RIGHT OF UNPAID SELLER,BREACH OF

CONTRACT AND REMEDIES OF BREACH OF CONTRACT

Unpaid Seller:
The seller of goods is deemed to be an unpaid s eller

(a) when the w hole of the price has not been paid or tendered; or

(b) where a bill of exchange or other negotiable instrument has been received as a conditional
payment, i.e., subject to the realization thereof, and the same has been dishonored.

Rights of Unpaid Seller has been defined under Section 45.The definition emphasizes
following characteristics of an unpaid seller:

1. He must sell goods on cash terms and not on credit, and he must be unpaid.

2. He must be unpaid either wholly or partly. Even if only a portion of the price, however small,
remains unpaid, he is deemed to be an unpaid s eller. Where the price is paid
through a bill of exchange or other negotiable instrument, the same must be dishonored.

3. He must not refuse to accept payment when tendered. If the price has been tendered by
the buyer but the seller wrongfully refus es to take the s ame, he ceas es to be an
unpaid seller.

Features of Unpaid Seller:

1. He must sell goods on the cash basis and must be unpaid.

2. If he sells on credit basis, he is not an unpaid seller during the period of credit.

3. The term of credit has expired and the price has not been paid to him.

4. He must be unpaid wholly or partially. If a part of price remains unpaid, he is unpaid.

5. When the price is paid in the form of negotiable instruments and it has been dishonored.
 
6. If buyer offers payment and seller refuses to accept, the seller is not an unpaid seller.
Examples:
i)Party A sells a car on cash basis to party B and the price has not been received yet.
ii) A sells good to B on 5 months credit period and B turns insolvent after 2 months.
 iii) A sells TV set to B on the same day cheque basis, the cheque is dishonored due to
insufficient funds. A is an unpaid seller in all the above cases.
Rights of an Unpaid Seller:

Section 45 of the Indian Contract Act defines the rights of unpaid seller. It has two fold rights,
They are as follows:

1)Rights against the goods.

It has following rights under it. They are:

i)Rights of lien.

ii) Right of stoppage of goods in transit.

iii) Right of rescale.

 
2.Rights against buyer personally.

It has following rights under it. They are:

 i)Suit for price.

 ii) Suit for damages for non-acceptance.

 iii) Suit for special damages and interest,

1.Rights of unpaid seller against the goods

 
Right of lien (Sec. 47)
Lien is the right to retain poss es s ion of goods and refus e to deliver them to the
buyer until the price due in respect of them is paid or tendered. An unpaid seller in possession of goods
sold is entitl ed to exercis e his lien on the goods in the follow ing cases:
i)Where the goods have been sold without any stipulation as to credit;
ii) Where the goods have been sold on credit, but the term of credit has expired:
iii) Where the buyer becomes insolvent, even though the period of credit may not have yet expired.
 
When the goods are sold on credit the presumption is that the buyer shall keep his
credit good. If, therefore, before payment the buyer becomes insolvent, the seller is entitled to
exercise this right and hold the goods as security for the price. This right of lien can be exercised only for
the non-payment of the price and not for any other charges, e.g., maintenance or custody
charges, which the seller may have to incur for storing the goods in exercise of his lien for the price.
 T h i s r i g h t o f l i e n e x t e n d s t o t h e w h o l e o f t h e g o o d s i n h i s
pos s ess ion  even   though  part  payment   for  thos e  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. A l s o ,   t h e   l i e n   c a n   b e   e x e r c i s e d   e v e n   t h o u g h   t h e   s e l l e r   h a s
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 loss his lien thereon in the following cases:

(a) When the delivers the goods to a carrier or other bailee for the pur
p o s e   o f   transmissionto 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.

(b)Right of Stoppage of Goods in Transit

The right of stoppage in transit means the right of  stopping further transit of the
goods, while they are with a carrier for the purpose of transmission to the buyer,
resuming possession of them and retaining possession until payment or tender of the
price. Thus, in a sense this right is an extension of the right of lien because it entitles
the seller to regain possession of the goods.

