Sale of Goods - Chapter 8 - Rights of Unpaid Seller Against the Goods

Chapter V of the Sales of Goods Act, 1930 consists of 10 sections i.e. from section 45 to section 54. These sections invariably deal with unpaid seller and their rights, part delivery, termination of lien etc.

2. 'Unpaid seller' defined

Section 45 defines 'unpaid seller' as follows:

"(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, or is directly responsible for, the price."

2.1 Unpaid Seller

Earlier, there was a question whether a seller who had been partially paid was entitled to the rights of an unpaid seller but this question was put to rest many years ago. At the same time, it was also established that the partially unpaid and wholly unpaid seller, both were in the same position. A seller cannot be said to be unpaid if the buyer has tendered the price and the seller has refused to accept it; and in such circumstances the seller loses all his rights against the goods and such seller will be estopped from claiming that he is an 'unpaid seller' under the meaning of section 46. In the case; Longbottom & Co. Ltd. v. Bass, Walker & Co., (1922) WN 245 (246), it was observed that where the goods are to be delivered by separate instalments and to be paid for separately the price may be apportioned accordingly and the expression 'whole of the price' will take colour from the context.' In another case; Edwards v. Brewer, (1837) 2 M&W 375, 46 RR 626 it was said that the seller was not unpaid only when the price of goods was not paid but in that circumstances also when the seller has taken bills of exchange or other negotiable instruments as conditional payment and the buyer has failed on his part of facilitate these instruments to be got realized on maturity.

In the case; Gunn v. Bolckow Vaughan, (1875) LR 10 Ch App 491 (501), Mellish, LJ has stated the law-

"No doubt, if the buyer does not become insolvent, that is to say, if he does not openly proclaim his insolvency, then credit is given by taking the bill and, during the time that the bill is current, there is no vendor's lien, and the vendor is bound to deliver. But, 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, than the law does not compel the vendor to deliver to an insolvent purchaser."

2.2 Payment by Bill - Conditional Payment

If a seller has taken a negotiable security as an absolute payment is no longer an unpaid seller, and therefore has no rights against the goods; Cowasjee v. Thompson, (1845) 3 MIA 422: 5 Moore CP 165: 70 RR 27.

If under the contract, the banker arranges for a banker's commercial credit in favour of the seller for payment of the price of goods then the opening of the credit would normally be only conditional payment and in the event of

the banker's default in honouring the credit the seller is entitled to claim the price from the buyer and his remedies against the goods would revive; Man (Ed & F) Ltd. v. Nigerian Sweets & Confectionery Co. Ltd., (1977) 2 Lloyd's Rep 50.

In Charge Card Services Ltd. Re, (1988) All ER 702 (707) (CA), it was held that there was no general principle of law that whenever a method of payment was adopted involving a risk of non-payment by a third party, it was presumed that the acceptance of payment through the third party was conditional on his making (third party) the payment if he failed to pay, the original obligation of the purchaser remained. So, each method of payment has to be considered and other circumstances attending that type of payment. In the modern times, payment through credit card has started and in new circumstances, it becomes necessary to consider whether such payment should be treated as absolute or conditional in the light of consequences of such payment and not according to any general principle.

2.3 Payment by Credit Card

Where in the transactions credit card is used, there is an underlying contractual scheme which predates the individual contracts of sale. In this scheme, sellers agree to accept the card payment worth the price of goods and the buyers commit the credit card company to pay the sellers/suppliers. Here, there are two separate contracts-first, between the credit card company and the seller and second, between the credit card company and the cardholder. In the first case, the credit card company agrees to reimburse the amount what the buyer has incurred on purchasing the goods and in the latter case, the card holder agrees to reimburse the credit company what it has paid to seller.It is a tacit assumption that the legal consequences will be regulated by the separate contractual obligations between the seller and the credit company when a credit card is tendered and accepted. Credit card system is beneficial for both sellers and card holders. Sellers attract customers by agreeing credit cards as the buyer can purchase the things even when he has no cash since he has to pay the due amount to the credit card company on a later date. At the same time card holder is free from carrying cash.

3. Unpaid Seller's Rights

Q. What are the rights of unpaid seller?

Section 46 talks about the rights of unpaid seller in following words-

"(1) Subject to the provisions of this Act and 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 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.

(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."

This section seeks to protect the interest of an unpaid seller by conferring upon him the following rights against the goods, notwithstanding the fact that the property in the goods has been passed to the buyer-

(i)a lien on the goods for the price while he is in possession of them;

(ii)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;

(iii)a right of resale as limited by the Act.

