DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW
2014-15

PROJECT

Law of Contracts II

TITLE OF PROJECT-

“Consider the operation of Unpaid Seller’s Right of Resale under

Section 54,Sales of Goods Act,1930. In Light of the other provisions
of the Act, what is the justification and rationale of Section 53 or is
this provision inconsistent with the rest of the Act,if so,why has it
been incorporated?”

Submitted to- Submitted by-

( ) ( )

Dr. Visalakshi Vegnesa Anshita Mani

Associate Professor (LAW) Roll no.-21

Dr. RMLNLU 3rd Semester

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 ACKNOWLEDGMENT

We would like to thank respected Dr. Visalakshi Vegnesa ma’am for giving us such a golden
opportunity to show our skills through this project. This project is a result of an extensive
research, study, hard work and labor that has been put into to make it worth reading. We wish
to acknowledge that in completing this project we had the full support of each other, of our
friends, our parents as well as our teacher. This project would not have been completed
without the help of our university’s library Dr. Madhu Limaye library and the university’s
internet.

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 TABLE OF CONTENTS

1) Introduction………………………………………………………………………….4-5

2) Chapter 1: Section 54 of Sales Of Goods Act,1930…………………………………6

3) Chapter 1.1: Unpaid seller’s right to resell…………………………………………..7

4) Chapter 1.2: Seller’s right to resell…………………………………………………...8

5) Chapter 1.3: Lawful Resale by the Seller……………………………………………..9

6) Chapter 1.4: Improper resale by the Seller…………………………………………….10

7) Chapter 1.5: Reasonable Time………………………………………………………...10

8) Chapter 1.6: Critical Analysis…………………………………………………………11

9) Chapter 2: Section 53 of Sales Of Goods Act, 1930…………………………………..12

10) Chapter 2.1: Buyer’s dealings for the goods does not affect Seller’s right…………..13

11) Chapter 2.2: Estoppel…………………………………………………………………13

12) Chapter 2.3: Transfer of the Bill of Lading…………………………………………..14

13) Chapter 2.4: Consideration…………………………………………………………...14

14) Chapter 2.5: Good Faith……………………………………………………………...14

15) Chapter 2.6: Case Laws………………………………………………………………15

16) Chapter 2.7: Critical Analysis………………………………………………………...16

17) Chapter 3: Conclusion………………………………………………………………..17

18) Chapter 4: Bibliography………………………………………………………………18

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 INTRODUCTION

UNPAID SELLER
An unpaid seller is one who not been paid or tendered the whole of the price or onewho
receives a bill of exchange or other negotiable instruments as conditional payment and the
condition on which it was received has not been fulfilled by reasons of thedishonor of the
instrument or otherwise.The term seller includes any person who is in the position of a seller,
for example, anagent of the seller to whom the bill of lading has been endorsed, or a
consignor or agentwho has him paid or is directly responsible for the price.A seller who has
been partly paid is also considered as an unpaid seller for part unpaid.Therefore, unpaid seller
is one who (i) has not received the whole of the price;(ii) he has received payment in the form
of bill of exchange or negotiable instrument which is dishonored.(1) When the whole of the
price has not been paid or tendered.(2) When a negotiable instrument or a bill of exchange
has been received as conditional payment and the condition in which it was received has not
been fulfilled by reason ofthe dishonor of the instrument or otherwise.The seller remains as
unpaid seller as long as any portion of the price, however small,remains unpaid. Where the
whole of price has been tendered, and the seller refused toaccept such a tender, seller ceases
to be an unpaid seller. In such a case the seller loses all high right against the goods.If there is
a period of credit then the seller is not unpaid until the price become due.Against if there is a
condition attached to payment it must be fulfilled.
The unpaid seller’s right can be exercised by an agent of the seller to whom the bill of
leading has been endorsed, or a consignor or an agent who has himself paid, or is directly
responsible for the price1.

OBJECTIVES
 The first main objective of it would be to emphasize on the operation of an unpaid
seller’s right for resale of goods.
 The project would secondly deal with the rationale and justiblity effect of sub-sale or
pledge by buyer.
 The important principals and heads would be explained with the help of relevant case
laws. These would be the basic principles of Rights of unpaid seller against the goods
as mentioned and explained in the Sales Of Goods Act,1930.

