JAMIA MILLIA

ISLAMIA

ASSIGNMENT ON
LAW OF CONTRACT
SUBMITTED TO- DR. EQBAL HUSSAIN

SUBMITTED BY-SUSHANT NAIN(SEC-A)

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INDIAN SALES OF
GOODS ACT, 1930

RIGHTS OF AN
UNPAID SELLER
AGAINST THE
GOODS

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ACKNOWLEDGEMENT
First and foremost, I express my deepest gratitude to Dr. Eqbal hussain,
Professor, Faculty of Law, Jamia Millia Islamia, for helping me with the
basics and technicalities of the Indian Sales of Good Act, 1932. He has
always been a source of inspiration for all the students. After him, I take
this opportunity to thank my parents, who have constantly supported me
with my efforts. I have been blessed with very kind parents who have
always shown me the right path. I would also like to thank my seniors,
friends and relatives for their cooperation. I hope you will enjoy going
through this project.

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 INDEX
1. INTRODUCTION
2. UNPAID SELLER
3. UNPAID SELLER’S RIGHTS
4. LIEN
 SECTION 47
 LIEN AND PART DELIVERY
 TERMINATION OF LIEN
5. STOPPAGE IN TRANSIT
 SECTION 50
 DURATION OF TRANSIT
 WHEN TRANSIT COMES TO AN END
 EFFECT OF PART DELIVERY
 EFFECT OF REJECTION OF GOODS BY THE BUYER
 HOW THE RIGHT IS EXERCISED
6. RE-SALE
 NOTICE OF RE-SALE
 LOSS OR PROFIT ON RE-SALE
 MEASURE OF DAMAGES ON RE-SALE
 WHEN IS THE RE-SALE PROPERLY MADE
 TITLE OF THE NEW BUYER
7. BIBLIOGRAPHY

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 INTRODUCTION

It has been observed that the seller and the buyer are bound to perform
certain duties. Broadly speaking, the seller’s duty is to deliver the goods and
the buyer’s duty is to accept and to pay for them, in accordance with the
contract. If either party does not perform his duty in a proper way, he can be
made liable. In case the buyer does not accept to pay for the goods, the unpaid
seller, apart from having the right to sue the buyer for the breach of the
contract, can exercise the following rights against the goods:

1. Lien

2. Stoppage in transit

3. Re-sale

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 UNPAID SELLER
It may be noted that the rights against the goods can be exercised only by an unpaid
seller as defined in
Section 45 in The Sale Of Goods Act, 1930
45. " Unpaid seller" defined.-
(1) the seller of goods is deemed to be an" unpaid seller" within the meaning of this
Act-
(a) When the whole of the price has not been paid or tendered;
(b) 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.
(2) In this Chapter, the term" seller" includes any person who is in the position of a
seller, as, for instance, an agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself paid, or is directly responsible for,
the price.

An unpaid seller is a person to whom the whole of the price has not been paid or
tendered, or if the price was paid through a bill of exchange or other negotiable
instrument, the same has been dishonoured. If the negotiable instrument had been
received as a conditional payment, i.e., subject to the realisation thereof, and the
condition cannot be fulfilled if the same has been dishonoured, the seller is deemed
to be an unpaid seller. If the payment rather than conditional one the seller is not an
unpaid seller even through the negotiable instrument is subsequently dishonoured.

A seller is an unpaid one when the whole of the price has not been paid to him. It
means that when only a part of the price has been paid (and not the whole of it) the
seller is an unpaid seller. It may also be noted that a person is an unpaid seller to
whom neither the whole price has been paid nor the same has been tendered. If the
price has been tendered by the buyer but the seller has wrongfully refused to take
the same, he is not an unpaid seller.

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 UNPAID SELLER’S
RIGHTS
Notwithstanding that the property in the goods may have passed to the
buyer, the unpaid seller can exercise the following rights against the
goods-

 A lien on the goods for the same price while he is in the possession
of them (Sections. 47-49)
 A right of stopping the goods in transit, while the goods are in a
transit and the buyer has become insolvent (Sections. 50-52)
 A right of re-sale of the goods (Section. 54).

