Unpaid Seller Rights & Lien
Section 45. Unpaid seller” defined.
45(1).
A seller is considered an unpaid seller under this Act in the following situations:
(a).
When the entire price has not been paid or not been tendered.
Even partial non-payment makes the seller an unpaid seller.
(b).
When the seller receives a bill of exchange or another negotiable instrument as conditional payment, but the condition is not met.
This happens when the instrument is dishonoured or otherwise fails.
In such cases, the seller is still treated as unpaid.
45(2).
In this Chapter, the word seller refers not only to the actual seller but also to any person who occupies the position of a seller.
This includes:
An agent of the seller to whom the bill of lading has been endorsed.
A consignor or an agent who has paid the price himself or is directly responsible for paying it.
Bill of Lading:
Section 46. Unpaid seller’s rights.
46(1).
Subject to this Act and any other applicable law:
Even if ownership of the goods has already passed to the buyer, an unpaid seller still has certain legal rights.
These rights arise automatically by implication of law:
(a).
The unpaid seller has a lien on the goods while he remains in possession of them.
So he can retain the goods until the price is paid.
(b).
If the buyer becomes insolvent, the unpaid seller has the right of stoppage in transit.
This allows the seller to stop the goods while they are still in transit and regain possession.
(c).
The unpaid seller has a right of resale, but only to the extent permitted by this Act.
46(2).
When ownership in the goods has not yet passed to the buyer, the unpaid seller has additional protection.
In such a case, the unpaid seller has a right to withhold delivery of the goods.
This right is similar to the seller’s right of lien and stoppage in transit.
It is also co-extensive , it applies to the same extent and under the same conditions as those rights would apply if ownership had already passed.
Section 47. Seller’s lien.
47(1).
Subject to the provisions of this Act:
An unpaid seller who is in possession of the goods has the right to retain possession until the buyer pays or tenders the price.
This right applies in the following cases:
(a).
When the goods are sold without any agreement for credit.
Since no credit terms exist, the seller may keep the goods until payment is made.
(b).
When the goods are sold on credit, but the credit period has expired.
Once the agreed time has passed, the seller can retain the goods until payment.
(c).
When the buyer becomes insolvent.
Insolvency automatically entitles the seller to retain possession of the goods until payment or tender.
47(2).
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer.
Section 48. Part delivery.
Even after part delivery, the seller may still exercise his right of lien (the right to retain possession) over the remaining goods.
However, this right continues only if the circumstances of the part delivery do not show an intention to waive the lien.
So , If the part delivery was made in a way that suggests the seller intended to give up his lien, then the seller cannot claim lien on the rest.
Section 49. Termination of lien.
49(1).
An unpaid seller loses his lien on the goods in the following situations:
(a).
When the seller delivers the goods to a carrier or other bailee for sending them to the buyer without reserving the right of disposal.
Once the goods are handed over without retaining control, the lien ends.
(b).
When the buyer or the buyer’s agent lawfully takes possession of the goods.
Once possession passes, the seller can no longer retain the goods.
(c).
When the seller waives the lien.
The lien can be lost if the seller’s conduct shows he voluntarily gave up the right.
49(2).
An unpaid seller who has a lien on the goods retains that lien even after obtaining a court decree for the price.
Simply getting a court judgment for payment does not mean the seller loses his right to hold the goods.
The lien remains until the price is actually paid or tendered, unless lost in some other legally recognized way.
In simple terms: a court decree for payment does not cancel the seller’s lien on the goods.
Section 50. Right of stoppage in transit.
If the buyer becomes insolvent, the unpaid seller gains a special protection.
Even if the seller has already given up possession of the goods, he may still stop the goods in transit.
Stopping in transit means the seller may retake possession of the goods while they are still being transported to the buyer.
The seller may hold the goods until the buyer pays or tenders the price.
Section 51. Duration of transit.
51(1).
Goods are considered to be in the course of transit once they are delivered to a carrier or other bailee for delivery to the buyer.
The transit continues until the buyer or the buyer’s authorised agent takes delivery of the goods from the carrier or bailee.
So , transit lasts from the moment the goods leave the seller and are handed to a carrier, up to the moment the buyer (or his agent) actually receives them.
51(2).
If the buyer or an authorised agent takes delivery of the goods before they reach the agreed destination, the transit ends at that moment.
So the goods are no longer considered to be in transit once the buyer obtains possession early.
51(3).
When the carrier acknowledges holding goods for the buyer after arrival
After the goods arrive at the appointed destination, the carrier or bailee may inform the buyer or the buyer’s agent that he now holds the goods.
Once this acknowledgment is made, and the carrier continues to hold the goods as bailee for the buyer, the transit is considered to be at an end.
This remains true even if the buyer has indicated another place to which the goods should ultimately be sent.
51(4).
If the buyer rejects the goods, the situation changes regarding the course of transit.
Even after rejection, if the carrier or other bailee continues to hold the goods, the goods are still considered to be in transit.
This remains true even if the seller refuses to take the goods back.
51(5).
Sometimes goods are delivered to a ship that has been chartered by the buyer.
In such a situation, it becomes a question of fact, based on the specific circumstances, whether the ship is acting as a carrier for the seller or as a bailee for the buyer.
The conclusion depends on factors such as:
The terms of the charter.