These rights arise usually due to implication of law and not because of agreement express or implied between the parties.

Bayley J. in the case; Bloxam v. Sanders, 4 B&C 941 (948): 28 RR 525 has observed as follows-

'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 grants 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.

� Rights where Property Remains in the Seller

In the case; Griffiths v. Perry, (1859) 1 E&E 680 (688): 177 RR 397, it was observed "where the contract is executory, unpaid seller is not obliged to complete it in the event of the buyer becoming insolvent and he will not be liable to an action at the suit of the buyer or his trustee in bankruptcy for non-delivery until the price is tendered to him even in case of sale was undergone on credit."

If the property in goods has already passed to the buyer then the unpaid seller's lien would be an appropriate term.

4. Seller's Lien

Section 47 of the Act says about the 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."

4.1 Seller's lien

A seller's lien is described as an additional security which is given to a person who has a right to be paid and he has a right to be paid besides and independently of his lien. Section 47 also confers the seller's lien 'to protect a vendor from incurring the expense in manufacturing or acquiring goods for which payment remains justly in doubt.'

4.2 When lien exists

The right wholly depends upon the statutory provisions and not upon any equitable considerations. In the case; Somes v. British Empire Shipping Co., (1860) 8 HLC 338: 30 LJQB 229; it was held by the House of Lords that where the price has been tendered, the seller cannot claim to retain the goods further for the expense incurred by him on storage during the period that he was holding the goods in the exercise of his lien.

5. Part Delivery

Section 48 of the Sale of Goods Act, says-

"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."

5.1 Lien Available though Seller has Parted with Possession of Part of the Goods

The section recognizes the rule that the seller's lien is available so long as he holds any part of the goods, and no case appears to have arisen in which part delivery has been held to be delivery of the remainder so as to divest the seller's lien, when the goods were actually in the sellers "own custody".

5.2 Instalment Deliveries

If, a part of the goods are delivered under circumstances which show an agreement to waive the lien, the seller cannot then retain the remainder or where delivery of a part is intended a delivery of the whole, the lien is lost. As it was observed in the case; Kemp v. Falk, (1882) 7 App Cas 573. 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'.

6. Termination of Lien

Section 49 of the Act speaks about losing of lien by unpaid seller as-

"(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."

6.1 Loss of Lien

Lien of seller depends on possession. It was observed in the case of; Maneckji Pestonji Bharucha v. Wadilal Sarabhai & Co., (1926) 50 Bom 360: 53 IA 92: 94 IC 824: AIR 1926 PC 38-when the vendor has given the buyer possession under the contract of sale, all his right in the goods are completely gone; he must recover the price exactly as he would recover any other debt.

Benjamin on Sale of Personal Property¹ 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 one the buyer may owe a debt; all special remedies in his favour qua seller are gone."

6.2 Buyer Tortiously obtaining Possession

If, a buyer obtains the possession of goods through some tortious act then the seller may take them back, if he can do so or can sue the buyer if he refuses to redeliver them for the mere right to have possession of the goods is a sufficient right upon which to found an action; Litt v. Cowley, (1816) 7 Taunt 169: 17 RR 482.

6.3 Waiver of lien

The seller when sells the goods on credit then his lien gets waived during the currency of the credit, unless in the meantime the buyer becomes insolvent and the same would follow in case the contract of sale where the seller accepts conditional payment by taking a bill of exchange for the price and if some other security measures are taken to postpone the date of payment then it is inconsistent with the right of lien; Anguis v. McLachlan, (1883) 23 Ch D 330.

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1. Eighth Edn., p. 829.

6.4 Waiver of lien by Wrongful Acts

To keep the lien, conduct of seller must be genuine. If he keeps the goods on one or another pretext and refuses to deliver them to buyer on the ground which is not consistent with the terms of lien then he certainly waives the lien. In such situation, he cannot, when sued by the owner, defend 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; Jones v. Tarleton, (1842) 9 M&W 675: 60 RR 863.