1
https://www.scribd.com/doc/242159508/Unpaid-Seller-Written. (Accessed on 14 Oct,2014)

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RESEARCH METHODOLOGY

The method of research used in this Project work is Doctrinal. Principles that have been
discussed are discussed with the help of relevant case laws and examples for better
understanding. Many books, internet sources and databases have been hovered to complete
and make this research effective.

RESEARCH QUESTIONS

 What would be the probable circumstances for resale by an Unpaid Seller?

 What would be the effect on Buyer if the Unpaid Seller sub-sales or resale by means
of pledge?
 How right of stoppage in Transit is effected by the Unpaid seller?
 When right of stoppage in transit is lost?

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 CHAPTER 1: SECTION 54 OF SALES OF GOODS ACT,1930

Sale not generally rescinded by lien or stoppage in transit.-

(1) Subject to the provisions of this section, a contract of sale is not rescinded by the mere
exercise by an unpaid seller of his right of lien or stoppage in transit.

(2) Where the goods are of a perishable nature, or where the unpaid seller who has exercised
his right of lien or stoppage in transit gives notices to the buyer of his intentions to re-sell, the
unpaid seller may, if the buyer does not within a reasonable time pay or tender the price,
resell the goods within a reasonable time and recover from the original buyer damages for
any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit
which may occur on the re-sale. If such notices is not given, the unpaid seller shall not be
entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-
sale.

(3) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells
the goods, the buyer acquires a good title thereto as against the original buyer,
notwithstanding that no notice of the re-sale has been given to the original buyer.

(4) Where the seller expressly reserves a right of re-sale in case the buyer should make
default,and on, the buyer making default, re-sells the goods, the original contract of sale is
thereby rescinded, but without prejudice to any claim which the seller may have for damages.

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 CHAPTER 1.1: RIGHTS OF AN UNPAID SELLER

The rights of an unpaid seller can be studied under two heads:1.) When the property in goods
has been passed to the buyer.2.) When the property in goods has not been passed to the
buyer.Section 46 (1) lays down that notwithstanding that the property in the goods may have
passed to the buyer, the unpaid seller of the goods, as such has by implication of law.(a) A
lien on the goods for the price he is in possession of them;(b) in case of insolvency of the
buyer , a right of stopping the goods in transit after hehas parted with the possession of
them.(c)a right of re-sale2.

RIGHTS AGAINST THE GOODS WHERE THE PROPERTY IN THE GOODS HAS
PASSED TO THE BUYER.

i. Right of Lien -- 'Lien is the right to retain possession of goods until certain charges in
respect thereof are paid. An unpaid seller who is in possession of the goods is entitled
to retain them until payment of the price, where --
a) The goods have been sold without any stipulation s to credit;
b) The goods have been sold on credit, but the term of credit has expired or
c) The buyer becomes insolvent.

Where the goods have been sold on credit, the right of lien shall remain suspended over the
period of credit and shall revive on the expiry of that period.

The right of lien is linked with possession of the goods and not with the title. It is not affected
even if the seller has transferred the documents of title till he remains in possession of the
goods. However, if the buyer has further transferred the documents of title to a bona fide
purchaser the seller's lien is defeated.

ii. Right of Stoppage in transit --The right of stoppage of goods in transit, arises to an
unpaid seller after he has parted with the possession of the goods. The seller has the
right to resume possession of the goods while they are in the course of transit and to
retain them until payment or tender of the price.

2
Ibid 2.

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The right of stoppage in transit is available to an unpaid seller, when the buyer becomes
insolvent and the goods are in transit.

The buyer is said to be 'insolvent' when he has ceased to pay his debts in the ordinary course
of business, or cannot pay his debts as they becomes due whether he has committed an act of
insolvency or not.

iii. Right of Resale -- The rights of lien and stoppage in transit, would not have been of
much value if he seller had no right to resell the goods, because the seller cannot
continue to hold the goods indefinitely. Section 54 provides an unpaid seller with a
limited right to resell the goods.

