Distinction between Right of Lien and Right of Stoppage in Transit:
(i) The essence of a right of lien is to retain possession whereas the right of stoppage in transit is right to regain possession.
(ii) Seller should be in possession of goods under lien while in stoppage in transit (i) seller should have parted with the possession (ii) possession should be with a carrier, & (iii) buyer has not acquired the possession.
(iii) Right of lien can be exercised even when the buyer is not insolvent but it is not the case with right of stoppage in transit.
(iv) Right of stoppage in transit begins when the right of lien ends. Thus the end of the right of lien is the starting point of the right of stoppage in transit.
Effects of sub-sale or pledge by buyer (Section 53): The right of lien or stoppage in transit is not affected by the buyer selling or pledging the goods unless the seller has assented to it. This is based on the principle that a second buyer cannot stand in a better position than his seller. (The first buyer).
The right of stoppage is defeated if the buyer has transferred the document of title or pledges the goods to a sub-buyer in good faith and for consideration.
Example: A sold certain goods to B of Mumbai and the goods are handed over to railways for transmission to B. In the mean time, B sold these goods to C for consideration. B becomes insolvent. A can still exercise his right of stoppage in transit.
Exceptions: (a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.
Example: A entered into a contract to sell cartons in possession of a wharfinger to B and agreed with B that the price will be paid to A from the sale proceeds recovered from his customers. Now B sold goods to C and C duly paid to B. But anyhow B failed to make the payment to A. A wanted to exercise his right of lien and ordered the wharfinger not to make delivery to C. Held that the seller had assented to the resale of the goods by the buyer to the sub-buyers. As a result A’s right to lien is defeated (Mount D. F. Ltd. vs Jay & Jay (Provisions) Co. Ltd ).
(b) When a document of title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value i.e. for price, then, the proviso of sub-section (1) stipulates as follows:
(i) If the last-mentioned transfer is by way of sale, right of lien or stoppage in transit is defeated, or
(ii) If the last mentioned transfer is by way of pledge, unpaid seller’s right of lien or stoppage only be exercised, subject to the rights of the pledgee.
However, the pledgee may be required by the unpaid seller to use in the first instance, other goods or securities of the pledger available to him to satisfy his claims. [Sub-section (2)].
Effect of stoppage: The contract of sale is not rescinded when the seller exercises his right of stoppage in transit. The contract still remains in force and the buyer can ask for delivery of goods on payment of price.
Right of re-sale [Section 54]: The right of resale is a very valuable right given to an unpaid seller. In the absence of this right, the unpaid seller’s other rights against the goods that is lien and the stoppage in transit would not have been of much use because these rights only entitled the unpaid seller to retain the goods until paid by the buyer.
The unpaid seller can exercise the right to re-sell the goods under the following conditions: (i) Where the goods are of a perishable nature: In such a case the buyer need not be informed of the intention of resale.
(ii) Where he gives notice to the buyer of his intention to re-sell the goods: If after the receipt of such notice the buyer fails within a reasonable time to pay or tender the price, the seller may resell the goods.
It may be noted that in such cases, on the resale of the goods, the seller is also entitled to: (a) Recover the difference between the contract price and resale price, from the original buyer, as damages.
(b) Retain the profit if the resale price is higher than the contract price.
It may also be noted that the seller can recover damages and retain the profits only when the goods are resold after giving the notice of resale to the buyer. Thus, if the goods are resold by the seller without giving any notice to the buyer, the seller cannot recover the loss suffered on resale.
Moreover, if there is any profit on resale, he must return it to the original buyer, i.e. he cannot keep such surplus with him [Section 54(2)].
(iii) W here an unpaid seller who has exercised his right of lien or stoppage in transit resells the goods: The subsequent buyer acquires the good title thereof as against the original buyer, despite the fact that the notice of re-sale has not been given by the seller to the original buyer.
(iv) A re-sale by the seller where a right of re-sale is expressly reserved in a contract of sale: Sometimes, it is expressly agreed between the seller and the buyer that in case the buyer makes default in payment of the price, the seller will resell the goods to some other person. In such cases, the seller is said to have reserved his right of resale, and he may resell the goods on buyer’s default.
