INTRODUCTION TO RIGHT OF UNPAID SELLER
The Sale of Goods Act, 1930 explicitly records down the rights and obligations of both the seller and buyer. As indicated in Section 2 (13) of the Sale of Goods Act, 1930, “seller” means a person sells or agrees to sell goods[1].
Who is an unpaid seller?
The meaning of an unpaid dealer has been given under Section 45 of the Sale of Goods Act, 1930:-
(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 endorsed, or a consignor or agent who has himself paid, or is directly responsible for, the price[2].
An unpaid dealer has twofold rights which are as per the following:-
1.Rights of unpaid seller against the buyer personally, which can be again classified to:-
a) Sue for Price [3]
b) Damage to Non – acceptance[4]
c) Suit for specific performance[5]
d) Suit for Interest & Special Damages[6]
2.Rights of an unpaid seller against the goods sold.
Under the Sale of Goods Act, 1930, these rights are:-
1. A possessory lien (particular, not general);
2. A right of stoppage in transit; and
3. A right of resale[7].
The rights provided to an unpaid seller, under the Act, are dependent on whether the property in the goods has passed to the buyer or not. An unpaid seller of the goods, the property in which has passed to the buyer, entitled to exercise the following rights:-
1.Right of lien on the goods for the price while he is in possession of them;
2.Right to stop the goods in transit after he has parted with the possession of the goods (in case the buyer becomes insolvent); and
3.Right to re-sell the goods (subject to the goods being of a perishable nature or the unpaid seller exercising its right of lien or stoppage in transit[8].
To Illustrate:-
A, who lives in Mumbai, order goods from B’s establishment in Delhi. B sends the goods to A’s address in Mumbai. On arrival, the carrier takes it to A’s house and leaves it there. A refuses to take delivery of the goods and stops the payment. Whether B can exercise his right of stoppage in transit depends upon whether goods are in transit. For A does not accept delivery of the goods and does not make the payment either, the goods are in transit. Hence,B can exercise his right of stoppage in transit and take the goods back.
So thus the right of unpaid seller can deduce from several real life examples. This project aims to cover the ‘Right of Lien’ and ‘Right of stoppage in Transit’ as a comparative study along with relevant case laws.
RIGHT OF LIEN
Section 47 to 49 Sale of Goods Act, 1930 deals with Right of Lien of unpaid seller. To retain possession of goods and refusing to deliver them to the buyer until the price due is tendered or paid is called the Right of lien[9].
By way of the exercise of this right the seller can refuse to deliver the goods to the buyer until the payment of the price even though the ownership of the goods has already passed to the buyer. By the mere exercise of this right, the contract of sale is not rescinded[10].
Section 47 (1) (a)
This section gives account of ‘where the goods have been sold without any stipulation as to credit’.The position in this regard has been thus stated by Bayley B: “the general rule of law is, where there is a sale of goods, and nothing is specified as to 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[11].”
Section 47 (1) (b)
This section gives an account ‘Where the goods have been sold on credit, but the term of credit has expired’.In such a situation, the seller can exercise the right of lien on the expiry of the time of credit. Despite the fact that initially the seller had consented to sell them on credit, however at this point since the price has turned out to be payable in view of the expiry of the time of credit, the seller can refuse to part with the goods until he is paid for them. To illustrate :On 1st March, A sells a pony to B, the buyer reserving an option to take the delivery whenever he desires and the price is payable on June 1st. On the off chance that the buyer has not taken the delivery of the pony by June 1st and he requests the delivery after this date, the seller can refuse to part with the horse until the buyer pays for them.
Section 47 (1) (c)
This section gives an account ‘Where the buyer becomes insolvent’. Despite the fact that the seller had sold the goods using a credit and the time of credit has not yet expires but rather the buyer has turned out to be insolvent, the seller’s right of lien can be worked out.To illustrate, Let the goods are sold on March 1st and the period of credit extends up to 1st June.The buyer becomes insolvent on 15th March.Even if originally the seller had agreed to deliver the goods to the buyer on credit, if the buyer had not yet taken the delivery of the goods, he may exercise his right of lien if the buyer demands delivery at any time after 15th January. According to section 2(8), a person is insolvent when he has ceased to pay his debts in the ordinary course of business, or cannot pay his debts as they become due whether he has committed an act of insolvency or not[12].
Section 47 (2)
Even though the position is not that of the seller, but only that of an agent or bailee of the buyer, the Right of lien can be exercised if the seller is still in possession of the goods[13].To illustrate,
The seller the goods on March 1st.The buyer instead of taking the delivery of the goods asks the seller to keep goods with the seller till June 1st, the buyer agreeing to pay the charges for the two months, the seller can exercise his right of lien in respect of such goods. Nonpayment of price is the basis of this right and no question arises, if the buyer is willing to pay.Personal action is the only remedy for recovery of other dues apart from price.