Even if the property in the goods has not been passed to the buyer, the unpaid
seller has right of withholding delivery of the goods and this right would be
similar to and co-extensive with the right of the lien or stoppage in transit
where the property has passed to the buyer.

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 LIEN
The right of lien is one of the rights against the goods which the unpaid seller can exercise.
Lien means retaining the goods or refusing to deliver them until the price in respect of them
has been paid by the buyer. By way of exercise of this right the seller can refuse to deliver
the goods to the buyer until the payment of the price even through the ownership in the
goods has already passed to the buyer. By a mere exercise of this right, the contract of sale
of goods is not automatically rescinded.

Section 47 in The Sale Of Goods Act, 1930

47. Seller’s lien.-

(1) Subject. to the provisions of this Act, the unpaid seller of goods who is in possession of
them is entitled to retain possession of them until payment or tender of the price in the
following cases, namely:-

(a) Where the goods have been sold without any stipulation as to credit;

(b) Where the goods have been sold on credit, but the term of credit has expired;

(c) Where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding that he is in possession of the
goods as agent or bailee for the buyer.

(1) When the goods have been sold without any stipulation as to credit, i.e., the sale of the
goods has been on cash basis. It has already been observed under section 32 that if there is
no agreement to the contrary, the payment of the price and the delivery of the goods are
concurrent conditions. It means that if the goods have not been sold on credit, the seller
expects that the buyer shall pay the price against the goods. The seller can refuse to deliver
them to the buyer, or in other words, he can exercise the right of lien over the goods, if the
buyer is not ready and willing to pay the price in exchange for the goods. The position in
this regard has been thus stated by Bayley B:

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 “the general rule of law is, where is a sale of goods, and nothing is specified as to the
delivery or payment, although everything may have been done so as to divest the property
out of the vendor, and as to throw upon the vendee all risk attendant upon the goods, still
there results to the vendor out of the original contract a right to retain the goods until
payment of the price.”

(2) When the goods have been sold on credit, the seller can exercise the right of lien on the
expiry of the period of credit. As soon as period of credit expires the price becomes due and
the seller can exercise the right of lien thereafter. Even though originally the seller had
agreed to sell them on credit but now since the price has become payable because of the
expiry of the period of credit, the seller can refuse to part with the goods until he is paid for
them. For example, on 1st January, A sells a horse to B, the buyer having a right to take the
delivery at any time he likes and the price is payable on 1st March. If the buyer has not
taken the delivery of the horse by 1st March and he demands the delivery after this date, the
seller can refuse to part with the horse until the buyer pays for them.

(3) The seller can also exercise the right of lien when, before the delivery of the goods to
him, the buyer becomes insolvent. Even though the seller had sold the goods on credit and
the period of credit has not yet expired but the buyer has become insolvent, the seller’s right
of lien can be exercised. When the goods are sold on credit, the presumption is that the
buyer shall maintain his solvency. If that condition can no more be satisfied, the seller is
entitled to the exercise of this right.

The lien is a right to retain the possession. It is, therefore, necessary that the seller is still in
possession of the goods. Transfer of title does not affect the exercise of this right, rather it is
a right which is exercised after the property in the goods has passed to the buyer. If the
seller has handed the delivery order to the buyer but the buyer has not yet got the delivery,
actual or constructive, the seller may exercise the right of lien. It is, however, necessary that
the transfer of the delivery order to the buyer should not have been made under the
circumstances as to show that the seller had waived his right of lien. If the delivery order is

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transferred to the buyer under the circumstances which indicate the waiver of the lien, the
right comes to an end.

The basis of the right is the non-payment of the price and therefore if the buyer is willing to
pay the price, there is no question of exercise of the right of lien. If the buyer pays the price,
the right of lien which might have existed earlier is terminated. It may, however, be noted
that the right of lien is a right which can be exercised only for the non-payment of the
price. If some other charges, for example, the warehouse charges, are due to the seller, he
cannot exercise the right of lien. For the recovery of such charges, the seller’s only remedy
is a personal action against the buyer.

