Legal

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This Blog is written by Kshitija Yadav from B.R. Ambedkar Girls Hostel, Lucknow University New Campus. Edited by Saumya Tripathi.

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INTRODUCTION

The Sale of Goods Act, 1930 came into effect on 1^st July 1930. This act governs the contracts or agreements related to the sale of goods. As provided by Section 2(f) of the Indian Contract Act, 1872, any set of promises made which forms the consideration or part of the consideration for each other are called reciprocal promises. In case of sale, every contract of sale of goods consists of reciprocal promises. The seller has to deliver the goods sold and the buyer is bound to pay the price in return, under the contract of sale agreed by them.

The right enjoyed by an unpaid seller under this act are ‘rights in rem’, which means a right available to a person against the whole world. There are three types of rights available to an unpaid seller against goods. They are: –

• Right of lien

• Right of stoppage of goods in transit

• Right of resale.

DEVELOPMENT OF SALES OF GOODS ACT, 1930

Earlier, the provisions regarding Sales of Goods were contained in the Chapter VII i.e., Sections 76 to 123 of the Indian Contract Act, 1872. However, by 1920 it was observed that the provisions regarding sales of goods contained in the Indian Contract Act were insufficient to meet down the need of the community and to comply with the developments of modern business relations. So, subsequently, the provisions of the Indian contract Act regarding sales of good was repealed and re-enacted in the form of Sales of Goods Act, 1930. This act was mainly based on Sale of Goods Act, 1893 of England.

RIGHTS OF AN UNPAID SELLER

Seller is a person who either sells or agrees to sell goods as defined under Section 2(13) [1] of the Sale of Goods Act, 1930. Under this act, any person can be a seller who step into the shoes of a seller be it the 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 term “unpaid seller” has been defined under Section 45 of the Act as the seller who has not been paid the whole amount of the good sold or a seller who against whom the negotiable instrument was dishonored which he was given as a conditional payment. The section reads as follows:

““Unpaid seller” defined. – (1) The seller of goods is deemed to be an “unpaid seller” within the meaning of this Act-

• When the whole of the price has not been paid or tendered.
• When a bill of exchange or other negotiable instrument has been received as conditional payment, and the conditions 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]

CHARACTERISTICS OF UNPAID SELLER

• The seller must have sold the goods for cash and not on credit and should be unpaid.
• If the sale has been made on credit basis then he is not unpaid during the period of credit.
• He should be unpaid be it partly or wholly.
• In case where the price is paid in the form of negotiable instrument then on instance when the instrument is dishonored
• He must not refuse to accept the payment when given.

Under this Act, the “unpaid seller” is entrusted with two kinds of rights, viz: –

• Rights of unpaid seller against the goods; and
• Rights of unpaid seller against the buyer.

RIGHTS OF UNPAID SELLER AGAINST THE GOODS

The Sales of Goods act, 1930 provides for several rights to the seller which he can enjoy against the buyer in case he has not been paid the whole amount of the goods sold irrespective of the fact that the property in the goods may have passed to the buyer. Those rights are: –

a) Right of lien

b) Right of stoppage of goods in transit in circumstances that the buyer has become insolvent and the seller has parted with the possession of the goods.

c) Right of re-sale.

In cases where the property in goods have not been passed to the buyer, in those circumstances too the unpaid seller has the right of withholding delivery till the complete payment of price which is similar to the right of lien and stoppage in transit in cases where the property in the goods have been passed to the buyer.

a) Right of lien (Sec. 47-49)

Lien can be defined as the withholding the possession of the goods till the fulfillment of the condition attached with the delivery of the possession i.e., in the case of seller and buyer it is the payment of price. By the exercise of this right the seller is enabled to retain the possession of the goods and refuse the delivery till the buyers pay the amount of the good even in the cases where the ownership in the goods has already passed to the buyer. Furthermore, mere exercise of this right does not rescind a contract of sale.

