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Right of an unpaid seller when property in goods is not transferred to the buyer

Where the seller continues his ownership over the goods, his original rights in relation to his goods would remain intact if the buyer defaults in paying the price. In such a case, the unpaid seller, in addition to his other remedies for breach of contract, has a right of withholding the delivery.

Right of an unpaid seller when property in goods is transferred to the buyer

Where the goods have become the property of the buyer but are still in possession of the seller, the unpaid seller is allowed certain privileges in relation to those goods. When the property in the goods has passed to the buyer, an unpaid seller has the following rights against the goods
  • Right of lien
  • Right of stoppage in transit
  • Right of re-sale
The basic idea behind these rights is that the seller’s original ownership of the goods is considered more sacrosanct than the acquired ownership of the buyer for which he has not yet paid the price.

Right of lien

‘Lien’ is a right to retain the possession of the goods belonging to another person, till a certain claim against that person is not satisfied. The unpaid seller is granted lien over the goods of the buyer till his price is not paid by the buyer. As Right of lien is a possessory right, it can be exercised only when the goods are in possession. The right of lien is also termed as right to retain goods. Once the possession of goods is lost, the right of lien is also lost. Right of lien is available to an unpaid seller who is in possession of the goods and
  • The goods have been sold without any stipulation as to credit
  • The goods have been sold on credit, but the term of credit has expired
  • The buyer becomes insolvent

Rules regarding the right of lien

  • When the goods are sold without any stipulation as to credit (i.e. in case of cash sale), the unpaid seller may retain the goods if the buyer fails to pay the whole price
  • When the goods are sold on credit and the buyer becomes insolvent, the unpaid seller can exercise his right of lien, even if the period of credit has not expired
  • The right of lien depends on the actual possession and not on title. It is not affected even if the seller has parted with the document to the tittle of the goods
  • The right of lien can be exercised only for price and not for other charges like, godown rent, interest etc.
  • The right of lien can be exercised even if the goods are in the seller’s possession in any other capacity, like that of a bailee or agent
  • If the seller has made part delivery, the lien may be exercised on the goods remaining in possession. This is subject to intention of the parties regarding the part delivery of goods

Loss of right of lien

The right of lien is lost as soon as the possession of the goods is lost. The circumstances in which the unpaid seller losses the right of lien are
  • When the unpaid seller delivers the goods to a carrier or another bailee for the purpose of transmission of goods to the buyer without reserving the right of disposal of the goods
  • When the buyer or his agent lawfully obtains possession of the goods
  • When the right of lien has been expressly or impliedly excluded i.e. seller expressly or impliedly waives (gives up) his right of lien
  • When the seller has given his assent to sub-sale or pledge to the buyer
  • When the seller refuses to accept the a valid tender of price made by the buyer

Right of stoppage in transit

Transit is an intermediate stage. Goods are deemed to be in course of transit from the time they are delivered to the carrier until the buyer or his agent takes the delivery of the goods. The right of stoppage in transit begins when the goods are delivered to the carrier and it ends when the goods are received by the buyer or his agent from such bailee or carrier.
 
The right of stoppage in transit is an extension of the right of lien. The right of lien is a right to retain possession, whereas the right of stoppage in transit is a right to regain possession. The right of stoppage in transit can be exercised, if-
  • The goods are in transit
  • The buyer has not taken possession of the goods
  • The buyer has become insolvent in the meantime

Right of stoppage of goods in transit can be exercised

  • By taking actual possession of the goods from the carrier or
  • By giving notice of his claim to the carrier or another bailee who holds the goods
The carrier may hold the goods in different capacities such as-
  • Sellers’ agent- when the carrier is holding the goods as the agent of the seller then the question of right to stoppage in transit does not arise as the seller never actually loses the right to lien.
  • Buyers’ agent- if the carrier takes the goods from the seller as the agent of the buyer then the right of lien does not come into question as the delivery to the carrier amounts to a delivery to the buyer and hence the possession of the goods actually passes to the buyer
  • Independent capacity- the right to stoppage in transit actually comes into question when there is a carrier acting in independent capacity. In this case the carrier should stop the goods in transit when the seller sends a notice to the carrier regarding the same

Note: When the notice of stoppage in transit is given by the seller to the carrier or a bailee in possession of the goods, the carrier or bailee must redeliver the goods to the seller. The expenses of such redelivery are to be borne by the seller.