7. Right of Stoppage in Transit

Q. What are the grounds to invoke the provisions of section 50 if the seller wants to stop the goods in transit?

Section 50 empowers the unpaid seller to stop the goods in transit if the buyer becomes insolvent before paying the price of goods. 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 essentials of this section are-first the seller should be unpaid; second-the buyer should have become insolvent; third-the property should have passed to the buyer, for if the seller reserves the right of disposal, the goods remain his property and therefore under his lien and last and most important that the goods should be in the course of transit. Out of the above four, first three can be ascertained very easily but about the fourth i.e. the goods are in the transit or not is little difficult to ascertain sometime. Sometimes the goods may be with the carrier but not in transit. If, there is some middleman and the middleman is seller's agent and the goods lying with him then the goods are very much in the possession of the seller and if the middleman holds the goods on behalf of buyer then it has already gone to buyer's possession. If, the seller holds the goods as an independent contractor i.e. in his own right as a carrier or bailee, that there is transit in law and that there is question of stoppage in transit. It is not necessary that the goods should be actually moving. In the case; Berndison v. Strang, (1868) LR 3 Ch App 588 (591) Lord Cairns has said-

"If they arrive injured and damaged in bulk or quality, the right to stop in transitu is so far impaired; there is no contract or agreement which entitles the vendor to go beyond those goods in the state in which they arrive and to claim some money which have been paid by the underwriters to the purchasers of the goods in respect of their loss by the non-arrival of their property."

8. Duration of Transit

Q. When a transit deemed to be at an end? Explain in the light of provisions of section 51.

Section 51 of the Act tries to solve the difficulty by laying down the basic propositions which speak about the commencement and end 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.

(4) If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.

(5) When goods are delivered to a ship chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.

(6) Where the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end.

(7) Where part delivery of the goods has been made to the buyer or his agent in that behalf, the remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods."

8.1 Delivery to the Buyer [Section 51(1)]

Sub-section (1) of section 51 says that goods are deemed to be in course of transit from the time it has been delivered to a carrier or other bailee for the purpose of transmission to the buyer till the buyer or his agent takes the delivery. So, the transit comes to an end as soon as the goods are handed over to the buyer or his agent.

In the case; G.I.P. Rly. Co. v. Hanmandas, ILR (1889) 14 Bom 57, the seller had consigned the goods with the G.I.P. Rly. Co. for transportation to the buyer. When the goods reached the destination, the Railway Company delivered the goods to buyer and the same was loaded by the buyer on carts. In the meanwhile, the Railway Company received a telegram to stop the goods and by that time the carts were still in the railway compound. The company did not do so and were sued by the seller in damages.

It was held that as soon as the goods were handed over to the buyer, the transit was over and the company was left with no power to stop buyer from taking the goods.

In another case; James v. Griffin, (1837) 2 M&W 623: 6 LJ Ex 241, the seller sent the goods on its destination in the part of river Thames. The buyer sent his son to get the goods landed but told him that due to his insolvency he did not intend to take the goods and would like the seller to have them. When the goods were so lying, the seller's instruction to stop them was received. The buyer's trustee in bankruptcy claimed the goods.

Here, the goods were effectively stopped and since it was not accepted by the buyer, they were still in the course of transit.

8.2 End of Transit before its Destination [Section 51(2)]

Sub-section (2) of the section 51 says that if the buyer or his agent obtains the delivery of goods before the goods reaching to its destination, transit comes to an end then and there.

In the case; Lyons v. Honffnung, (1890) 15 App Cas 391 PC, the buyer was at Sydney. He instructed the seller to send the goods to Sydney from where they would be going to Kimberley and that he would go by the same ship and would take the goods with him.

It was not known whether the buyer was there in the ship. The buyer became insolvent and the seller gave notice to stop. It was held that the notice was effective. It was not the buyer who was carrying the goods. But, the carrier was carrying the goods as well as the buyer. The transit did not end by mere entry of buyer in the ship.

8.3 Acknowledgement to the Buyer [Section 51(3)]

When the goods have arrived 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 he 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.

In the case; Whitehead v. Anderson, (1842) 9 M&W 518: 60 PR 819, a quantity of timber was loaded on board a ship. The ship reached at its destination. The buyer was bankrupt at that time. Nevertheless his agent went on the ship and after inspection of the timber he asked the captain to give him the possession of timber. But, the captain said that he would deliver only once the freight is paid. Before, this could be done, the seller sent a notice to stop and consequently the goods were delivered to the seller's agent.

It was held that the carrier was within his rights in returning the goods to the seller because the transit had not ended. The captain's wish for conditional delivery (when the freight is paid) being not fulfilled, the buyer had not acquired constructive possession.

8.4 Rejection of Goods by Buyer [Section 51(4)]

When the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not deemed to be at an end, even if the seller has refused to receive them back.

