles through Messers Deep Transport Ltd., a leading transporter. The motorcycle reaches New Delhi on time but Jyoti delays taking delivery. M/s Deep Transporter informs Jyoti that the motorcycles are lying at their godown at Jyoti’s risk. Before taking the delivery of these motorcycles, Jay becomes insolvent. Ashu wants to exercise his right of stoppage of goods in transit, under the Sale of Goods Act. Advise.
Answer:
Hint: Right of stoppage in transit can be exercised by an unpaid seller for the recovery of price on the fulfillment of the following conditions:

  1. the buyer must have become insolvent
  2. the goods must be in transit
  3. and the right must be exercised for the recovery of price.

Further goods are said to be in transit when they are out of the possession of the seller but not yet into the buyer’s possession of the buyer. However, if the carrier acknowledges to the buyer then the transit is deemed to have come to an end. In the given case the transporter M/s Deep acknowledges to the buyer Jay that the goods are at Jay’s risk. This results in termination of transit and hence the right to stoppage in transit cannot be exercised even if Jay subsequently becomes insolvent and has not taken delivery of the goods. Thus Ashu, the unpaid seller cannot exercise stoppage in transit.

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