top of page

Stoppage in Transit in Sale of Goods

Updated: May 6


Stoppage in Transit in Sale of Goods
Stoppage in Transit in Sale of Goods

Content:-



One of the privileges afforded to an unpaid seller pertains to their ability to take action regarding the goods. In cases where the goods have been handed over to a carrier or another party for delivery to the buyer, who subsequently becomes insolvent, the seller retains the right to halt the goods while they are in transit.


At the seller's request, the carrier is obliged to return the goods, notwithstanding whether the buyer has obtained possession of the title document for the goods.


This provision serves as a means to safeguard the unpaid seller from the risk of their goods falling into the possession of an insolvent party. It's rooted in the fundamental principle that one individual's goods should not be used to settle another individual's debts.


Courts often view the right of stoppage in transit favourably due to its inherent fairness. Nevertheless, this right has waned in significance due to the advancement of banking systems and commercial credit practices.


Under Section 54(1), the exercise of this right does not annul the contract or transfer ownership of the goods back to the seller. Rather, it grants the seller the authority to withhold the goods until the buyer fulfils payment obligations.


Should the buyer continue to default on payment, the unpaid seller may proceed to resell the goods.


Requirements of Stoppage in Transit


Section 50 of the Act grants this particular entitlement to the unpaid seller, stipulating: "Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller, who has parted with the possession of goods, has the right of stopping them in transit, i.e., he may resume possession of goods as long as they are in the course of transit, and may retain them until payment or tender of the price."


To invoke this right, certain conditions must be met:


  1. The seller must qualify as an unpaid seller.


  1. The buyer must have become insolvent.


  1. Ownership of the goods should have transferred to the buyer. If the seller retains the right of disposal, the goods remain the seller's property and thus are subject to their lien.


  1. The goods must be in the course of transit.


The initial three prerequisites are straightforward matters of fact that can be readily determined. The final requirement, however, poses a factual inquiry regarding whether the goods are in transit, which can sometimes be challenging to ascertain.


The location of the goods in the custody of a carrier doesn't automatically determine whether they are in transit. Conversely, the absence of goods with the carrier doesn't necessarily imply they aren't in transit. The crucial factor lies in the capacity in which the intermediary (carrier) holds the goods.


If the carrier acts as an agent for the seller, there's no transit since the goods remain under the seller's control. Similarly, if the carrier acts as an agent for the buyer, there's no transit because the buyer has already taken possession.


It's only when the carrier operates as an independent contractor, holding the goods in their own right as a carrier or bailee, that transit occurs in legal terms, triggering the possibility of stoppage in transit.


The requirement for a stoppage in transit doesn't hinge on the goods being in motion. The key aspect of stoppage in transit is that the goods are in the possession of an intermediary or an intervening party situated between the seller, who has relinquished possession, and the buyer, who has not yet taken delivery.

 
 

Commencement and End of Transit 


The right to stoppage remains applicable as long as the goods are considered to be in "transit." Goods are deemed to be in transit when they are in the process of traversing communication channels with the aim of reaching the buyer.


Therefore, it's crucial to determine the duration of transit—that is, when transit commences and concludes. Section 51 furnishes regulations governing these aspects.


(1) Delivery to the buyer [S.51(1)]

Goods are considered to be in the course of transit from the moment they are handed over to a carrier or another custodian for the purpose of being conveyed to the buyer, until the buyer or their representative takes possession of them.


Consequently, transit ceases upon delivery to the buyer or their representative.


In the case of G.I.P. Railway Co. v. Hanmandas (ILR (1899) 14 Bom.57), the seller dispatched the goods with the Railway Company for transportation to the buyer. Upon arrival at the destination, the company handed over the goods to the buyer, who proceeded to load them onto his cart.


However, before the cart left the railway compound, the company received a telegram instructing them to halt the goods. The court ruled that transit had ended as soon as the goods were transferred to the buyer, even prior to this, when the railway receipt was endorsed by the buyer.


Consequently, the railway company had no authority to stop the goods.


If the buyer refuses to accept the goods, transit does not terminate even if the goods have reached the destination port. This is because only actual delivery brings an end to the right of stoppage.


In the case of James v. Griffin (1837) 2 M & W 623, upon the goods' arrival at the destination port, the buyer dispatched his son to oversee the unloading of the goods. However, he informed his son that due to his insolvency, he did not intend to accept the goods and preferred the seller to retain them.


When the goods remained in this state, the seller's instruction to stop them was received. The court determined that the goods were effectively halted under these circumstances.

 
 

2) Interception by the buyer [S.51(2)]

It's not mandatory for the buyer or their agent to take possession of the goods after they have reached the destination. Transit concludes when the buyer or their agent receives the goods from the carrier before their arrival at the designated destination (even if it may be wrongful for the carrier to deliver the goods to the buyer).


