Introduction to Unpaid Seller, Buyer Against the Seller
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The place where we can find buyers and sellers is nothing but the market. To make the selling of goods ethical and fair practices, a new act called the sales of goods act came into force on 1st July of 1930. The sales of goods act consist of all the contracts and agreements between the sellers. Also, it specifies the phenomenon of reciprocal promises. But the reciprocal promises were first initiated in the Indian contract act 1872 itself.
Generally, the seller has to provide goods to his customer, and this buyer needs to pay the exact amount for which he received the goods. If it is done normally, there is no need for the laws. So if any malpractices or mistakes may take place, the act specified certain rights of the unpaid seller against the buyer. We will see those rights in detail.
Unpaid Seller
If a seller, who is unable to get the payment even after delivering the goods and also if the seller fails to receive either money or instrumental benefit in return of his goods due to misleading of the buyer is known as an unpaid seller. So to make proper Justice to the unpaid seller, the sales of goods act provided two kinds of Rights. They are-
Rights of unpaid seller against the buyer and
Rights of unpaid sellers against the goods.
Rights of the Seller against the Buyer
Suit for Price: It is the first and foremost right of an unpaid seller against the buyer. It is used whenever the seller has delivered all his goals to the buyer, and the buyer refuses to pay the amount then he can make use of his right and file a case against the buyer by suing for price. The sales of goods act clearly to explain that the seller has to receive the payment from the buyer after delivering the goods.
Suit for Damages: This right is beneficial to the seller when the buyer refuses to take the goods, and it causes certain damage to the goods then the seller can file against the buyer for the damage of goods because of his non-acceptance. For instance, food products, dairy products will get damaged if the buyer refuses to take them, once the order has been placed.
Suit for Interest: Generally, the buyer and seller will make a contract or agreement to provide goods at one particular time, and the payment will be made after being sure. Of time with interest rate. This contract is made with the acceptance of both parties. But if the buyer refuses to pay interest or less rate of interest during the time of payment, then the seller has a right to sue for the interest for goods that he has delivered earlier.
Rejection of Contract: If the buyer refuses to continue the contract or if he rejects the contract in the middle itself without any prior notice and genuine reason, the seller has the right to sue for the contradiction of the contract before the due date. It is also available in the Indian contract act due to the name of anticipatory breach of contract. Breach of contract means quitting either of the parties from the contract without any reason or any information.
Significance of the Rights of Buyers and Sellers
These are the various rights of an unpaid seller again as to the buyer. Besides these rights, the sales of goods act also specify certain remedies of the buyer against the seller. Because every time there is an equal chance of misleading the contract by both sellers as well as buyers. So to protect the buyer also, the ACT provides specific remedies of the buyer against the seller. Let's try to understand those remedies in detail.
Remedies of the Buyer Against the Seller
Sue for Damage: The buyer also has the option to sue for damage or can sue for non-delivered goods in the specified time by the seller. Because without goods, the buyer fails to perform his required activity at that time.
Performance-Based Suit: If the seller refuses to deliver the goods or he may breach the contract before the due date, then the buyer can take help from the court to file a case against the seller.
Suit for Warranty: If the seller promises to provide the goods with a specific warranty and fails to do it or refuses to do it while delivering the goods, then the buyer can sue for the warranty as well as can reduce the amount to be paid for the goods.
Repudiation of Contract: It is common for both the seller as well as the buyer. Similar to the seller, the buyer also can have an equal chance to file against the seller if he refuses to continue the contract or he breaches the contract in the middle or before the due date.
Sue for the Interest: The buyer has the right to claim for the interest for damaged goods or for the delay in delivering the goods against the seller.
Hence we can understand the rights of an unpaid seller against the buyer and also the remedies of the buyer against the seller.
FAQs on Rights of an Unpaid Seller Against the Buyer
1. What legally defines a seller as 'unpaid' according to the Sale of Goods Act, 1930?
Under Section 45 of the Sale of Goods Act, 1930, a seller of goods is legally considered an 'unpaid seller' when:
- The entire price of the goods has not been paid or tendered.
