Dr.

Ram Manohar Lohiya National Law

University, Lucknow

2017-18
Contracts law - II

Final Draft
On
“ UNPAID PAID SELLER’S LIEN”

Submitted to: Submitted By :

Dr. Visalakshi Vegesna Mohd Abushad

Mrinal Pandey

Associate Professor (Law) Class- Ba.llb (Hons),

Dr.RMLNLU Lucknow IIIrdSem

Enrolment no:
c 160101100,160101101

Sec- B
Acknowledgment

My Contracts Law Project was discussion of unpaid paid seller’s lien with the
help of case laws. I would really like to thank Dr. Visalakshi Vegesna
(Associate Professor , RMLNLU) for allowing me to research on this topic and
prepare a research paper. She also guided me throughout the process of
the making of the draft. I would also like to thank God for giving me
strength to complete my final draft. I would like to thank my mother for
encouraging me to work on the topic. Last but not the least I would like
to thank my friends who helped me to find more on the topic and
prepare a research paper of my best efforts.
Contents
Acknowledgment .................................................................................................................................... 2
Introduction ............................................................................................................................................. 4
A Seller’s Lien ........................................................................................................................................ 5
Right of lien the Unpaid Seller ............................................................................................................... 5
Existence of Lien .................................................................................................................................... 7
Right of Lien when Part of the delivery has been made ......................................................................... 8
Lien and Part Delivery under Instalment Contracts ................................................................................ 9
Termination of Lien .............................................................................................................................. 10
Termination by waiver .......................................................................................................................... 12
Buyer Tortiously Obtaining Possession ................................................................................................ 13
CONCLUSION ..................................................................................................................................... 13
BIBLIOGRAPHY ................................................................................................................................. 15
Introduction
Chapter 5 of the Sales of Goods Act, 1930 (hereinafter referred to as the Act) deals with the
rights of Unpaid Seller and provides for a right of lien to the unpaid seller under Section
46(1) of the same. The introductory section1 defines an unpaid seller as

“Section 45

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 dishonor 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, or is directly responsible for, the price.”

The Select Committee while drawing an analogous relationship between English Sale of
Goods Act2 thought it desirable to define an unpaid seller for the sake of brevity which is in
contrast to Indian Contract Act, section 95 of which dealt with the rights of an unpaid seller
(that has now been repealed in lieu of the enactment of the Sale of Goods Act, 1930).3

According to Section 45 of the Act a seller is unpaid so long as he has not received the whole
price and also if the buyer has given him a bill for the price and the bill is dishonoured. The
expression ‘the whole of the price” would mean the whole amount stipulated in respect of an
entire contract and when the contract is severable, the price of the severable parts as
apportioned. At one time, there was a question whether a seller who had been partially paid
was entitled to the rights of an unpaid seller, but that question was set to rest in the case of
Hodgson v Loy4 where it was held that a seller partially unpaid stands on par with the one
wholly paid.

1
Sale of Goods Act, 1930 s 45.
2
Sale of Goods Act, 1930 s 38.
3
Sale of Goods Act, 1930 s 65,
4
Hodgson v Loy (1797) 7 TR 440
A Seller’s Lien
“A lien is a right to detain property until some charge which is due upon it is paid. It is in the
nature of a pledge or security and maybe either legal or equitable. It is not a right of property
in the thing itself but only a right to retain it as security for some charge already due.” 5

A seller’s lien is described as an additional security given to a person who has a right to be
paid besides and independently of is lien.6 The seller’s lien is a particular lien arising in the
precise circumstances specified by the Act and not a general lien for all his debts due from
the buyer, and he cannot rely on the equitable principle of the vendor’s lien.7

The origin of Seller’s lien in English law is doubtful. It is probably founded on the customs of
merchant.8 The term “lien” is unfortunate, because the seller’s rights, arising out of his
original ownership, in all cases exceed a mere lien. They perhaps come nearer to the rights of
a pawnee with a power of sale than any other common law rights. 9 Under the section10 a
seller may be any person who is in the position of the seller i.e. an agent to whom a bill of
lading is endorsed,11 a merchant who buys on his own credit for another to whom he endorses
the bill of lading12 and so is a broker liable on a principle contract.13

Right of lien the Unpaid Seller

Section 46 of the Sale of Goods Act provides for the right of an unpaid seller. It provides for
the rights of the Unpaid Seller for both the cases i.e. where the property in the goods have
passed to the buyer14 and where the property in the goods have not passed to the buyer.