An unpaid seller may resell the goods --

1. When the goods are of perishable nature, without giving any notice to the buyer, of
the resale.

2. In case of other goods, when after giving a notice to the buyer of his intention to resell
the goods, the buyer does not pay the price within a reasonable time; and

3. Where the seller has expressly reserved the right of resale in the contract. No notice to
the buyer is required in that case3.

CHAPTER 1.2: THE SELLER’S RIGHT TO RESELL

The Supreme Court, in PSNS Ambalavana Chettiar n Co. n Ors v. Express Newspapera Ltd,
Bombay, has said that the statutory power for resale under s 54(2) arises if the property in the
goods has passed to the buyer, subject to the lien of the unpaid seller. Where the property in
the goods has not passed to the buyer, the seller has no right of resale. The seller can claim as
damages the difference between the contract price anh the amount realised on resale of the
goods where he has the right of resale under this section4. The unpaid seller, though in the

http://www.advocatekhoj.com/library/lawareas/saleofgoods/rightsagainst.php?Title=Sale%20of%20Goods&S
Title=Rights%20Against%20The%20Goods (Accessed on 15 Oct,2014)
4
PSNS Ambalavana Chettiar n Co. Ltd v Express Newspapers Ltd AIR 1968 SC 741; Ram Saran Das Raja Ram n
anor v. Lala Ramchander AIR 1968 Del 233; Kirorimal Kashiram v. BR Vekatachalapathy Chettiar AIR 1973 Mad
256.

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possession of the goods, does not have the right merely because he is unpaid, to resume a
complete right of property, so as to diverse totally the buyer’s right of prperty in the goods 5.
On the other hand, it has always been recognised that his right is something more than the
mere right to retain position until he is paid, that is to say, it exceeds a mere lien,and is a right
to interfere not only with the buyer’s right of possession but also his right of property in the
goods. The circumstances in which the seller may resell and in the method of dealing with the
position when the resale is lawful and when it is improper, Section 54(2) cannot be invoked if
notice of intention to resell is not served6.

CHAPTER 1.3: LAWFUL RESALE BY THE SELLER

In proving that the seller may,within the reasonable time,sell the perishable goods the Act
follows the Common Law7 and by enacting that he may in any case resell after reasonable
notice, if the buyer continues in default it adopts the suggestion made by the privy council in
18668. The right of resale is exercised by the seller on his own behalf and not as an agent of
the buyer when notice is given. The buyer is then not entitled for the profits of resale though
he may be liable for damages. The position is different when no notice is given and the buyer
is entitled for the profits of the resale and not liable for the damages9.
The fact that the buyer is liable to make good difference betwwn the contract price and the
pricr realised on the resale is the logical consequence of the rule that the original sale is not
rescinded bt the resale; and perhaps in enacting that if the resale results in a profit the buyer
shall not be entitled to the surplus, the Act is slightly less logical than Lord Blackburn, who
suggested that the surplua should belong to the buyer10. This point is not expressly dealt with
by the English Act, but it was in Gallagher v Shilcock decided that in such a case the buyer is
entitled to recover the surplus. As a result, the seller will not be accountable to the buyer for

5
He has still less to do so by retaking theem out of the buyer’s possession after delivery. This is an actionable
trespass and the buyer can recover the full value of the goods as damages, though it does not preclude the
seller from suing,or counter-claiming the price,for the tort of the seller does not rescind the contract; Stepens
v wilkinson (1831) 2 B & Ad 320.
6
Kanhaiyalal v Kasturchand AIR 1957 MB 168.
7
Maclean v Dunn (1828)4 Bing 722,29 RR 714.
8
Page v Cowasjee Eduljee LR 1 PC,p 145. Notice ought to be given also when the seller is claiming to resell
under an express term in the contract.
9
Dhanrajamal Gobindram v Shamji Kalidas n Co. AIR 1961 SC 1285.
10
Gallagher v Shilcock [1949] 1 All ER 921. Overruled in Ward(RV) Ltd. V Bignall [1967] 2 AllER 449 (CA). Under
the Indian Contracts Act 1872 the buyer was held entitled to the surplus; Pearey Lal Krishen Prased v Dev
Karan Das AIR 1930 All 886.

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any profit above the original contract price drived from resale. This position was made
explicit in s 54(2).

