Contents

01Chapter Overview 02Meaning of Unpaid Seller 03Rights Framework 04Right of Lien 05Stoppage in Transit 06Lien vs Stoppage 07Sub-sale or Pledge 08Right of Resale 09Rights Against Buyer 10Buyer’s Remedies 11Auction Sale 12Tax Adjustment 13Case / Illustration Bank 14Quick Revision 15Revision Mind Map
01
FoundationChapter Overview

This unit deals with the seller’s protection when the buyer does not pay. In a contract of sale, seller has to deliver goods and buyer has to pay price. If buyer fails to pay, the law does not leave the seller helpless. It gives the seller rights against the goods and rights against the buyer personally.

Unpaid Seller = Seller who has not received the whole price, or whose negotiable instrument received as conditional payment has been dishonoured.
Step 1Is the seller unpaid?
Step 2Rights against goods.
Step 3Rights against buyer.
Step 4Buyer’s remedies.
Step 5Auction and tax rules.
ICAI Learning Outcomes
  • Concept of unpaid seller.
  • Rights of unpaid seller.
  • Effect of sub-sale or pledge by buyer.
  • Difference between lien and stoppage in transit.
  • Rights of parties in case of breach.
  • Concept of sale by auction.
Main Exam Traps
  • Confusing lien with stoppage in transit.
  • Forgetting insolvency is essential for stoppage.
  • Assuming sub-sale always defeats unpaid seller.
  • Forgetting notice requirement in resale.
  • Confusing seller’s remedies with buyer’s remedies.
  • Missing auction rule: sale completes on fall of hammer.
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Master Test First ask: Where are the goods? If goods are with seller, think lien. If goods are with carrier and buyer is insolvent, think stoppage in transit. If payment still does not come, think resale and personal action.
02
Section 45Meaning of Unpaid Seller
Section 45(1)
The seller of goods is deemed to be an unpaid seller when the whole of the price has not been paid or tendered, or when a bill of exchange or other negotiable instrument received as conditional payment is dishonoured or the condition is otherwise not fulfilled.

When Seller Becomes Unpaid

Price not paidThe whole price has not been paid or tendered and seller has immediate right of action for price.
Instrument dishonouredCheque, bill of exchange or other negotiable instrument received as conditional payment is dishonoured.

Who is Included in “Seller”

The term seller includes any person in the position of seller, such as an agent of the seller to whom bill of lading is endorsed, or a consignor/agent who has himself paid or is directly responsible for the price.

ICAI-style Examples

X sells goods to Y for ₹50,000. Y pays ₹40,000 but fails to pay the balance. X is an unpaid seller. Similarly, if P receives a cheque for full price from R and the cheque is dishonoured, P is an unpaid seller.

Memory hook: Part payment still makes seller unpaid if whole price is not paid.
03
Section 46Rights Framework of Unpaid Seller

Section 46 creates the master framework. An unpaid seller has rights against the goods and rights against the buyer personally.

Rights Against GoodsRights Against Buyer Personally
Right of lien.Suit for price.
Right of stoppage in transit.Suit for damages for non-acceptance.
Right of resale.Repudiation of contract before due date.
Right of withholding delivery where property has not passed.Suit for interest.
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Important Distinction Rights against goods are rights in rem. Rights against buyer personally are rights in personam.
04
Sections 47–49Right of Lien
Right of Lien
Lien is the unpaid seller’s right to retain possession of goods and refuse delivery until price is paid or tendered.

The lien of unpaid seller is a possessory lien. It exists only while the seller has possession of the goods. It can be exercised even if property in goods has passed to the buyer.

When Lien Can Be Exercised

No creditGoods sold without any stipulation of credit.
Credit expiredGoods sold on credit but credit period has expired.
Buyer insolventBuyer becomes insolvent even during credit period.
ICAI-style Example

A sold goods to B for ₹50,000 and allowed one month credit. B becomes insolvent during the credit period. A can exercise right of lien.

Part Delivery — Section 48

If unpaid seller has made part delivery, he may exercise lien on the remainder unless the part delivery was made in circumstances showing waiver of lien.

Termination of Lien — Section 49

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Exception Seller does not lose lien merely because he has obtained a court decree for price. The decree and the lien can co-exist.
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Railway Receipt in Buyer’s Name
Termination of lien

Facts A sold a car to B and delivered it to railways for transmission. Railway receipt was taken in B’s name and sent to B.

Issue Can A still exercise lien after handing over goods to carrier without reserving disposal?

Held No. A lost lien because goods were delivered to carrier for transmission to buyer and right of disposal was not reserved.