TERMINATION OF LIEN
Termination of Lien is given under Section 49 of the Sale of Goods Act. A notice of termination is required under other country laws like that of the US[14]. However, in Indian law three conditions are given for termination of lien under Section 49.
1.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 goods[15].
2. When the buyer or his agent lawfully obtain the possession of the goods[16].
3. By waiver[17].
Subsection 2 provides that an unpaid seller, having a lien, does not lose his lien only for the reason that he has obtained a decree for the price of goods[18].
By Delivery to Carrier
As the delivery of goods to carriers for the purpose of transmission operates as delivery to the buyer himself, obviously through such a delivery,the right of lien comes to an end. The delivery to the carrier only puts an end to right of lien.The seller can still exercise the right of stoppage in transit. So he can revive his right of lien by regaining possession of goods from the carrier through right of stoppage in transit. Also, his lien does not revive if he regain possession of goods for any other purpose.
In Valpy v. Gibson [19]at the request of the buyer,Goods were sold and sent by the sellers to the shipping agents of the buyer, and were put on board a ship those agents.For the purpose of re-packing, the goods were sent back to the seller. But the buyer became insolvent, when the goods were in possession with sellers. Except upon payment of price seller refused to deliver it back to Buyer’s trustee. It was held that, by delivering the goods to shipping agents, the seller had lost Right of lien.
By Delivery to Buyer
The effect of delivery to the buyer is thus stated by Blackburn:-
When the vendor has given the buyer possession under the contract of sale, all his rights in the goods are completely gone; he must recover the price exactly as he would recover any other debt and has no longer any claims on the goods sold superior to those of any other creditor. The delivery and acceptance of possession complete the sale, and give the buyer absolute, unqualified and indefeasible right of property and possession into the things sold, though the price be unpaid and the buyer be insolvent.
When the goods are delivered back to seller for some specific purpose like repairs etc, it does not revive the right of lien of the seller. If the buyer occupies the possession of goods through wrongful acts, the seller’s right of lien is not defeated. There should be a lawful obtaining possession of goods by buyer. Even if there is consent of seller and when such consent was managed through fraud, the effect of such situation is stated by J. Attiyah:
Although it may be a little odd to say that a possession obtained in circumstances amounting to larceny may be ‘lawfully’ obtained, it is submitted that this is more consonant with the rest of the Act, and this construction would probably be adopted. But if the buyer obtains possession of the goods without the consent of the seller, the lien is not lost, and even if the property has passed to buyer it appears that he cannot pass a good title free from the lien to a third part.
By Waiver
Usually, in every contract of sale, there is implication of law about the right of lien for the benefit of seller.Seller may waive this right, if he wishes to do so.This waiver may be implied or expressed.According to Section 62, a party may waive his right impliedly or expressly.An implied waiver occurs when seller is guilty of some wrongful acts like dealing with inconsistent in manner, wrongfully consuming or reselling it etc.This waiver can be accomplished by implication of law in contract of sale with the purpose of providing benefit to buyer.
For example, there was a contract of sale of a car between A and B.It was specified in terms of contract that, in case payment is not made by buyer, right of lien will not be exercised by seller.A, the seller even after becoming fully aware of such a term included in contract still waives his right as he wanted to show his trust to B, his best friend, the seller.So even if later B defaults in payment A cannot exercise his right of lien since he consented himself to waiver.
By Tender of Price
Right of lien cannot be exercised when buyers tenders price.Because buyer ceases to be unpaid seller when buyer tenders price.Therefore he cannot become an unpaid seller by a voluntary refusal to accept.The seller may stop the goods as long as they are in transit,When the goods have been delivered to a carrier or other bailee for the purpose of transmission to the buyer, who had become insolvent.In situations when goods are delivered in parts right of lien can be still exercised in remaining parts.According to Section 49(2), merely obtaining decree by buyer does not deny seller’s right of lien.
CASE STUDIES FOR RIGHT OF LIEN
Eduljee v Café John Bros
In Eduljee v Café John Bros, a refrigerator was sold to buyer for Rs.120 and at a cost for Rs.320, it was further agreed that the seller will put that in order.After taking the delivery, the buyer admitted that, it was working satisfactorily.For some further repairs, two of its parts were delivered to seller.But now, the seller refused to deliver back two parts to buyer.The seller claimed a lien on them until the amount originally due had been paid.It was held that, the right of lien had comes to an end, right after delivery of the refrigerator had been made to the buyer.Again getting the possession of those goods, it could not be revived by the seller.
