The idea of a seller who has not been paid carries a lot of significance in any economic transaction. A vendor who has provided products or services to a customer but has not yet been paid is referred to as an unpaid seller. This circumstance may occur for a number of reasons, including financial instability, conflicts, or even the buyer’s own dishonest behaviour. Legal systems all around the world recognise and uphold the right to unpaid sellers in order to protect the interests of sellers and preserve the integrity of business transactions.
A vital legal tool that gives sellers a way to recoup their debts and safeguard their business interests is the right to unpaid sellers. The importance of the right to an unpaid seller is examined in this article along with how businesses may be affected. It goes into the right’s legal features, stressing the intent, reach, and various remedies open to unpaid sellers. It also looks at how crucial this right is in fostering trust, justice, and sustainability in business dealings.
The difficulties experienced by unpaid sellers and the remedies accessible to them will be illustrated throughout the text with reference to pertinent case studies, legal precedents, and real-world situations. It will also clarify how contracts, business regulations, and alternative dispute resolution procedures help to resolve payment issues and protect the interests of both parties involved in a transaction.
Who is an unpaid seller?
A vendor or supplier that has provided products or services to a customer but has not yet been paid is referred to as an unpaid seller. In other terms, it refers to a circumstance when the customer neglects to pay the vendor what they owe for the goods or services they obtained. Depending on the particulars of the transaction, the term “seller” may refer to a variety of individuals, businesses, manufacturers, wholesalers, or retailers. No matter the type or size of the vendor, if they have not received payment for the given goods or services, they are regarded as unpaid sellers.
Rights which are given to unpaid seller ?
A – Lien
When a buyer does not pay the price of the items, the seller of those things has a legal privilege known as a lien that allows the seller to maintain custody of the goods as the buyer’s agent or bailee. The following situations allow the seller to keep possession in accordance with Section 47:
1. If the buyer is bankrupt.
2. When the period for products purchased on credit has passed.
3. Products that are sold with no credit requirements.
When goods are sold on credit, the right to a lien is suspended for the duration of the credit and only the original purchase price of the items, excluding any additional costs, is subject to a lien.
In accordance with Section 48, the seller may use his right of lien on the remaining items if he has already delivered some of the unpaid goods. In Grice v. Richardson, the sellers of the three tea packets included in the sales had delivered a portion of them but had not received payment for the portion that remained with them. They were permitted to keep it until the price was paid. However, if a portion of the delivered items demonstrates a waiver of the lien, the seller cannot accept the remaining portion.
1- Waiver of lien-
When the seller loses ownership of the items, the lien expires. According to Section 49, the right of lien expires in the following situations:
Every contract of sale has an implied right of lien attached by law; nevertheless, the seller has the discretion to waive this right, which may be explicitly stated or inferred from the seller’s actions.
2. When the buyer or agent takes ownership of the goods legally.
All of the seller’s rights in relation to the products end once the buyer takes possession of them, even if the price is not paid. Because the buyer acquires a complete, unqualified, and irrevocable right to the goods upon acceptance of possession, the seller may recover the price as a standard debt. The seller is not permitted to exercise his right of lien when the products are returned to him for repair.
3. When the seller transfers ownership of the goods without reserving the right to dispose of them to a carrier or other bailee for the purpose of transmission to the buyer.
The seller’s right to a lien is terminated once the items have been given to the carrier for transmission, although he still has the option to halt delivery. If a standstill results in the seller regaining control of the items in transit, his entitlement to a lien is reinstated.
The commodities were delivered to the buyer’s shipping agent, who had already loaded them onto a ship, just like in Valpy V Gibson. However, the buyer fell insolvent while the products were still with the seller for repackaging, and since the seller was still owed money, the seller asserted that they were entitled to keep the goods in order to execute their lien. According to the ruling, the delivery to the shipping agent resulted in the loss of their lien. In contrast, the seller’s lien right lasts until the conclusion of the transit when he has reserved the right of disposal. And just when the seller gets a judgement for the cost of the items, that does not mean that he loses his right to a lien.
