Law of Contracts – (Specific Contracts)

Rights of Unpaid Sellers against the Goods

Introduction:

Definition of Unpaid Seller as per Section 45 of the Sale of Goods Act – (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, is or directly responsible for, the price.

A seller who has only received a part of the price is also an unpaid seller. Where the seller has received a negotiable instrument, like a bill of exchange, promissory note or cheque, for the price, he is not an unpaid seller. But if, before he has delivered the goods, the negotiable instrument is dishonoured, then he becomes an unpaid seller and may exercise his rights. This is so because a negotiable instrument is always presumed to have been received as a conditional payment and the condition is not fulfilled when it is dishonoured. [1] The position is briefly summed up by Mellish, LJ in the case Gunn v. Bolckow, Vaughan & Co: [2] 

If the bill is dishonoured before delivery has been made, then the vendor’s lien revives; or if the purchaser becomes openly insolvent before the delivery actually takes place, then the law does not compel the vendor to deliver to an insolvent purchaser.

The security afforded by the Act to an unpaid seller are also extended to “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 certified, or a consignor or agent who himself has paid or is directly responsible for, the price" This is illustrated in the case J.L. Lyons & Co Ltd v. May & Baker Ltd. [3] In this case, L Co, sold a quantity of citric acid crystals to one P, who resold the goods to M & B. The goods were not of the contract quality. L Co, therefore, agreed to take them back and refunded the price to P. The latter gave a cheque to M & B, in refund of the price. This cheque was dishonoured and, therefore, M & B sought to retain the goods till their price was refunded.

But it was held that they could not do so. They were held bound to return the goods as the court refused to believe “that a person who has bought and paid for, and afterwards rejected the goods, is a person like an unpaid seller."

Rights of the Unpaid Seller (Ss. 46)

Definition of unpaid seller’s rights as per section 46 – (1) Subject to the provisions of this Act of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law – (a) a lien on the goods for the price while he is in possession of them; (b) in case of the solvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them; (c) a right of resale as limited by this Act.

(2) 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 co-extensive with his rights of lien and stoppage in transit where the property has passed to the buyer.

Section 46 seeks to protect the interest of the unpaid seller by conferring upon him the following rights against the goods, notwithstanding the fact that the property in the goods has passed to the buyer – (1) a lien on the goods for the price while he is in possession of them; (2) in case of the insolvency of the buyer, a right of stoppage of the goods in transit after he has parted with the possession of them; (3) a right of resale as limited by the Act.

These rights of an unpaid seller do not depend upon any agreement, express or implied, between the parties. They arise by the implication of law. They are some of the incidents attached by law to a contract of sale. In the words of Bayley, J [4] :

[T]he buyer has no right to have possession of the goods till he pays the price. The seller’s right in respect of the price is not a mere lien which he will forfeit if he parts with the possession, but grows out of his original ownership and dominion, and payment or a tender of the price is a condition precedent on the buyer’s part and until he makes such payment or tender, he has no right to the possession.

These rights generally presume that the property in the goods has passed to the buyer, and, in order to assure the same rights and protections to the seller where the property has not passed, Section 46(2) specially states that where the property in the goods has not passed to the buyer, the seller would have the same rights of lien and stoppage in transit which he would have had as if the property had been passed.

Unpaid Seller’s Lien (Ss. 47)

Definition of the seller’s lien as per section 47 – (1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in following cases, namely: (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but term of credit has expired; (c) where the buyer becomes insolvent.

(2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer.

Lien is the right to retain possession of goods until certain charges due in respect of them are paid. The unpaid seller has the right to retain the goods until he obtains the price. Section 47 provides that the unpaid seller of goods who is in possession of them is entitled to retain his possession until payment or tender of the price. Where the goods are sold on credit, the right of lien is suspended during the term of credit. But on the expiry of that term, if the goods are still in the possession of the seller, his lien is restored.

The right of lien is correlated with the possession and not with title. Thus, where the seller has transferred to the buyer the documents of title to the goods, his lien is not defeated as long as he remains in possession. [5] Even where the seller issued to the buyer delivery of orders thereby converting himself from an owner into a bailee for the buyer, his lien was not defeated. For section 47(2) clearly declares that “the seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer."