5
1 Story Eq. Jurisp. 506
6
The Eider (1893) P 119, p 131
7
Transport & General Credit Corpn Ltd
8
Blackburn on Sale, p 138.
9
Ibid at p 325
10
Sale of Goods Act, s 45
11
Gunn v Bolckow Vaughan & Co. (1875) LR 10 Ch App 491
12
Ramendra Nath v Brajendra Nath (1919) 46 Cal 831
13
Sale of Goods Act, 1930 s 46(1)
14
Sale of Goods Act, 1930 s 46(2)
Since the paper deals with the Unpaid Seller’s lien, we shall be restricting our discussion to
the same and shall accordingly be dealing with the right of lien provided in sub-clause (a) of
clause (1) of section 46 of the Act.

Section 47 of the Act conclusively deals with the right of lien of an unpaid seller. The lien of
an unpaid seller is a right to retain possession of the goods until tender or payment of the
price. A person cannot have a lien on his own goods. The right of lien is available to an
unpaid seller while he is in the possession of the goods where the property in the goods has
passed to the buyer since an owner cannot have a lien on his own goods.15 On the basis of this
principle, when the statute gives a right of lien to the seller, it presumes that the property in
the goods has passed to the buyer. The lien depends upon actual possession and not on title,
and is not affected by his having parted with a document capable of transferring title. He may
have given a bill of lading which passes the legal property in the goods, or he may have given
a delivery order which, though it does not pass the legal title or property in the goods, enables
the person receiving it to acquire the possession of the goods and acquire a title in that way,
but whatever he has done in that way does not destroy his right of lien as long as he keeps
possession of the goods as vendors.16

It has been held that the giving of delivery order by a seller to a buyer does not itself give the
buyer the buyer such a possession of the goods so as to defeat the seller’s lien for the price,17
but the seller’s lien may be defeated where the circumstances of a case are such as to estop
the seller from denying that the payment had been received for the goods to which the
delivery order related.18 The seller may allow the buyer only a restricted control over the
goods without allowing any exclusive control which may amount to possession terminating
his lien19

The lien of the seller is a right to retain goods sold until the whole price is paid. A partial
payment is, therefore, will not operate to destroy the lien of the vendor upon all the goods,
but only to diminish it in value; every single portion of the property sold being covered by a
lien for the smallest faction of the price.20

15
Nippon yussen Kaisaha v Ramjibhan, AIR 1938 PC 152 at
16
Imperial Bank v London and St. Katherine Docks Co. (1877) 5 Ch Div 195
17
Le Gyt v Harvey (1884) 8 Bom 501
18
Kalka Prasad v Harish Chandra AIR 1957 All 25
19
Albermarle Supply Co Ltd v Hind & Co [1928] 1 KB 307
20
Hodgson v loy
Existence of Lien
Section 47 of the Act provides for situation where right of lien is available to the seller. For
the sake of brevity, it is being reproduced here:

47. Seller's lien

“(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 the
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 the 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.”

A sale is on credit when the seller agrees to accept payment at a future dare and there is
nothing to show that the buyer is not entitled to immediate delivery. In the case of Spartali v
Bencecke21 per Wilde CJ:

“It is undoubted law that, by a sale of specific goods for an agreed price, the property passes
to the buyer and remains at his risk and it is equally clear law that, where by the contract the
payment is to be made at a future day, the lien for the price, which the vendor would
otherwise have, is waived, and the purchaser is entitled to a present delivery of the goods
without payment upon the ground that the lien would be inconsistent with the stipulation in
the contract for future day of payment.”

The granting of credit may only imply that the seller does not insist on immediate payment of
the price of the goods and it does not necessarily mean that he is prepared to deliver goods
without payment. The seller would have no possessor lien during that period of credit, but
the lien will revive after that period has expired.22

Insolvency of the buyer is also a ground for invoking the right of lien. If the buyer becomes
insolvent before the price is paid, and the seller is in the possession of the goods, he is
entitled to retain the possession even if the goods are sold on credit and the term of credit has
not expired.

21
(1850) 10 CB 212, p223
22
Poulton & Son v Anglo Americal Oil Ltd (1910) 27 TLR 38
Paragraph (a) and (c) of sub-s (1)23 declare the law as it was laid down in Bloxam v
Sanders.24 The question left open in that case was whether on the sale of goods on credit, the
seller could claim a lien upon them if they were still in his possession after the period of
credit had expired, although the buyer had not become insolvent; that question was decided
three years later by the court of King’s Bench in favour of the seller.

