SALE BY A MERCANTILE AGENT

The second exception of the nemo dat principle is somewhat controversial

and is found in Section 23(2) of the Sale of Goods Act.
(2) Nothing in this Act shall affect—
(a) The provisions of any enactment enabling the apparent owner of goods to
dispose of them as if he were the true owner thereof;

CONDITIONS TO BE FULFILLED BY THE MERCHANTILE AGENT

1. Must be a Merchantile Agent
Section 26(3) defines a merchantile agent. The person selling the goods
must be a merchantile agent at the time he sold the goods.

2. The Merchantile Agent must be in possession of the goods with

the consent of the Owner
The merchantile agent must be in possession of the goods with the consent
of the owner. The question of ownership was addressed in the case of
Lloyds bank limited vs. American National Trust and Savings
Association. In this case the plaintiff lent money to X who was a
merchantile agent on the security of certain documents (bill of lading). The
bills of lading had been pledge with them. The documents were then
returned to X in order to enable him obtain the goods and sell as a trustee
for the bank. However X fraudulently pledged the same documents with the
defendant for another advance. The plaintiffs sued the defendant for the
recovery of these goods documents. The defendant’s defence was that they
were protected by section 2 of the Factors Act of 1889 (deals with
mechantile agent). One of the issues to be determined was who the owner of
the goods was. It was held that X the merchantile agent as well as the
plaintiff were the joint owners of the goods. Secondly, that the defendants
had acquired a good title as against the plaintiff.

The question of consent with regards to ownership deals with three there
categories if issues. A merchantile agent will have consent of the owner to
posses the goods:
1. If he obtains those good by larceny by trick
2. If he obtains those goods by larceny by bailee
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3. If he obtains those goods by fraud or by false pretences
However fraudulently the consent had been obtained by the merchantile
agent from the owner, the consent will be deemed to be proper consent to
the agent having possession of the goods. The only situation in which the
merchantile agent is deemed not to have the consent of the owner is in
situations where out rightly steals the goods.
3. The Agent must have acted or Sold in the Ordinary Course of
Business
This is basically to say that he should have acted in the ordinary course of
business as a merchantile agent. However, it is not necessary that the act be
a usual one. For instance, in the case of Oppenheiner vs. Attenborough
fraudulently obtained possession of diamond from a diamond merchant and
pledged those diamonds with pawnbrokers. The agent was a diamond broker
and it was proved that diamond brokers do not usually pledge. It was held
that the agent’s act was nevertheless in the ordinary course of a merchantile
agent and the pawn broker was therefore protected.
According to Lord Buckley acting in the ordinary course of business is acting
within the hours of business at a proper place of business and in other
respect in the ordinary way in which a merchantile agent would act.
4. The fourth condition is that the buyer must prove that he took the goods
in good faith and without notice that the sale was made without the owner’s
authority.
5. Finally the transaction effected by the merchantile agent and the
innocent party must be a sale, pledge or other disposition.
3. SALE UNDER A SPECIAL POWER OF SALE
The third exception to the nemo dat principle is contained under section
23(2) (b) and is referred to a sale under a special power of sale. The
subsection is to the effect that nothing in this Act shall affect the validity of
any contract of sale under any special common law or statutory power of
sale or under the order of a court of competent jurisdiction. This therefore
qualifies the nemo dat principle contained in section 23(1).
There are several common law powers of sale which may be exercised by
various persons.
First, pledges of goods or documents of title can sale those goods pledged
to them and be able to pass a good title. A pledge at common law carriers
with it an implied power of sale.

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Secondly, agents acting within the scope of their apparent authority are
viewed in common law as having power to sale goods and pass a good title.
Furthermore, agents of necessity who are disposing of goods belonging to
the principal can pass good title. However, an agent relying on the principle
of necessity must show that he had no opportunity of communicating with
the principal to obtain instructions. Secondly the agent must have acted in
the interest of the principal and not his own interest.
Thirdly auctioneers fall in another category of persons who are deemed to
have a common law power of sale. Auctioneers in possession are able to sell
the goods and pass good title.
Lastly sale by executors or administrators of estates of deceased persons
are sale on the basis of a common law power of sale. When acting in their
representative capacity, they can sell goods belonging to the estate and
pass good title.
Apart from common law powers of sale there are also situations of statutory
powers of sale. The first such power is conferred upon the unpaid sellers
within the meaning of section 40(c) and section 48(2). If a person has sold
goods but he has not been paid for those goods the sale of Goods Act gives
him powers to resell the goods. In such circumstances the original purchases
cannot sue a third subsequent purchaser.
Secondly , under the Distress for Rent Act, a landlord can sell the property
which he has seized from the tenants premises for the non-payment of the
rent and pass a good title. Similarly, a trustee in bankruptcy under the
Bankruptcy Act is entitled to sell the property of a bankrupt person and
convey a good title. I the area of companies, the liquidators of a company
under the Company Act have powers to sell the property of the company in a
liquidation of the company and pass good title.
Finally, under an order of the court any of the orders issued by the courts
for the disposal goods can be executed by a court broker who then passes a
good title to the purchaser. The courts may also authorise Sale of Goods
where a decree holder has sought to sell the goods because the party is
unable to clear the money owed. The decree holder applies to the court to
attach the goods; neither the court nor the auctioneers are owners of the
goods but they can sell the goods.