When can be this right be exercised? (Sec 50)

i)When the buyer becomes insolvent.

ii) When the property has passed to the buyer. If property has not passed to the buyer then this
right is termed as the right of withholding delivery [Sec. 46(2)]; and
iii) When the goods are in the course of transit. This means that goods must be neither with the
seller nor with the buyer nor with their agent. They should be in the custody of a
carrier as an independent middleman (i.e. in his own right as a carrier) e.g. railways
and common carriers whose business is to transport goods of others.
The carrier mus t not  be either  s eller’s agent or  buyer’s agent.  Becaus e  if he  is
seller’s agent the goods are still in the hands of seller in the eye of law and hence
there is no transit, and if he is buyer’s agent, the buyer gets delivery in the eye of  law
and hence question of stoppage does not arise.
How right of stoppage is exercised. (Sec.52)

The unpaid seller may exercise his right to stoppage in transit either:

i)by taking actual possession of the goods, or
ii) by giving notice of this claim to the carrier or other bailee in whose possession the goods are.
S uch notice may be given either
(a) to the pers on in actual poss es s ion of the goods, or
(b) to his principle.
In the latter case, notice must be given well in advance to enable the principal to communicate
with his agent or servant in time, so as to prevent delivery to the buyer.
It is the duty of carrier after receiving due notice, not to deliver the goods to the buyer
but to redeliver them to, or according to the directions of the seller.
If by mistake he delivers the goods to the buyer, he can be made liable
f o r conversion. The expenses of redelivery are to be borne by the seller.

Some Case Laws:

 Litt v Cowley:

In Litt v Cowley case after the receipt of the notice to stop the goods, the carriers by
mistake delivered the goods to the buyer. It was held that the assignees of the insolvent
buyer were bound to restore back the goods to the seller, or be liable for damages.

 Knight v Wiffen:

A sold 80 maunds of barley, out of a large stock lying in his granary, to B. Out of his
purchases, B sold 60 maunds to C, before the goods had been ascertained. C obtained
delivery order and presented it to A, who informed C that the barley would be forwarded
to him in due course, Subsequently, B became insolvent and A wanted to exercise the
right to lien the barley which he had sold to B . It was held that A had assented to the sub-
sale of 60 maunds of barley by B to C and, therefore he could not exercise his right of
lien over 60 maunds of barley, though such a right could be excercised in respect of the
remainder, i.e., the other 20 maunds.
 

Duration of transit (Sec. 51).

 
Since the right of stoppage in transit can be exercised only so long as the goods are in the course
of transit, it becomes necessary to know as to when the transit begins and when it comes  to
an  end.   When the  trans it comes to  an end the  right of  s toppage  cannot be
exercised. The transit is deemed to be at an end and the seller cannot exercise his right
of stoppage in the following cases:

i) When the buyer or his agent takes delivery after the goods have reached destination.
 
ii)When   the  buyer  or  his   agent   obtains  delivery  of   the  goods  before  their   arriv
al   at the appointed destination.
 iii) When the goods have arrived at their destination and the carrier acknowledges to the buyer
or his agent that he holds the good son his behalf.
iv)When the goods have arrived at their destination but the buyer instead of taking delivery
requests the carrier to carry the goods to some further destination and the carrier agrees totake
them to the new destination;
v) When the carrier wrongfully refuses to deliver the goods to the buyer or his agent.
vi) When part delivery of the goods has been made to the buyer with an intention of delivering
the whole of the goods, transit will be at end for the remainder of the goods also which are yet in
the course of the transit.

Case Laws:

 Schotmans v Lancashire and Yorkshire Ry. Co:

There was a delivery of the goods by the seller on a board of the ship belonging to the
buyer. The bill of the lading was also taken in the 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 its right of stoppage in transit.

 Turner v The Trustees of Liverpool Docks

The cargo of cotton was put on the board of the vessel belonging to the buyers, but the
goods were made deliverable to the sellers or their order. Justice Patterson, J giving
judgment of the court observed that “there is no doubt that the delivery to him, unless the
vendor protects himself by special terms, restraining the effects of such delivery,

LIEN AND STOPPAGE IN TRANSIT DISTINGUISHED

The main points of distinction between these two rights of an unpaid seller are as follows:
 
i) The seller’s lien attaches when the buyer is in default, whether he be solvent or insolvent. The
right of stoppage in transit arises only when the buyer is insolvent.
 
ii) Lien is available only when the goods are in actual possession of the seller while right of
stoppage is available when the seller has parted with possession and the goods are in the custody
of an independent carrier.

iii) The right of lien comes to an end once the seller hands over the possession of the goods to the
carrier for the purpose of transmission to the buyer. On the other hand, the right of stoppage in
transit commences after the seller has delivered the goods to a carrier for the purposes of
transmission to the buyer and continues until the buyer has acquired their possession.
 
iv) The right of lien consist in retaining the possession of the goods while the right of stoppage
consists in regaining possession of the goods.