It may be noted that in such cases, the seller is not required to give notice of resale. He is entitled to recover damages from the original buyer even if no notice of resale is given.
(v) Where the property in goods has not passed to the buyer: The unpaid seller has in addition to his remedies a right of withholding delivery of the goods. This right is similar to lien and is called “quasi-lien”.
RIGHTS OF UNPAID SELLER AGAINST THE BUYER (SECTIONS 55-61):
Rights of unpaid seller against the buyer: An unpaid seller can enforce certain rights against the goods as well as against the buyer personally. Rights of unpaid seller against the buyer are otherwise known as seller’s remedies for breach of contract of sale.
The rights of the seller against the buyer personally are called rights in person amand are in addition to his rights against the goods.
The right against the buyer are as follows:
1. Suit for price (Section 55):
(a) Where under a contract of sale the property in the goods has passed to the buyer and the buyer wrongfully neglects or refuses to pay for the goods according to the terms of the contract, the seller may sue him for the price of the goods. [Section 55(1)]
(b) Where under a contract of sale the price is payable on a day certain irrespective of delivery and the buyer wrongfully neglects or refuses to pay such price, the seller may sue him for the price although the property in the goods has not passed and the goods have not been appropriated to the contract. [Section 55(2)].
2. Suit for damages for non-acceptance (Section 56): Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may sue him for damages for non-acceptance. As regards measure of damages, Section 73 of the Indian Contract Act, 1872 applies.
3. Repudiation of contract before due date (Section 60): Where the buyer repudiates the contract before the date of delivery, the seller may treat the contract as rescinded and sue damages for the breach. This is known as the ‘rule of anticipatory breach contract’.
4. Suit for interest [Section 61]: Where there is specific agreement between the seller and the buyer as to interest on the price of the goods from the date on which payment becomes due, the seller may recover interest from the buyer. If, however, there is no specific agreement to this effect, the seller may charge interest on the price when it becomes due from such day as he may notify to the buyer.
In the absence of a contract to the contrary, the Court may award interest to the seller in a suit by him at such rate as it thinks fit on the amount of the price from the date of the tender of the goods or from the date on which the price was payable.
REMEDIES OF BUYER AGAINST THE SELLER:
Breach of contract by seller
If the seller commits a breach of contract, the buyer gets the following rights against the seller:
1. Damages fo r non-delivery [Section 57]: Where the seller wrongfully neglects or refuses to deliver the goods to the buyer, the buyer may sue the seller for damages for non-delivery.
Example: ‘A’ a shoe manufacturer, agreed to sell 100 pairs of shoes to ‘B’ at the rate of Rs. 1050 per pair. ‘A’ knew that ‘B’ wanted the shoes for the purpose of further reselling them to ‘C’ at the rate of Rs. 1100/- per pair. On the due date of delivery, ‘A’ failed to deliver the shoes to ‘B’. In consequence, ‘B’could not perform his contract with 'C’for the supply of 100 pairs of shoes. In this case, 'B’can recover damages from ‘A’at the rate of Rs. 50/- per pair (the difference between the contract price and resale price).
2. Suit for specific performance (Section 58): Where the seller commits of breach of the contract of sale, the buyer can appeal to the court for specific performance. The court can order for specific performance only when the goods are ascertained or specific.
Example: ‘A’ agreed to sell a rare painting of Mughal period to ‘B’. But on the due date of delivery, ‘A’ refused to sell the same. In this case, ‘B’ may file a suit against ‘A’ for obtaining an order from the Court to compel ‘A’ to perform the contract (i.e. to deliver the painting to ‘B’ at the agreed price).
3. Suit for breach of warranty (section 59): Where there is breach of warranty on the part of the seller, or where the buyer elects to treat breach of condition as breach of warranty, the buyer is not entitled to reject the goods only on the bases of such breach of warranty. But he may-
(i) set up against the seller the breach of warranty in diminution or extinction of the price; or
(ii) sue the seller for damages for breach of warranty.
4. Repudiation of contract before due date (Section 60): Where either party to a contract of sale repudiates the contract before the date of delivery, the other may either treat the contract as subsisting and wait till the date of delivery, or he may treat the contract as rescinded and sue for damages for the breach.
