University Institute of Legal Studies

Panjab University, Chandigarh

BUSINESS LAWS ASSIGNMENT ON:

BUSINESS LAWS ASSIGNMENT ON:
RIGHTS OF AN UNPAID SELLER OVER THE GOODS
RIGHTS OF AN UNPAID SELLER OVER THE GOODS
Presented By:
Presented To: NANDITA
Dr. Amita Verma BALLB (HONS)
Faculty SEMESTER-7
UILS, PU, Chd. SECTION- B
61/17
WHO
WHOIS
ISAN
ANUNPAID
UNPAIDSELLER?
SELLER?

 According to S.54(1), SOGA, an unpaid

seller is a person to whom-

a) the whole of the price has not been paid,

or

b) if the price was paid through cheque or

other negotiable instrument it has been
dishonoured.
 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.

 The position is briefly summed up by Mellish, LJ in the case Gunn v.

Bolckow, Vaughan & Co: 

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
 Section 54(2) states that a seller's agent may also sometimes exercise some rights of the seller for the
purpose of this chapter, for example

‣Agent: when the bill of lading is endorsed to him

‣Consignor: when he himself paid the price or is directly responsible for the price.

 The situation can be illustrated through the case of J.L. Lyons & Co Ltd v. May & Baker Ltd.  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
RIGHTSOF
OFAN
ANUNPAID
UNPAIDSELLER
SELLER
 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.
 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.

 In the words of Bayley, J :- “The 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.”
 RIGHT
RIGHTOF
OFLIEN
LIEN[SS.47-49]
[SS.47-49]

Meaning of Lien: Lien is the right to retain

possession of goods until certain charges due in
respect of them are paid.

LIEN CAN BE
EXERCISED IN
THESE CASES:

When the goods have been

When the goods have been
sold without any stipulation i. When the buyer
sold on credit but the term
as to credit, i.e., sale has becomes insolvent.
of credit has expired.
been made on cash basis.
LEGAL IMPLICATIONS OF LIEN

 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.
 Right of lien is base based on possession and not ownership- As it is the right to
retain the possession. So the seller must be in possession of the goods. 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.
 Lien is still applicable even if the buyer had paid some part of the amount- As it
is a right of unpaid seller even if the buyer has paid a part of the price that the
unpaid seller would have the right of lien over all the goods.
Right of lien can be exercised only for non payment of the price of the
goods and of nothing else (For Example: for the non-payment of
warehouse or cold-storage charges). It has been held by the House of
Lords in Somes v. British Empire Shipping Co 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.

Exercise of land does not affect the contract of sale- According to

S.54(1), exercise of lien does not automatically rescind the contract of
sale.
 PART DELIVERY [S.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.
 In Grice v. Richardson  , 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.”  The party, who alleges that part delivery was
intended to operate as delivery of the whole, has to prove that fact.
 TERMINATION OF LIEN [S.49]

Termination of Lien has been defined in Section 49 –

The unpaid seller of goods loses his lien thereon – 
 By delivery of the goods to carrier or bailee of the buyer (without reserving the
right of disposal).
 If the buyer lawfully obtains the position of the goods.
 If the seller himself waives his right of lien.
 On the payment of the whole of the price.
 RIGHT
RIGHTOF
OFSTOPPAGE
STOPPAGEIN
INTRANSIT
TRANSIT[SS.50-52]
[SS.50-52]
 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.”
 Requirements of this Section:-
 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.
 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.

 Conditions for exercising stoppage in transit

a) Seller must be and unpaid seller.
b) Ownership must have been transferred to the buyer.
c) The buyer must have been insolvent.
d) The goods must be in transit
 COMMENCEMENT AND END OF TRANSIT

1. Delivery to the buyer [S.51(1)]: Goods are deemed to be in the course of transit from the
time when they are given to the carrier for the purpose of transition to the buyer until the
buyer or his agent takes a delivery of them.
2. Interception by the buyer [S.51(2)]: It is not necessary that the buyer must take the
possession after the goods have reached the appointed destination transit may also come
to an end when the seller or his agent take the position before the arrival at the appointed
destination.
3. Acknowledgement to the buyer by the career [S.51(3)]: when the goods arrive at the
appointed destination and the carrier acknowledges to the buyer that he is now holding
the goods on the behalf of the buyer the transit ends and it is Deemed to be constructive
delivery.
4. Rejection by the buyer [S.51(4)]: If the goods are rejected by the
buyer and the carrier continued to be in their position then the transit
does not come to an end because there is no actual or constructive
delivery to the buyer.
5. Delivery to the ship charted by the buyer [S.51(5)]: In this case it
is a question of fact whether the carrier is acting independently or as an
agent of the buyer.
6. Wrongful refusal to deliver [S.51(6)]: When the carrier wrongfully
refuses to deliver the goods to the buyer or is Agent the transit comes to
an end at that moment.
 How can Stoppage in Transit be Affected [S.52]

By Actually Taking
By giving Notice to
the Possession of the
the Carrier
Goods

To the Person in the

To his Principal
Actual Position
 DIFFERENCES BETWEEN RIGHT OF LIEN AND RIGHT
OF STOPPAGE IN TRANSIT
Right of Lien Right of Stoppage in Transit

1. The unpaid seller can exercise this right only if he keeps 1. The unpaid seller can exercise this right if he has lost
possession of the goods. possession of the goods.