(c)Right of Resale

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 transit’, would not have been of much use because these rights only  entitle the unpaid
seller to retain the goods until paid by the buyer.If the buyer continues to remain in
default, then should the seller be expected to retain the goods indefinitely, specially
when the goods are perishable? Obviously, this cannot be the intention of the law.
 Section 54, therefore, gives to the unpaid seller a limited right to resell the goods in the
following cases:
 
i) where the goods are of a perishable nature; or
 
ii) where such a right is expressly reserved in the contract in case the buyer
should make a default; or
 
iii) where the seller has given a notice to the buyer of this intention to resell and the
buyer does not pay or tender the price within a reasonable time.

i v ) I f o n a r e s a l e t h e r e i s a l o s s t o t h e s e l l e r , h e c a n recover it from
the defaulting buyer. But if there is a surplus on the resale, the seller can keep it, with
him b e c a u s e   t h e   b u y e r   c a n n o t   b e   a l l o w e d   t o   t a k e advantage
of his own wrong.

v) If , however, the unpaid seller fails to give notice of  resale to the buyer,
where neither the goods are
of p e r i s h a b l e   n a t u r e   n o r   s u c h   a   r i g h t   w a s   e x p r e s s l y reserved, he cannot
recover the loss from the buyer and is under an obligation to hand over the surplus, if any, to
the buyer arising from the resale.

(2.)Rights of Unpaid Seller against the Buyer Personally

The unpaid seller in addition to his rights against the goodsas discussed above, has the following
three rights of action against the buyer personally:
 
(a)Suit for Price (Sec. 55).
Where property in goods has passed to the buyer, or where the sale price is payable ‘on a day certain’
although the property in goods has not passed; and the buyer wrongfully neglects or
refuses to pay the price according to the terms of the contract, the seller is entitled to sue the
buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered
the seller would file
a s u i t   f o r   p r i c e   n o r m a l l y   w h e n   t h e   g o o d s   h a v e   b e e n manufact
ured to some special  other and thus are unsalable otherwise,

(b) Suit for damages for non-acceptance (Sec. 5 6 ) .

 
Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may
sue him for damages for non-acceptance. The seller’s remedy in this case is a suit for damages
rather than an action for the full price of the goods. The damages are calculated in accordance
with the rules contained in Section 73 of the Indian Contract Act, that is, the measure of damages
is the estimated loss arising directly and naturally from the buyer’s breach of contract. Where the
goods have a ready market the principle applicable is that the seller may recover from the buyer
damages equal to the difference between the contract price and the market price on the date of breach of
contract. Thus if the difference between the contract price and market price is nil, the seller can get
only nominal damages .

Bungo Steel Furniture v Union Of India:

There was a contract for the supply of steel bins to the government of India by the appellants.
The Government wrongfully terminated the contract before the bins had been actually
manufactured. It was held that , in this case since the property in the goods has not yet passed to
the buyer (government), the case was not covered under Section 55 and an action for the
recovery of the price could not lie but appellants were entitled to recover the damages from the
government for wrongfully refusing to accept the goods.

But where the goods do not have any ready market , the measure of damages will depend upon the facts of
each case.
For example:
In Thompson Ltd. Vs Robinson the damages were assessed on the basis of profits lost. In that case, T. Ltd.
who were car dealers, contracted to supply a motorcycle to R. R refused to accept delivery. It was found as
a fact that the supply of cars exceeded the demand at the time of breach and hence in a sense there was
no market price on the date of breach. Held, T Ltd. were entitled to damages for the loss of their
bargain viz. the profit they would have made, as they had sold one car less than they otherwise would have
sold.
To take another illustration, if the goods have been manufactured to some special order and they
are un saleable and have no value at all for other buyers, then the seller may even be allowed the
full price of the goods as damages.

