Rights of an Unpaid Seller against the goods

An unpaid seller has two-fold rights, viz.,;

I.      Rights of unpaid seller against the goods, and

II.    Rights of unpaid seller against the buyer personally. We shall now examine these rights in detail.

1.    Rights of Unpaid Seller against the Goods.

An unpaid seller has the following rights against the goods notwithstanding the fact that the property in the goods has passed to the buyer:

1.       Right of lien;

2.       Right of stoppage of goods in transit;

3.       Right of resale [Sec. 46 (1)].

1. Right of lien (Sec. 47)

‘Lien’ is the right to retain possession of goods and refuse 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 entitled to exercise his lien on the goods in the following cases:

(a)   Where the goods have been sold without any stipulation as to credit;

(b)   Where the goods have been sold on credit, but the term of credit has expired:

(c)     Where the buyer becomes insolvent, even though the period of credit may not have yet expired.

In the case of buyer’s insolvency the lien exists even though goods had been sold on credit and the period of credit has not yet expired. When he 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.

The effect of buyer’s insolvency is that all stipulations as to credit are put to an end and the seller has a right to say, “I will not deliver the goods until I see that I shall get my price paid” (Griffiths vs Perry²)

The unpaid seller’s lien is a possessory lien, i.e., the lien can be exercised as long as the seller remains in possession of the goods. He may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer [Sec. 47(2)]. Transfer of property in the goods or transfer of documents of title to the goods does not affect the exercise of this right, provided the goods remain in the actual possession of the seller. In fact when property has passed to the buyer then only retaining of goods is called technically ‘lien.’ Where the property in goods has not passed to the buyer and the title is still with the seller then it is, strictly speaking, anomalous to say that the seller has a lien against his own goods. The seller’s lien when property has not passed to the buyer is termed as ‘a right of withholding delivery. Accordingly, Section 46(2) provides:

The term insolvent here does not mean a person who has been adjudged insolvent under the Insolvency Law. In Sale of Goods Act “a person is said to be insolvent who 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” [Sec. 2(8)].

But if the buyer has transferred the documents of title to a bonafide purchaser, the seller’s lien is defeated (Sec. 53).

“Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transit where the property has passed to the buyer.”

This right of lien can be exercised only for the non-payment of the price and not for any other charges, i.e., maintenance or custody charges, which the seller may have to incur for storing the goods in exercise of his lien for the price. This right of lien extends to the whole of the goods in his possession even though part payment for those 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, unless such part delivery has been made under such circum­stances as to show an agreement to waive the lien (Sec. 48). Also, the lien can be exercised even though the seller has 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 loses his lien thereon in the following cases:

(a)  When he delivers the goods to a carrier or other beilee for the purpose of transmission to 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 ( Eduljee vs John Bros.).

2. Right of Stoppage of Goods in Transit:

Meaning of Right of Stoppage of Goods in Transit: The right of stoppage in transit means the right of stopping the goods while they are in transit, to regain possession and to retian them till the full price is paid. Lord Cairns LJ in case of Schotsmans v. Lances and Yorks Rly. Had made the following observation in this regard:

“The essential feature of stoppage in transit is that the goods should be in the possession of a middleman or some other person intervening between the vendor who has parted with and the purchaser who has not received them.”

Conditions under which Right of Stoppage in Transit can be Exercised [Section 50]: The unpaid seller can exercise the right of stoppage in transit only if the following conditions are fulfilled:

(i)   The seller must have parted with the possession of goods, i.e., the goods must not be in the possession of seller.

(ii) The goods must be in the course of transit.

(iii) The buyer must have become insolvent.

Note: The buyer is said to be insolvent when he has ceased to pay his debts in ordinary course of business, or cannot pay his debts as they become due, whether he has committed an act of insolvency or not.

Note: The seller’s right of stoppage in transit is based on the principle that one man’s goods shall nto be applied to the payment of other man’s debt. [Lord Reading in Booth Steamship Co Ltd. V. Cargo Fleet Iran Co.]

Duration of Transit [Section 51(1)]: Goods are deemed to be in course of transit from the time when they are delivered to a carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier or other bailee.

Note: The carrier must hold the goods in the capacity of an independent person and not in the capacity of an agent for the seller or buyer. If the carrier holds the goods as an agent for the seller, there is no question of exercising the right of stoppage in transit because the seller can exercise his right of lien. If the carrier holds the goods as an agent for the buyer, the seller cannot exercise the right of stoppage in transit because the delivery to the carrier amounts to delivery to buyer..

3. 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:

(a)         Where the goods are of a perishable nature; or

(b)   Where such a right is expressly reserved in the contract in case the buyer should make a default;

What is Goods? Types of Goods

Rights of an Unpaid Seller against the goods

Essential Features of Right of Stoppage of Goods in Transit

Who is an Unpaid Seller? Characteristics of an Unpaid Seller  Buyers wrong is unforgivable in purchase  Rules regarding transfer of title on sale  What are the benefits of a Bonded Warehouse?  Effect of Pershing of Goods  Documents to Title To Goods  Who are the Common Carriers?  Difference between Common Carriers and Private Carriers

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