‘When the owner of goods sells on credit, the buyer has a right to immediate possession; but
if he suffers the goods to remain until the period of payment has elapsed, and no payment in
fact then the seller has a right to retain them. There is no difference in principle whether the
seller charges the buyer with the rent or not; they are still in his possession.’25

The difference between the two cases of sale on credit is that the buyer’s insolvency puts an
end to his right to claim delivery, even where the term of credit has not yet expired; but
where he remains solvent he does not lose that right until the term has expired.

According to sub-section 226 the seller may exercise his right of lien notwithstanding that he
has assented to hold the goods as bailee for the buyer. Earlier in common law it was held that
by ceasing to possess in his original character, and agreeing to possess on the buyer’s
account, the seller abandoned his lien; but if the buyer became insolvent , the right of lien
was held to be revived.27 A case in this regard would that be of Cooper v Bill where the
timber was with wharfinger and the seller allowed the buyer to mark and measure it and also
to spend money in having it squared, it was held that the possession had passed to the
buyer.28 However this rule had been altered by the Act where this sub section provides that
the seller may exercise his right of lien notwithstanding that he has assented to hold the goods
as bailee for the buyer.

Right of Lien when Part of the delivery has been made

Section 48 This section is very similar to s 34 of the English Act and the principles
enunciated in the cases cited under that section apply equally to this and it is therefore
sufficient to refer to them. Under s49(1)© waiver is a method of terminating the seller’s lien

23
Sale of Goods Act, 1930 s 47(1) (a)-(c)
24
Bloxam v Sanders (1825) 4 B&C 941
25
Judgment of Bayley J, New v Swain (1828) Danson & Lloyd 193 34 RR 767
26
Sale of Goods Act, 1930 s 47(2)
27
Townley v Crump (1835) 4 A&E 58, 43 RR 300
28
(1865) 3 H & C 722
and s 48 contains merely one illustration of the principle waiver. There is a similar rule
incorporated in s51(7) without using the language of the waiver.

This section recognises the rule that the seller’s lien is available so long he holds any parts of
the goods and no case appears to have risen in which part delivery has been held to be
delivery of the remainder, so asto divest the seller’s lien, when the goods were actually in the
seller’s lien, when the goods were actually in the seller’s own custody. An attempt was once
made to persuade a court that a sub-rule by the buyer of part of the goods, which remained in
the seller’s warehouse, and delivery thereof at buyer’s request to the sub-buyer operated as a
constructive delivery of the whole to the buyer,29 but even then the sub sale and delivery
under it , were relied on rather ‘upon the ground that the vendee treated the goods as his
own’,30 with the consent of the seller than because of any supposed intrinsic value of part
delivery. The court did not think it necessary to hear the seller’s counsel on either branch of
the argument; whichever way it was considered, the dealing in part could not be presumed to
have any reference to the whole, nor could the seller be presumed to intend to abandon any
right as to the residue.

Lien and Part Delivery under Instalment Contracts

Even where the contract is for delivery and payment by distinct instalments and the buyer
becomes insolvent in the course of performance of the contract, the seller is entitled to refuse
to deliver any more till he is paid the debt due to him for those already delivered, as well as
price of those still to be delivered, the seller however must deliver an instalment which has
been paid for.31 Apparently, if the buyer remains solvent; non- payment of one instalment
will not, it seems, in that case entitle the seller to claim a lien on the next instalments for the
price of the unpaid instalment and withhold delivery of it on that ground. 32 But the trustee in
the bankruptcy of a bankrupt purchaser and it seems also a sub-purchaser, may elect to fulfil
the contract by tendering the price in full within a reasonable time, although the seller is not
bound to tender the goods.33 If under the contract separate deliveries of specified instalments
are to be effected with a provision that separate payment be made for each delivery, each

29
Miles v Gorton (1834) 2 Cr & M 504
30
Follett arguendo, 2 Cr & M, p 507
31
Merchant Banking Co. v Phoenix Banking Co [1877] 5 Ch D 205
32
Chalmers, pp 130-1; Sooltan Chund v Schiller (1878) 4 Cal 252
33
ExP Stapleton [1879] 10 ChD 586: Grey v almond Walker (1913) 40 Cal 522
delivery will be treated as a separate contract and therefore, the seller will have no lien in
regard to a particular instalments of the goods for which the payments has been made.34