Valpy v. Gibson
In Valpy v. Gibson, at the request of the buyer,Goods were sold and sent by the sellers to the shipping agents of the buyer, and were put on board a ship by those agents.For the purpose of re-packing, the goods was sent back to the seller.But the buyer became insolvent, when the goods were in possession with sellers.Except upon payment of price seller refused to deliver it back to Buyer’s trustee.It was held that, by delivering the goods to shipping agents, the seller had lost Right of lien.
Gurr v. Cuthbert
In Gurr v. Cuthbert, there was a sale of a stack of hay for 86 dollars, to be paid for as it is taken away, the whole to be removed by a certain date only part, was paid for and removed by the buyer before that date.Two months after that date the seller cut up and used the remainder. By doing so, the seller waived his lien, and the buyer could successfully maintain an action against him.
Grice v. Richardson
In Grice v. Richardson, three packets of tea were imported by appellants who are trading in Australia.It was sold to respondents, in return they gave their acceptance or promissory notes for the price. On the delivery notes which were handed to respondents, it was stated that the tea referred was warehoused by appellants. Subsequently, the respondents endorsed delivery orders. W & Co became insolvent subsequently and their notes and notes were dishonoured. It was held that the appellants had retained their lien in respect of tea remained in the warehouse.
Haymond v. Anderson
In Haymond v. Anderson, It was held that, if 100 bags are to be supplied to the buyer, and 20 have already supplied, over the rest of the 80 bag seller may exercise his right of lien.But in case, the buyer gets whole of goods weighed and he takes away only a part, such delivery can be considered as delivered as whole. So in such situations, seller’s right of lien upon remaining goods come to an end.
Knight v. Wiffen
In Knight v. Wiffen, there was a sale of 80 mounds of barley by A to B.Before the goods was ascertained, B sold 60 mounds to C from this purchase.After obtaining delivery order, C presented it to A.C was informed that, in due course, barley would be forwarded to him.But subsequently B became insolvent.A wanted to exercise his right of lien over the 80 mounds of barley.It was held that, A could not exercise right of lien over those 60 mounds of barley sold to C by B.Only the right can be exercised in respect of remaining 20 mounds.
RIGHT OF STOPPAGE IN TRANSIT
Section 50 – 52 gives account of right of stoppage in transit.
Section 50
This section provides that when goods are delivered to carrier for transmission to buyer, the carrier has to deliver it back to seller, if he demands so.Even if buyer has possession of document of title, at seller’s request carrier is to deliver it back to him.Thus the unpaid seller can regain his possession of goods and retain it until the buyer pays or tenders price.
By operating this right, it only means that seller can retain goods until buyer for it. It does not means that, the operation of this right result in rescission of contract or re-vesting of property in seller.
Essentials of Section 50
- Seller should be an unpaid seller according to Section 45 of Sale of Goods Act
- The buyer should be insolvent, according to the meaning of Section 2 (8)
- Goods must be in transit.
For the moment, they are given to carrier the purpose of transmission, they goods are in transit.The carrier might take different capacities:
When carrier is a buyer’s agent, there is no question of exercise of right of stoppage in transit and seller cannot any right in respect of them.
When the carrier is the seller’s agent, then the seller himself is deemed to be in constructive possession of the goods and he can exercise even the right of lien in respect of them.
If the carrier is neither seller’s nor a buyer’s agent and holding capacity, the seller can right of stoppage in transit respect of them.
Duration of transit
Section 51 provides rules about the duration of transit, which specifies, when does the transit start and when does it end.
It says that as long as goods are with carrier for the purpose of transmission to a buyer, it is in transit. Until the buyer or his agent takes goods from the carrier, the transit continues. This position was explained by Cave, J in Bethell v Clark.
“The moment that the goods are delivered by the vendor to a carrier to be carried to the purchaser the transitus begins. When the goods have arrived at their destination and have been delivered to the purchaser or his agent, or when the carrier holds them as a warehouseman for the purchaser and no longer as carrier only, the transitus is at an end.”
In Schotmans v Lancashire & Yorkshire Ry. Co, goods were delivered by the seller on board a ship owned by the buyer. In a buyer’s order bill of lading was also taken.In this case it was held that, the act amounted to delivery and seller cannot exercise the right of stoppage in transit.
Lord Cairns said: The essential feature of a 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.
Lord Chelmsford observed:
“if the goods are actually delivered to an agent of the Vendee employed by him to receive delivery, the vendor is divested of his right of stoppage in transitus. On the other hand, although there is an actual delivery to the vendee’s agent, the vendor may annex terms to such delivery, and so prevent it from being absolute and irrevocable… if the vendor desires to protect himself, he may preserve his right of stoppage in transitus by taking bill of lading, making the goods deliverable to his order or assigns.”
In Turner v trustees of Liverpool Docks, on the board of the vessel owned by the buyers, the cargo of cotton was put on but the goods were made deliverable to the sellers or their order.