The right of lien exists only for the price of the goods. [6] The seller is not entitled to lien for any other charges such as charges for storage or the like. It has been held by the House of Lords in Somes v. British Empire Shipping Co [7] that where the price has been tendered, the seller cannot claim to retain the goods further for the expenses incurred by him on storage during the period that he was holding the goods in the exercise of his lien.

Part Delivery (Ss. 48)

Part Delivery as defined by Section 48 – 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.

Where an unpaid seller has delivered a part of the goods, he may exercise his lien on the remainder. In Grice v. Richardson [8] , the sellers had delivered a part of the three parcels of tea comprised in the sale, and they had not been paid for the part which remained with them. They wre allowed to keep it till payment of the price. Where, however, a part of the goods are delivered under circumstances which show an agreement to waive the lien, the seller cannot then retain the remainder. In other words, where delivery of a part is intended as a delivery on the whole, the lien is lost. “If both parties intend it as a delivery of the whole, then it is a delivery of the whole; but if either of the parties does not intend it as a delivery of the whole, if either of them dissents, then it is not a delivery of the whole." [9] The party, who alleges that part delivery was intended to operate as delivery of the whole, has to prove that fact.

Where the contract envisages delivery of goods by instalments, the buyer’s default in paying one instalment does not entitle the seller to stop delivery of the rest of the instalments unless: (a) the buyer has become insolvent [10] or (b) the buyer’s default amounts to repudiation of the whole contract.

Where the goods are at the time of sale in the custody of a third person, they are considered to be in the seller’s possession for the purposes of his lien until the third person attorns to the buyer and thereby becomes a bailee for the buyer.

Termination of Lien (Ss. 49)

Termination of Lien has been defined in Section 49 – (1) The unpaid seller of goods loses his lien thereon – (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; (b) when the buyer or his agent lawfully obtains possession of the goods; (c) by waiver thereof.

(2) The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained a decree for the price of the goods.

Lien is linked with possession and is lost when possession is lost. Section 47 accordingly provides that the unpaid seller of goods loses his lien in the following cases – (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 the goods; (2) when the buyer or his agent lawfully obtains possession of the goods; (3) by waiver of the lien.

Sub-section (2), however, provides that the unpaid seller does not lose his lien by reason only that he has obtained a decree for the price of the goods.

By delivery to carrier

Delivery of the goods to a carrier for the purpose of transmission to the buyer operates as a delivery to the buyer himself, and, therefore, the right of lien is thereby lost. Delivery to a carrier puts an end to lien, but the seller still has the right of stoppage in transit. If the seller regains possession of the goods from the carrier by exercising his right of stoppage in transit, his lien revives. But if he takes back the goods from the carrier for any other purpose, the lien does not revive. Thus, in Valpy v. Gibson, the goods sold were delivered to the buyer’s shipping agents, who had put them on board a ship. But the goods were returned to sellers for repacking. While they were still with the sellers, the buyer became insolvent and the sellers, being still unpaid, claimed to retain the goods in the exercise of their lien.

It was held that, having lost their lien by delivery to the shipping agents, their refusal to deliver was wrongful. Where the seller has reserved the right of disposal of the goods his lien continues till the end of the transit.

By delivery to buyer

The right of lien is also lost when the goods are delivered to the buyer or his agent. The effect of delivery to buyer is thus stated by Blackburn [11] :

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 in the things sold, though the price be unpaid and the buyer be insolvent.

Where the goods are delivered back to the seller for a specific purpose, such as the repair of a machine sold, that does not revive the seller’s lien. The seller’s lien is, however, not defeated where the buyer has obtained possession without the consent of the seller, for example by some wrongful act or for a temporary purpose, such as a trial. The buyer has to obtain possession lawfully and under the contract. Where possession is obtained by consent, but the consent itself is managed by tricks or frauds, the effect is thus stated by P.S. 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. [12] 

By waiver

The right of lien is attached by implication of law to every contract of sale for the benefit of the seller. The seller may, therefore, waive his right if he wishes to. Waiver may be express or implied from the conduct of the seller. An implied waiver takes place when the seller is guilty of some wrongful act in reference to the goods, “such as dealing with the goods in manner inconsistent with the mere right to have possession of them, as by wrongfully reselling or consuming them, or by claiming to keep them on some ground other than his right to lien." [13] Thus, where the seller cut up and used the stack of hay which he had sold and part of which had been taken away by the buyer, he was held liable in damages to the buyer for his failure to deliver.