(c)Suit for special damages and interest (Sec.61)

T h i s   S e c t i o n   e n t i t l e s   t h e   s e l l e r   t o   s u e   t h e   b u y e r   f o r ‘special damages’
also for such loss, which the parties k n e w , w h e n t h e y m a d e t h e c o n t r a c t , t o
b e l i k e l y t o result from the breach of it. In fact the Section is only declaratory of the
principle regarding ‘special damage’ laid down in Section 73 of the Indian Contract Act.
 The Section also recognizes unpaid seller’s right to get interest at a reasonable rate on the
total unpaid price of t h e g o o d s s o l d , f r o m t h e t i m e i t w a s d u e u n t i l i t i s
actually paid. (Telu Ram Jain vs Aggarwal & Sons,1991).

BREACH OF CONTRACT

Breach of contract is a legal cause of action and a type of civil wrong, in which a binding

agreement or bargained-for exchange is not honored by one or more of the parties to the contract
by non-performance or interference with the other party's performance. Breach occurs when a
party to a contract fails to fulfill its obligation(s) as described in the contract, or communicates
an intent to fail the obligation or otherwise appears not to be able to perform its obligation under
the contract. Where there is breach of contract, the resulting damages will have to be paid by the
party breaching the contract to the aggrieved party.

Ways Contracts are breached:

A breach of contract may take place when a party to the contract:

 fails to perform their obligations under the contract in whole or in part

 behaves in a manner which shows an intention not to perform their obligations under
contract in the future or
 the contract becomes impossible to perform as a result of the defaulting party’s own act.
These classifications only describe how a contract can be breached, not how serious the breach
is.
The first type above is an actual breach of contract. The second two types are breaches as to the
future performance of the contract, and technically known as renunciatory breaches. The
defaulting party renunciates the contract in advance of the time they are required to perform their
obligations. Renunciatory breach is more commonly known as “anticipatory breach”.

Classification of breaches of Contract:

The general law has three categories of breaches of contract. These are measures of the
seriousness of the breach. In the absence of a contractual or statutory provision any breach of
contract is categorised as :

 breach of warranty;
 breach of condition; or
 breach of an innominate term, otherwise known as an intermediate term.
There is no “internal rating system” within each of these categories (such as “a serious breach of
warranty”. It’s a breach of a warranty. It’s not a minor breach of a condition. It’s a breach of a
condition). Any breach of contract is one or the other of a breach of warranty, condition or
innominate term.
In terms of priority of classification of these terms, a term of a contract is an innominate term
unless it is clear that it is intended to be a condition or a warranty.

Types Of Breach:
Contracts often use wording other than repudiatory breach to describe a type of breach of
contract. These contractual terms include material breach, fundamental breach, substantial
breach, serious breach. These alternative wordings have no fixed meaning in law - they are
interpreted within the context of the contract that they are used. For this reason, the meaning of
the different terms may (and do) vary from case to case. Possible interpretations of their meaning
include "repudiatory breach", and "serious breach, but not as serious as a repudiatory breach".

Material breach:
A material breach has been held to mean "a breach of contract which is more than trivial, but
need not be repudiatory ... which is substantial. The breach must be a serious matter, rather than
a matter of little consequence".[8]. A breach of contract will likely constitute a material breach if
the term of the contract that has been breached is a condition of the contract. A variety of tests
may be applied to terms of contracts to decide whether a term is a warranty or a condition of the
contract.
In respect to the EPC Agreements Material breach is defined as "shall mean a breach by either
Party of any of its obligations under this Agreement which has or is likely to have a Material
Adverse Effect on the Project and which such Party shall have failed to cure."

Fundamental Breach:
While fundamental breach of contract was once the test for a serious breach of contract to justify
termination, it is no longer. The test is that set out for repudiatory breach, above. The concept of
Fundamental Breach as a free standing legal concept no longer has any legal force. it is now
simply another term of a contract (when it is used) which needs to be construed like any other
term of a contract.
A fundamental breach is usually read as a reference to a repudiatory breach.
A term may be a condition in Australian law if it satisfies one test known as the test of
essentiality. The test of essentiality requires that the promise (term) was of such importance to
the promisee that he or she would not have entered into the contract unless he had been assured
of strict or substantial performance of the promise and this ought to have been apparent to the
promisor. This is an objective test of the parties' intention at the time of formation of the
contract.
If the contractor in the above example had been instructed to use copper pipes, and instead used
iron pipes that would not last as long as the copper pipes would have lasted, the homeowner can
recover the cost of actually correcting the breach – taking out the iron pipes and replacing them
with copper pipes.
There are exceptions to this. Legal scholars and courts have been known to find that the owner of
a house whose pipes are not the specified grade or quality (a typical hypothetical example)
cannot recover the cost of replacing the pipes for the following reasons:

