Once a sale is agreed, the seller must hand over the goods and the buyer must take them and pay. If either fails, the other needs a remedy. A seller who has not been paid is in a special position, because he may still hold the goods, or they may be on a lorry or a ship on their way to a buyer who has just been declared insolvent.
The law gives such a seller rights against the goods and rights against the buyer. It gives a buyer who does not get what he paid for a matching set of rights. These are the questions that examiners most often set from this chapter.
This topic covers performance of the contract (delivery and payment), the duties of the seller and the buyer, the rights of an unpaid seller against the goods (lien, withholding delivery, stoppage in transit) and against the buyer (action for the price and for damages), the rights of the buyer, and value added tax (VAT) on supplies under the Nigeria Tax Act 2025.
In 30 seconds
The seller must deliver the goods, with a good title, of merchantable quality and fit for the purpose. The buyer must accept and pay. Delivery and payment are concurrent.
An unpaid seller (whole or part of the price unpaid, or an instrument received but not honoured) has rights against the goods: lien (while in possession), withholding delivery (before property or possession has passed) and stoppage in transit (buyer insolvent, goods in transit), and rights against the buyer: an action for the price (where property has passed) and an action for damages for non-acceptance.
The buyer may sue for damages for non-delivery, seek specific performance (specific goods), sue in detinue or conversion, repudiate for breach of a condition, or sue for breach of warranty. VAT is paid on taxable supplies under the Nigeria Tax Act, but basic food, medicines, educational books and exports are zero-rated.
Performance of the contract
It is the duty of the seller to deliver the goods and the duty of the buyer to accept and pay for them. Delivery and payment are concurrent conditions, unless the parties agree otherwise. The buyer must be both willing and able to pay the price in exchange for possession and ownership.
Delivery is the voluntary transfer of possession from one person to another. It covers symbolic as well as physical transfer. It may be made by the seller doing an act that puts the goods in the custody or under the control of the buyer or his authorised agent, or by transferring the means of control over the goods to them.
Duties of the seller
November 2014 asked for two duties (5 marks). The examiners gave four:
- to ensure that the title he gives is good, since a person cannot give what he does not have;
- to ensure that the goods are of merchantable quality, not damaged or spoilt, and good in the market;
- to deliver the goods, which is essential and goes to the root of the contract. In the absence of delivery the sale is not complete; and
- to ensure that the goods are fit for the purpose the buyer made known, where the buyer relies on his skill or judgment.
To these may be added the duty to supply goods that correspond with the description or sample, and to give quiet possession free from undisclosed encumbrances. The previous topic sets out the implied terms.
Duties of the buyer
- to accept the goods when they are delivered in accordance with the contract; and
- to pay the price, concurrently with delivery.
The unpaid seller
A seller is an unpaid seller where the whole or part of the price remains unpaid, or where a cheque, bill of exchange or other negotiable instrument has been received but value has not been received for it. Such a seller has two classes of rights: rights against the goods, and rights against the buyer. May 2018 asked for three rights over the goods (6 marks).
Rights against the goods
| Right | What it is | When it applies and when it is lost |
|---|---|---|
| Lien | A right in equity to withhold the goods until the price is paid. It exists only while the seller has actual possession, as principal or agent | May be exercised where goods are sold without any stipulation as to credit, or the credit terms have expired, or the buyer has become insolvent. Lost where the goods are delivered to a carrier for transmission to the buyer, or the buyer or his lawful agent has possession, or the seller waives it |
| Right of withholding delivery | The seller may withhold delivery where neither ownership nor possession has passed to the buyer | It applies before the buyer has the goods |
| Stoppage in transit | The right to stop goods in transit before they are actually received by the buyer | May be exercised where the price is unpaid, the buyer is insolvent, and the goods are actually in transit. Defeated if a person to whom a document of title has lawfully been transferred further transfers the goods to a third party |
Rights against the buyer
- Action for the price. The seller’s duty to deliver runs concurrently with the buyer’s duty to pay. Where property has passed and the buyer wrongfully neglects or refuses to pay, the seller may sue for the price.
- Action for damages for non-acceptance. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue for damages. The measure is the estimated loss directly and naturally resulting, in the ordinary course of events, from the buyer’s breach. Special damages may also be recovered for refusal to collect goods the seller was ready to deliver, and for the cost of care and warehousing.
Rights of the buyer
May 2019 asked for four rights (4 marks) and November 2023 for three (3 marks). The syllabus gives five:
- Action for damages for non-delivery. Where the seller wrongfully neglects or refuses to deliver, the buyer may sue. The measure is the estimated loss directly and naturally resulting in the ordinary course of events. The buyer must minimise his loss.