Lien and Part Delivery.-

Section 48 in The Sale Of Goods Act, 1930

48. Part delivery.- 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.

According to section 48, if the seller has delivered part of the goods, he can exercise the
right of lien over the remainder unless the part delivery was made under such
circumstances as to show that he has waived the right of lien. Sometimes delivery of a part
may operate as delivery of the whole and in such a case, it may be presumed that the seller
has waived his right of lien over the goods which have not yet been delivered. Whether
such waiver is there or not depends upon the question, whether the parties intended to
separate the part delivered from the remainder or not. If, for example, out of 100 bags of
wheat which were to be supplied by the seller to the buyer, 20 have already been delivered
to the buyer, the seller may exercise the right of lien over the other 80 bags. If, however the
buyer gets the whole of the goods weighed but takes away only a part of them, the delivery
of the part of the goods in such a case would operate as delivery of the whole and the
seller’s right of lien over the remaining goods would come to an end. Similarly, if an
essential part of the machinery has been delivered by the seller to the buyer, the seller
cannot exercise his right of lien over the remaining parts.

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TERMINATION OF LIEN
Section 47 in The Sale Of Goods Act, 1930

47. Seller’s lien.-

(1) Subject. to the provisions of this Act, the unpaid seller of goods who is in possession of
them is entitled to retain possession of them until payment or tender of the price in the
following cases, namely:-

(a) Where the goods have been sold without any stipulation as to credit;

(b) Where the goods have been sold on credit, but the term of credit has expired;

(c) Where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding that he is in possession of the
goods as agent or bailee for the buyer.

The unpaid seller’s right to lien may be lost in any of the following ways:

(1) By payment of price- the right of lien comes to an end when the seller ceases to be an
unpaid seller, i.e., when the buyer pays or tenders the price to the seller. It has been
noted under section 47(1) that the unpaid seller is entitled to exercise his right on lien
until payment of tender of the price in respect of certain goods , the payment or tender
of the price , therefore , terminates the seller’s right to retain the goods. Merely
obtaining the decree does not mean the payment of the price and, therefore, section
49(2) states that an unpaid seller, having a lien on the goods, does not lose his lien by
reason only that he has obtained a decree for the price of the goods.

Section 49 in The Sale Of Goods Act, 1930

49. Termination of lien.-

(1) The unpaid seller of goods loses his lien thereon-

(a) When he delivers the goods to a carrier or other bailee for the purpose of transmission
to the buyer without reserving the right of disposal of the goods;

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(b) When the buyer or his agent lawfully obtains possession of the goods;

(c) By waiver thereof.

(2) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only
that he has obtained a decree for the price of the goods.

(2) By delivery to the carrier- since a right of lien is right to retain possession so long as
the seller continues in possession, the right would obviously come to an end when the seller
loses the possession. The seller loses the possession when he delivers the goods to the carrier
or other bailee for the purpose of transmission to the buyer without reserving the right of
disposal of goods. It may be noted that the right of lien continues so long as the unpaid
seller retains the possession and comes to an end as soon as the delivery of the goods is
made to the carrier or some other bailee as stated above, whereas the right of stoppage in
transit begins when the seller parts with the possession of the goods by delivering them to a
carrier or some other bailee for the purpose of transmission to the buyer. Thus, delivery of
the goods to a carrier or other bailee for the purpose of transmission to the buyer results in
end of lien.

(3) By the buyer obtaining possession of the goods- when the buyer or his agent lawfully
obtains the possession of the goods the right of lien comes to an end. If the buyer, at the time
of the contract of sale, is already in the possession of the goods, although as a bailee or a
seller, the seller cannot exercise his right of lien in respect of those goods. If the buy once
obtains the possession, the right of lien comes to an end, and such a right cannot be
exercised even if the seller again gets back the possession of those goods. Thus, in Eduljee v.
Café John Bros., AIR 1943 Nag 249 , where a refrigerator after being sold was delivered to
the buyer and since it was not functioning properly, the buyer delivered two of its parts to
the seller for repairs, it was held that the seller could not exercise his right of lien over those
parts.