CHAPTER 1.4: IMPROPER RESALE BY THE SELLER

At common law if the seller resold without justification, even though the buyer was at default
at the time of the sale, he was liable to be sued in an action of trover:and the measure of
damages was normally the full value of the goods. In case of resale of this kind, however, the
courts determined that the buyer could only recover the value of the goods less the unpaid
purchase price, i.e., the actual loss that he had suffered11.

CHAPTER 1.5: REASONABLE TIME

The provision as to reasonable time, which is a question of fact, must of course be observed.
Thus, it was held that a resale was not valid where it was hurried on an unusual manner
without Advertisement.12 Again if a seller, elects to resell, he must do so within a reasonable
time from the date on which the contract was finally repudiated by the buyer as undue
hardship might otherwise be caused to the buyer, for a seller may with deliberate intention of
causing loss to the buyer, delay the the resale until the market has fallen, and then resale the
property, causing the buyer loss which might not have sustained had the resale taken place
within a reasonable time from the date of the breach.

11
This was the rule even if the resale was wholly tortuous and the buyer was not in default at all. Eg. If the
goods had been sold to him on credit; Chinery v Viall (1860) 5 H&N 288.
12
Buhanan v Avdall (1875) 15 BLR 276.

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 CHAPTER 1.6: CRITICAL ANALYSIS

When the unpaid seller has exercised his rights of lien on his retaining the possession of the
goods or resumes possession of the goods by exercising his rights of stoppage intra n sit upon
insolvency of the buyer, he can re-sell the goods under the following circumstances:(1)
Where the goods are of perishable nature;(2) Where the seller gives notice to the buyers of
his intension to re-sell the goods (no notice is necessary in case of perishable goods) and
buyer does not pay or tender with in a reasonable time after the notice;(3) Where the seller
has expressly reserved his rights of re sale in case the buyer makes default. The seller can
hold the buyer responsible for loss suffered due it breach of contract .if on resale the unpaid
seller receives any profits and his had to given notice to the buyer of re-sale the unpaid seller
so entitled to retain the profits. However, when the unpaid seller has not given notice to the
buyer, then his is loses his right to recover damages from the buyers and also had trod pay
the profits to the buyers arising from re-sale. It’s however in a resale there is loss to the seller
he can claim it from the buyer as damages for the breach of contract. No notice is necessary
where the seller has expressly reserved the rights of re-sale in the case of the price is not paid.
The purchaser from the unpaid seller gets an absolute and goods title to the goods as against
the original buyer, even if the seller had filed to give notice to the buyers of his intension of
re-sale. The goods once again become the property of the seller and the unpaid seller affects
afresh sale as on original owner of the goods. The damages which the seller can claim are the
different between the contract price and the market price as the date of the breach.

According to the 8th Report of the Law Commission Of India, it has been suggested that
the following be inserted as sub-section(5) in section 54:
“ The seller is bound to exercise reasonable care and judgement in making a resale and
subject to this requirement he may make a resale either by public or private sale.”
This suggestion appears to be based on section 60(5) of the Uniform Sales Act of the United
States referred to earlier. The principle contained in this suggested sub-section has already
been applied by Indian decisions and not in our view implicit on section 5413.

13
http://lawcommissionofindia.nic.in/1-50/report8.pdf (Accessed on 15 Oct,2014).

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 CHAPTER 2: SECTION 53 OF SALES OF GOODS ACT,1930

Effect to sub-sale or pledge by buyer.-

(1) Subject to the provisions of this Act, the unpaid seller’s right of lien or stoppage in transit
is not affected by any sale or other disposition of the goods which the buyer may have made,
unless the seller has assented thereto.
Provided that where a document of title to goods has been issued or lawfully transferred to
any person as buyer or owner of the goods, and that person transfers the document to a person
who takes the document in good faith and for consideration, then, if such last mentioned
transfer was by way of sale, the unpaid seller’s right of lien of stoppage in transit is defeated,
and, if such last mentioned transfer was by way of pledge or other disposition for value, the
unpaid seller’s right of lien or stoppage in transit can only be exercised subject to the rights of
the transferee.
(2) Where the transfer is by way of pledge, the unpaid seller may require the pledge to have
the amount secured by the pledge satisfied in the first instance, as far as possible, out of any
other goods or securities of the buyer in the hands of the pledge and available against the
buyer14.