Exam Memory Line Lien ends when seller parts with possession without reservation.
05
Sections 50–52Right of Stoppage in Transit
Section 50
Stoppage in transit is the unpaid seller’s right to stop goods while they are in transit, regain possession and retain them until full price is paid.

This right is an extension of lien. It arises after seller has parted with possession but goods have not yet reached buyer.

Conditions for Stoppage in Transit

Seller unpaidThe seller must be an unpaid seller.
Possession partedSeller must have parted with possession.
Goods in transitGoods must still be with carrier/bailee.
Buyer insolventBuyer must have become insolvent.
ICAI-style Example

A of Mumbai sells goods to B of Delhi and delivers them to carrier C. Before goods reach B, B becomes insolvent. A can stop the goods in transit by giving notice to C.

Duration of Transit — Section 51

Transit starts when goods are delivered to carrier or bailee for transmission to buyer. Transit ends when buyer or buyer’s agent takes delivery.

When Transit Comes to an End

How Stoppage is Effected — Section 52

Actual possessionSeller takes actual possession of the goods.
NoticeSeller gives notice to carrier or bailee not to deliver goods to buyer.
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Effect of Stoppage Stoppage does not rescind the contract. Buyer can still get goods by paying the price.
06
Exam FavouriteLien vs Stoppage in Transit
BasisRight of LienRight of Stoppage in Transit
EssenceRetain possession.Regain possession.
Where are the goods?Goods are with seller.Goods are with carrier/bailee in transit.
PossessionSeller has not parted with possession.Seller has parted with possession.
Buyer’s insolvencyNot always necessary.Essential.
Starting pointStarts while seller has possession.Begins when lien ends and goods enter transit.
Ending pointEnds when seller loses possession.Ends when buyer or agent obtains delivery.
NaturePrimary right.Extension of lien.
Memory hook: Lien = keep goods. Stoppage = call goods back.
07
Section 53Effect of Sub-sale or Pledge by Buyer

General rule: unpaid seller’s right of lien or stoppage in transit is not affected merely because buyer has sold or pledged the goods. A second buyer cannot get a better position than the first buyer.

ICAI-style Example

A sells goods to B and sends them by rail. B sells goods to C. B becomes insolvent before goods reach him. If A has not assented to sub-sale, A can still exercise stoppage in transit.

When Unpaid Seller’s Rights Are Defeated

Seller assentsSeller assents to sale, mortgage or other disposition by buyer.
Document of titleBuyer transfers document of title to a good-faith purchaser for value.
Pledge caseIf transfer is by pledge, unpaid seller’s rights become subject to pledgee’s rights.
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Mount D. F. Ltd. v. Jay & Jay (Provisions) Co. Ltd.
Assent to resale defeats lien

Facts A agreed to sell cartons in possession of a wharfinger to B. A also agreed that price would be paid from sale proceeds recovered by B from his customers. B sold goods to C and C paid B. B failed to pay A. A then tried to stop delivery to C by exercising lien.

Issue Can seller exercise lien after having agreed that buyer would resell and pay from resale proceeds?

Held No. Seller had assented to resale by buyer to sub-buyers. Therefore unpaid seller’s lien was defeated.

Exam Memory Line Seller’s assent to resale defeats lien and stoppage rights.
08
Section 54Right of Resale

The right of resale is important because lien and stoppage only allow the seller to retain or regain goods. Resale allows the seller to realise value from goods.

When Unpaid Seller Can Resell

Perishable goodsNo notice to buyer is required.
Notice givenSeller gives notice of intention to resell and buyer fails to pay within reasonable time.
Lien or stoppage usedSeller who has exercised lien or stoppage resells; new buyer gets good title.
Express right reservedContract reserves right of resale on buyer’s default.
Property not passedSeller may withhold delivery; this is quasi-lien.

Notice of Resale — Consequences

SituationSeller’s right to recover lossSeller’s right to keep profit
Notice of resale given and buyer still defaultsSeller can recover loss from original buyer.Seller can keep profit.
No notice of resaleSeller cannot recover loss on resale.Seller must return profit to original buyer.
Perishable goodsNotice not required.Seller protected.
Express resale right reservedNotice not required.Seller can recover damages.
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Exam Trap Notice is not required for perishable goods or where right of resale is expressly reserved. In ordinary cases, notice decides whether seller can recover loss and retain profit.
09
Sections 55–61Rights Against Buyer Personally

Rights against buyer personally are also called seller’s remedies for breach of contract of sale. They are in addition to rights against goods.

Suit for Price — Section 55

SituationSeller’s right
Property has passed and buyer wrongfully refuses to pay.Seller may sue for price.
Price is payable on a certain day irrespective of delivery.Seller may sue for price even if property has not passed and goods are not appropriated.

