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Lien in Sale of Goods Act

Updated: May 6


Lien in Sale of Goods
Lien in Sale of Goods

Content:-


Introduction


Section 45 of the Sale of Goods Act meticulously outlines the parameters that define an unpaid seller, marking the commencement of a series of legal safeguards designed to address the repercussions of non-payment.


These provisions serve as a bulwark against potential imbalances in commercial exchanges, ensuring that sellers are not left vulnerable to financial losses due to delinquent payments.


Understanding the intricacies of the unpaid seller's rights is imperative for all stakeholders involved in commercial transactions.


Whether navigating the complexities of contractual agreements or seeking recourse in the event of non-compliance, a nuanced comprehension of these rights is essential for fostering equitable outcomes and preserving the integrity of business dealings.


Who is an unpaid seller?

Section 45 of Sale of Goods Act


An unpaid seller refers to an individual to whom the full price has not been paid or tendered, indicating that only a portion of the price has been settled [Sec. 45(1)].


A seller who is partially unpaid is considered on par with one who is wholly unpaid. However, if the buyer tenders the price but the seller wrongfully refuses to accept it, the seller does not qualify as an unpaid seller.


If the payment is made through a negotiable instrument like a bill of exchange, and the instrument is received as conditional payment, and if the condition cannot be fulfilled due to dishonour of the instrument, the seller is deemed an unpaid seller [Sec. 45(1)].


The protection provided by this Act to an unpaid seller is also extended to "any person who is in the position of a seller," such as an agent of the seller to whom the bill of lading has been endorsed, or a consignor or agent who has either paid the price himself or is directly liable for it [Sec. 45(2)].


However, this provision does not transform a buyer into a seller. In the case of , A sold goods to B, who then resold them to C. As the goods were defective, A agreed to take them back and refunded the price to B. B issued a cheque to C as a refund, but the cheque was dishonoured.


Consequently, C attempted to withhold the goods until the price was refunded. The court ruled that C could not do so, as they were obligated to return the goods, rejecting the notion that a person who has bought, paid for, and subsequently rejected goods resembles an unpaid 'seller'.

 
 

Rights of Unpaid Seller

According to Sec.46(1), notwithstanding the transfer of property in goods to the buyer and subject to the provisions of this Act and any prevailing law, the unpaid seller of goods possesses:


  • A lien on the goods for the price while in possession (Secs. 47-49);


  • The right to stop the goods in transit upon the buyer's insolvency (Secs. 50-52);


  • The right to resell the goods (Sec. 54).


Sec. 46(2) ensures that the seller enjoys the same rights and protections even when the property has not been transferred.


These rights of an unpaid seller are not contingent upon any agreement between the parties but are implied by law.


Lien

The right of lien is among the rights against goods that an unpaid seller can invoke. Lien entails "retaining the goods or refusing to deliver them until the buyer has paid the price for them" (even if ownership of the goods has already transferred to the buyer).


The seller's lien is applicable only if the property in the goods has been transferred to the buyer because "an owner cannot have a lien on his own goods."


However, the seller retains the right to withhold delivery of goods until the price is settled, even in cases of credit sales. This right resembles a lien and is sometimes referred to as a "quasi-lien."


Section 47(1) stipulates that the unpaid seller of goods, who is in possession of them, is entitled to retain possession until payment or tender of the price in the following scenarios:


  • Where the goods have been sold without any provision for credit (i.e., on a cash basis),


  • Where the goods have been sold on credit, but the credit term has lapsed, or


  • Where the buyer becomes insolvent (even if the sale was on credit and the credit term has not expired).


For instance, let's consider a scenario: On January 1st, A sells a horse to B, with the buyer having the right to take delivery at any time and the price payable on March 1st.


If by March 1st, the buyer hasn't taken delivery and demands it thereafter, the seller can refuse to release the horse until the buyer settles the payment. In this case, although the goods were sold on credit, the credit term has expired.


Legal Incidents of Lien

The right of lien is associated with possession rather than title. Lien grants the right to maintain possession. Therefore, it's crucial that the seller still holds possession of the goods.


The transfer of title does not hinder the exercise of this right; instead, it is a right exercised after the property in goods has transferred to the buyer. Consequently, even if the seller has transferred the documents of title to the goods to the buyer, the lien persists as long as the seller retains possession.


Even if the seller issued delivery orders to the buyer, thus transitioning from an owner to a bailee for the buyer, his lien remains unaffected.


Section 47(2) explicitly states that

 
 
"the seller may exercise his lien notwithstanding that he is in possession of goods as agent or bailee for the buyer" (meaning the seller retains possession of goods after the sale, on behalf of the buyer).