- Specific performance. Where the seller fails to deliver specific or ascertained goods, the buyer may ask the court to order performance. The seller cannot then keep the goods and offer damages.
- Action in tort. A buyer to whom property has passed may sue for detinue or conversion if the goods are not delivered.
- Repudiation. Where a condition is broken, the buyer may reject the goods and refuse to pay.
- Action for breach of warranty. Where a warranty is broken, or the buyer must treat a breach of condition as a breach of warranty, he may (i) reject the goods totally, (ii) sue for extinction or diminution of the price, or (iii) sue for breach of the warranty.
VAT on supplies under the Nigeria Tax Act 2025
Under sections 144 and 145 of the NTA, subject to the exemptions in Part IV of Chapter Eight, VAT is paid on all taxable supplies in Nigeria. Taxable supplies include goods that:
- are physically present, imported into, and assembled or installed in Nigeria at the time of supply; or
- have as their beneficial owner a taxable person in Nigeria, and goods situated in Nigeria, or the right over which is exercisable in Nigeria.
Under section 186, the following supplies attract no (0%) VAT:
- basic food items;
- all medical and pharmaceutical products, including medicinal herbal products;
- educational books and materials;
- fertilisers;
- locally produced agricultural chemicals;
- locally produced veterinary medicine;
- locally produced animal feeds;
- live cattle, goats, sheep and poultry;
- agricultural seeds and seedlings;
- exported goods, excluding oil and gas;
- exported services;
- exported incorporeal property; and
- medical equipment.
The syllabus does not give the standard VAT rate, so give the rate only if the question does.
Working through the rules
Which right does the unpaid seller have?
| Facts | Right |
|---|---|
| A seller still holds the goods in his warehouse. The buyer has not paid, and no credit was agreed | Lien. He may keep the goods until paid |
| The seller has sent the goods by lorry to the buyer, who is now declared insolvent. The goods have not arrived | Stoppage in transit |
| The seller has delivered the goods to the buyer, who has not paid, and property has passed | Action for the price. The lien is lost |
| The buyer refuses to collect the goods, which the seller must store at a cost | Action for damages, with warehousing costs |
Measure of damages
| Case | Working | Damages |
|---|---|---|
| Buyer refuses to accept goods sold at ₦1,000,000. The seller resells at ₦850,000 | ₦1,000,000 − ₦850,000 | ₦150,000, plus warehousing costs |
| Seller fails to deliver goods sold at ₦500,000. The buyer buys the same goods for ₦620,000 | ₦620,000 − ₦500,000 | ₦120,000. The buyer must act to minimise his loss |
Which remedy does the buyer have?
| Facts | Remedy |
|---|---|
| The seller refuses to deliver a particular antique chair that the buyer has paid for | Specific performance, because the goods are specific. Also damages |
| The goods delivered do not match the description | Breach of condition, so the buyer may reject and refuse to pay |
| The goods are as described but a promise of a free service was not kept | Breach of warranty, so he may claim damages or a reduction of the price |
| Property has passed to the buyer and the seller refuses to hand over the goods | Detinue or conversion |
Sale and hire purchase compared
November 2017 asked for the distinction (5 marks). In a sale property passes on the sale and the buyer owns the goods. In hire purchase the hirer has possession and an option to buy, and property does not pass until the last instalment is paid and he exercises the option. On default the hire purchase ends and the goods revert to the owner.
Sale is a transfer of ownership, while hire purchase is a hiring with an option to purchase. The next topic explains hire purchase in detail.
Worked problems
Problem 1: the insolvent buyer
Scenario. Seller Ltd sold goods to Buyer Ltd on credit and sent them by road. While the goods were on the way, Buyer Ltd was declared insolvent. Advise Seller Ltd.
- Is he an unpaid seller? Yes, because the price is unpaid.
- The right. Stoppage in transit: the price is unpaid, the buyer is insolvent and the goods are actually in transit, not yet received by the buyer.
- The limit. The right is defeated if a person to whom a document of title has lawfully been transferred further transfers the goods to a third party.
- Advice. Seller Ltd may stop the goods and hold them until the price is paid.
Problem 2: the unpaid balance
Scenario. A buyer takes goods and pays half the price, then refuses to pay the rest, although property has passed. The seller wants the money. Advise.
- The rule. Where property has passed and the buyer wrongfully refuses to pay, the seller may sue for the price.
- Advice. He may bring an action for the unpaid balance. If property had not passed, he would be limited to damages for non-acceptance.