(4) By waiver- unpaid seller’s right of lien is also lost by waiver thereof. According to
section 46(1) (a), an unpaid seller gets his right of lien by implication of law. A party to a
contract may waive his rights, expressly or implied, according to section 62. Section
49(1)(c) expressly provides that the right to lien comes to an end by a waiver thereof. Such

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a waiver may be presumed when the seller allows a period of credit to the buyer, or delivers
a part of the goods to the buyer or his agent under the circumstances which show that he
does not want to exercise his right of lien, or, when the seller assents to a sub-sale which
the buyer may have made.

(5) By Disposition of the goods by the buyer- according to section 53, the unpaid seller’s
right of lien or stoppage in transit is not affected by any sale or other disposition of the
goods by the buyer. This general rule is subject to two exceptions:

(i) When the seller himself assents to a sub-sale or other disposition of the goods by the
buyer;

(ii) When the buyer having lawfully obtained possession of document of title to the
goods transfers the same to a transferee in god faith and for consideration and the transfer
is by way of sale.

(6) Unpaid seller’s lien on goods- the counsel for the appellants during the course of his
arguments in High Court strongly urged that the appellants are shown to be unpaid seller,
in exercise of their right of lien under section 46 and 47 of the Act, they are entitled to
return of the goods. From section 46(1)(a), it is seen that notwithstanding that the property
in the goods has passed to the buyer, the unpaid seller of goods has, as such, by implication
of law, a lien on the goods for the price while he is in possession of them. The unpaid seller
has the right to detain the goods in his custody until the whole of the price is paid.

STOPPAGE IN TRANSIT
It is one of the rights which, as already mentioned, an unpaid seller can exercise against the
goods. This right means that when the goods have already been delivered to the carrier for
being transmitted to the buyer, the carrier at the seller’s request is to deliver the goods back
to the seller and not deliver to the buyer even though the buyer might have got the
possession of document of title to the goods. Under such a right, therefore, the unpaid seller
regains the possession of the goods after they had once been delivered to a carrier for the
purpose of transmission of the buyer. The exercise of this right according to section 54(1),

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does not result in the rescission of the contract or revesting of the property in the goods in
the seller. It only means that the seller after getting back the goods from the carrier as a
right to retain them until the buyer pays for them. If the buyer still fails to pay, the unpaid
seller may even resell the goods.

For the purpose of exercise of this right, the following conditions are to be satisfied:-

1. Seller should be an unpaid seller as defined in section 45.

2. The buyer should be insolvent within the meaning of section 2(8), i.e., a person who
has ceased to pay his debts in the ordinary course of his business, or cannot pay his
debts as they become due, whether he has committed an act of insolvency or not.
3. The goods should be in transit.

The goods are in transit from the moment they are delivered to the carrier for the purpose
of transmission to the buyer. It is, however, necessary that the carrier must have got the
possession of the goods in his capacity as a carrier. This might take the goods for
transmission in carrier to different capacities:

 The may be the buyer’s agent. When the possession has been received by the carrier
as the buyer’s agent, there is no question of exercise of the right of stoppage in
transit because when the buyer or his agent has got the possession if the goods, the
seller cannot exercise any right in respect of them;
 The carrier may be the seller’s agent. If the carrier is the seller’s agent then the seller
is himself deemed to be in constructive possession of the goods and he can exercise
even the right of lien in respect of them;
 The carrier may be neither the buyer’s agent nor the seller’s agent but may be
holding the goods as a carrier. If he is in possession of the goods in that capacity
then the right of stoppage in transit can be exercised by the seller.

Duration of transit-

The right of stoppage in transit can be exercised so long as the goods are in transit. It
becomes important, therefore, to know the duration of transit, i.e., when the transit begins
and when it comes to an end. Section 51 provides rules regarding the same.

Section 51 in The Sale Of Goods Act, 1930

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51. Duration of transit.-

(1) Goods are deemed to be in course of transit from the time when they are delivered to a
carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his
agent in that behalf takes delivery of them from such carrier or other bailee.