1. Economic waste. The law does not favor tearing down or destroying something that is
valuable (almost anything with value is "valuable"). In this case, significant destruction
of the house would be required to completely replace the pipes, and so the law is hesitant
to enforce damages of that nature. See Peevyhouse v. Garland Coal & Mining Co..
2. Pricing in. In most cases of breach, a party to the contract simply fails to perform one or
more terms. In those cases, the breaching party should have already considered the cost
to perform those terms and thus "keeps" that cost when they do not perform. That party
should not be entitled to keep those savings. However, in the pipe example the contractor
never considered the cost of tearing down a house to fix the pipes, and so it is not
reasonable to expect them to pay damages of that nature.
Most homeowners would be unable to collect damages that compensate them for replacing the
pipes, but rather would be awarded damages that compensate them for the loss of value in the
house. For example, say the house is worth $125,000 with copper and $120,000 with iron pipes.
The homeowner would be able to collect the $5,000 difference, and nothing more.
In the United States, the Restatement (Second) of Contracts lists the following criteria to
determine whether a specific failure constitutes a material breach:
In determining whether a failure to render or to offer performance is material, the following
circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably
expected;
(b) the extent to which the injured party can be adequately compensated for the part of that
benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure,
taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform
comports with standards of good faith and fair dealing.

Anticipatory Breach
Renunciatory breach (usually referred to as anticipatory breach or breach by anticipatory
repudiation) is an unequivocal indication that the party will not perform when performance falls
due, or a situation in which future non-performance is inevitable. An anticipatory breach gives
the innocent party the option to immediately terminate the contract and sue for damages, or wait
for the time of performance: if the party required to perform does not perform when required by
the contract, the innocent party can terminate then.
For example, A contracts with B on January 1 to sell 500 quintals of wheat and to deliver it on
May 1. Subsequently, on April 15, A writes to B and says that he will not deliver the wheat. B
may immediately consider the breach to have occurred and file a suit for damages for the
scheduled performance, even though A has until May 1 to perform. However, a unique feature of
anticipatory breach is that if an aggrieved party chooses not to accept a repudiation occurring
before the time set for performance, not only will the contract continue on foot, but also there
will be no right to damages unless and until an actual breach occurs

REMEDIES OF BREACH OF CONTRACT:

There are five remedies of breach of contract. They are as follows:

1] Recession of Contract

When one of the parties to a contract does not fulfill his obligations, then the other party can rescind
the contract and refuse the performance of his obligations. As per section 65 of the Indian Contract
Act, the party that rescinds the contract must restore any benefits he got under the said agreement.
And section 75 states that the party that rescinds the contract is entitled to receive damages and/or
compensation for such a recession.

2] Sue for Damages

Section 73 clearly states that the party who has suffered, since the other party has broken promises,
can claim compensation for loss or damages caused to them in the normal course of business.Such
damages will not be payable if the loss is abnormal in nature, i.e. not in the ordinary course of
business.

There are two types of damages according to the Act,

 Liquidated Damages: Sometimes the parties to a contract will agree to the amount payable
in case of a breach. This is known as liquidated damages.
 Unliquidated Damages: Here the amount payable due to the breach of contract is
assessed by the courts or any appropriate authorities.

3] Sue for Specific Performance

This means the party in breach will actually have to carry out his duties according to the contract. In
certain cases, the courts may insist that the party carry out the agreement.So if any of the parties
fails to perform the contract, the court may order them to do so. This is a decree of specific
performance and is granted instead of damages.
For example, A decided to buy a parcel of land from B. B then refuses to sell. The courts can order
B to perform his duties under the contract and sell the land to A.

4] Injunction

An injunction is basically like a decree for specific performance but for a negative contract. An
injunction is a court order restraining a person from doing a particular act.So a court may grant an
injunction to stop a party of a contract from doing something he promised not to do. In a prohibitory
injunction, the court stops the commision of an act and in a mandatory injunction, it will stop the
continuance of an act that is unlawful.

5] Quantum Meruit

Quantum meruit literally translates to “as much is earned”. At times when one party of the contract
is prevented from finishing his performance of the contract by the other party, he can claim quantum
meruit. So he must be paid a reasonable remuneration for the part of the contract he has already
performed. This could be the remuneration of the services he has provided or the value of the work
he has already done.