In the judgment J.Patterson observed that:
“In the present case, the vendor 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 vendors still reserved to themselves, at the time of delivery to the Captain, the jus disponendi of the goods, which he by signing the bill of lading acknowledged”.
When transit comes to an end
- When buyer takes delivery : The right of stoppage comes to an end, when buyer or his agent takes actual possession of goods.Even if the goods have not reached the destination,buyer or agent can take the possession.Section 51 (2) gives 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.So even if there is certain destination indicated by buyer, he can still take possession of goods before that and end the right of stoppage in transit.
In Whitehead v Anderson, Parke B observed that :
“If the vendee takes them out of the possession of the carrier into his own before their arrival, with or without the consent of the carrier, there seems to be no doubt that the transit would be at an end, though, in the case of the absence of the carrier’s consent, it may be a wrong to him, for which he would have a right to action.”
When the carrier or the other bailee acknowledges to the buyer: Section 51(3) provides that, the acknowledgement by carrier or bailee to buyer that he hold goods on his behalf and continues possession, after reaching appointed destination, it makes the transit comes to an end.This is deemed to be the constructive delivery and it subsequently puts an end to right of stoppage in transit.In Whitehead v Anderson, the buyer had become insolvent.Upon the arrival of the ship the assignee of the buyer went to take the delivery of the timber.Captain of ship refused to deliver as freight charges are not paid.It was held that seller’s right of stoppage in transit had not come to an end as neither buyer’s agent had actual nor captain contacted to hold timber.
When the carrier wrongfully refuses to deliver the goods to the buyer: If the carrier wrongfully refuses to deliver goods to buyer, it does not extend the period of transit.In Bird v Brown, a notice to stop goods in transit was given by a person who had no authority to do so.The carrier refused to deliver it to insolvent buyer. After that, the seller tried to ratify the stoppage in transit made by the stranger.It was held that as soon as buyer’s assignee demanded goods, the transit come to an end.The revival of stoppage cannot be done, as it had already come to end, because the refusal of carrier was a wrongful one.
Effect of Part delivery
Section 51(7) provides that, when goods are delivered in parts, by carrier to buyer, the seller may still exercise right of stoppage in remaining goods.If goods are send through different routes and buyer takes delivery one route, the seller may still exercise right of stoppage on remaining goods.But if such a part delivery is made to buyer,in the circumstances shown in agreement on part of seller to waive his right against whole, seller cannot exercise right of stoppage in transit in remaining goods.
Effect of rejection of goods by the buyer
According to Section 51(4), transit is not deemed an end, if the buyer rejects the goods and the carrier continues in possession and even if the seller refuses to take it back.
How the right is effected
Section 52(1) gives that an unpaid seller can exercise his right of stoppage in transit in following ways.
- By taking actual possession of the goods.
- By giving notice of his claim to the carrier or other bailee in whose possession the goods are
The seller has to express his intention regarding same.
Notice of stoppage can be given to:
Person in actual possession of the goods or
His principal.
Also, Section 51(2) says that, in the notice to principal being effectual, it shall be given at such time and circumstances that the principal, by exercising his reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer.
According to Section 52(2),when such a notice is given by seller to the carrier, he should re-deliver it to the buyer or according to his directions and expenses for the re-delivery must be borne by the seller.
In Litt v Cowley, a notice to stop goods was given by sellers to carriers. But they mistakenly delivered it to an insolvent buyer. It was held that the assignees of t buyer were bound to restore back the goods to the seller, or be liable for damages as, on exercise of the right of stoppage, the seller’s duties towards the carrier are only, the issue of proper directions as to how and where and to whom the goods are to be delivered, and the payment of the expenses of redelivery.
References:
1. Section 2(13), Sale of Goods Act, 1930
2. Ibid
3. Section 55, Sale of Goods Act, 1930
4. Section 56, Sale of Goods Act, 1930
5. Section 58, Sale of Goods Act, 1930
6. Section 61, Sale of Goods Act, 1930
7. Section 46, Sale of Goods Act, 1930
8. Section 54(2), Sale of Goods Act, 1930
9. http://mercantilelaws.blogspot.in/2012/05/rights-of-unpaid-seller.html
10. Section 54(1)
11.Miles v Gorton 1834 2 C&M 504, at p. 511
12.Section 2(8)
13.Section 4(2)
14.Statutes & Constitution:View Statutes : Online Sunshine.” Statutes & Constitution; View Statutes : Online Sunshine. N.p., 30 Oct. 2014. Web. 30 Oct. 2014.
15.Section 49(1)(a)
16.Section 49(1)(b)
17.Section 49(1)(c)
18.Section 49(2)
19.1847) 4 CB 837, 72RR 740
About the author –
This article is authored by Medha R Lakshmi, second year BA.LLB (Hons.) student at National Law Institute University, Bhopal.