Problem 3: goods that do not match the order
Scenario. A buyer orders 100 bags of Brand A rice. The seller delivers Brand B. What may the buyer do?
- The breach. Goods must correspond with the description, which is an implied condition. Delivering Brand B is a breach of condition.
- Advice. The buyer may repudiate the contract, reject the goods and refuse to pay. He may also claim damages for non-delivery of what he ordered, and must minimise his loss.
Problem 4: VAT on supplies
Scenario. A trader sells bags of rice, school textbooks, and a freezer. State the VAT position.
- Rice. Basic food items attract 0% VAT (section 186).
- Textbooks. Educational books and materials attract 0%.
- The freezer. It is a taxable supply and attracts VAT at the standard rate (the syllabus does not give the rate).
Questions that have been asked on this topic, and how to answer them
| Question theme | What a full answer contains |
|---|---|
| Duties of a seller (November 2014 Q4(b)(ii), 5 marks) | Good title, merchantable quality, delivery, fitness for purpose, each explained |
| Rights of an unpaid seller over the goods (May 2018 Q5(b), 6 marks) | Lien, withholding delivery, stoppage in transit, with the conditions for each |
| Rights of a buyer (May 2019 Q3(c), 4 marks; November 2023 Q3(b)(ii), 3 marks) | Damages for non-delivery, specific performance, detinue or conversion, repudiation, breach of warranty |
| The seller’s rights where goods are destroyed (November 2021 Q5(a)(ii)) | Action for the price where property has passed |
| Sale and hire purchase (November 2017 Q6(b), 5 marks) | Property, option to purchase, and default |
| Remedies and liens (November 2016 Section A) | Lien and stoppage in transit are rights of an unpaid seller, not remedies for breach of the duty of care |
Common mistakes in the exam
- Giving a seller’s lien where the goods are no longer in his possession.
- Applying stoppage in transit when the buyer is solvent and has already received the goods.
- Suing for the price where property has not passed. The seller is limited to damages.
- Saying a buyer may reject for a breach of warranty. He claims damages or a price reduction, unless the breach is of a condition.
- Forgetting that the buyer must minimise his loss.
- Mixing up damages for non-delivery (the buyer’s claim) with damages for non-acceptance (the seller’s claim).
- Saying specific performance is available for any goods. It is for specific or ascertained goods.
- Applying VAT to zero-rated supplies, or forgetting that exports are zero-rated.
Quick revision
- Seller delivers. Buyer accepts and pays. Concurrent. Delivery is voluntary transfer of possession.
- Seller’s duties: title, merchantable quality, delivery, fitness. Unpaid seller: lien, withholding delivery, stoppage in transit; price and damages for non-acceptance.
- Buyer: damages for non-delivery, specific performance, detinue or conversion, repudiation, breach of warranty.
- VAT: taxable supplies (ss.144, 145). Zero-rated: basic food, medicines, educational books, fertilisers, exports, medical equipment (s.186).
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Section A style: multiple choice
Question 1. A seller is an unpaid seller where:
- The whole or part of the price is unpaid
- He has been paid in cash
- The buyer has the goods and has paid
- He has no goods
Show the answer
A. Or where an instrument has been received but value not received.
Question 2. The right of a seller to withhold goods until the price is paid is:
- Lien
- Rescission
- Repudiation
- Estoppel
Show the answer
A. It exists only while he has possession.
Question 3. An unpaid seller may stop goods in transit if the buyer is:
- Insolvent
- Wealthy
- Abroad
- A company
Show the answer
A. And the goods have not been received by him.
Question 4. The lien of an unpaid seller is lost where:
- The goods are delivered to a carrier for the buyer
- The buyer is slow
- The price is high
- The goods are large
Show the answer
A. It is also lost if the buyer has possession or the seller waives it.
Question 5. The seller may sue for the price where:
- Property has passed to the buyer and he refuses to pay
- Property has not passed
- The goods are lost
- He wants a bonus
Show the answer
A. Otherwise he is limited to damages for non-acceptance.
Question 6. A buyer to whom property has passed, and who is not given the goods, may sue in:
- Detinue or conversion
- Passing off
- Libel
- Slander
Show the answer
A. Also damages for non-delivery.
Question 7. Specific performance in a sale of goods is available for:
- Any goods
- Specific or ascertained goods
- Only future goods
- Only money
Show the answer
B. The seller cannot then keep the goods and pay damages.
Question 8. A buyer who rejects goods for breach of a condition is exercising:
- Repudiation
- Lien
- Stoppage
- Ratification
Show the answer
A. He may refuse to pay.
Question 9. The measure of damages for non-delivery is:
- The estimated loss directly and naturally resulting in the ordinary course of events
- Double the price
- Zero
- The seller’s profit
Show the answer
A. The buyer must minimise his loss.
Question 10. Which supply attracts 0% VAT under section 186 of the Nigeria Tax Act?