(2) If the buyer or his agent in that behalf obtains delivery of the goods before their arrival
at the appointed destination, the transit is at an end.

(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods on his behalf and continues
in possession of them as bailee for the buyer or his agent, the transit is at an end and it is
immaterial that a further destination for the goods may have been indicated by the buyer.

(4) If the goods are rejected by the buyer and the carrier or other bailee continues in
possession of them, the transit is not deemed to be at an end, even if the seller has refused to
receive them back.

(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on
the circumstances of the particular case, whether they are in the possession of the master as
a carrier or as agent of the buyer.

(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or
his agent in that behalf, the transit is deemed to be at an end.

(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf,
the remainder of the goods may be stopped in transit, unless such part delivery has been
given in such circumstances as to show an agreement to give up possession of the whole of
the goods.

According to sub-section 1, the goods are deemed to be in transit when they are delivered to
the carrier or the bailee for the purpose of transmission to the buyer. The transit continues
until the buyer or his agent in that behalf take the delivery of them from such carrier or
bailee. It means that so long as the goods are with a carrier, the transit continues.

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Schotmans v. Lancashire & Yorkshire Ry. Co.

There was a delivery of the goods by the seller on board a ship belonging to the buyer. The
bill of lading was also taken in buyer’s order. It was held that in this case it amounted to the
delivery of the goods to the buyer so that the seller was precluded from exercising his right
in stoppage in transit. The essential feature of stoppage in transitus, as has been remarked in
many of the cases, is that the goods should be at the time in possession of a middleman, or of
some person intervening between the vendor, who has parted with and the purchaser, who
has not yet received them. It was suggested here that the master of the ship is the servant of
the owner; and if the master would be liable because of the delivery of goods to him, the
same delivery would be delivery to the owner, because delivery to the agent is delivery to
the principal.

Turner v. The Trustee of Liverpool Docks

The cargo of cotton was put on a board of the vessel belonging to the buyers, but the goods
were made deliverable to the sellers or their order. Patterson J. giving judgement of the
court observed that “there is no doubt that the delivery to him, unless the vendor protects
himself by special terms, restraining the effect of such delivery. In the present case, the
vendors, by the terms of the bill of lading, made the cotton deliverable at Liverpool, to their
order or assigns, and there was not therefore, a delivery of the cotton to the purchasers as
owners, although there was a delivery on board their ship. The vendor still reserved to
themselves, at the time of the delivery to the Captain, the jus disponendi of the goods, which
he by signing to the bill of lading acknowledged.”

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 WHEN TRANSIT COMES TO AN END
(1) When the buyer takes delivery- according to section 51, sub-section (1) , the goods are
deemed to be in transit from the time they are delivered to the carrier or other bailee
for the purpose of transmission to the buyer, until the buyer or his agent in that behalf
takes delivery of them from such carrier or other bailee. When the buyer or his agent
takes actual possession of the goods, the right of stoppage comes to an end.
(2) When the carrier or the other bailee acknowledges to the buyer- according to section
51, sub-section (3), if, after the arrival of the goods at the appointed designation, the
carrier or other bailee acknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in the possession of them as bailee for the buyer or his
agent, the transit is at an end. When the carrier or other bailee acknowledges the
buyer that he is holding the goods on buyer’s behalf, there is deemed to be
constructive delivery of the goods to the buyer and he becomes the buyer’s agent in
holding the goods, and that obviously puts an end to the seller’s right of stoppage in
transit.
(3) When the carrier wrongfully refuses to deliver the goods to the buyer- if the buyer
wants to take the delivery when it ought to have been made to him but the carrier
wrongfully refuses to do the same, the transit it at an end. The carrier by his wrongful
act of refusing to deliver the goods cannot extend the period of transit. If the carrier
refuses to deliver the goods on an ineffectual notice of stoppage in transit, the transit is
at an end, because he has a duty to stop the goods to transit only when a proper notice
has been duly served to him.