Circumstances in which this right can be exercised are: –

• Where the goods have been sold without any stipulation as to credit, which means that the sale of goods have been made on the cash basis. As provided by Section 32 [3] of this Act, in absence of any agreement as to the delivery of the goods, the payment and delivery are concurrent conditions. In simple language, where the goods have not been sold on credit, the seller expects payment of goods on the delivery of the possession. Thus, under this section the seller can withhold the possession of the property in circumstances the buyer refuses to pay the price in exchange of the goods. In the case of Miles v Gorton[4], Baylel B observed as follows:
• “the general rule of law is, where there is a sale of goods, and nothing is specified as to divest or payment, although everything may have been done so as to divest the property out of the vendor, and as to throw upon the vendee all risk attendant upon the goods, still there results to the vendor out of the original contract a right to detain the goods until payment of the price.” [5]
• In cases where the goods have been sold on credit but the term of credit has expired. In such circumstances where the seller has agreed to sell the goods on credit but due to the expiry of the period of credit the amount of payment has become due, the seller can exercise his right of lien.
• In circumstances where the buyer has become insolvent. As provided by Section 2(8) [6], an “insolvent” person is one who has failed 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 [7]. In simple language, the case where the seller had sold the goods on credit but the buyer becomes insolvent before the expiry of the credit, the unpaid seller can exercise his right of lien against the buyer.

Moreover, as provided by Section 47(2) [8], the seller can the retain the possession of the property even in such circumstances where the seller is still in the possession of property but his capacity is not that of a but only that of an agent or bailee of the buyer. In such circumstances, the constructive delivery as provided by Article 33 [9] takes place, but since the seller is still in the possession of the property, the right of lien can be exercised by him.

However, it is to be noted that right of lien can be exercised only in the cases of non-payment of price and not where other charges like warehouse charges are due. In those circumstances the seller’s only remedy is bring a personal action against the buyer.

Part Delivery: – Section 48 [10] of the Sales of Goods Act, 1930 provides that where the seller had made the delivery of a part of the goods without any intention to waive his right of lien, the seller can exercise his right of lien on the remaining part of goods still remaining for delivery. The right of lien can’t be exercised in cases where the delivery of a part of goods operate as a delivery of the whole. For instance, where a person weights whole of the good but takes only a part of it, in such circumstances, the delivery of a part of the good operates as the delivery of the whole.

Termination of lien

There are certain circumstances when the unpaid seller loses his right of lien. They are: –

1) Waiver: As provided by Section 49 [11], the seller loses his right of lien where he voluntarily waives his right either expressly or impliedly. If the seller had agreed in the contract of sale itself that he won’t retain the possession of the property even on the non-payment of price, in such circumstances the seller expressly waives his right of lien. Whereas in such circumstances where the seller sells the goods on credit and gives a fresh term of credit on the expiry of the original term of credit, then this is implied waiver by the seller.

2) Delivery to the carrier: The seller’s right of lien exists as long as he remains in the possession of the property. As soon as he delivers the goods to the carrier for transmitting it to the buyer without reserving the right of disposal of goods, the right of lien comes to an end. However, in case where the seller had reserved his right of lien i.e., the goods would be delivered only on the fulfillment of the condition like payment of price, the seller can exercise his right of lien.

3) Buyer or his agent obtaining the possession of goods lawfully: In such circumstances where the buyer or his agent obtains the possession of the goods, the seller’s right of lien comes to an end and even if the seller gets back the possession of goods, he cannot retain the possession of property. Moreover, where at the time of contract of sale the buyer was in the possession of the good, he be like a bailee to the seller, in such circumstances too, the seller cannot exercise his right of lien.

4) Disposition of the goods by the buyer: Although, Section 53 [12] provides that the disposition of the goods by the buyer does not affect the seller’s right of lien, this rule is subject to two exceptions. They are:

• Where the buyer obtains the lawful possession of the document of title to the goods and transfers the property to the transferee in good faith and for consideration by means of “sale.”
• Where the seller had assented to the disposition of the goods by the buyer.