The right of lien pertains to all goods in the possession of the seller. Therefore, if the buyer has made partial payment of the price, they cannot demand the delivery of a proportional amount of goods.


The right of lien can only be exercised for non-payment of the price. If there are other charges outstanding, such as warehouse fees for storing the goods, the seller cannot invoke the right of lien.


Lien and Part Delivery 

Section 48

If the seller has delivered a portion of the goods, they can still exercise their right of lien over the remainder unless the partial delivery was made under circumstances indicating a waiver of the right of lien.


For instance, if the delivery of a part is intended to represent the delivery of the whole, or if an essential part of machinery is delivered, the lien is forfeited.


For example, if the buyer has the entire lot of goods weighed but takes only a portion of them, the seller's right of lien over the remaining goods would cease.


Conversely, if out of 100 bags of wheat supposed to be supplied by the seller, 20 have already been delivered, the seller retains the right to exercise lien over the remaining 80 bags.


The exercise of the right of lien does not automatically annul the contract of sale.



Termination of Lien

Section 49


The unpaid seller of goods loses their lien under the following circumstances:


  • When they deliver the goods to a carrier or another bailee for transmission to the buyer without reserving the right of disposal of the goods,


  • When the buyer or their agent legally obtains possession of the goods,


  • Through the waiver of the lien.


However, the unpaid seller does not lose their lien solely because they obtained a decree for the price of the goods.

 
 

Thus, the unpaid seller's right of lien may be forfeited in any of the following manners:


  • By payment of the price: The right of lien terminates when the seller is no longer considered an unpaid seller, which occurs when the buyer pays or tenders the price to the seller. Simply obtaining a decree does not constitute payment of the price, as clarified by Sec. 49(2).


  • By delivery to a carrier: Delivery of goods to a carrier for transmission to the buyer is regarded as delivery to the buyer themselves. Consequently, delivery to a carrier extinguishes the lien, although the seller retains the right of stoppage in transit.


If the seller regains possession of goods from the carrier by exercising their right of stoppage in transit, their lien is reinstated. However, if the seller retrieves the goods from the carrier for any other purpose, the lien does not revive. 


For instance, in Valpy v Gibson (1847) 4 CB 837, the goods were delivered to the buyer's shipping agents, who subsequently returned them to the seller for repacking. While still in possession of the sellers for this purpose, the buyer became insolvent, and the sellers, still unpaid, sought to retain the goods exercising their lien.


It was ruled that since they had lost their lien by delivering the goods to the shipping agents, their refusal to deliver was unjustified.


In cases where the seller has reserved the right of disposal of the goods (i.e., the right to withhold delivery until the buyer fulfils a condition, typically payment), their lien continues until the end of the transit.


By the buyer obtaining possession of goods, the right of lien is terminated. However, if the buyer acquires possession without the seller's consent, such as through wrongful means or for a temporary purpose like a trial, the seller's lien remains intact.


Moreover, the buyer cannot transfer a valid title free from the lien to a third party.


If the buyer is already in possession of goods at the time of the contract of sale, albeit as a bailee for the seller, the seller cannot enforce the right of lien concerning those goods.


Once the buyer gains possession of the goods, the right of lien ceases, and even if the seller regains possession of the goods, the lien cannot be exercised.


For example, if a refrigerator sold to the buyer is delivered and, due to malfunctioning, the buyer sends two of its parts to the seller for repairs, the seller cannot exercise their lien over those parts.


By waiver, the right of lien, which is automatically implied by law for the benefit of the seller in every contract of sale, can be relinquished. The seller has the option to waive this right, either explicitly or through implied actions.


Implied waiver occurs when the seller extends a period of credit to the buyer, delivers a portion of the goods to the buyer or their agent under circumstances indicating a lack of intent to enforce the lien, or consents to a sub-sale made by the buyer.


Additionally, implied waiver can occur when the seller engages in wrongful acts concerning the goods, such as reselling or consuming them without proper authorization, or claiming to retain them on grounds other than the right of lien.


This implies that the right of lien does not confer strict ownership of the goods upon the seller; rather, it grants them the right to possess the goods.


Disposition of the goods by the buyer does not affect the unpaid seller's right of lien unless the seller consents to a sub-sale or other disposition by the buyer.


Additionally, if the buyer lawfully obtains possession of the document of title to the goods and transfers it to a transferee in good faith and for consideration, and the transfer constitutes a sale, then the unpaid seller's lien may be affected.


Conclusion

The concept of the unpaid seller, enshrined within the Sale of Goods Act, stands as a testament to the legal system's commitment to upholding fairness and integrity in commercial dealings.


Empowered with specific rights such as lien, stoppage in transit, and the right to resell, the unpaid seller emerges as a formidable guardian of their interests in transactions where payment remains outstanding.

 
 


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