Effect of part delivery- according to section 51, sub-section (7), when a part of the delivery
has been made by the carrier to the buyer or his agent, the seller may exercise his right of
stoppage in transit over the remainder of the goods. If the goods are sent partly by one route
and partly by another and the buyer takes the delivery of the goods sent by one route, the
seller is entitled to exercise his right to stoppage of goods coming from another route, but if
the part-delivery of the goods was made to the buyer in the circumstances which show an
agreement on the part of the seller to give up his right against the whole of the goods, the
right of stoppage in transit of the remainder of the goods comes to an end. It, in other
words, means that the right of stoppage in transit, when waived, comes to an end.

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 Effect of rejection of goods by the buyer- if, after the arrival of the goods at their
designation, the buyer refuses to take their delivery, the question which in such a case
arises is, whether the transit has come to an end? According to section 51, sub-section
(4), if the goods are rejected by the buyer and the carrier or the other bailee continues
in the position of them, the transit is not deemed to be at an end. The position would be
same if the seller has refused to receive them back. It has already been observed that
the transit continues until the buyer or his agent actually takes delivery, or there is a
constructive delivery when the carrier or some other bailee acknowledges to the buyer
that he holds the goods on his behalf. It is a necessary corollary of the above stated
provision that if the buyer himself does not take the goods and also does not want the
carrier to hold the same for him, i.e., when he expressly refuses to take their delivery,
they should be deemed to be still in transit.

How the right is exercised- the Act does not prescribe any particular for or mode of
exercise of the right of stoppage in transit. The only thing required is that the unpaid
seller may either take actual possession of the goods, or give a notice of his claim to the
carrier or the bailee in whose possession the goods are. The seller is thus to express his
intention countermanding the delivery. By such a notice, the carrier may be forbidden
to deliver the goods to the buyer or his agent, and may be required to deliver the goods
to the seller or his order. The seller cannot be required to prove that there is an
existence of the facts which justify the exercise of the right, because if he wrongfully
prevents the delivery of the goods to the buyer, he would be liable to an action for
damages.

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 RE-SALE
This is a very valuable right given to an unpaid seller after he has exercised his right
of lien or stoppage in transit. After exercising the right of lien or stoppage in transit,
the seller has to retain the goods unless the buyer pays the price. If within a reasonable
time after the exercise of such a right, the buyer does not pay the price the unpaid
seller may re-sell them, under any of the following circumstance:
 Where the goods are of perishable nature. [Section 54(2)];
 Where the unpaid seller who has exercised his right of lien or stoppage in
transit gives notice to the buyer of his intention to re-sell, [Section 54(2)];
 Where the seller expressly reserves a right of re-sale in case the buyer should
make default. [Section 54(4)].

Section 54 in The Sale Of Goods Act, 1930

54. 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 un- paid seller who has
exercised his right of lien or stoppage in transit gives notice to the buyer of his intention to
re- sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender
the price, re- sell 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 notice 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- sell, s the goods, the original contract of sale

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is thereby rescinded, but without prejudice to any claim which the seller may have for
damages.

NOTICE OF RE-SALE
Before making a re-sale, the unpaid seller is required to give a reasonable notice of re-sale
to the buyer. No such notice is, however, required if the goods are of perishable nature.
Such a notice gives an opportunity to the buyer either to fulfil his part of the obligation by
making an arrangement for the payment of the price and have the goods, or, if he cannot
pay, then to supervise the sale to see that the same is properly made, because the loss on re-
sale is ultimately borne by the buyer. Notice of re-sale should be reasonable. It must be
given within a reasonable time after the breach of contract and should also give him
reasonable opportunity for either fulfilling the contract or supervising the sale.

LOSS OR PROFIT ON RE-SALE

On re-sale, the seller may either suffer loss, i.e., by the re-sale the seller may obtain less
price by the original buyer had agreed to pay, or he may make profit, by obtaining higher
amount than the original buyer agreed to pay. The question, which arises is, can the seller
recover such loss from the original buyer, or can he retain the profit made on re-sale? In
this context, section 54(2) provides that if the re-sale is properly made, i.e., after due notice
to the buyer (except when the goods are of perishable nature), and within a reasonable
time, the unpaid seller can “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 re-sale.”