By tender of price

When the buyer tenders price for the goods, the seller ceases to be an unpaid seller, and, therefore cannot, by his voluntary refusal to accept the price, convert himself into an unpaid seller and claim lien. [14] 

Where the goods have been delivered to a carrier or other bailee for the purpose of transmission to the buyer, who has become insolvent, the seller may stop the goods as long as they are in transit. This is one of the methods of protecting the unpaid seller against the risk of his goods going to the possession of an insolvent.

Right to Stoppage in Transit (Ss. 50)

Section 50 confers the right of stoppage in transit upon the unpaid seller. It says: “Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller, who has parted with the possession of the goods, has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in the course of transit, and may retain them until payment or tender of the price.

The first requirement is that the seller should be unpaid, second that the buyer should have become insolvent and third that the property should have passed to buyer, for, if the seller reserves the right of disposal, the goods remain his property, and, therefore, under his lien. Lastly, the goods should be in the course of transit. The first three requirements are questions of fact which can be easily ascertained. The last requirement is also a question of fact, but this fact is sometimes difficult to ascertain.

Duration of Transit (Ss. 51)

Section 51 of the Sale of goods Act (1930) defines duration of transit. It says – (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.

(2) 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.

(3) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent, the transit is at an end and it is immaterial that a further destination for the goods may have been indicated by the buyer.

Goods are deemed to be in the 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 transit ends when the goods are delivered to the buyer or his agent.

When Seller’s Rights are Defeated (Ss. 53(1))

Seller’s consent as defined in section 53(1) – Where the buyer sells or makes other disposition of the goods with the consent of the seller that is binding on the seller. The assent contemplated by the sub-section must be “such an assent as in the circumstances shows that the seller intends to renounce his rights against the goods. It is not enough to show that the fact of the sub-contract has been brought to his notice, and that he has assented to it, merely in the sense of acknowledging the receipt of the information." This was pointed in Mordaunt Bros v. British Oil & Cake Mills Ltd [15] . In another case [16] it was held that their lien was defeated by the sale as the transaction was carried out with their previous assent.

Transfer of documents of title (Section 52) – When the seller has issued to the buyer documents of title to the goods and he has sold or pledged the goods by transferring the documents of title, then in the case of sale, the seller’s right of lien and stoppage in transit are defeated and, in case of pledge, his rights become subject to the pledge. It is necessary that the transferee should act in good faith and should have given value for the goods. He should not at the time have notice of the fact that the original seller is still unpaid and has rights against the goods.

Right of Resale (Ss. 54)

Section 54 states that sale is generally not rescinded by lien or stoppage in transit – (1) Subject to the provisions of this section, a contract of sale is not rescinded by the mere exercise by an unpaid seller of his right of lien or stoppage in transit.

(2) Where the goods are of a perishable nature, or where the unpaid seller who has exercised his right of lien or stoppage in transit gives notice to the buyer of his intention to resell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, resell the goods within a reasonable time and recover from the original buyer, damages for any loss, occasion to buy his breach of contract, but the buyer shall not be entitled to any profit which may occur on the resale. If such notice is not given, the unpaid seller shall not be entitled to repay such damages and the buyer shall be entitled to the profit, if any, on the resale.

The seller may expressly resolve the right of resale, in case the buyer makes a default. In such case, no notice of resale is required, to be given. The contract is automatically rescinded when the seller resells the goods. In such a case, he does not sell as an unpaid seller, but as the original owner of the goods. [17] 

In This paper, we have studied about who an unpaid seller is and what his rights are as per the Sale of Goods Act (1930). We have examined various interactions involving the unpaid seller.