8.5 Delivery to a Ship Chartered by a Buyer [Section 51(5)]

Where goods are delivered to a ship chartered by the buyer, it is a question which depends on the circumstances of the particular case, whether they are in the possession of the master as a carrier or as agent of the buyer.

So, if the circumstances show that the carrier is acting as agent of the buyer, then the transit is at an end as soon as the goods are loaded on board the ship.

In the case Roservear China Clay Co. ex p (1879) 11 Ch D 560, there was a contract for the sale of China clay. The buyer chartered a ship and instructed the seller to load the goods at Forey, which was accordingly done. The destination of the ship was not told to the sellers, nor any bill of lading signed. The sellers gave notice to stop the goods. Here, the notice was held to be effective.

James LJ said-'When the vendor knows that he is delivering the goods to some one as carrier, who is receiving them in that character, he delivers them with the implied right of stopping them so long as they remain in the possession of the carrier."

8.6 Wrongful refusal to deliver the Goods [Section 51(6)]

Where the carrier or other bailee wrongfully refuses to the deliver the goods to the buyer or his agent in that behalf, the transit is deemed to be at an end. It is clear that the goods should have arrived at their destination, because otherwise the carrier has the right to refuse to deliver them. In the case; Bird v. Brown, (1850) 4 Ex 786, the goods had arrived at their destination. The buyer being insolvent, a merchant, acting for the seller but without his authority, gave stoppage notice to the carrier. After that the trustee of bankrupt buyer demanded the goods. The carrier refused to deliver the goods and handed them to the merchant. Subsequently to this the seller ratified the unauthorized stop notice.

The Court observed, "There could be no valid stoppage in transitu after the formal demand of the goods by Bird (Trustee). The goods had then arrived at Liverpool, the master was bound to deliver the goods to Bird and he could not by his wrongful detainer of them prolong the transit and so extend the time during which stoppage might be made."

8.7 Part Delivery [Section 51(7)]

Where part delivery of the goods has been made to the buyer or his agent in that behalf, remainder of the goods may be stopped in transit, unless such part delivery has been given in such circumstances as to show an agreement to give up possession of the whole of the goods.

We can understood it with following example-

X sells 1,000 quintals of rice to Y; 600 quintals rice has reached to Y's possession and while 400 quintal still in transit, Y becomes insolvent, and X, being still unpaid, stops 400 quintals in transit. X is entitled to hold 400 quintals until the price of 1000 quintals is paid.

9. How Stoppage in Transit is Effected (Section 52)

Section 52 of the Act gives the provision regarding how stoppage can be effected in transit. It says-

"(1) The unpaid seller may exercise his right of stoppage in transit either by taking actual possession of the goods, or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, shall be given at such time and in such circumstances, that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent a delivery to the buyer.

(2) When notice of stoppage in transit is given by the seller to the carrier or other bailee in possession of the goods, he shall re-deliver the goods to, or according to the directions of the seller. The expenses of such re-delivery shall be borne by the seller.

9.1 Notice to Principal

Q. What are the ways by which the unpaid seller stops the goods in transit?

When the seller wishes to exercise this right by giving notice of his claim then the notice may be given to the principal of the person who is in actual possession of the goods. If the transit is by sea then that expression includes the shipowner; who is the person most likely to know where the ship and its master are to be found.

In the words of Lord Blackburn who commented in 1882 in the case; Kemp v. Falk, 7 App Cas 585 in the Court of Appeal as follows-

"I had always myself understood that the law was that when you became aware that a man, to whom you had sold goods which had been shipped, had become insolvent, your best way, or at least a very good way, of stopping them in transitu was to give notice to the shipowner in order that he might sent it on. He knew where his master was likely to be and he might sent it on; and I have always been under the belief that although such a notice, if sent, cast upon the shipowner who received it an obligation to send it on with reasonable diligence, yet if, though he used reasonable diligence, somehow or other the goods were delivered before it reached, he would not be responsible. I have always thought that a stoppage, if effected thus, was a sufficient stoppage in transitu. I have always thought that when the shipowner, having received such a notice used reasonable diligence and sent the notice on, and it arrived before the goods were delivered that was a perfect stoppage in transitu."

To get such notice effectual, it must be so given that the principal can by the exercise of due diligence communicate with his servant or agent, for 'the only duty that can be imposed on the absent principal is to use reasonable diligence to prevent delivery; Whitehead v. Anderson, (1842) 9 M&W 518, 534, 60 RR 832.