 

b) Right of stoppage of goods in transit

Section 50 [13] of the Sales of Goods Act, 1930 empowers the seller to stop the goods in transit in case where he has parted with the possession of the goods and the buyer had become insolvent.

Following are the circumstances where the seller can exercise his right of stoppage of goods in transit: –

1• Where the buyer becomes insolvent.

2• Where the goods are in transit with the carrier.

3• Only in cases of non-payment of price and not for any other charges.

Duration of transit

The duration of transit can be said as the time between the commencement and the end of the transit. The transit begins with the delivery of the goods to the carrier or to the bailee and ends with the delivery to the buyer or his agent.

Some important provisions relating to duration of transit are: –

• Section 51(4) [14]: This section provides that the transit does not come to an end when the buyer refuses to accept the goods and the goods remain in the possession of the carrier.

• Section 51(7) [15]: In cases where the seller delivers a part of the goods, he is entitled to exercise his right of stoppage of goods in transit on the remaining part of the goods, provided that, the seller didn’t intend to waive his right.

• Section 51(5) [16]: In circumstances where the goods are boarded on the ship chartered by the buyer, the transit comes to an end only when the carrier is acting as an agent of the buyer.

When does the transit comes to an end?

1• When the buyer takes the delivery: It is clearly provided by Section 51(1)[17] that the goods remain in transit so long as the buyer or his agent takes the delivery from carrier or bailee. Moreover, it is not necessary that the buyer or his agent takes the delivery at the appointed destination, in fact, if the buyer or his agent obtains the delivery of goods before it reaches the appointed destination, the transit comes to an end.

2• When the carrier or the other bailee acknowledges to the buyer: In cases where the carrier or he bailee after the goods reaches the appointed destination 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 end.

3• When the carrier wrongfully refuses to deliver the goods to the buyer: Where the buyer is ready to take the delivery when it ought to have been made to him but the carrier wrongfully refuses to deliver the same, the transit comes to an end.

 

c) Re-sale (Sec. 54)

After availing the right of lien and stoppage in transit, Section 54[18] arms the seller to re-sell the goods. Simply, if after availing the rights of lien and stoppage in transit, the buyer does not pay the price within a reasonable time, the unpaid seller is entrusted with right to re-sell the good in the following circumstances: –

• Where the goods are of perishable nature

• Where the unpaid seller had given a notice of re-sale to the buyer

• Where the right of re-sale is expressly reserved by the seller in case of default made by the buyer.

Notice of re-sale

In circumstances where the unpaid seller sought to make re-sale of the goods, he is obliged to give notice of his such intention of re-sale to the buyer, except in the cases where the goods are of perishable nature. This notice is given to give the buyer an opportunity so that he can either fulfil his obligation by the payment of prices or if he is not able to pay the price then in such cases supervises the re-sale so as to see that the same is made properly, because in case of loss it has to be borne by the buyer. Furthermore, notice must be given within a reasonable time, so that the buyer gets a reasonable opportunity either to fulfill the contract or to supervise the sale.

Loss or profit on re-sale

It is evident that the seller may suffer either profit or loss on re-sale. And in circumstances, where the seller suffers loss, provided that the re-sale was made properly, the original buyer would be liable for the loss borne by the seller because such loss had occurred due to the failure on the behalf of buyer to perform his part of obligation.

However, in circumstances where the seller gain profit after making proper re-sale, the seller himself is entitled to retain the surplus. But in cases were no notice was given, the unpaid seller would not be entitled to the profit. Moreover, if the seller makes undue delay in re-selling and suffers more than what he would have suffered if the re-sale was made within a reasonable time, in such circumstances, then he would be entitled to claim only that amount as compensation which would be equal to the difference between the contract price and the market price on the date when the resale ought to have made.