4. SALE UNDER A VOIDABLE TITLE

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This is embodied under section 24 of the Sale of Goods Act, which states that
“When the seller of goods has a voidable title thereto but his title has not
been avoided at the time of the sale, the buyer acquires a good title to the
goods, provided he buys them in good faith and without notice of the seller’s
defect of title.” this section declares the general rule that that a party cannot
avoid a voidable contract once a third party rights have been acquired. The
commonest case in which a seller will have a voidable title is where he has
obtained the goods under a contract induced by misrepresentation (whether
fraudulent or innocent misrepresentation) but a contract can also be
voidable on other grounds such as duress and undue influence, mistake and
drunkenness. It is important to distinguish between a contract of sale which
is void ab initio and one which is merely voidable because section 24 only
protects the third party in the case of voidable contracts but not in the case
of void contracts.

In Lewis vs. Averay, Lewis in Bristol, advertised his Austine Cooper car for
sale in the newspaper and agreed to sell it at $450 to a man calling himself
Greene, who claimed to be a well known actor, Richard Greene, and showed
a Pinewood Studio pass as evidence of this identity. The rogue “Greene” was
allowed to take way the car in exchange of a cheque which was later proved
to be worthless. Three days later the rogue sold the car to Averay, a music
student living in London, who bought in good faith. The Court of Appeal held
that the first sale was voidable for fraud, but not void for mistake of identity,
with the result that Averay got a good title.
The third party will be protected if he buys the goods before the original
contract has been avoided. As a general rule the defrauded party can only
rescind the contract by communicating with the other party to the contract
notifying him of the rescission. In other words the claims of the buyer who
relies on the section 24 will be defeated if, before he makes his purchase,
the original owner has validly exercised his right to avoid the first
transaction. This is normally done by giving a notice to the other party, or by
retaking possession of the goods. However this rule since to be modified in
the case of Car & Universal Finance Ltd v Caldwell[19]1 , in this case
Caldwell was induced to sell his car to Norris by way of fraud. The court
noted that although the innocent party rescinding a voidable contract must
normally communicate this to the other party, this was not the case in this
particular case. In this case the other party was a rogue who had acquired a
voidable title and then disappeared. Secondly it was held that the owner’s
action in going to the police showed a clear intention to avoid the contract.

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Therefore the rogue’s title had been effectively avoided before the sale to
the defendant who thus acquired no title.
5. SALE BY SELLER IN POSSESSION
The fifth exception to the nemo dat rule is in section 26 (1) of the SGA. This
section stipulates that
“Where a person having sold goods continues or is in possession of the
goods, or of the documents of title to the goods, the delivery or transfer by
that person, or by a mercantile agent acting for him, of the goods or
documents of title, under any sale, pledge or other disposition thereof, to
any person receiving them in good faith and without notice of the previous
sale shall have the same effect as if the person making the delivery or
transfer were expressly authorized by the owner of the goods to make it.”
There are several conditions that must be fulfilled before this exception is
invoked. The person must have sold the goods but continues to be in
possession of the goods and he must be in possession of the goods under a
contract of sale wherein the property has already passed. There must be no
breach in the continuity of physical possession. If there is such a breach the
seller can pass title notwithstanding any transaction between him and the
original purchaser which might alter the legal title under which the
possession was held.
It is not necessary that the possession be with the seller himself. Possession
by an agent of the seller will be sufficient for the purpose of this provision.
6. SALE BY BUYER IN POSSESSION
Found in section 26(2) and is the opposite of section 26(1). It is to the effect
that “Where a person having bought or agreed to buy goods obtains, with
the consent of the seller, possession of the goods or the documents of title to
the goods, the delivery or transfer by that person, or by a mercantile agent
acting for him, of the goods or documents of title, under any sale, pledge or
other disposition thereof, to any person receiving them in good faith and
without notice of any lien or other right of the original seller in respect of the
goods shall have the same effect as if the person making the delivery or
transfer were a mercantile agent in possession of the goods or documents of
title with the consent of the owner.”

The conditions to be fulfilled in this respect are as follows:

The buyer must have obtained the goods with the consent of the seller. It is
immaterial how that consent is obtained. The first buyer must have bought
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or agreed to buy the goods. This applies whether or not the property in the
goods has passed to the first buyer.
There must be a contract of sale within the meaning of the SGA. There must
be a contract under which the seller transfers or agrees to the property in
the goods to the buyer. A mere option to sell is not a contract of sale until it
has been exercised.
The possession must be actual physical possession of the goods or
documents of title to goods and it must be obtained by the buyer in his
capacity as a person who has bought or agreed to buy the goods.
Finally the third party must take the goods in good faith and without notice
of any lien or other right of the original seller in respect of those goods.

