Rights and Remedies of Unpaid Seller27/12/2020
A seller is under an obligation to deliver the goods sold and buyer is under an obligation to pay the requisite amount set or quid pro quo i.e something in return, under the contract of sale, by them. This is known as reciprocal promise as per Section 2(f) of the Indian Contract Act. In other words, any set of promises made which forms the consideration or part of the consideration for each other are called reciprocal promises and every contract of sale of goods consists of reciprocal promises.
When a buyer refuses or fails to pay the requisite amount to the seller, the seller becomes an unpaid seller and can exercise certain rights against the buyer. These rights are considered as seller’s remedies in case there is a breach of contract by the buyer. These remedies can be against:
According to Section 45(1) of Sale of Goods Act, 1930, the seller is considered as an unpaid seller when:
- When the whole price has not been paid and the seller has an immediate right of action for the price.
- When Bills of Exchange or other negotiable instrument has been received as conditional payment, and the pre-requisite condition has not been fulfilled by reason of the dishonour of the instrument or otherwise.
Seller also includes a person who is in a position of a seller i.e agent, consignor who had himself paid or is responsible for the price.
In a contract, there is always a reciprocal promise. Even in a contract of sale, both the buyer and the seller must perform their duties. And if the buyer does not pay the seller his due, the seller becomes an unpaid seller. This means such unpaid seller has some rights against the buyer. Let us see.
Rights of Unpaid Seller against Buyer
When the buyer of goods does not pay his dues to the seller, the seller becomes an unpaid seller. And now the seller has certain rights against the buyer. Such rights are the seller remedies against the breach of contract by the buyer. Such rights of the unpaid seller are additional to the rights against the goods he sold.
1) Suit for Price
Under the contract of sale if the property of the goods is already passed but he refuses to pay for the goods the seller becomes an unpaid seller. In such a case. The seller can sue the buyer for wrongfully refusing to pay him his due.
But say the sales contract says that the price will be paid at a later date irrespective of the delivery of goods, and on such a day the if the buyer refuses to pay, the unpaid seller may sue for the price of these goods. The actual delivery of the goods is not of importance according to the law.
2) Suit for Damages for Non-Acceptance
If the buyer wrongfully refuses or neglects to accept and pay the unpaid seller, the seller can sue the buyer for damages caused due to his non-acceptance of goods. Since the buyer refused to buy the goods without any just cause, the seller may face certain damages.
The measure of such damages is decided by the Section 73 of the Indian Contract Act 1872, which deals with damages and penalties. Take for example the case of seller A. He agrees to sell to B 100 liters of milk for a decided price. On the day, B refuses to accept the goods for no justifiable reason. A is not able to find another buyer and the milk goes bad. In such a case, A can sue B for damages.
3) Repudiation of Contract before Due Date
If the buyer repudiates the contract before the delivery date of the goods the seller can still sue for damages. Such a contract is considered as a rescinded contract, and so the seller can sue for breach of contract. This is covered in the Indian Contract Act and is known as Anticipatory Breach of Contract
4) Suit for Interest
If there is a specific agreement between the parties the seller can sue for the interest amount due to him from the buyer. This is when both parties have specifically agreed on the interest rate to be paid to seller from the date on which the payment becomes due.
But if the parties do not have such specific terms, still the court may award the seller with the interest amount due to him at a rate which it sees fit.
Remedies of Buyer against the Seller
Just as the seller can rescind the contract, then so can the seller. When the seller breaches the contract the buyer also has certain remedies against the seller. Let us take a look at some remedies that the Sales Act prescribes for the buyer.
1) Damages of Non-Delivery
If the seller wrongfully or neglectfully refuses to deliver the goods to the buyer, then the buyer can sue for non-delivery of the goods. According to Section 57 of the Sale of Goods Act, if the buyer faces losses due to the wrongful actions of the seller (non-delivery) he can sue for damages caused due to this.
Let’s take for example A whose agrees to sell to B 10 pair of shoes for 1000/- each. B was going to sell the same shoes to C for 1100/- a pair. A neglect to deliver the goods to B. Now, B can sue A for non-delivery. He can sue for the amount of 100/- per pair, i.e. 1000/- (the difference between B’s cost price and sale price)
2) Suit for Specific Performance
If the seller commits a breach of contract, the buyer can approach the court to ask the seller for specific performance. The court after deliberation can command the seller for specific performance. One important point to keep in mind is that this remedy is only available if the goods are ascertained or specific.
Example: There was a contract between A and B, that A will sell to B a very expensive painting on a specific date. On the said day A refuses to sell. B can approach the court, who orders A to sell the painting to B at the ascertained price.
3) Suit for Breach of Warranty
When the seller breaches the warranty of the goods, the buyer cannot simply reject the goods on such basis. The buyer has two options in such a case,
- Set up against the buyer the said breach of warranty in the extinction of the price
- or Sue the seller for breach of warranty
4) Repudiation of Contract
If the seller repudiates the contract, the buyer does not have to wait until the date of the contract. He can treat the contract as rescinded and sue for damages immediately. This will be an anticipatory breach of contract.
5) Sue for Interest
The Act specifically states that nothing in the act will affect the right of the seller or the buyer to recover interest or special damages due to him by the contract. And if there is no specific clause in the contract, the court can come to the rescue of the affected party.