5. Suit for interest:
(1) Nothing in this Act shall affect the right of the seller or the buyer to recover interest or special damages, in any case where by law interest or special damages may be recoverable, or to recover the money paid where the consideration for the payment of it has failed.
(2) In the absence of a contract to the contrary, the court may award interest at such rate as it thinks fit on the amount of the price to the buyer in a suit by him for the refund of the price in a case of a breach of the contract on the part of the seller-from the date on which the payment was made.
Example 1: In case of a sale of cigarettes which turned out to be mildewed and unfit for consumption, damages were awarded on the basis of the difference between the contract price and the price released.
Example 2: In case of absence of transfer of title or registration the purchaser cannot claim damages for breach of conditions and warranties relating to sale.
AUCTION SALE (SECTION 64):
An ‘Auction Sale’ is a mode of selling property by inviting bids publicly and the property is sold to the highest bidder. An auctioneer is an agent governed by the Law of Agency. When he sells, he is only the agent of the seller. He may, however, sell his own property as the principal and need not disclose the fact that he is so selling.
Rules of Auction sale: Section 64 of the Sale of Goods Act, 1930 provides following rules to regulate the sale by auction:
(a) Where goods are sold in lots: Where goods are put up for sale in lots, each lot is prima facie deemed to be subject of a separate contract of sale.
(b) Completion of the contract of sale: The sale is complete when the auctioneer announces its completion by the fall of hammer or in any other customary manner and until such announcement is made, any bidder may retract from his bid.
(c) Right to bid may be reserved: Right to bid may be reserved expressly by or on behalf of the seller and where such a right is expressly reserved, but not otherwise, the seller or any one person on his behalf may bid at the auction.
(d) Where the sale is not notified by the seller: Where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for the auctioneer knowingly to take any bid from the seller or any such person; and any sale contravening this rule may be treated as fraudulent by the buyer.
(e) Reserved price: The sale may be notified to be subject to a reserve or upset price; and
(f) Pretended bidding: If the seller makes use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.
Example: P sold a car by auction. It was knocked down to Q who was only allowed to take it away on giving a cheque for the price and signing an agreement that ownership should not pass until the cheque was cleared. In the meanwhile till the cheque was cleared, Q sold the car to R. It was held that the property was passed on the fall of the hammer and therefore R had a good title to the car. Both sale and sub sale are valid in favour of Q and R respectively.
INCLUSION OF INCREASED OR DECREASED TAXES IN:
CONTRACT OF SALE (SECTION 64A)
Where after a contract has been made but before it has been performed, tax revision takes place. Where tax is being imposed, increased, decreased or remitted in respect of any goods without any stipulations to the payment of tax, the parties would become entitled to read just the price of the goods accordingly.
Following taxes are applied on the sale or purchase of goods:
• Any duty of customs or excise on goods,
• Any tax on the sale or purchase of goods.
The buyer would have to pay the increased price where the tax increases and may derive the benefit of reduction if taxes are curtailed.
Thus, seller may add the increased taxes in the price. The effect of provision can, however, is excluded by an agreement to the contrary. It is open to the parties to stipulate anything regard to taxation.
A seller is called an ‘unpaid seller’ when either he has not been paid the whole price or the buyer has failed to meet at maturity the bill of exchange or any other negotiable instrument which was accepted by the seller as conditional payment. In such a circumstance the buyer may exercise lien on goods if he is in possession of them. If goods are in transit to the buyer, he may stop the goods in transit and obtain the possession of the goods.
When the unpaid seller has exercised right of lien or stoppage in transit, he may sell the goods after giving a notice to the buyer of his intent to resell. The new buyer shall have a good title on goods as against the original buyer even if the notice of resale has not been given by the seller to the original buyer.
If the seller neglects to deliver the goods the buyer may sue him for damages, or he may sue the seller for specific performance if the property in goods had not been transferred to the buyer. Where the buyer neglects to pay the price, the seller may sue him for the price as well as exercise lien on goods. Where the buyer wrongfully neglects to accept and pay for the goods, the seller may sue him for damages for nonacceptance.