Management Notes

Reference Notes for Management

Unpaid Seller – Rights and Duties of Unpaid Seller | Business Law

Unpaid Seller 

Those sellers who aren’t paid are unpaid sellers. The Seller of goods is deemed to be an unpaid seller when the Whole price hasn’t been paid; a conditional payment was made by bill of exchange, cheque and other negotiable instruments that have been dishonored. In short, when the seller doesn’t get cash value for his goods in time he becomes an unpaid seller. While in credit sale it takes time for the buyer Tor the payment of goods sold. In such cases, the seller isn’t called unpaid seller until the time-bound is crossed. Then after he 1s called unpaid seller.

Under section 54 of the Unpaid Seller Protection Act, a seller has right to reject a buyer’s offer and retake possession of the item. The buyer must make an offer within three days after receiving notice from the seller that the seller is rejecting their offer. If the buyer does not make an offer, then the seller may take back possession of the item.

For example, Krishna buys a motorbike from Hari on January 1, 2004, and promises to pay the cost of a motorbike on 31st  January 2004. In this example, up to 31st January 2004, Hari 1Sn t called unpaid seller then after he is called unpaid seller.

Features of Unpaid Seller

  • The whole or partial price is not paid on the due date by the buyer to the seller.
  • The buyer made payment in the form of a negotiable instrument (eg. cheque) and that negotiable instrument is dishonored.
  • Goods are sold on a cash basis and not paid by the buyer.
  • Goods are sold on a credit basis and not paid by the buyer within the stipulated time.
  • The seller must not refuse to accept the payment made by the buyer.

Rights of Unpaid Seller

1. Right to lien the goods until he receives the payment. An unpaid seller in possession of goods sold is entitled to exercise his lien on the goods in the following cases:

  • Where the goods have been sold without any stipulation as to credit
  • Where the goods have been sold on credit but the term of credit has expired.
  • Where the buyer becomes insolvent even though the period of credit may not have yet expired.

2. Right to terminate the contract of sale of goods after the cross reasonable time.

3. Before delivery of the goods to the buyer if seller knows that the buyer has become insolvent, he has the right to stop the goods in transit.

4. After the expiry of reasonable time the unpaid seller has the right to resell the goods to another.

5. He has the right to sue in court to recover the price and reasonable expenses in connection with a contract of sale of goods if the buyer refuses to pay even after the goods are delivered.

6. The right of resale is a very valuable right given to an unpaid seller. In the absence of this right the unpaid seller’s other rights against the goods namely “lien and “stoppage in transiť” would not have been of much use because these rights only entitled to retain the goods until paid by the buyer. If the buyer continues to remain in default then the unpaid sellers have the right to resale the goods. Unpaid seller has limited rights to resell the goods in the
following cases:

  • Where the goods are of a perishable nature.
  • Where such a right is expressly reserved in the contract in case the buyer should make a default continuously.
  • Where the seller has given notice to the buyer of his intention to resell and the buyer doesn’t’ t pay or tender the price within a reasonable time.

Duties of Unpaid Seller

  • To inform the buyer about the fact before he resells the same goods to another.
  • To claim reasonable and actual expenses from the buyer in case of buyer’s refusal. For example, as being an unpaid seller, if he/she suffers the loss of Rs. 500, the unpaid seller claim only Rs. 500,
  • The unpaid seller must get all the buying and selling activities on a good faith basis.

 

Unpaid Seller Quiz/Multiple Choice Questions (MCQs) 

The unpaid seller can exercise his right of lien over the goods for

A. price of goods
B. storage charges
C. any lawful charges
D. all of these
Answer» A. price of goods

Which of the following rights are available to the unpaid seller against the buyer

A. suit for price
B. suit for interest
C. suit for repudiation
D. all of these
Answer» D. all of these

An unpaid seller loses his right of lien in case of

A. delivery of goods to buyer
B. delivery of goods to carrier or wharfinger
C. tender of price by buyer
D. any of the above
Answer» D. any of the above

An unpaid seller can exercise his right of stoppage of goods in transit

A. by giving notice to the carrier
B. by taking actual possession of the goods
C. by notice of his claim to the bailee who is in possession of the goods
D. either (a) or (b) or (c)
Answer» D. either (a) or (b) or (c)

Which of the following is not the right of an unpaid seller under Sale of Goods Act, 1930:

A. Right of lien on goods for the price while the goods are in possession of seller.
B. Right of stopping the goods in transit, in case of insolvency of buyer
C. Right of resale as limited by the Act
D. Right of withholding delivery where the property in the goods has passed to the buyer
Answer» D. Right of withholding delivery where the property in the goods has passed to the buyer.

Right of stoppage in transit can be exercised by the Unpaid Seller, where the Buyer:

A. is solvent
B. becomes insolvent
C. acts fraudulently
D. acts smartly
Answer» B. becomes insolvent

The term ‘Unpaid Seller’ includes

A. Buyer’s agent to whom the Bill of Lading is endorsed.
B. Buyer’s agent to whom the goods have been delivered.
C. Seller’s agent to whom the Bill of Lading is endors
Answer» C. Seller’s agent to whom the Bill of Lading is endors

Unpaid seller can exercise his right of withholding delivery of goods

A. even when property in goods has passed to the buyer
B. only when property in goods has not passed to the buyer
C. either (A) or (B)
D. neither (A) nor (B)
Answer» A. even when property in goods has passed to the buyer

The Seller of Goods is deemed to be an Unpaid Seller when the…………of the price has not been paid ortendered.

A. Whole
B. part
C. substantial portion
D. minimal portion
Answer» A. Whole

Which of the following is not included in the term Unpaid Seller?

A. any person who is in the position of a Seller
B. a consignor or an agent who has himself paid, or is directly responsible for the price.
C. Buyer’s agent to whom the Bill of Lading is endorsed
D. Seller’s agent to whom the goods have been delivered
Answer» C. Buyer’s agent to whom the Bill of Lading is endorsed

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