Damages for Non-Acceptance — Section 56

If buyer wrongfully neglects or refuses to accept and pay for goods, seller may sue for damages for non-acceptance. Measure of damages follows Section 73 of the Indian Contract Act, 1872.

Repudiation Before Due Date — Section 60

If buyer repudiates before delivery date, seller may either treat contract as subsisting and wait, or treat it as rescinded and sue for damages. This is anticipatory breach.

Suit for Interest — Section 61

If there is agreement for interest, seller may recover interest as agreed. If there is no agreement, court may award interest from date of tender of goods or from date price was payable.

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Credit Sale and Refusal to Pay
Suit for price

Facts D sold goods to E for ₹5,00,000 on 15 days credit and delivered the goods. On due date, E refused to pay.

Issue What are D’s rights as unpaid seller?

Held Since goods were delivered and price became due, D can sue for price. Depending on facts, he may also claim damages for non-acceptance and interest.

Exam Memory Line Goods delivered + price due + refusal = suit for price.
10
Sections 57–61Remedies of Buyer Against Seller

If seller breaches the contract, buyer also gets remedies. These apply where seller fails to deliver, repudiates, or supplies non-conforming goods which buyer rejects.

Buyer’s RemedySectionWhen available
Damages for non-delivery57Seller wrongfully neglects/refuses to deliver goods.
Specific performance58Goods are specific/ascertained and damages are inadequate.
Breach of warranty59Seller breaches warranty or buyer treats breach of condition as warranty.
Anticipatory breach60Seller repudiates contract before due date.
Interest61Buyer may recover interest/special damages or refund where consideration fails.
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Shoe Resale Loss Example
Damages for non-delivery

Facts A, a shoe manufacturer, agreed to sell 100 pairs of shoes to B at ₹10,500 per pair. A knew B wanted to resell them to C at ₹11,000 per pair. A failed to deliver.

Issue Can B recover lost resale profit?

Held Yes. Since A knew the resale purpose and profit margin, B can recover ₹500 per pair as damages.

Exam Memory Line Known resale loss is recoverable as damages.
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Rare Mughal Painting Illustration
Specific performance

Facts A agreed to sell a rare Mughal period painting to B but refused to deliver it on due date.

Issue Are damages enough, or can court compel delivery?

Held B may sue for specific performance because the goods are rare and unique. Money damages may not be adequate.

Exam Memory Line Unique goods → specific performance possible.
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Mildewed Cigarettes Illustration
Breach of warranty / damages

Facts Cigarettes sold turned out to be mildewed and unfit for consumption.

Issue How should damages be calculated?

Held Damages were based on the difference between contract price and the price actually realised/value in defective condition.

Exam Memory Line Defective goods damages = contract value minus actual value.
11
Section 64Auction Sale
Auction Sale
Auction sale is a public sale where intending buyers bid against each other and goods are sold to the highest bidder.

An auctioneer is generally an agent of the seller. He may also sell his own property as principal, without disclosing that fact.

Legal Rules of Auction Sale

RuleMeaning
Goods sold in lotsEach lot is prima facie a separate contract.
CompletionSale completes on fall of hammer or customary announcement.
Bid withdrawalBidder may retract before completion/fall of hammer.
Right to bidSeller or one person on his behalf may bid only if right is expressly reserved.
No secret seller biddingIf right to bid not notified, seller cannot bid or employ another to bid.
Reserve priceSale may be subject to reserve or upset price.
Pretended biddingIf seller uses pretended bidding to raise price, sale is voidable at buyer’s option.
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P–Q–R Car Auction Case
Fall of hammer and title

Facts P sold a car by auction. It was knocked down to Q. Q could take it away only after giving cheque and signing an agreement that ownership would not pass until cheque cleared. Before cheque cleared, Q sold the car to R.

Issue Did ownership pass at fall of hammer or only after cheque clearance?

Held Property passed at fall of hammer. Therefore Q had title and R also got good title.

Exam Memory Line Auction sale completes at fall of hammer.
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Section 64AIncreased or Decreased Taxes

Where tax changes after contract but before performance, price may be adjusted unless parties have agreed otherwise.