The buyer has the prerogative to anticipate the termination of transit, thereby terminating the seller's right of stoppage in transit.


In a case where the seller agreed to deliver the goods free of charge at the buyer's premises in London, but the carrier delivered the goods to dock warehouses as per the buyer's instructions, it was determined that the right to stop was nullified.


Mere presence of the buyer as a passenger aboard the ship transporting the goods doesn't constitute delivery to the buyer before their arrival at the designated destination.


(3) Acknowledgement to the buyer [S.51(3)]

Upon the goods reaching their designated destination, if the carrier acknowledges to the buyer or their agent that they are now holding the goods on behalf of the buyer and continues to possess them as a bailee, the transit comes to a close.


This constitutes a form of 'constructive delivery' of the goods to the buyer. It's irrelevant whether the goods are still in the custody of the carrier or if the buyer has indicated a further destination.


A clear and unambiguous acknowledgment is required to terminate the original contract of carriage. In the case of Whitehead v. Anderson (1842) 9 M&W 518, a quantity of timber was sold and consigned aboard a ship.


Upon the ship's arrival at the destination, the buyer was bankrupt. Nonetheless, their agent boarded the ship, inspected the timber, and informed the captain that they had come to take possession.


The captain indicated that delivery would be made upon payment of freight (as the carrier holds a lien over the goods for unpaid freight). Before this condition could be fulfilled, the seller issued a stoppage notice, resulting in the goods being delivered to the seller's agent.


It was determined that the transit had not ended. The captain's agreement to deliver was contingent, and since the condition was not met, the buyer had not obtained constructive possession.


(4) Rejection by the buyer [S.51(4)]

If the buyer rejects the goods and the carrier or other bailee retains possession of them, the transit remains ongoing. This is because there has been neither actual nor constructive delivery to the buyer. This principle holds true even if the seller themselves has declined to accept the return of the goods.


(5) Delivery to ship chartered by the buyer [S. 51(5)]

When goods are delivered to a ship chartered by the buyer, whether the carrier is acting independently or as the buyer's agent is a matter of fact to be determined in each instance. If the carrier is acting as the buyer's agent, the transit concludes as soon as the goods are loaded onto the ship.


For example, if the goods are delivered onto a ship owned by the buyer and the bills of lading stipulate delivery to the buyer, transit ceases immediately upon the goods being placed on board the ship.



(6) Wrongful refusal to deliver [S.51(6)]

When the carrier unlawfully refuses to deliver the goods to the buyer or their agent, the transit is terminated. The carrier cannot prolong the transit period through their wrongful refusal to deliver the goods.


It's implicit that the goods should have already reached their destination, as otherwise, the carrier would rightfully refuse delivery.


If the carrier declines to deliver the goods based on an ineffective notice of stoppage in transit, the transit comes to an end. The carrier is obligated to halt the goods in transit only upon proper notice being duly served to them.


In the case of Bird v. Brown (1850) 4 Ex 786, a notice to stop goods in transit was issued by a third party who lacked authority from the seller. When the insolvent buyer's assignees demanded delivery of the goods, the carrier refused to comply.

 
 

Investigation

Later, the seller attempted to validate the stoppage in transit made by the third party. However, it was determined that the transit had concluded when the buyer's assignees requested delivery, as the carrier's refusal was wrongful. The right of stoppage, once terminated, couldn't be revived by subsequently ratifying an ineffective stoppage notice.


Likewise, if the carrier mistakenly or wrongfully delivers the goods after a notice to stop in transit has been issued, it doesn't nullify the right of the unpaid seller.


How is the Right of Stoppage Effected?


There are two methods to exercise the right of stoppage in transit: either by taking actual possession of the goods or by issuing notice to the carrier. The seller provides notice to the carrier instructing them to halt the goods and return them to the seller or as per their instructions.


This allows the seller to clearly express their intention to countermand the delivery. The seller isn't obligated to prove the existence of facts justifying the exercise of this right, as wrongfully preventing the delivery to the buyer could lead to liability for damages.


Notice can be given either to the individual in possession of the goods or to their principal. In the latter scenario, sufficient time should be allowed for the principal to communicate with their agent. If the carrier fails to protect the seller's right after proper notice has been duly served, they can be held liable for conversion.


The seller is responsible for the expenses associated with redelivery and is also required to pay the freight under the original contract of carriage.


Conclusion


The right of stoppage in transit upholds the fundamental principle that a seller should not suffer financial losses due to a buyer's insolvency, especially after parting with possession of goods. This legal mechanism ensures that goods can be reclaimed by the seller during their transit until payment is secured or resolved.


By allowing sellers to intervene and retrieve goods in transit, commercial law balances the interests of both parties, reinforcing the integrity of trade practices and the protection of sellers in credit-based transactions.

 
 


1 view0 comments

Recent Posts

See All

Comments


bottom of page