In simple words, a seller who has not received the full price of goods sold is termed as an unpaid seller. Section 45 of the Sale of Goods Act, 1930 has defined an unpaid seller as follows:
The seller of goods is deemed to be an unpaid seller
i) when the whole of the price has not been paid or tendered; or
ii) when a bill of exchange or other negotiable instrument has been received as conditional payment and it has been dishonoured.
Thus, to be called an unpaid seller, the following conditions must be satisfied:
a) the goods have been sold and the price must be due;
b) the full price has not yet been paid;
c) a bill of exchange or other negotiable instrument, such as cheque was received as payment of the price, but the same has been dishonoured.
From the above, you should note that where a major part of the price has been paid and only a small portion remains to be paid, even then the seller shall be called an unpaid seller. But you should remember that it is only for the non-payment of the price that a seller is termed as an unpaid seller. Thus, if the price has been paid but some other expenses remain to be paid, the seller is not an unpaid seller. Similarly, where the seller has sold the goods on credit, he cannot be termed as an unpaid seller. If the seller does not receive the price in full after the expiry of the credit period, then he will become an “unpaid seller”. Where whole of the price has been tendered by the buyer, and the seller has refused to accept it, the seller cannot be called an unpaid seller.
Examples
i) A sold certain goods to B for Rs. 5,000; B paid Rs. 4,500 but fails to pay the balance. A is an unpaid seller.
ii) A sold some goods to B for Rs. 5,000 and received a cheque for the full price. On presentment, the cheque was dishonoured by the bank. A is an unpaid seller.
iii) A sold some goods to B for Rs. 5,000 and allowed him a period of one month for payment of the price. A is not an unpaid seller during this period of one month. On the expiry of one month, if the price remains unpaid, then only A shall become an unpaid seller.
If before the expiry of one month’s time the buyer becomes insolvent, then the seller becomes an unpaid seller.
The term ‘seller’ in this case means not only the actual seller but includes any person who is in the position of a seller, for example, an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price [Section 45 (2)].