The intention of the parties.
And how control over the goods is handled.
This determination affects whether the goods are considered to be in transit or whether transit has ended.
51(6).
A carrier or other bailee may sometimes wrongfully refuse to deliver the goods to the buyer or the buyer’s authorised agent.
When such a wrongful refusal occurs, the transit is treated as having ended.
So , the goods are no longer considered to be in the course of transit, even though the buyer has not received them.
51(7).
Sometimes the seller may have already made part delivery of the goods to the buyer or the buyer’s authorised agent.
Even after part delivery, the seller may still stop the remaining goods in transit.
This right continues unless the part delivery was made in circumstances that show the seller intended to give up possession of all the goods.
So, if part delivery does not indicate full surrender of possession, the seller can still stop the rest of the goods while they are in transit.
Section 52. How stoppage in transit is effected.
52(1).
An unpaid seller may use his right of stoppage in transit in two ways.
First, he may take actual possession of the goods himself while they are still in transit.
Second, he may give notice of his claim to the carrier or other bailee who currently has possession of the goods.
The notice may be given either:
To the person who is actually holding the goods.
To that person’s principal.
The notice has to be given to the principal (the main party in control). But giving notice to the principal is not automatically effective.
The notice must reach the principal at a time when they can still act on it.
The situation must allow the principal, with reasonable effort, to inform the person who is physically holding the goods.
Only then is the notice considered valid and effective.
52(2)
When an unpaid seller gives a valid notice of stoppage in transit to the carrier or other bailee holding the goods, the carrier must respond accordingly.
The carrier or bailee is then required to re-deliver the goods either back to the seller or in accordance with the seller’s instructions.
The seller must bear the expenses associated with this re-delivery.
Section 53. Effect of sub-sale or pledge by buyer.
53(1).
The unpaid seller’s right of lien or right of stoppage in transit generally remains intact, even if the buyer has resold the goods or otherwise transferred them to someone else.
These rights are not affected unless the seller has given his consent to such resale or disposition.
When a Document of Title is Involved
A different outcome arises when a document of title (such as a bill of lading or warehouse receipt) has been:
Issued or awfully transferred to a person as the buyer or owner of the goods.
If that person then transfers the document to someone who:
Takes it in good faith, and gives consideration then the effect depends on the nature of the transfer:
1. If the transfer of the document is by way of sale:
The unpaid seller’s right of lien or right of stoppage in transit is completely defeated.
The new holder gets priority because they acted in good faith and paid value.
2. If the transfer is by way of pledge or other disposition for value:
The unpaid seller’s rights still exist, but they can be exercised only subject to the rights of the pledgee or transferee.
This means the unpaid seller’s rights become secondary, and the pledgee’s interests must be respected.
53(2).
Sometimes, the buyer may pledge the goods to a third party.
This third person would be known as the pledgee.
This is usually done as security for a loan or other obligation.
In such a case, the unpaid seller’s rights are not entirely lost but are limited by the rights of the pledgee.
The law provides an additional protection to the unpaid seller:
The unpaid seller may require the pledgee to first recover the amount owed by the buyer from any other goods or securities of the buyer that the pledgee holds.
This requirement applies only if such other goods or securities exist and are available for satisfying the buyer’s debt.
So , if the buyer has pledged multiple assets to the pledgee, the unpaid seller can insist that the pledgee use the other assets first before relying on the goods that the seller is trying to reclaim.
Section 54. Sale not generally rescinded by lien or stoppage in transit.
54(1).
A contract of sale does not automatically end just because the unpaid seller uses his right of lien or right of stoppage in transit.
The seller’s act of retaining the goods (lien) or stopping them while in transit does not by itself amount to rescinding the contract.
The contract remains in force unless it is terminated by some other action or agreement consistent with the law.
54(2).
The unpaid seller may re-sell the goods in two situations:
1. When the goods are of a perishable nature.
2. When the unpaid seller has exercised lien or stoppage in transit and has given notice to the buyer of his intention to re-sell.
After giving such notice (except in the case of perishables), the seller must allow the buyer a reasonable time to pay or tender the price.
If the buyer fails to pay within this reasonable time, the seller may re-sell the goods.
Consequences When Notice Is Given
If the seller has given proper notice and then re-sells the goods, he may:
Recover damages from the original buyer for any loss caused by the buyer’s breach.
The buyer is not entitled to any profit made on the re-sale.
Consequences When Notice Is Not Given
If the seller re-sells the goods without giving notice (in cases where notice is required):
The seller cannot recover damages from the original buyer for any loss caused by the re-sale.
The buyer is entitled to any profit, if the goods are sold at a higher price.
54(3).
An unpaid seller may exercise his right of lien or right of stoppage in transit and proceed to re-sell the goods.
When the goods are re-sold, the new buyer (the person who purchases them from the unpaid seller) receives a good title to the goods.
This good title is valid even against the original buyer, so even the original buyer cannot challenge the new buyer’s ownership.
54(4).
The seller may include a term in the contract that expressly reserves a right of re-sale if the buyer defaults.
If the buyer does default, and the seller re-sells the goods under this reserved right, the original contract of sale is rescinded.
So , the original contract is treated as cancelled because of the buyer’s breach.
However, the cancellation does not affect the seller’s right to claim damages from the buyer.