9.2 Duties of the Carrier and the Seller

To stop the goods in transit when the notice is given, whether to the person in actual possession of the goods or his principal is to revert the right to the possession of the goods in the seller. If by mistake, or by reason of the principal not using due diligence to communicate with his agent to stop the delivery, or otherwise, the goods are delivered to the buyer, the carrier is liable in damages, and the buyer or his trustee in bankruptcy must restore them on demand to the seller and on his failing to do so, is also liable to be sued by the seller; Litt v. Cowley, (1816) 7 Taunt 169, 17 RR 482.

10. Effect of Sub-sale or Pledge by Buyer [Section 53]

Section 53 of the Sale of Goods Act tells about the effect of sub-sale or pledge by buyer:

"(1) Subject to the provisions of this Act, the unpaid seller's right of lien or stoppage in transit is not affected by any sale or other disposition of the goods which the buyer may have made, unless the seller has assented thereto:

Provided that where a document of title to goods has been issued, or lawfully transferred to any person as buyer or owner of the goods, and that person transfers the document to a person who takes the document in good faith and for consideration, then, if such last mentioned transfer was by way of sale, the unpaid seller's right of lien or stoppage in transit is defeated, and, if such last mentioned transfer was by way of pledge or other disposition for value, the unpaid seller's right of lien or stoppage in transit can only be exercised subject to the rights of the transferee.

(2) Where the transfer is by way of pledge, the unpaid seller may require the pledgee to have the amount secured by the pledge satisfied in the first instance, as far as possible, out of any other goods or securities of the buyer in the hands of the pledgee and available against the buyer."

10.1 Seller's rights do not get affected by the Buyer's dealing with the goods

It was in the mid 19th Century that as regards to unpaid seller's rights a second vendee is not better placed compared to the first one. Regarding rights of latter, the existence of this rule shows that whatever that right may once have been, it has not been today a merely equitable right, being in their essence personal, are liable to be defeated by a purchaser of the legal estate or interest for value and without notice. Section 53 is one of sections which sets out circumstances in which the right of lien or stoppage in transit may be defeated by a sub-sale or subsequent transaction.

Lord Blackburn¹ has stated the rule in this regard as follows-

"A purchaser who has acquired ownership may sell the goods subject to the first vendor's rights and if he does so, the property is transferred

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1. Blackburn on Sale, 3rd Edn., pp. 418-419.

to the second purchaser by the second bargain and sale without any delivery of possession. But though the second purchaser acquires by his bargain and sale the legal property in the goods and every right which his immediate bargainer had in the goods, yet (if there be not an assignment of the bill of lading) he acquires no greater right; he takes the property subject to the same restrictions that his immediate vendor held it under."

We can further understand the above position with the illustration given in the case; McEwan v. Smith, 166 (1849) 2 HLC 309: 81 RR 166 - A was the owner of some goods and the goods were lying in N's warehouse. A sold the goods to B in lieu of a bill of exchange for a certain price and also gave a delivery order addressed to N. B resold the goods to C and gave him a delivery order but before taking the goods by C. B became insolvent, A warned N not to deliver the goods without A's order. Here, A had not lost his lien on the goods and was entitled to hold them against C.

10.2 Transfer of the Bill of Lading

Q. Discuss `transfer' of the bill of lading with the help of relevant cases.

has been earlier established law that the unpaid seller's right to stop the goods in transit is defeated by the transfer of the bill of lading to a third party. If the transfer is such as absolutely to pass the property in the goods, the seller's right is completely defeated where it operates as a pledge or mortgage of the goods, the seller has still the right to stop all the property which remains in the buyer, but it cannot be exercised so as to affect the interests of transferee.

Here, we can cite the illustration of the case; Kemp v. Falk, (1882) 7 App Cas 581. Lord Blackburn observed:-