Termination of Lien
Section 49 of the Act deals with termination of lien of the unpaid seller. The lien is lost in any
of the three cases mentioned in the section. Unpaid seller’s lien is a possessory lien and hence
this right is available to the seller so long as he is in possession but the moment he parts with
the possession, that right is lost: hence 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,35 and has no longer any claims to the goods sold,
superior to those of any creditor. The delivery and acceptance of possession completes the
sale, and gives the buyer the absolute unqualified and indefeasible rights of property and
possession in the things sold, though the price be unpaid and the buyer insolvent, unless,
indeed, the whole transaction vitiated by actual fraud’. Benjamin considered that:

“Whenever the property has passed and the goods have reached the actual possession of the
buyer, the seller’s sole remedy is by personal action. He stands in the position of any other
creditor to whom the buyer may owe a debt; all special remedies in his favour qua seller are
gone.”36

Further a seller cannot enforce his right to the price by seizing the goods from a buyer who
has both the property in and possession of the goods.37

The ordinary rule is that the delivery of the goods to a common carrier for conveyance [to the
buyer] is such a delivery of actual possession to the buyer through his agent, the carrier , as
suffices to put an end to the seller’s lien.38 The reservation of the Right of disposal, indeed,
prevents the delivery to the carrier being a delivery to the buyer, but as in such cases the
property remains in seller,39 no question of his parting with a lien really arises, for the right of
lien only comes into existence when the property has passed. However, in the presence of a

34
Longbottom & Co Ltd v Bass, Walker & Co (1922) WN 245, p 246
35
Maneckji Pestonji Bharucha v Wadilal Sarabhai & Co (1926) 50 Bom 360
36
Benjamin on Sale of Personal Property, 8th edition, p 829
37
Healing (Sales) Pvt Ltd v Inglis Elextrix pvt Ltd (1968) 121 CLR 584
38
Bolton v L & Y (1886) LR 1 CP 431 at 439
39
Sale of Goods Act 1930, s 25(1)
contractual stipulation, an unpaid seller's lien, recognized in terms of Section 46 and 47 of the
Act, may not stand terminated upon delivery of the goods to the carrier.

The Hon'ble Supreme Court of India has in the judgment titled as "Suchetan Exports Pvt. Ltd.
vs. Gupta Coal Ltd. and Ors."40 held that wherein the contract for sale provided that the seller
would retain its lien over the goods and title would pass to the buyer on payment of the full
price of the goods, then the unpaid seller of the goods is entitled to exercise lien over the
goods, notwithstanding that the possession of the goods may not be with the unpaid seller.

But when the property has passes, and the seller deliberately parts with the possession by
delivering the goods under the contract, he abandons his right over the good, subject to the
one exception that if they are delivered to a carrier for transmission to the buyer, he still has
the right on the buyer’s insolvency to stop the goods in transit and so resume possession since
the carrier is under obligation to re-deliver the goods to him under s52(2).

Where machinery has been delivered and thereafter a part of it is handed back to the seller for
repair the seller cannot claim a lien on that part for the unpaid price of the machinery. 41 If the
contract is severable, each delivery of instalments of goods will be treated as a separate
contract for the purpose of the seller’s lien which cannot be exercised over an instalment
which has been paid for.42 Possession of the goods shipped under a bill of lading, is treated as
as having been transferred to the buyer or his agent, when the bill has been endorsed and
delivered to him.43 The transfer of the Bill of lading may operate as a transfer of constructive
possession of the goods even though the property in them has already passed to the
transferee. Further the seller regains no rights over the goods by obtaining possession of the
from the buyer as in case of Valpy v Gibson.44

40
Special Leave Petition (Civil) No. 20100 of 2011
41
Eduljee v John Bros (1944) nag 37, 209 IC 356
42
Longbottom & Co Ltd v Bass, Walker & Co (1922) WN 245,
43
Sanders Bros v Maclean [1883] 11 QBD 327, p 341
44
(1847) 4 CB 837
Termination by waiver
A third method of termination of the right to lien is by way of waiver. It may be express or
implied. A lien created by express contract will negative the lien which arises by implication
of law.45

By selling the goods on credit the seller waives his lien during the currency of the credit,
unless in the meantime the buyer becomes insolvent; and the same result will follow, if after
the contract he accepts conditional payment by taking a bill of exchange for the price, (the
lien in this case will also revive under s47 if the seller is till in possession after the term of
credit has expired or at the time when the buyer becomes insolvent) 46 or takes some other
security which postpones the date of payment and is therefore inconsistent with the right of
lien.

