Rights of Unpaid Seller Against the Goods

CHANAKYA NATIONAL LAW UNIVERSITY A Project On Rights of Unpaid seller against the goods

SUBMITTED TO: - VIJAY KUMAR VIMAL SIR FACULTY: - LAW OF CONTRACT

Made By: GANESH KHANNA 2nd year (3rd sem) ROLL No.926 B.A.LL.B. (Hons)

Rights of unpaid seller against the goods

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ACKNOWLEDGEMENT I am feeling highly elated to work on the topic “Rights of unpaid seller against the goods“ under the guidance of VIJAY KUMAR VIMAL SIR, my faculty of LAW OF CONTRACT. I am very grateful to him for his exemplary guidance. I would like to enlighten my readers regarding this topic and I hope I have tried my best to pave the way for bringing more luminosity to this topic.

I also want to thank all of my friends, without whose cooperation this project was not possible. Apart from all these, I want to give special thanks to the librarian of my university who made every relevant materials regarding to my topic available to me at the time of my busy research work and gave me assistance. And at last I am very much obliged to the God who provided me the potential for the rigorous research work.

And finally yet importantly I would like to thank my parents for the financial support.

----------Thanking you GANESH KHANNA C.N.L.U.


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CONTENTS:

1. INTRODUCTION :UNPAID SELLER: DEFINED 2. CHARACTERISTIC OF UNPAID SELLER 3. RIGHTS OF UNPAID SELLER AGAINST THE GOODS 4. Case AND FEW IMPORTANT JUDGEMENTS 5. CONCLUSION BIBLIOGRAPHY


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A.) RESEARCH METHODOLOGY The researcher aims to conduct his research through Doctrinal methods accessing data from internet, library etc. which would be further backed by Empirical method and its stats obtained during field work. B.) Sources of Data The whole project is made with the use of both primary and secondary sources. As the primary source, the field work and people‟s views is taken and for the secondary sources, books, journals, newspaper article, material available on net and articles written by eminent jurists is taken. C.) Method of Writing The method of writing followed in the course of this research paper is primarily analytical.


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INTRODUCTION DEFINITIONS: Before discussing the topics in detail the researcher would like to throw light on the definitions of some of the basic terms which would be encountered during the preparation of the project. The definitions are in accordance with the Sales of Goods Act,1930. BUYER: In this Act, unless there is anything repugnant in the subject of content„buyer" means a person who buys or agrees to buy goods,

GOODS" means every kind of movable property other than actionable claims and money; and includes stock and shares, growing crops, grass, and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale;

SELLER" means a person who sells or agrees to sell goods

UNPAID SELLER: Section 45 lays down that a seller is unpaid : (1) When the whole of the price has not been paid or tendered. (2) When a negotiable instrument or a bill of exchange has been received as conditional payment and the condition in which it was received has not been fulfilled by reason of the dishonor of the instrument or otherwise.


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The seller remains as unpaid seller as long as any portion of the price however small, remains unpaid. Where the whole of price has been tendered, and the seller refused to accept such a tender, seller ceases to be an unpaid seller. In such a case the seller loses all high right against the goods. If there is a period of credit then the seller is not unpaid until the price become due. Against if there is a condition attached to payment it must be fulfilled. The unpaid seller‟s right can be exercised by an agent of the seller to whom the bill of leading has been endorsed, or a consignor or an agent who has himself paid, or is directly responsible for the price


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CHAPTER-2

CHARACTERISTICS OF AN UNPAID SELLER As per the provisions in section 45 an unpaid seller of goods is defined and hence based on the above provision the researcher has mooted out various characteristics that define the unpaid seller of the goods. The following are the few characteristics of an unpaid seller in accordance with section 45 of the Sale Of Goods Act,1930. 1. He must sell goods on cash terms and not on credit, and he must be unpaid.

2. He must be unpaid either wholly or partly. Even if only a portion of the price, however small, remains unpaid, he is deemed to be an unpaid seller. Where the price is paid through a bill of exchange or other negotiable instrument, the same must be dishonoured.

3. He must not refuse to accept payment when tendered. If the buyer has tendered the price but the seller wrongfully refuses to take the same, he ceases to be an unpaid seller1

1

http://mercantilelaws.blogspot.in/2012/05/who-is-unpaid-seller-characteristics-of.html


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CHAPTER-3

RIGHTS OF THE UNPAID SELLER AGAINST THE GOODS

Broadly there are two kinds of rights of the unpaid seller according to the provisions laid down in the Sale of Goods Act,1930.They are: Broadly 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.

However since the project topic deals with the right of the unpaid seller against the goods hence The researcher tends to focus only on that part of the project topic.