- A luxury car
- Basic food items
- A television
- Jewellery
Show the answer
B. So do medicines, educational books and exports.
Section B style: written questions
Question 11 (10 marks). (a) State FOUR duties of a seller. (4 marks) (b) State THREE rights of an unpaid seller over the goods. (6 marks)
Question 12 (10 marks). (a) State the rights of a buyer. (5 marks) (b) State the rights of an unpaid seller against the buyer. (5 marks)
Question 13 (20 marks). Ngozi sold 500 bags of cement to Femi for ₦5,000,000 on 30 days’ credit. She sent them by lorry. Before delivery, Femi was declared insolvent. A separate buyer, Ike, ordered a particular machine from Ngozi, paid in full, and Ngozi refused to deliver because a bidder offered more. (a) Advise Ngozi on the cement. (6 marks) (b) Advise Ike.
(6 marks) (c) State the measure of damages if Femi had refused to accept the cement and Ngozi resold at ₦4,500,000. (4 marks) (d) State the VAT position of the cement and of exported cement. (4 marks)
Model answers
Show the model answer to Question 11
(a) Duties of a seller. To ensure that his title is good; to ensure that the goods are of merchantable quality; to deliver the goods, which is essential; and to ensure that the goods are fit for the purpose that the buyer made known to him.
(b) Rights over the goods. Lien: the right in equity to withhold the goods until the price is paid. It exists only while he has actual possession, and may be exercised where the goods were sold without credit, the credit has expired, or the buyer is insolvent. It is lost if the goods are delivered to a carrier for the buyer, the buyer has possession, or the seller waives it.
Withholding delivery: where neither ownership nor possession has passed. Stoppage in transit: the right to stop goods in transit before the buyer receives them, where the price is unpaid and the buyer is insolvent.
Show the model answer to Question 12
(a) Buyer. An action for damages for non-delivery, the measure being the estimated loss directly and naturally resulting, with a duty to minimise it; specific performance, for specific or ascertained goods; an action in detinue or conversion where property has passed; repudiation, rejecting the goods and refusing to pay for a breach of a condition; and an action for breach of warranty, including rejection, extinction or diminution of the price, or damages.
(b) Seller against the buyer. An action for the price, where property has passed and the buyer wrongfully refuses to pay; and an action for damages for non-acceptance, measured by the loss directly and naturally resulting, with special damages for care and warehousing.
Show the model answer to Question 13
(a) The cement. Ngozi is an unpaid seller because the price is unpaid. The buyer, Femi, is insolvent and the goods are in transit and not yet received by him, so Ngozi may exercise the right of stoppage in transit and hold the cement until the price is paid.
The right is defeated only if a person to whom a document of title was lawfully transferred has further transferred the goods to a third party.
(b) Ike. The machine is specific goods, and Ike has paid. Ike may sue for damages for non-delivery, may apply for specific performance, so that Ngozi cannot keep the machine and offer damages, and, if property has passed, may sue in detinue or conversion.
(c) Damages. The measure is the estimated loss directly and naturally resulting from the breach: ₦5,000,000 − ₦4,500,000 = ₦500,000, with special damages for storing the cement.
(d) VAT. Cement is a taxable supply, so VAT is paid on it under sections 144 and 145 at the standard rate. Exported goods, excluding oil and gas, are zero-rated under section 186.
Pathfinder on the rights and duties of seller and buyer
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Two duties of a seller in a sale of goods contract. Revise the duties of the seller.
Revise first: Performance of the contract
Three rights of an unpaid seller over the goods. Revise lien, withholding delivery and stoppage in transit.
Revise first: The unpaid seller
Rights of a buyer. Revise the five rights of a buyer.
Revise first: Rights of the buyer
The seller’s rights after goods are destroyed and property has passed. Revise the action for the price.
Revise first: The unpaid seller
Distinguish a contract of sale from hire purchase. Revise the comparison.
Revise first: Working through the rules
New in the current syllabus, not yet asked in the diets reviewed. Revise taxable supplies and the zero-rated list.
Revise first: VAT on supplies under the Nigeria Tax Act 2025
Source: ICAN Pathfinder, Corporate and Business Law. Diets covered: November Diet, 2014 to May Diet, 2024.
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