The seller may also waive his right of lien by assenting to a sub-sale; and if he parts with the
documents of title and they come into the hands of a third party, he may thereby lose his
lien.47

However, mere knowledge of the seller about the sub-sale or other disposition by the buyer
cannot be used to found an estoppel, so as to prevent him from setting up his lien.48

A seller may also waive his right to lien by indulging in wrongful acts. It is a general rule of
law that when a person has a lien on goods, but wrongfully refuses to deliver them, or deals
with them in a manner inconsistent with the mere right to have possession of them, or claims
to keep them upon some ground other than his right of lien, he waives the lien. The practical
result of this is that he cannot, when sued by the owner, defeat his action by setting up the
lien or objecting that the amount due in respect of which the lien is exercisable had not been
tendered before action was brought.49 This position normally arises where the seller has
wrongfully re-sold the good50 or if he wrongfully consumes the goods.51

45
Re Leith’s Estate (1866) LR 1 PC 296, p305
46
. Miles v Gorton (1834) 2 C&M 504
47
S 53 Sale of goods act
48
Poulton & Son v Anglo- American Oil CO Ltd
49
Jones v Tarleton (1842) 9 M&W 675
50
Sale of Goods Act, 1930 s 54
51
Gurr v Cuthbert (1843) 12 LJ Ex 309
Buyer Tortiously Obtaining Possession
A special case arises if the buyer by some tortious act obtains possession of the goods, the
seller may take them back, if he can do so,52 or sue the buyer if he refuses to redeliver them,
for mere right to have possession is a sufficient right upon which to found an action53

The same would follow if, say, the seller allowed the buyer to take the chattel temporarily for
the purpose of trying it, and the buyer then refused to return it to the seller. The delivery
would not then be under the contract of sale, but under a special contract of bailment. 54 The
seller’s possession may continue despite the fact that the buyer has been given a restricted
measure of control over the goods for a limited and specific purpose,55

CONCLUSION
Unpaid seller who has possession of the goods in which the property has passed to the buyer,
can exercise the right of lien only in the following cases:

a. where the goods have been sold without any stipulation of credit;

b. where the goods have been sold on credit but the term of credit has expired;

c. where the buyer becomes insolvent.

Further, unpaid seller loses his right of lien as per Section 49 of the Act.

However, in case the parties enter into a contractual stipulation to retain the right of lien and
transfer of title upon payment, then notwithstanding that the possession of the goods may
have transferred to the buyer, the unpaid seller would have the right of exercising lien over
the goods.

It is settled law that the question of lien in respect of the goods, it is apparent that an unpaid
seller has a lien on the goods for the price "while he is in possession of them". Therefore, if
the unpaid seller does not have possession of the goods, he cannot have lien on such goods.

52
Wallace v Woodgate (1824) R&M 193 (fraudulent removal of horse by buyer – lien revived when possession
reaquired): Mason v Morley (1865) 11 Jur (NS) 459 (accidental or improper removal of security deeds from
creditor’s box – lien over the deeds not lost)
53
Litt v cowley (1816) 7 Taunt 169
54
Allen v Smith (1862) 11 WR 440
55
GE Rly v Lord’s Trustee [1909] AC 109
This view has also been upheld by the Hon'ble High Court of Delhi in the judgment titled as
"Pawan Hans Helicopters Ltd. vs. Aes Aerospace Ltd.”56

In addition to an unpaid seller losing the possession of the goods, the Act also provides for
the following specific situations, in which an unpaid seller loses its right of lien, i.e. when:

a. The unpaid seller 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. The buyer or his agent lawfully obtains possession of the goods;

c. The unpaid seller has waived its right of lien over the goods.

56
2008 (2) ARBLR 63 Delhi
BIBLIOGRAPHY
Sale of Goods Act 1930

The Eider (1893)

Blackburn on Sale

Follett arguendo, 2 Cr & M

ExP Stapleton [1879] 10 ChD

Longbottom & Co Ltd v Bass, Walker & Co (1922) WN 245