India: Agreement To Sell: Rights Of An Unpaid Seller

In India, the law relating to the sale and purchase of goods has been codified in the Sale of Goods Act, 1930 ("Act"). The Act is an extension of and is complimentary to the Indian Contract Act, 1872. The basic provisions of the Indian Contract Act also apply to contracts of sale and purchase of goods. The essential requirements of a contract, viz., offer, acceptance, competence to contract, free and mutual consent, lawful object, lawful consideration, legally enforceable agreement, etc., apply to a contract of sale of goods also.

Any contract for the sale and purchase of goods is a contract of sale. Further, as per Section 4 of the Act, a contract of sale can be classified as:

Sale: Contract of sale is termed as a sale when seller agrees to transfer the property in goods to the buyer for a consideration. A transaction of sale is a composite transaction consisting of an agreement to sell, passing of title, delivery of goods, and payment of price, costs, and charges of transportation. 1 The essence of a sale is the transfer of the property in a thing from one person to another. 2

Agreement to Sell: A contract of sale is termed as an agreement to sell when the transfer of the property in the goods is to take place at a future time or subject to fulfillment of certain condition. An agreement to sell becomes a sale only when the property in the goods is transferred to the buyer under the contract itself.3

Thus, the essential feature that distinguishes a sale from an agreement to sell is that in a sale the property in the goods is transferred from the seller to the buyer immediately, whereas, in an agreement to sell, property is transferred on a future date. 4

Further, as per the act, a seller of goods, i.e. a person who sells or agrees to sell goods, is deemed to be an "Unpaid Seller" either when the whole of the price has not been paid or tendered; or when a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has not been fulfilled by reason of the dishonour of the instrument or otherwise.

An unpaid seller has been given certain rights and remedies under the Act. However, the rights and remedies available to an unpaid seller inevitably depends on whether the unpaid seller is a seller under a sale or an agreement to sell.

The rights of an unpaid seller in a sale have been clearly elaborated under Section 46(1) of the Act. An unpaid seller of goods, in a sale, by implication of law, has the following rights available to him:-

a lien on the goods for the price while he is in possession of them;
in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them;
a right of re-sale as limited by this Act.

In addition to the above, under Section 55(1) and 56 of the Act, an unpaid seller, in a sale, may sue the buyer, either for the price of the goods, unless he has exercised his right of re-sale, or for damages for non-acceptance.

However, the rights of an unpaid seller, in case of an agreement to sell have been a grey area.

It is settled law that lien in favor of the seller applies to cases where the properties in the goods have passed to the buyer, for a seller cannot be said to have a lien over his own goods. He can have a lien only on goods which have become the buyer's. It would be against all rules of construction to hold that a seller has a lien on the goods, which are his own, i.e. the property in which has not passed to the buyer. 5

Further, it is trite that the right of re-sale implies that the property in the goods has passed to the buyer.

Unless the property in the goods has passed to the buyer the seller cannot exercise any right of resale. 6

Thus, in an agreement to sell, where the property in the goods has not passed to the buyer, the sellers' most effective remedy is an action for non-acceptance. 7

Although, an unpaid seller, under an agreement to sell is not entitled to re-sell the goods, the seller would have a right to claim as damages the difference between the contract price and the market price on the date of the breach. Further, where there is no material on record to prove the market price of the contract goods on the date of the breach, price realized on re-sale can rightly be taken as an indicative of difference of market price of the suit machine on the date of breach of contract. 8

Further, Section 46(2) of the Act, in addition to "other remedies", entitles an unpaid seller, of an agreement to sell, to withhold delivery.

It is pertinent to highlight that the "other remedies" mentioned under Section 46(2) of the Act, have been understood to mean the remedies set out in Chapter VI (Suits for Breach of the Contract) of the Act. 9

Meaning thereby that in addition to the remedy provided to the unpaid seller in an agreement to sell, under Section 56 of the Act (damages for nonacceptance of goods), Section 55(2) of the Act provides that where under a contract of sale the property in the goods has not passed and the goods have not been appropriated to the contract, but under the contract the price is payable on a certain day irrespective of delivery the seller may sue the buyer for the price of the goods in case the buyer wrongfully neglects or refuses to pay such price.

Thus, in a contract of sale where the property in the goods passes from the buyer to the seller on a future date or upon happening of a certain event, and the buyer defaults in accepting the goods or making payment towards the price of the goods, as per the Act, the seller would have the following remedies:

Footnotes

^{1 R.C. Jal v. Union of India (1972) 3 SCC 470;}

^{2 State of Uttarakhand & Ors. V. Khurana Brothers AIR 2011 SC 224;}

^{3 Poppatlal Shah v. State of Madras AIR 1953 SC 274;}

^{4 State of Uttarakhand and Ors v. Khurana Brothers AIR 2011 SC 224;}

^{5 R.K. Abdul Rahiman Sahib and Co v. Shaw Wallace and Co AIR 1925 Mad 292;}

^{6 P.S.N.S. Ambalavana Chettiars & Co. Ltd. v. Express Newspapers Ltd. AIR 1968 SC 741;}

^{7 Section 56 of the Act: Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance;}

^{8 P.S.N.S. Ambalavana Chettiars & Co. Ltd. V. Express Newspapers Ltd. AIR 1968 SC 741, and National Small Industries Corporation Ltd. V. Ramchandra Raghunath Joshi 1994 (4) BomCR 598;}

^{9 Firm Bachhraj Amolakchand v. Firm Khupchand Narsingdas and Ors AIR 1949 Nag 199;}

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