14
http://comtax.up.nic.in/Miscellaneous%20Act/the-sale-of-goods-act-1930.pdf (Accessed on 15 Oct,2014).

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 CHAPTER 2.1: BUYER’S DEALING WITH THE GOODS DOES NOT
AFFECT SELLER’S RIGHTS
Section 53 is not only the section of the Act which sets out circumstances in which the right
of lien or stoppage in transit may be defeated by a sub-sale or a subsequent transaction. The
expression ‘subject to provisions of this Act’ has reference to s 30(2) (on the sale and
delivery to the third party by abuyer in possession) and to s 62 (express agreement of the
parties) as also to proviso to s 53(1) (transfer by way of sale of document of title to goods to a
person taking in good and for consideration)15. Lord Blackburn thus stated the rule:

“A purchaser who has acquired ownership ‘may sell the goods subject to the first vendor’s
rights, and if he does so, the property is transferred to the second purchaser by the second
bargain and sale without any delivery of possession. But though the second purchaser
acquires by his bargain and sale the legal property in the goods and every right in which his
immediate bargainer had in the goods, yet he acquires no greater right”16.

CHAPTER 2.2: ESTOPPEL

The original seller recognizes the title of a subsequent buyer without reserving his own rights,
he is stopped from claiming a lien17; and a sub-sale may even take effect by way of
estoppels,notwithstanding that no specific goods had been appropriated as between the seller
and the first buyer though this may be more difficult to establish than it is when the goods are
specific. The assent of sub-sale, however, as to effect the seller’s right of lien must be an
assent as in the circumstances shows that the seller intends to renounce his rights against the
goods.

15
Cahn and Mayer v Pockett’s Bristol Channel Stream Packet Co Ltd [1899] 1 QB 643,p 645-646.
16
Blackburn on Sale, third edn, pp 418-9.
17
Knight v Wiffen [1870] LR 5 QB 660.

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 CHAPTER 2.3: TRANSFER OF THE BILL OF LADING

The unpaid seller’s right to stop the goods in transit is defeated by the transfer of the bill of
lading to a third party, who takes it in good faith and for valuable consideration. Where the
defeated; where it operates as a pledge or mortgage of the goods, the seller has still the rights
to stop all the property which remains in the buyer but it cannot be exercised as to effect the
interests of the transferee.

The case of Re Weatzinthus18, has been affirmed in Spalding v Ruding19. Transfer of all bill
of lading may operate as transfer of constructive possession of the goods even though the
property in goods has already passed to the transferee.

CHAPTER 2.4: CONSIDERATION

As regards the Consideration, the proviso includes the case of a transfer of the bill of lading
to a second buyer where the sale is on credit and the term of credit has not expired, for a
solvent buyer’s promise is certainly a valuable consideration, and insolvency is not to
presumed.

CHAPTER 2.5: GOOD FAITH

Good Faith in this context means absence of notice of such circumstances as render the bill of
lading not fairly and honestly assignable, eg, that the buyer is insolvent. Knowledge that the
goods are still unpaid for does not constitute bad faith20.

18
(1833) 5 B&Ad 817, 39 RR 665.
19
(1843) 6 Beav 376,63 RR 120.
20
Cuming v Brown (1808)9 East 506.

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 CHAPTER 2.6: CASE LAWS

1) Mordaunt Brothers v The British Oil and Cake Mills Ltd [1910] 2 KB 502.

The defendants sold a quantity of oil to some merchants, who resold a portion to the
plaintiffs, giving them delivery orders addressed to the defendants requiring the latter to
deliver to the plaintiffs ‘ex-our contract’. The defendants retained the orders when presented,
and either made no comments when doing so, or told the plaintiffs that they were in order,
and entered the plaintiffs’ manes in their books. The merchants at first kept up their payments
to the defendants and the latter duly delivered the oil to the plaintiffs. Later the merchants fell
into arrearswith their payments and the defendants, claiming to exercise their right of lien,
refused to make further deliveries to the plaintiffs. It was held, that defendants were entitled
to do so.

2) Knights v Wiffen [1870] LR 5 QB 660.