On re-sale the seller is entitled to recover the loss occasioned from the original buyer
because such loss had occurred due to the buyer’s failure to perform his part of the
obligation. Thus, if for certain goods, the original buyer agreed to pay Rs. 20,000 but certain
goods but on re-sale, the seller recovers only Rs. 15,000, he can recover the loss of Rs. 5,000
from the original buyer.

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On re-sale if the seller makes profit, i.e., he recovers more than the contract price agreed to
be paid by the original buyer, the seller can retain that by himself, and he is not obliged to
pay that to the original buyer. The reason for this is obvious. The re-sale was necessitated
because of default on the part of the buyer in making a payment of the price, and handing
over the profit to him would mean premium on committing the breach of contract. Since no
one can take advantage of his own wrong, such surplus can be retained by the seller
himself. Thus, if the original buyer agreed to pay Rs. 20,000 for certain goods, and on re-
sale fetches Rs. 25,000, the seller can retain the profit of Rs. 5,000 with himself.

MEASURE OF DAMAGES ON RE-SALE

According to section 54(2), on the re-sale being properly made, the unpaid seller can
recover from the original buyer damages for any occasioned by his breach of contract. The
loss which, in such a case, is occasioned by the seller is the difference between the contract
price and the re-sale price, and the measure of damages, therefore, is the difference between
the contract price and the sale price. It may be noted that the measure of the damages in
case of re-sale is different from that for breach of any other contract, because in other cases,
the damages are governed by the provision contained in section 73 of the Indian Contract
Act, according to which the measure of damages is the difference between the contract price
and the market price prevailing on the date of the breach of contract. Since the re-sale is to
be made after giving notice to the buyer, the re-sale may not be made on the date of the
breach of contract, and on re-sale the seller may recover different price than prevailing on
the date of breach of contract.

It may be observed that the criterion of allowing difference between contract price and re-
sale price is followed by applying section 54(2) of the Sale of Goods Act, if the re-sale has
been made properly. If the re-sale has not been properly made then the damages are allowed
according to the formula under section 73 of the Indian Contract Act. i.e., the difference
between the contract price and the market price is allowed by way of damages.

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WHEN THE RE-SALE IS PROPERLY
MADE
In various decisions the High Courts and in P.S.N.S. Ambalavana Chettiar & Co. v. Express
Newspapers Ltd., the Supreme Court held that for the purpose of measure of damages under
the Sale of Goods Act, the re-sale is properly made if the property in the goods re-sold has
passed to the original buyer. On the other hand, if the property in the goods has not passed
to the original buyer the re-sale is not properly made, and therefore, the damages are not
awarded according to the Sale of Goods Act (difference between the contract price and the
re-sale price), but they are awarded according to the formula under the Indian Contract Act
(difference between the contract price and the market price on the date of breach of
contract).

TITLE OF THE NEW BUYER

It has been note above that the rights in lien, stoppage in transit and the consequent re-sale
are to be exercised when the property in goods has already been passed to the buyer. The
question in such a case arises is: can a seller, who has ceased to be the owner of the goods,
by a re-sale convey a good title to the new buyer? Although the general rule contained in
the section 27 of the Act is nemo dat quod non habet, i.e., a seller cannot convey a better
title to the buyer than his own, section 54(3) provides an exception to that rule and states
that on the re-sale of the goods, the buyer acquires a good title to the goods as against the
original buyer, notwithstanding that the notice of the re-sale has been given to the original
buyer. It means that even though the unpaid seller is not himself the owner of the goods,
nor does he has any authority from the owner to sell the goods and even though he does not
give a notice of re-sale to the buyer, the new buyer will acquire a good title of the goods.
The absence of notice, when so required, affects the right of an unpaid seller himself only as
discussed above, i.e., in that case neither he would be entitled to recover the loss which
might have been occasioned on re-sale, nor would he be entitled to retain the surplus, if the
goods are sold at more than the contract price.

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 BIBLIOGRAPHY
 CONTRACT – II BY DR. R.K. BANGIA
 THE LAW OF CONTRACTS AND TENDERS
BY T.S. VENKATESA IYER
 www.indiankanoon.com

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