"It appears that Mr. Falk of Liverpool had sold to Mr. Kiell a quantity of salt, which was shipped on board a vessel bound for Calcutta; that Mr. Kiell accepted a draft drawn against that cargo; that bills of lading were made out, which were signed not as usual by the master but by the shipowner himself and that Mr. Kiell got those bills of lading. Now so far as that goes, standing there, nothing can be more thoroughly established than the law upon it. Mr. Falk having delivered the goods and taken a bill of exchange had no right whatever to meddle with those goods further, unless before the end of the transitus (I shall say a word presently as to what comes at the end of the transitus). Kiell the purchaser became insolvent and stopped payment and then if Falk had stopped the goods in transitu he would have been revested in his rights as an unpaid vendor as against Kiell. It is pretty well settled now that it would not have rescinded the contract. But before the end of the transitus came, his right to stop the goods in transitu might be defeated by an endorsement upon the bill of lading to a person who gave value. In the present case, there was such an endorsement and transfer for a particular and 'limited purpose'. It appears that Mr. Kiell in order to obtain an advance got T. Wiseman & Co of Glasgon, the correspondents and agents of Wiseman Mitchell Reid & Co of Calcutta, to make an advance in his favour by drawing a bill of exchange upon him; and to secure the payment of that bill of exchange the bill of lading was endorsed and the Bank of Scotland, who discounted or took that bill, became holders of the bill of lading for the purpose of protecting themselves. It was clearly a transfer for value to the Bank of Scotland, and as such, so far as that went, it defeated the right of stoppage in transitu at law. But the unpaid vendor's right, except so far as the interest had passed by the pledging of the bill of lading to the pledgee or the mortgagee, whichever it was, enabled the unpaid vendor in equity to stop in transitu everything which was not covered by that pledge."

10.3. Good Faith

Good faith means absence of notice of such circumstances as render the bill of lading not fairly and honestly assignable e.g. that the buyer is insolvent. Knowledge that the goods are still unpaid for does not constitute bad faith.

11. Sale not Generally Rescinded by Lien or Stoppage in Transit (Section 54)

Section has got the provision as follows:-

"(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 re-sell, the unpaid seller may, if the buyer does not within a reasonable time pay or tender the price, re-sell the goods within a reasonable time and recover from the original buyer damages for any loss occasioned by his breach of contract, but the buyer shall not be entitled to any profit which may occur on the re-sale. If such notice is not given, the unpaid seller shall not be entitled to recover such damages and the buyer shall be entitled to the profit, if any, on the re-sale.

(3) Where an unpaid seller who has exercised his right of lien or stoppage in transit re-sells the goods, the buyer acquires a good title thereto as against the original buyer, notwithstanding that no notice of the re-sale has been given to the original buyer.

(4) Where the seller expressly reserves a right of re-sale in case the buyer should make default, and, on the buyer making default, re-sells the goods, the original contract of sale is thereby rescinded, but without prejudice to any claim which the seller may have for damages."

11.1 Further rights of the Unpaid Seller against the Goods

This section deals with further rights of the unpaid seller. The effect of stoppage in transit is not to rescind the sale, but to replace the seller in the position of an unpaid seller who has not parted with the possession of the goods. His further rights against the goods are therefore the same in both case and subject to the same limitations.

11.2 Contract not Rescinded by the Buyer's Default in Payment

Time of payment is not the main essence of the contract. If a buyer fails to fulfil this commitment (payment towards purchase) by due date does not of itself rescind or entitle the seller to rescind the contract. Buyer may put an end to the seller's lien and entitle himself to delivery by payment or tender of price within a reasonable time. But, when the buyer has absolved himself of obligations on his part then the seller has the option of either affirming the contract, or treating it as discharged. After that the seller is also under no obligation to perform his remaining contractual duties. At the same time he also can't sue the buyer for price. In this section, the term 'rescinded' means 'treated as discharged by the seller' or 'terminated by the seller'.

11.3 The Seller's Right to Resale

The statutory power for resale under section 54(2) arises if the property in the goods has passed to the buyer subject to the lien of the unpaid seller. If, the property in goods has not passed to the buyer, the seller has no right of re-sale. But, the seller can claim as damages the difference between the contract price and the amount realized on resale of the goods where he has the right to resale under this section. In the case; Stephens v. Wilkinson, (1831) 2 B&Ad 320, it was observed that the unpaid seller, though in possession of goods does not have the right merely because he is unpaid, to resume a complete right of property, so as to divest totally the property rights of buyer so as to divest totally the buyer's right of property in the goods.

11.4 Lawful Resale by the Seller

In the case; Ambalavana Chettiar v. Express Newspapers Ltd., MANU/SC/0052/1967 : AIR 1968 SC 741, it was held that the right of resale is exercised by the seller on his own behalf and not as agent of the buyer when notice is given. Here the buyer is not entitled to the profits of resale though he may be liable for damages. But the position changes when no notice is given and the buyer is then entitled to the profits of the resale and not liable for damages. As per the provisions of section 54(2), no notice is required to be given of intention to resale the perishable goods and it would appear that on the buyer's failure to pay on the stipulated date or within a reasonable time, the seller may immediately become entitled to resell such goods.