What are the Rights of Unpaid Seller?

SUDHIR SINGH
Broadly speaking, rights of an unpaid seller may be divided under two heads:
1. Right against the goods.
2. Right against the buyer personally.
I. Rights of unpaid seller against the goods
(a) When property in the goods has passed :
1. Right of Lien (Sees. 47 to 49):
A lien is a right to retain possession of goods until the buyer pays the price. The unpaid seller can
retain the goods in his possession in the following cases:
(i) The goods have not been sold on credit, or
(ii) The goods have been sold on credit but the period of credit has expired, or
(iii) The buyer has become insolvent [Sec. 47(1)].
It should be noted that an insolvent here means a person who is commercially insolvent as against a
person who has been adjudged insolvent under the Insolvency law. A person is deemed insolvent
who has ceased to pay his debts as they become due or if he is unable to pay his debts in the ordinary
course of dealings or business, whether4je has committed an act of insolvency or not [Sec. 2(8)].
It should also be noted that in case the buyer becomes insolvent, the unpaid seller can exercise his
right of lien even if the period of credit has not expired if the buyer becomes insolvent before the
period of credit has expired.
1. Right of lien is a possessory right. As such, it can be exercised only when the goods are in
possession.
2. If the possession is lost or gone, the right of lien is also lost or gone.
3. The right of lien can be exercised against the goods even if the goods are in possession of the seller
in any other capacity such as bailee or trustee.
4. The right of lien can be exercised even if the document of title has been delivered but the goods are
in the possession of the seller.
5. Right of lien cannot be exercised on the goods repossessed after sale. For example, when the buyer
returns the goods for repair.
6. Right of lien can be exercised only when the price is due and not for other expenses, e.g., godown
charges, dock charges, etc.
7. Right of lien cannot be exercised where the right of lien has been expressly excluded.
8. Finally, even if the seller has made part delivery, the lien may be exercised on the goods remaining
in possession. However, if the part delivery has been made so as to show an intention to waive the
lien, the right of lien cannot be exercised (Sec. 48).
It should be noted carefully that the seller cannot exercise right of lien on goods which he has already
dispatched to purchaser [M/s. Jain Mills & Electrical Stores v. State of Orissa.





Right of Stoppage in Transit
By pionirryuputra | September 2012
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Introduction
Unpaid seller which defined as any person who is in the position of a seller, the one to whom
the bill of lading has been indorsed, or the one who is directly responsible for the price but has
yet been paid or tendered according to Section 45 of the Sale of Goods Act 1957. This unpaid
seller has certain right over the goods that is being transacted until the other party fully pay
him/her. And the right of the unpaid seller is clearly defined within Section 46(1) of the Sale of
Goods Act 1957 which states that Subject to 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 an insolvency 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.


Distinction of Lien and Stoppage at Transit
Some people might confuse on the difference between lien and stoppage at transit, thus we
have to create a clear distinction as to avoid any confusion. The main points of distinction
between these two rights of an unpaid seller are basically: a. The sellers lien attaches when the
buyer is in default, whether he be solventor insolvent. The right of stoppage in transit arises only
when the buyer is insolvent. b. 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. c. 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...




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 buyers 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 buyers 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 Perry
2
)

The unpaid sellers 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 theproperty 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 sellers
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 sellers 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 unpaidseller 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 ofinsolvency or not.

Note: The sellers right of stoppage in transit is based on the principle that one mans goods shall nto be
applied to the payment of other mans 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 thebuyer, 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 sellercannot 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 sellers
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 unpaidseller 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