B. stoppage
The seller has the authority to stop the goods in transit when they have been given to a carrier or bailee with the intention of being delivered to an insolvent buyer in order to protect himself from potential losses. According to Section 50, stopping the goods in transit must meet four criteria:
1) Seller not compensated.
2) Buyer is bankrupt.
3) The property should be in motion.
The ability of the middleman to hold the commodities will determine how the things will travel. According to the decision in the case of Schotsmans v. Lancashire & Yorkshire Rly co., a middleman should act as an intermediary between the seller who has already parted with the goods and the buyer who has not yet received them.
The laws and regulations linked to the start and termination of the transit are laid forth in Section 5, which is further broken into seven sub-sections that address all related issues:
1. Delivery to the carrier: Goods are deemed to be in transit from the moment they are given to the carrier or other bailee with the intention of being transmitted to the buyer until the buyer or his representative accepts delivery of the goods.
For instance, the vendor entrusted the items with the GIP Ry Co in the case of Great Indian Peninsula v. Hanmandas so that they might be transported to the buyer. The items had already been given by the firm to the buyer upon arriving at the destination, who had loaded them into his cart; however, the cart had not yet departed the railway compound when the company received a telegraph ordering it to stop the goods.
The journey does not stop, however, if the buyer refuses to accept the delivery even after it has arrived at the intended location. In the case of James v. Griffin, this occurred when the buyer sent his son to have the goods landed at the port of destination in the River Thames but instructed him that due to his insolvency, he did not plan to receive the items and would like the seller to take them instead. When products were laying in this way, the vendor gave instructions to stop them. The goods were claimed by the bankruptcy trustee for the buyer. The products were said to still be in transit.
2. The transportation of the products is interrupted when the buyer or the agent accepts delivery of them from the carrier. This occurs even before they reach the designated destination.
Even though it is wrong and the carrier may be held liable for damages, the transit stops here if the products are delivered before the buyer arrives. In Lyons v. Honffnung, the purchaser assumes his position as a passenger on a ship that was transporting the goods. According to the court, this does not constitute delivery to the buyer prior to their presence at the designated location.
3. Acknowledgement to the buyer –. When the items arrive at the designated location and the carrier informs the buyer or his agent that he is now holding the goods on their behalf, the transit is said to have ended. Whether the gods are still in the ship or the customer has chosen a different destination is irrelevant. A very precise acknowledgment is necessary to terminate the original contract of carriage. A significant amount of timber was loaded onto the ship in the Whitehead v. Anderson case. The buyer declared bankruptcy when the ship got to its final destination. Informing the board that the buyer had arrived to take possession, the buyer’s agent entered. The captain responded that only after the goods is paid will he deliver. Before this could be done, the seller sent a stop notice and requested that the products be sent to the seller’s agent. According to the court, the carrier had every right to send the products back to the seller because the transit had not yet come to a conclusion. In exchange for a condition, the captain committed to deliver the items, and if that condition is not met.
4 The buyer rejects the goods, but the carrier or another bailee keeps them in their possession, the commodities are still considered to be in transit. This also applies to situations where the merchant declines to accept returned products.
5. Delivery to ship chartered by the buyer. It is debatable whether the carrier is operating on its own behalf or on behalf of the customer when the items are delivered to a ship that has been chartered by the latter. If the carrier is serving as the buyer’s agent, the transit is complete as soon as the items are loaded into the ship.
C. Resale
Without this right, the other two rights of lien and stoppage would not be very useful because he can only keep the goods under these rights until the buyer pays back the money. Exercising the right of lien or stoppage does not repudiate the agreement, but selling the goods does.
If the seller is not paid, he may use his right under the following conditions:
The buyer must be given one last chance to pay the price and return the products within a reasonable amount of time before the seller resells the goods, unless the commodities are perishable. vendor has the right to resell the items if the buyer does not reimburse the vendor for their money.
If there is a loss in the selling of the products, he may recover that loss from the buyer; if there is a profit, the buyer may not do so.
Regardless of whether the buyer in default has received notice of the resale or not, the seller transfers title to the buyer following the resale.
In some cases, if the customer defaults on a payment, the seller reserves the sole right to resell the items. In these situations, if no notice is given and the seller has the exclusive right to resell, the buyer cannot demand a profit on the sale.