2. This right can be exercised when the buyer is able to pay 2. This right is exercised only when the buyer is insolvent.
but does not pay.

3. This right comes to an end the moment possession of the 3. This right commences only when the seller has lost
goods is lost by the unpaid seller. possession of the goods.

4. It is a right to retain possession. 4. It is a right to regain possession.

5. Lien is a right which is available when the buyer makes 5. Whereas, right of stoppage in transit is only available
default in payment or the buyer becomes insolvent. when the buyer becomes insolvent.
RIGHT
RIGHTOF
OFRESALE
RESALE[S.54]
[S.54]
If within a reasonable time after the exercise of right of lien or stoppage in transit or in case of
perishable goods, the buyer does not pay the price then the unpaid seller may resell them in
accordance with Section 54(2).
Purpose of Giving
Purpose of Giving
Notice:
RIGHT TO RESELL Notice:
To give an opportunity to
To give an opportunity to
the buyer to make
the buyer to make
arrangement for the price.
When notice to arrangement for the price.
When notice to
resell is not
resell is required
required

Seller Expressly
Perishable Goods Reserves the Right All Other Cases
[S.54(2)] of Resale [S.54(2)]
[S.54(4)]
 WHEN IS RESALE TO BE MADE?
Section 54 to puts a duty on the unpaid seller to make the resale within a
reasonable time. If the seller makes undue delay in making resale and suffers
more loss then he would have suffered had the resale been made within a
reasonable time, he would not be entitled to such aggravated loss.

If sale is made within a reasonable time then he may recover damages from
the original buyer u/S.54(2) ‣‣ (Recoverable Price) = (Contract Price) –
(Resale Price).
If resale is not made within reasonable time damages are to be paid in
accordance with S.73, Indian Contract Act
‣‣ (Damages) = (Contract Price) – (Market Price).
 EFFECT OF SUB SALE OR PLEDGE BY THE
BUYER [S.53]
General Rule [S.53(1)]
The unpaid seller’s right of lien or stoppage in transit is not affected
by any sale or other disposition of the goods made by the buyer.
For example: X from place A sell certain goods to Y in place B and
deliver the goods to an independent carrier for transmitting the goods
to Y. Before getting the delivery Y agreed to further sell the goods to Z
in place B. During transit it comes to A's knowledge that Y has
become insolvent. X can still exercise the right of stoppage in transit
unaffected by the fact that Y has made any sale to Z.
 EXCEPTIONS TO THE GENERAL RULE

1. Seller’s Assent [S.53(1)]: Where the buyer has made for the sale with the unpaid
seller’s assent then the seller will be bound by his assent and is thus precluded from
exercising his right of lien or stoppage in transit against the sub-buyer.
2. Transfer of Document of Title [proviso to S.53(1) r/w S.53(2)]:
a) Buyer sells after getting the document of title- If, after getting the document of title
the buyer sells or transfers the documents to third person who, in good faith and for
consideration, received the document, the unpaid seller’s right of lien or stoppage in
transit is defeated.
b) Buyer pledges after getting the document of title- The unpaid seller may exercise his
right of lien or stoppage in transit by paying the amount of pledge to the pawnee if
the pawnee acted in good faith and for value.
 LANDMARK CASES
ANT JURGENS MARGARINE FABRIEKEN V. LOUIS DREYFUS
& CO.
Facts: [(1914) 3 KB 40]
The defendant sold 2640 bags of Mowva Seeds to F & Co. and gave them delivery
orders. F & Co. sent a cheque for the price. F & Co. sold the goods to the plaintiff by
endorsing to them the delivery orders. F & Co.’s cheque was dishonoured.
Consequently, the defendants became unpaid seller and claimed lien on the goods.
Decision:
It was held that their lien was lost when the delivery orders issued by them were
transferred to bona fide purchaser for value.
The court thus equated delivery orders issued by the seller with the bill of lading
which is issued to a captain of the ship.
 GOLDING DAVIES & CO. LTD.
[(1880) LR 13 CH D 628]

This case is an authority on the proposition that an unpaid seller can ask the sub-buyer to
handover the price to him, if he has not yet paid it, instead of paying it to the insolvent.
Facts: In this case, A sold in goods to B an B resold them to C before they were dispatched by
A. The bill of lading was taken directly in the name of C. But before it was transferred to him,
B became insolvent. C had not yet paid the price to B.
Decision: It was held that A could recover the price from C.
This way the court tried to uphold the sub-sale as well as to protect the unpaid seller by
enabling him to receive the price payable to him from the sub-buyer.
Note: This case was decided before the Act was passed and it is believed that the Act had not
adopted it because, according to the Act, a sub-sale by transfer of document of title completely
defeats the unpaid seller’s rights.
 KEMP V. FALK
[(1882) LR 7 AC 591]

His lordship Selborne held that-

“where the sub purchaser gets a good title as against the right of stoppage in
transit, there can be no stoppage in transit as against the purchase money payable
to them by their vendor.”
THANK YOU