The right to stoppage in transit is lost under the following circumstances

  • If the buyer or his agent obtains possession of the goods
  • If after arrival of the goods at the appointed destination, the carrier or the bailee acknowledges to the buyer that he holds the goods on his (buyer’s) behalf. (It becomes constructive delivery by the seller to the buyer)
  • When the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent. If the carrier does not deliver the goods to the buyer until the freight charges are paid for then such withholding does not constitute wrongful refusal and the right of lien o the seller is not extinguished
  • When the part delivery of the goods has been made to the buyer or his agent, the remainder of the goods may be stopped in transit subject to the intention of the parties regarding the part delivery of goods.

Liability of a carrier

If the carrier, after a proper notice is given to him by the seller to stop the goods in transit, delivers them to the buyer or refuses to deliver back to the seller, he is liable to the seller for conversion (wrongful appropriation of the goods of another).

Comparison between right of lien and right of stoppage in transit

S.No. Right of lien Right of stoppage in transit
1 It can be exercised only when the goods are in actual possession of the seller It can be exercised when the seller has parted with the goods but they are in the possession of a carrier or a bailee
2 This right comes to an end as soon as the goods go out of the possession of the seller This right comes to an end as soon as the goods are delivered to the buyer
3 It is a right to retain the possession of the goods It is right to regain the possession of the Goods

Effects of sub-sale or pledge by the buyer

The rights of lien and stoppage in transit are meant to protect the seller. According to Sec. 53 (1), the seller’s right of lien or stoppage in transit is not affected by any sale, pledge or other disposition of the goods by the buyer, unless the seller has assented to it.

Exceptions

However, in the following circumstances, the unpaid seller’s rights against the goods are defeated by further sale or pledge of the goods by the buyer:
  • Seller’s consent: Sometimes, the buyer further sells or pledges the goods with the consent of the seller. In such cases, the unpaid seller cannot exercise his right of lien or stoppage in transit. When the seller gives his consent, it shows that the seller was ready to waive his right.
  • Transfer of documents of title: Sometimes, the seller issues documents of title to the goods to the buyer. When the buyer has made a transaction with the third party on the basis of the document of title issued by the seller to the buyer and the third party takes the document in good faith and for consideration, the transaction will become effective against the seller’s right over the goods.
Example

Amar sold goods to Akbar and sent the bill of lading to Akbar. Akbar, before making payment of the goods, transferred the bill of lading to Anthony for consideration. Thereafter, Akbar became insolvent. Amar’s right to stop the goods is defeated and Anthony has a good title on the goods.

 

Sometimes, the buyer pledges the document of title to take a loan. In such a case, the unpaid seller will have to release the goods in favour of the pledgee, but he may redeem them when the loan amount is paid back to the pledgee.

 

Example

Amar sold goods to Akbar of the value of ₹ 10,000 and transferred a bill of lading to him. Akbar, without paying for goods, pledged the bill with Anthony for ₹ 4,000. Thereafter, Akbar became insolvent. Amar can get the bill of lading subject to paying a sum of ₹ 4,000 to Anthony.

Right of re-sale

If the buyer fails to pay or offer the price within a reasonable time, an unpaid seller has a right to resell the goods in the following cases
  • When the buyer fails to pay the price within reasonable time and the goods are of perishable nature, the unpaid seller may resell the goods even without a notice to the buyer
  • When the seller has expressly reserved the right of resale in case the buyer should make default, the right to resell is a part of the terms of the contract and the seller need not give a notice of his intention to resell
  • In other cases, where the unpaid seller has failed to get his price from the buyer, he may resell the goods by giving notice of his intention to resell the goods to the buyer

Effects of the notice of resale

  • When there is a profit on re-sale, the seller is entitled to retain it
  • On the other hand, if there is a loss, the seller can recover this loss from the buyer
  • The second buyer will get a good title to the goods irrespective of whether the notice of resale was given or not

If the notice of resale is not given

  • The seller cannot recover any loss if incurred by him on resale
  • If the seller makes any profit on resale then the same needs to be given by the seller to the buyer




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