The unpaid seller, in addition to his rights against the goods as discussed above, have the following three rights of action against the buyer personally:
1. Right of lien.
2. Right of stoppage of goods in transit;
ADVERTISEMENTS:
3. Right of resale
Rights of Unpaid Seller :
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:
ADVERTISEMENTS:
(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.
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ADVERTISEMENTS:
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 the 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” (Griffith’s vs. Parry).
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:
“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, e.g., 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 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 bailee 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 :
The right of stoppage in transit means the right of stopping further transit of the goods while they are with a carrier for the purpose of transmission to the buyer, resuming possession of them and retaining possession until payment or tender of the price.
Thus, in a sense this right is an extension of the right of lien because it entitles the seller to regain possession even when the seller has parted with the possession of the goods.
When can this right be exercised? (Sec. 50):
An unpaid seller can exercise this right only when:
(a) The buyer becomes insolvent:
The buyer is said to be 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 is declared an insolvent or not [Sec. 2(8)]; and
(b) The property has passed to the buyer:
If property has not passed to the buyer then this right is termed as the “right of withholding delivery” [Sec. 46(2)]; and
(c) The goods are in the course of transit:
This means that goods must be neither with the seller nor with the buyer nor with their agent. They should be in the custody of a carrier as an independent middleman (i.e., in his own right as a carrier) e.g., railways and common carriers whose business is to transport goods of others.
The carrier must not be either seller’s agent or buyer’s agent. Because if he is seller’s agent, the goods are still in the hands of seller in the eye of law and hence there is no transit, and if he is buyer’s agent, the buyer gets delivery in the eye of law and hence question of stoppage does not arise.
Duration of transit (Sec. 51):
Since the right of stoppage in transit can be exercised only so long as the goods are in the course of transit, it becomes necessary to know as to when the transit begins and when it comes to an end. When the transit comes to an end the right of stoppage cannot be exercised.
According to Section 51, 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 takes delivery of them.
Thus the transit continues so long as the goods are not delivered to the buyer or his agent, no matter whether they are lying at the destination with the carrier awaiting transmission or are in actual transit.
The goods are still deemed to be in transit if they are rejected by the buyer and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back.
The transit is deemed to be at an end and the seller cannot exercise his right of stoppage in the following cases:
(a) When the buyer or his agent takes delivery after the goods have reached destination.
(b) When the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination.
(c) When the goods have arrived at their destination and the carrier acknowledges to the buyer or his agent that he holds the goods on his behalf.
(d) When the goods have arrived at their destination but the buyer instead of taking delivery requests the carrier to carry the goods to some further destination and the carrier agrees to take them to the new destination
(e) When the carrier wrongfully refuses to deliver the goods to tie buyer or his agent.
(f) When part delivery of the goods has been made to the buyer with an intention of delivering the whole of the goods, transit will be at an end for the remainder of the goods also which are yet in the course of the transit.
How right of stoppage is exercised (Sec. 52):
The unpaid seller may exercise his right of stoppage in transit either:
(a) By taking actual possession of the goods, or
(b) By giving notice of his claim to the carrier or other bailee in whose possession the goods are.
Such notice may be given either (a) to the person in actual possession of the goods, or (b) to his principal. In the latter case, notice must be given well in advance to enable the principal to communicate with his agent or servant in time, so as to prevent delivery to the buyer.
It is the duty of the carrier, after receiving due notice, not to deliver the goods to the buyer but to redeliver them to, or according to the directions of the seller.
If by mistake he delivers the goods to the buyer, he can be made liable for conversion. The expenses of redelivery are to be borne by the seller.
Lien and Stoppage in Transit Distinguished:
The main points of distinction between these two rights of an unpaid seller are as follows:
1. The seller’s lien attaches when the buyer is in default, whether he be solvent or insolvent. The right of stoppage in transit arises only when the buyer is insolvent.
2. Lien is available only when the goods are in actual possession of the seller while right of stoppage is available when the seller has parted with possession and the goods are in the custody of an independent carrier.
3. The right of lien comes to an end once the seller hands over the possession of the goods to the carrier for the purpose of transmission to the buyer.
On the other hand, the right of stoppage in transit commences after the seller has delivered the goods to a carrier for the purposes of transmission to the buyer and continues until the buyer has acquired their possession.
4. The right of lien consists in retaining the possession of the goods while the right of stoppage consists in regaining possession of the goods.
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, especially 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; or
(c) Where the seller has given a notice to the buyer of his intention to resell and the buyer does not pay or tender the price within a reasonable time.
If on a resale there is a loss to the seller, he can recover it from the defaulting buyer. But if there is a surplus on the resale, the seller can keep it with him because the buyer cannot be allowed to take advantage of his own wrong.
If, however, no notice of resale [as required in case (c) above] is given to the buyer, the right of seller to claim loss and retain surplus, if any, is reversed.
In other words, if the unpaid seller fails to give notice of resale to the buyer, where neither the goods are of perishable nature nor such a right was expressly reserved, he cannot recover the loss from the buyer and is under an obligation to hand over the surplus, if any, to the buyer, arising from the resale.
Thus, it will be seen that giving of notice to the buyer, when so required, is very necessary to make him liable for the breach of contract.
It is so because such a notice gives an opportunity to the buyer either to pay the price and have the goods, or, if he cannot pay, to supervise the sale to see that the same is properly made.
It is important that absence of notice, when so required, affects the rights of the unpaid seller himself only as discussed above and it does not affect the title of the subsequent buyer who will acquire a good title to the goods.
Section 54(3) specially declares- “Where an unpaid seller who has exercised his right of lien or stoppage in transit resells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the resale has been given to the original buyer.”