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:


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(c) Where the buyer becomes insolvent, even though the period of credit may not have yet expired. In the case of buyer‟s 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 buyer‟s 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”2 The unpaid seller‟s 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 seller3. In fact when property has passed to the buyer then only retaining of goods is called technically „lien.‟ Where the property 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 seller‟s 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 bona fide purchaser, the seller‟s lien is defeated (Sec. 53).

2 3

Albemarle Supply Co Ltd v Hind & Co [1928] 1 KB 307 The James W Elwell, [1921] P 351


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“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 price4. 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 price5. 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 unpaid seller of goods loses his lien thereon in the following cases: (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; 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

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Orchard v Rackstraw 9 CB 700; 137 ER 1066 Proctor v Nicholson (1835) 7 Car & P 67; 173 ER 30


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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 Bros6.). 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 retain them till the full price is paid. Lord Cairns LJ . Had made the following observation in this regard7: “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.

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 of insolvency or not8. : The seller‟s right of stoppage in transit is based on the principle that one man‟s goods shall not be applied to the payment of other man‟s debt. 9 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

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AIR 1943 nag 249 Bevan v Waters (1828) M & M 234 8 Bowmaker Ltd v Wycombe Motors Ltd [946] 1 KB 505 9 Forth v Simpson (1849) 13 QB 680 7


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the buyer, 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 seller cannot 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 seller‟s 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 buyer10. 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 unpaid seller 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;

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EH Parakh v G Mackenzie & Co Ltd AIR 1934 Oudh 380


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CHAPTER-4

CASES AND FEW IMPORTANT JUDGEMENTS. In the case of Feise v Wray11 it was held that where the seller draws bills for the price of the goods on the buyer ,who accepts them, and the seller negotiates them. Before the bills arrive at maturity the buyer fails. The buyer would be in the position of an unpaid seller. In yet another case of Jenkynes v Usborne

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A had consigned cargo to z in London

exceeding the quantity which Z had contracted to take and drew two bills on Z, one for the price contracted for and other for the price residue. Z accepted the first bill but refused to accept the second. It was then agreed that B who was A‟s London agent should himself take the smaller portion. This agreement the court held gave Z the right to take possession of and receive the goods on ship‟s arrival and B the right to receive the residue. B sold his interest in the cargo to P , taking P‟s bill. There was only one bill of lading which was held by Z, and P had only a delivery order addressed to the master of the ship. P pledged his interest in the cargo to Q and him his delivery order . Before the ship arrived P failed and the bill which he had given to B was dishonoured. B notified his master not to give the share to anyone without further instructions. The court held that B was in the position of an unpaid seller, and was entitled to stop his portion of the cargo in the transit. In the case of Hodgson v Loy13,it was held that at one time there was a question whether a seller who had been partially paid was entitled to the rights of the unpaid seller ,the decision was held by the court in affirmative. In Cohen v Rosh14 it was held that where a seller waives tender of the price of the buyer, the seller would be stopped from claiming that he is an unpaid seller for the purpose of exercising his remedies under section 46.

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(1802) 3 East 93 (1844) 7 Man & G 678 13 (1797) 7 TR 440 14 (1927) 1 KB 169,p 180 12


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In the case of Longbottom & Co Ltd v BassWalker & Co15, it was held that where the goods are to be delivered by separate instalments and to be paid separately the price may be apportioned accordingly and the expression whole of the price will take colour from the context.

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(1922) WN 245,p 246


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CONCLUSION

In the project the researcher has highlighted the various aspects of the rights of the unpaid seller against goods .in the commercial world a seller and buyer have lots of mutual rights and duties towards each other, which define the dynamics of the commercial world. In such a situation where a seller is unpaid , it is very essential and very obvious indeed to impart some rights towards such seller .In this project the researcher has tried to highlight these very rights and the dimensions which such right carry with them.

The researcher has tried his level best to dig deep into the project topic and do justification to it. The Researcher has also acknowledged and cited all

the source

authentically as far as possible. It was really an enriching experience to work on the above dimensions of Sales of Goods Act, which the researcher is quite sure to have led to opening of new windows for thought, and rejuvenation of the grey cells. He requests to encourage such endeavours even in future.

Hope you have liked the project, and any deterrence to the enjoyment due to the researcher‟s fault is deeply regretted.


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BIBLIOGRAPHY BOOKS REFERRED 1.

Dr. R.K. Bangia Indian Contract Act, 14th edition, 2012

2.

Pollock & Mulla, Indian CONTRACT and Specific Relief Acts 14th edition, 2013

3.

Avtar Singh, Contract Law, 1st edition, 2012

4.

www.manupatra.com

5.

www.indiakanoon.org

6.

S.S.Ujjannavar, Law of Contract, 2nd Edition. 2009

WEBSITE REFERRED a. www.manupatra.com b. www.indiankanoon.org c. www.lawyersclubindia.com d. www.legalserviceindia.com e. www.manupatra.com

Rights of Unpaid Seller Against the Goods

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