Tax event before performanceEffect
Customs/excise/sale or purchase tax is imposed or increasedSeller may add increase to price; buyer pays increased price.
Tax is decreased or remittedBuyer gets benefit of reduction.
Contrary agreement existsParties’ agreement prevails.
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Simple Rule Tax increase generally increases price; tax decrease generally reduces price — unless the contract says otherwise.
13
CompactCase / Illustration Bank
Case / IllustrationTopicPrinciple
Dishonoured cheque exampleUnpaid sellerConditional payment fails; seller becomes unpaid.
Credit-period insolvencyLienSeller may exercise lien if buyer becomes insolvent.
Railway receipt in buyer’s nameLoss of lienLien ends when goods delivered to carrier without reservation.
Mumbai to Delhi carrier exampleStoppage in transitUnpaid seller can stop goods if buyer becomes insolvent while goods are in transit.
Mount D. F. Ltd. v. Jay & Jay (Provisions) Co. Ltd.Sub-saleSeller’s assent to resale defeats lien/stoppage.
Credit sale and refusal to paySuit for priceGoods delivered and price due gives seller action for price.
Shoe resale lossDamages for non-deliveryKnown resale loss is recoverable.
Rare Mughal paintingSpecific performanceUnique goods may justify court order for delivery.
Mildewed cigarettesBreach of warranty / damagesDamages based on difference between contracted value and actual value.
P–Q–R car auctionAuction saleProperty passes on fall of hammer.
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Exam FocusQuick Revision

One-Line Revision

  • Section 45: Seller is unpaid if whole price is not paid or conditional payment instrument is dishonoured.
  • Section 46: Unpaid seller has rights against goods and against buyer.
  • Lien: Right to retain possession until payment.
  • Stoppage: Right to regain possession while goods are in transit if buyer becomes insolvent.
  • Resale: Seller may resell in specified cases under Section 54.
  • Withholding delivery: Used when property has not passed.
  • Sub-sale: Does not defeat unpaid seller unless seller assents or document of title is transferred to bona fide purchaser.
  • Suit for price: Available when property has passed or price payable on fixed date.
  • Buyer’s remedies: Non-delivery, specific performance, breach of warranty, anticipatory breach and interest.
  • Auction: Sale completes on fall of hammer.
  • Section 64A: Tax increase/decrease adjusts price unless agreed otherwise.

High-Frequency ICAI Traps

  • Unpaid seller includes seller who received dishonoured cheque.
  • Part payment does not prevent seller from being unpaid.
  • Lien requires seller’s possession; stoppage requires goods in transit.
  • Buyer insolvency is essential for stoppage in transit.
  • Stoppage does not cancel the contract.
  • Seller’s notice of resale affects right to recover loss and retain profit.
  • Bid can be withdrawn before fall of hammer.
  • Pretended bidding makes auction sale voidable, not void.
  • Reserve price must be respected; sale below reserve does not bind seller.
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RevisionMind Map
Revision Mind Map

Unpaid Seller — One Page Recall

The chapter starts with the meaning of unpaid seller, then divides remedies into rights against goods, rights against buyer, buyer’s remedies, auction sale and tax adjustment.
1. Meaning of Unpaid Seller
  • Whole price not paid or tendered.
  • Cheque / BOE / negotiable instrument dishonoured.
  • Part payment still leaves seller unpaid.
  • Includes person in position of seller.
2. Rights Against Goods
  • Lien — retain possession.
  • Stoppage in transit — regain possession.
  • Resale — sell again in allowed cases.
  • Withholding delivery where property has not passed.
Core Memory: Lien = goods with seller. Stoppage = goods with carrier. Resale = final commercial remedy.
3. Right of Lien
  • No credit sale.
  • Credit period expired.
  • Buyer insolvent.
  • Ends when possession is lost, waived or estopped.
  • Court decree does not destroy lien.
4. Stoppage in Transit
  • Seller unpaid.
  • Seller parted with possession.
  • Goods in transit.
  • Buyer insolvent.
  • Effected by possession or notice to carrier.
5. Sub-sale / Pledge
  • Generally does not affect seller’s lien/stoppage.
  • Exception: seller assented to resale.
  • Exception: document of title transferred to good-faith buyer.
  • Pledgee rights may prevail to that extent.
6. Right of Resale
  • Perishable goods.
  • Notice given and buyer defaults.
  • Right expressly reserved.
  • After lien or stoppage.
  • Notice decides loss recovery and profit retention.
7. Rights Against Buyer
  • Suit for price.
  • Damages for non-acceptance.
  • Anticipatory breach.
  • Suit for interest.
8. Buyer’s Remedies
  • Damages for non-delivery.
  • Specific performance.
  • Breach of warranty.
  • Anticipatory breach.
  • Interest / refund where consideration fails.
9. Auction Sale
  • Public sale to highest bidder.
  • Each lot is separate contract.
  • Sale complete on fall of hammer.
  • Bid can be withdrawn before completion.
  • Reserve price permitted.
  • Pretended bidding makes sale voidable.
10. Tax Adjustment
  • Tax imposed or increased → buyer pays increased price.
  • Tax decreased or remitted → buyer gets benefit.
  • Contrary agreement overrides default rule.
Last-Minute Recall: First identify unpaid seller. Then locate goods. Then choose lien, stoppage or resale. Then check personal remedies and auction rules.