- A bill of exchange or other negotiable instrument was received as conditional payment, and the condition has not been fulfilled because the instrument has been dishonoured.
Essentially, if the seller has not received the full and rightful payment, they are termed an unpaid seller and can exercise certain rights.
2. What are the primary rights an unpaid seller has against the buyer personally?
When the ownership of goods has passed to the buyer but they fail to pay, the unpaid seller has the following primary rights (remedies) against the buyer personally:
- Suit for Price (Section 55): The seller can sue the buyer for the price of the goods when the property has passed to the buyer and the buyer wrongfully neglects or refuses to pay.
- Suit for Damages for Non-acceptance (Section 56): If the buyer wrongfully refuses to accept and pay for the goods, the seller can sue for damages for non-acceptance.
- Repudiation of Contract before Due Date: If the buyer repudiates the contract before the delivery date (anticipatory breach), the seller can treat the contract as cancelled and sue for damages.
- Suit for Interest (Section 61): The seller can sue the buyer for interest on the price from the date the payment was due, if there is a specific agreement to this effect.
3. Can you provide a real-world example of when an unpaid seller can sue for damages?
Imagine a bakery has a contract to supply 1,000 custom-decorated cakes for a corporate event. The bakery bakes and prepares the order. On the day of delivery, the corporate buyer wrongfully refuses to accept the delivery without a valid reason. As cakes are perishable goods, the bakery cannot easily resell them. In this case, the bakery (the unpaid seller) can sue the corporate buyer for damages for non-acceptance to recover the loss incurred due to the wasted materials, labour, and lost profit.
4. What are the key differences between a seller's rights against the goods versus their rights against the buyer?
The rights of an unpaid seller are categorised into two distinct types:
- Rights against the Goods (in rem): These rights are exercised directly upon the goods themselves, regardless of who the buyer is. They include the right of lien (retaining possession until paid), the right of stoppage in transit (stopping delivery if the buyer becomes insolvent), and the right of resale. These are possessory rights.
- Rights against the Buyer (in personam): These are personal remedies that the seller can enforce against the buyer through a court of law. They focus on recovering financial loss and include suing for the price, suing for damages, and suing for interest. These are personal legal actions.
5. Why does the law grant an unpaid seller a 'suit for interest' in addition to the price of the goods?
The right to sue for interest compensates the seller for the loss of use of money over the period of delayed payment. When a buyer fails to pay on time, the seller not only loses the principal amount but also the potential earnings that money could have generated. The 'suit for interest' serves two purposes:
- It acts as a deterrent against payment delays by the buyer.
- It provides fair compensation to the seller for the economic loss suffered due to the buyer's breach of the payment timeline, as per the contract or legal provisions.
6. Under what circumstances can an unpaid seller repudiate the contract before the due date?
An unpaid seller can treat a contract as repudiated before the due date under the principle of anticipatory breach of contract. This occurs when the buyer, before the scheduled date of performance (delivery and payment), explicitly or implicitly communicates their intention to not honour the contract. For example, if a buyer emails the seller a week before a scheduled delivery stating they will not accept the goods or make payment, the seller can immediately treat the contract as cancelled and sue for damages without waiting for the actual due date.
7. How do the remedies available to a buyer for breach of contract differ from the rights of an unpaid seller?
While an unpaid seller's rights focus on recovering payment or losses from non-acceptance, a buyer's remedies focus on receiving the goods or compensation for their non-delivery. A buyer's main remedies include:
- Suit for damages for non-delivery: If the seller fails to deliver the goods.
- Suit for specific performance: Forcing the seller to deliver unique or specific goods as contracted.
- Suit for breach of warranty: Claiming damages if the goods do not meet the quality or conditions promised.
- Suit for interest: Recovering the price paid in advance along with interest if the goods are not delivered.
The core difference is the objective: the seller wants the price, while the buyer wants the goods or compensation for their absence.