CASE LAWS

Eduljee v Café John Bros.[19]: In this case a refrigerator was sold by the seller to the buyer for ₹120 and it was further agreed that the seller will put that in order at a cost of ₹320. After the delivery the refrigerator was working satisfactorily, however, two of its parts were delivered to the seller for further repairs. And after this the seller retained the possession of property claiming his right of lien over it until the amount due won’t be paid. It was held that once the property is delivered to the buyer, the seller’s right of lien comes to an end and he cannot exercise the right on getting the possession of the goods again.

Hammond v Anderson[20]: In this case a delivery order in respect of certain goods sold was given to the buyer. The goods were lying at a wharf. The buyer weighed the whole good but took only a part of it. It was held that the delivery of a part in this case amounts to the delivery of the whole.

Schotsmans Lanceshire and Yorkshire Rly.[21]: In this case Lord Cairns LJ., observed, “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 parted with and the purchaser who has not received them.”[22]

Turner v Trustees of Liverpool Docks[23]: In this case the cargo of cotton was put on board which belonged to the buyer but the goods were made deliverable to the seller on his order. Patterson J. observed that, “there is no doubt that the delivery to him, unless the vendor protects himself by special terms, restraining the effect of such delivery. In the present case, the vendor by the terms of the bill of lading made the cotton deliverable at Liverpool to their orders or assigns, and there was not therefore a delivery of the cotton to the purchasers as owners, although there was delivery on board their ship. The vendors still reserved to themselves, at the time of delivery to the Captain, the jus disponendi of the goods, which he by signing the bill of lading acknowledged.” [24].

Mysore Sugar Co. Ltd., Bangalore v Manohar Metal Industries [25]: In this case, on the default from the side of the buyer, the seller sent him a notice on 12^th September 1966 that if the buyer wouldn’t be lifting the goods within three days, the contract will be assumed to be cancelled. The buyer didn’t lift the goods. The seller re-sold the goods on 30^th December 1966 and sought the seller for the loss he faced on re-selling. It was held that since the seller had made unreasonable delay of over 3 months in making the resale, he cannot claim compensation.

CONCLUSION

Thus, it can be concluded that the rights provided by the Sale of Goods Act, 1930 to an unpaid seller can be exercised only in the case where the price of the goods sold is not paid to the seller. Moreover, the unpaid seller can exercise these rights against goods only when the goods are in existence and the title has not gone to the buyer.

The Sale of Goods Act, 1930 has undergone several amendments till present. These amendments were made to meet down the needs of commerce in the 21^st century both for consumers as well as traders. Moreover, the Sale of Goods Act, 1930 ensures a minimum standard of quality that can be applied to a wide variety of goods. Further, it also provides new remedies that may be more adequate for certain types of non-conformity with the contract.

REFERENCES

[1] Sec.2 (13), Sale of Goods Act, 1930.

[2] Sec.45, Sale of Goods Act, 1930.

[3] Sec.32, Sale of Goods Act, 1930.

[4] 1834 2 C&M504.

[5] Ibid.

[6] Sec.2 (8), Sale of Goods Act, 1930.

[7] Ibid.

[8] Sec. 47(2), Sale of Goods Act, 1930.

[9] Sec. 33, Sale of Goods Act, 1930.

[10] Sec. 48, Sale of Goods Act, 1930.

[11] Sec. 49, Sale of Goods Act, 1930.

[12] Sec.53, Sale of Goods Act, 1930.

[13] Sec.50, Sale of Goods Act, 1930.

[14] Sec. 51(4), Sale of Goods Act, 1930.

[15] Sec.51 (7), Sale of Goods Act, 1930.

[16] Sec.51 (5), Sale of Goods Act, 1930.

[17] Sec.51 (1), Sale of Goods Act, 1930.

[18] Sec.54, Sale of Goods Act, 1930.

[19] AIR 1943 Nag. 249.

[20] 1803 1 B&PNR 69.

[21] 1867 LRCh.332.

[22] Ibid.

[23] 1851 6 Ex 543.

[24] Ibid.

[25] AIR 1982 Kant.283.