A sells B 80 maunds of grain out of a larger quantity lying in his granary. B sells 60 maunds
out of those, the goods not yet being ascertained, to C. Then C having a delivery order from
B forwards it to A,who informs C that he will send the grain in due course. If B now becomes
insolvent, A cannot refuse to deliver the 60 maunds of grain to C, though he may retain the
remaining 20 against B.

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 CHAPTER 2.7: CRITICAL ANALYSIS

When the buyer has transferred the documents of title to a bonafide purchaser, the seller’s lien is
defeated (Sec. 53).
“Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to
his other remedies, a right of withholding delivery similar to and coextensive with his rights of
lien and stoppage in transit where the property has passed to the buyer.”
This right of lien can be exercised only for the non-payment of the price and not for any other
charges, i.e., maintenance or custody charges, which the seller may have to incur for storing the
goods in exercise of his lien for the price. This right of lien extends to the whole of the goods in
his possession even though part payment for those goods has already been made. In other words
the buyer is not entitled to claim delivery of a portion of the goods on payment of a
proportionate price. Further, where an unpaid seller has made part delivery of the goods, he may
exercise his right of lien on the remainder, unless such part delivery has been made under such
circumstances as to show an agreement to waive the lien (Sec. 48). Also, the lien can be exercised
even though the seller has obtained a ‘decree’ for the price of the goods [Sec. 49(2)].
When lien is lost? As already observed, lien depends on physical possession of goods. Once the
possession is lost, the lien is also lost. Section 49 accordingly provides that the unpaid seller of
goods loses his lien thereon in the following cases:
(a) When he delivers the goods to a carrier or other beilee for the purpose of transmission to the
buyer without reserving the right of disposal of the goods; or
(b) When the buyer or his agent lawfully obtains possession of the goods; or
(c) When the seller expressly or impliedly waives his right of lien. An implied waiver takes
place when the seller grants fresh term of credit or allows the buyer to accept a bill of
exchange payable at a future date or assents to a sub-sale which the buyer may have made.

It may be noted that right of lien, if once lost, will not revive if the buyer redelivers the goods
to the seller for any particular purpose. Thus, where a refrigerator after being sold was
delivered to the buyer and since it was not functioning properly, the buyer delivered back the
same to the seller for repairs, it was held that the seller could not exercise his lien over the
refrigerator ( Eduljee vs John Bros.)21.

21
http://mercantilelaws.blogspot.in/2012/05/rights-of-unpaid-seller.html (Accessed on 16 Oct,2014).

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 CHAPTER 3: CONCLUSION

When delivery is made by the seller, and acceptances made by the buyer,the contract of sale
is complete in so far as executing the sale is concerned, but there may be nevertheless,
outstanding rights in either party. The right to enforce payment by the seller, where payment
was not a condition precedent to passing the title, and the right in the buyer to hold the seller
for delay in delivering the goods, where there is no express waiver of damage shown by the
buyer, or where the circumstances of acceptance do not show an intention to waive damages
of delay by accepting the goods. An acceptance under compulsion, would not thereby waive
damages suffered by reason of delay. Acceptance of the goods does not ordinarily conclude
the buyer, as to a warranty made in reference to the goods, but if by the terms of the contract
of sale acceptance is to conclude the buyer on this point, the contract governs. The contract
may also properly provide that notice be given to the seller of any defects in the goods sold,
within a reasonable time and the effect of the retention of the goods beyond that time, without
notice or complaint, would be to deprive the purchaser of relief22.

22
https://www.scribd.com/doc/242159508/Unpaid-Seller-Written (Accessed on 15 Oct,2014).

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 CHAPTER 4: BIBLIOGRAPHY

BOOKS:

1) Pollock and Mulla: The Sales of Goods Act, LexisNexis, New Delhi, 2008.

2) G.C.V. Subba Rao: Law of Contract, S.Gogia & Co., Hyderabad 1995.

3) T.S.Venkatesa Iyer: Law of Contract, revised by Dr. Krishnama Chary, S. Gogia & Co.

WEBSITES:

i. www.businessdictionary.com
ii. agency.uslegal.com
iii. www.eaa.org.hk
iv. www.merriamwebster.com
v. www.kayandanderson.com
vi. www.lawcommissionofindia.gov.in

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