MEANING
The seller of goods is deemed to be an unpaid seller (a) when the whole of the price has not been paid or tendered; or (b) where a bill of exchange or other negotiable instrument has been received as a conditional payment, i.e., subject to the realization thereof, and the same has been dishonored.
When the 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.
This right of lien can be exercised only for the non-payment of the price and not for any other charges, e.g., maintenance or custody charges, which the seller may have to incur for storing the goods in exercise of his lien for the price. This right of lien extends to the whole of the goods in his possession even though part payment for those goods has already been made. In other words the buyer is not entitled to claim delivery of a portion of the goods on payment of a proportionate price. Further, where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder. Also, the lien can be exercised even though the seller has obtained a decree for the price of the goods [Sec. 49(2)].
It may be noted that right of lien, if once lost, will not revive if the buyer redelivers the goods to the seller for any particular purpose. Thus where a refrigerator after being sold was delivered to the buyer and since it was not functioning properly, the buyer delivered back the same to the seller for repairs, it was held that the seller could not exercise his lien over the refrigerator.
(b) Right of Stoppage of Goods in Transit The right of stoppage in transit means the right of stopping further transit of the goods, while they are with a carrier for the purpose of transmission to the buyer, resuming possession of them and retaining possession until payment or tender of the price. Thus, in a sense this right is an extension of the right of lien because it entitles the seller to regain possession of the goods. When can this right be exercised? (Sec. 50). the buyer becomes insolvent. the property has passed to the buyer. If property has not passed to the buyer then this right is termed as the right of withholding delivery [Sec. 46(2)]; and the goods are in the course of transit. This means that goods must be neither with the seller nor with the buyer nor with their agent. They should be in the custody of a carrier as an independent middleman (i.e. in his own right as a carrier) e.g. railways and common carriers whose business is to transport goods of others. The carrier must not be either sellers agent or buyers agent. Because if he is sellers agent the goods are still in the hands of seller in the eye of law and hence there is no transit, and if he is buyers agent, the buyer gets delivery in the eye of law and hence question of stoppage does not arise.
How right of stoppage is exercised (Sec. 52). The unpaid seller may exercise his right to stoppage in transit either:
by taking actual possession of the goods, or by giving notice of this claim to the carrier or other bailee in whose possession the goods are.
Such notice may be given either (a) to the person in actual possession of the goods, or (b) to his principle. In the latter case, notice must be given well in advance to enable the principal to communicate with his agent or servant in time, so as to prevent delivery to the buyer. It is the duty of carrier after receiving due notice, not to deliver the goods to the buyer but to redeliver them to, or according to the directions of the seller. If by mistake he delivers the goods to the buyer, he can be made liable for conversion. The expenses of redelivery are to be borne by the seller.
The transit is deemed to be at an end and the seller cannot exercise his right of stoppage in the following cases:
When the buyer or his agent takes delivery after the goods have reached destination. When the buyer or his agent obtains delivery of the goods before their arrival at the appointed destination. When the goods have arrived at their destination and the carrier acknowledges to the buyer or his agent that he holds the goods on his behalf. When the goods have arrived at their destination but the buyer instead of taking delivery requests the carrier to carry the goods to some further destination and the carrier agrees to take them to the new destination; When the carrier wrongfully refuses to deliver the goods to the buyer or his agent. When part delivery of the goods has been made to the buyer with an intention of delivering the whole of the goods, transit will be at end for the remainder of the goods also which are yet in the course of the transit.
LIEN AND STOPPAGE IN TRANSIT DISTINGUISHED The main points of distinction between these two rights of an unpaid seller are as follows:
The sellers lien attaches when the buyer is in default, whether he be solvent or insolvent. The right of stoppage in transit arises only when the buyer is insolvent. Lien is available only when the goods are in actual possession of the seller while right of stoppage is available when the seller has parted with possession and the goods are in the custody of an independent carrier. The right of lien comes to an end once the seller hands over the possession of the goods to the carrier for the purpose of transmission to the buyer. On the other hand, the right of stoppage in transit commences after the seller has delivered the goods to a carrier for the purposes of transmission to the buyer and continues until the buyer has acquired their possession. The right of lien consist in retaining the possession of the goods while the right of stoppage consists in regaining possession of the goods.
(c) Right of Resale The right of resale is a very valuable right given to an unpaid seller. In the absence of this right the unpaid sellers other rights against the goods, namely, lien and stoppage in transit, would not have been of much use because these rights only entitle the unpaid seller to retain the goods until paid by the buyer. If the buyer continues to remain in default, then should the seller be expected to retain the goods indefinitely, specially when the goods are perishable? Obviously, this cannot be the intention of the law. Section 54, therefore, gives to the unpaid seller a limited right to resell the goods in the following cases:
where the goods are of a perishable nature; or where such a right is expressly reserved in the contract in case the buyer should make a default; or where the seller has given a notice to the buyer of this intention to resell and the buyer does not pay or tender the price within a reasonable time.
If on a resale there is a loss to the seller, he can recover it from the defaulting buyer. But if there is a surplus on the resale, the seller can keep it, with him because the buyer cannot be allowed to take advantage of his own wrong. If , however, the unpaid seller fails to give notice of resale to the buyer, where neither the goods are of perishable nature nor such a right was expressly reserved, he cannot recover the loss from the buyer and is under an obligation to hand over the surplus, if any, to the buyer arising from the resale.
(2.)Rights of Unpaid Seller against the Buyer Personally The unpaid seller in addition to his rights against the goods as discussed above, has the following three rights of action against the buyer personally:
(a) Suit for Price (Sec. 55). Where property in goods has passed to the buyer, or where the sale price is payable on a day certain although the property in goods has not passed; and the buyer wrongfully neglects or refuses to pay the price according to the terms of the contract, the seller is entitled to sue the buyer for price, irrespective of the delivery of goods. Where the goods have not been delivered the seller would file a suit for price normally when the goods have been manufactured to some special other and thus are unsalable otherwise,
The damages are calculated in accordance with the rules contained in Section 73 of the Indian Contract Act, that is, the measure of damages is the estimated loss arising directly and naturally from the buyers breach of contract. Where the goods have a ready market the principle applicable is that the seller may recover from the buyer damages equal to the difference between the contract price and the market price on the date of breach of contract. Thus if the difference between the contract price and market price is nil, the seller can get only nominal damages (Charter vs Sullivan). But where the goods do not have any ready market , the measure of damages will depend upon the facts of each case. For example, in Thompson Ltd. Vs Robinson the damages were assessed on the basis of profits lost. In that case, T. Ltd. who were car dealers, contracted to supply a motorcycle to R. R refused to accept delivery. It was found as a fact that the supply of cars exceeded the demand at the time of breach and hence in a sense there was no market price on the date of breach. Held, T Ltd. were entitled to damages for the loss of their bargain viz. the profit they would have made, as they had sold one car less than they otherwise would have sold. To take another illustration, if the goods have been manufactured to some special order and they are unsaleable and have no value at all for other buyers, then the seller may even be allowed the full price of the goods as damages.