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Right of Resale in Sale of Goods Act

Updated: May 6


Right of Resale in Sale of Goods
Right of Resale in Sale of Goods


Content:-



When right to resale starts?

If the buyer fails to pay the price within a reasonable period after a lien or stoppage in transit is exercised, the unpaid seller may choose to resell the goods.


According to Section 54(1), sales of goods Act, the contract of sale remains effective even when the seller exercises these rights.


This means the buyer retains the right to claim the goods upon payment. Since the property rights have already been transferred to the buyer, they do not revert to the seller.


However, the law does not permit this situation to persist indefinitely, and thus grants the seller a conditional right to resell the goods.


Section 54(2) states that the seller may resell the goods without notifying the defaulting buyer if the goods are perishable.


For non-perishable goods, the seller must inform the defaulting buyer of the intention to resell. Should the buyer fail to pay after receiving this notification, the seller is then allowed to proceed with the resale.

 
 

Loss or Profit on Resale

Section 54(2) further specifies that the unpaid seller can claim damages from the original buyer for any losses incurred due to the buyer's breach of contract.


However, the buyer is not entitled to any profit that might arise from the resale, as allowing this would effectively reward the buyer for breaching the contract.


Additionally, Section 54(2) outlines that if the seller fails to provide reasonable notice to the defaulting buyer prior to resale, the seller loses the right to claim such damages, and the buyer may claim any profit generated from the resale.


It's important to highlight that the seller is obligated to conduct the resale promptly. If the seller delays the resale unnecessarily and incurs greater losses than if the resale had been conducted sooner, the seller cannot claim compensation for the additional losses.


This provision ensures that the seller acts in a timely and responsible manner following a breach of contract.


In the case of Mysore Sugar Co. vs. Manohar Metal Insurance (AIR 1982 Kant 283), a situation arose where the buyer failed to collect the purchased goods. The seller issued a notice on September 12, 1966, warning that if the goods were not collected within three days, the contract would be considered cancelled.


The buyer did not respond, and the seller proceeded to resell the goods on December 30, 1966. When the seller sought to recover losses incurred from the resale, the court ruled against them due to the excessive three-month delay in reselling, especially in a declining market.


The delayed resale resulted in a reduced value that did not justify a claim for damages. The court noted that had the resale been conducted promptly in September, the seller likely would have avoided any loss, leading to the rejection of the compensation claim.


Conversely, in Sheo Narain v New Seven Sugar & Gur Refining Co. (AIR 1938 All 272), the court found the delay in resale reasonable under different circumstances. Here, the buyer repeatedly requested extensions for payment, ultimately failing to pay, which caused delays in reselling the goods.


The court deemed these delays reasonable given they were not due to the seller's fault, illustrating that the context of delays can significantly influence the adjudication of such cases.


It should be noted that the method of calculating damages based on the "difference between the contract price and resale price" is applicable under Section 54(2) of the Sale of Goods Act, provided that the resale has been conducted properly.


If the resale is not executed appropriately, the determination of damages shifts to the guidelines outlined in Section 73 of the Contract Act. According to this section, damages are calculated based on the difference between the contract price and the market price at the time of the breach.


This approach is used to ensure that damages are awarded in a manner that accurately reflects the financial impact of the breach, depending on the circumstances of the resale.



Resale When Properly Made ? 


The rights of resale and subsequent rights specified under Section 54(2) are applicable only when the ownership of the goods has been transferred to the buyer. This is not the case when the goods remain unascertained and no ownership has transferred, where the seller is essentially reselling their own goods, as illustrated in the case of P.S.N.S. Ambalavana Chettiar v Express Newspapers (AIR 1968 SC 741).


Despite this, the Sale of Goods Act does not explicitly prohibit resale in situations where ownership has not yet passed to the original buyer.


Thus, while the specific rights under Section 54(2) depend on the transfer of property, the Act does not categorically restrict the seller from reselling goods still legally recognized as their own.

 
 

Investigation

When the buyer not only fails to make payment but also repudiates the contract entirely, ownership of the goods reverts to the seller. In such cases, the seller is essentially reselling their own property, and as such, there is no obligation to account for any profit made from the resale to the buyer.


Consequently, the unpaid seller forfeits the right to recover the original price. Instead, the seller's recourse is to seek damages from the defaulting buyer for breach of contract.


Therefore, a resale is considered properly conducted as long as the contract of sale has been rescinded and the goods being resold are regarded as the property of the defaulting buyer, not the seller's own goods.


This distinction is crucial for defining the seller’s rights and responsibilities in the event of the buyer’s contract repudiation.


Reservation of Right of Resale 


Section 54(4) allows the seller to expressly reserve the right of resale if the buyer defaults. Under this provision, no notice of the resale is required. When the seller exercises this right by reselling the goods, the contract is automatically considered rescinded, and the seller resumes the status of original owner of the goods, rather than reselling as an unpaid seller. Despite this, the seller still retains the ability to claim damages arising from the default.


An illustrative case is R.V. Ward Ltd. v Bignall (1967) 2 All ER 449, where the contract involved the sale of two cars. The buyer failed to make payment despite receiving reasonable notice, prompting the seller to attempt a resale.


The seller managed to find a buyer for only one of the cars. In court, it was determined that upon resale, the contract was effectively rescinded, and the unsold car reverted to being the property of the seller.


Consequently, the seller could not claim the price of the unsold car but was entitled to recover the difference in price of the sold car and the costs of advertising.


Title of the New Buyer  


Section 54(3) of the Sale of Goods Act specifies that when goods are resold by the seller, the new buyer acquires a valid title to the goods, even if the original buyer was not notified of the resale.


This applies regardless of whether the new buyer was aware of the initial sale. Thus, Section 54(3) serves as an exception to the general principle stated in Section 27, which holds that a seller cannot transfer a better title to a buyer than they themselves possess.


This provision ensures that the new buyer's rights are protected and their title to the goods is unimpeachable, effectively isolating them from disputes between the original seller and buyer.

 
 


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