7. SALE IN A MARKET OVERT

Another exception to the nemo dat rule which is to the effect that where
goods are sold in a market overt, that is according to the usage of the
market, the buyer acquires a good title to the goods provided that he buys
them in good faith and without notice of the of any defect or want of title on
part of the seller. Market overt is an open public and a legally constituted
market.
PERFORMANCE OF THE CONTRACT
“It is the duty of the seller to deliver the goods and of the buyer to accept
and pay for them, in accordance with the terms of the contract of sale”. (Sec.
28). Thus, the performance of a contract of sale implies delivery of goods by
the seller and acceptance of the delivery of goods and payment for them by
the buyer, in accordance with the contract. The parties are free to provide
any terms they like in their contract about the time, place and manner of
delivery of goods, acceptance thereof and payment of the price. But if the
parties are silent and do not provide anything regarding these matters in the
contract then the rules contained in the Sale of Goods Act are applicable.

DUTIES OF THE SELLER

1. Pass a good title
The seller has the duty to transfer the property or title to the goods to the
buyer. This is phrased in the Act as the seller having the right to sale, even if
not the power to confer title. Under Section 14 of Cap 31 the seller has a
duty to pass a good title and under the Act, there is an implied act that the
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seller shall pass a good title to the buyer. The seller has a right to sell the
goods whether he has the title or has authority to sell the goods. The seller
is in effect under an obligation to pass a good title to the buyer. A good title
is a title without any encumbrances.
In a contract of sale there is an implied condition under 14 (a) that in the
case of sale he has a right to sell the goods and in the case of an agreement
to sell he will have such a right at the time when property is to pass. This
requirement does not require that the seller to be the owner, only that he
has authority to sell. If there is a breach of a condition, the innocent party
has a right to repudiate a contract or if he doesn’t choose to repudiate, he
has a right to claim for damages (i.e. he will be treating it as breach of a
warranty) in the sale of goods the innocent party is allowed to recover
monies paid if there is failure to transfer ownership. The section thus covers
the buyer from disturbance from the seller, in which case the buyer has also
a right of action in tort. It also protects the buyer from third parties where
the disturbance has arisen as a result out of the acts or defaults of the seller.

2. Duty to deliver the goods

This duty is a somewhat ambiguous concept, for it covers three entirely
different possibilities. Apart from this, generally it is not the duty of the seller
to deliver goods in the popular sense, but the duty of the buyer to take them.

DELIVERY: there may be a duty to deliver to the buyer goods in which the
property has already passed, and he must therefore deliver the particular
goods and no other.
DELIVERY: the seller duty to deliver may be to procure and supply to the
buyer goods in accordance with the contract, but without particular goods
being designated to which the duty of delivery attaches, and therefore refers
to sale of purely generic goods, and seller is free to deliver any particular
goods answering to the description.
DELIVERY: it may be that the seller has a personal duty to deliver a
particular lot of goods although the property has not passed to the buyer, in
the case of agreement to sale specific goods, and the seller cannot resale
without being in breach.

MEANING OF DELIVERY

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The legal meaning of delivery is very different from the popular meaning. In
law the delivery means the voluntary transfer of possession which is a
different thing from the dispatch of the goods. There is no general rule
requiring the seller to dispatch the goods to the buyer ( read rules on
delivery sec 30).However in modern conditions of business, a contrary
intention will frequently be inferred from the circumstances of the case. For
example where a buyer ordered certain goods from the seller in the form
“please supply us with the following goods”, an Australian court held that it
was the seller’s duty to send the goods to the buyer.
However it is the responsibility of the seller to see that the goods are in a
deliverable state Delivery may take one of the following forms:
1. There may be physical transfer of the actual goods themselves. This may
be the most obvious case, although difficult questions may arise in deciding
whether the physical transfer is enough to transfer legal possession.
2. The seller may transfer possession to the buyer by handing over to him
the means of control over the goods, for example keys to the warehouse in
which they are situated.
3. Through acknowledgement called attornment, where goods are in the
custody of warehousemen. Where the seller gives the buyer a delivery order
or warrant for goods stored in warehouse, this does not transfer possession
or property until the warehouse keeper attorns by accepting the order or
warrant, thereby acknowledging that he hold the goods on his behalf.
4. Goods may be delivered by the delivery of documents of title such as bill
of lading, or any other document in the course of business as proof of the
possession or control of goods, authorizing the possessor either by
endorsement or delivery of the documents to transfer goods thereby.
5. The parties may agree that the sellers should hold the goods as the
buyer’s agent or bailee.
6. Delivery of the goods to the buyer’s agent transfers possession to the
buyer himself.
Rules to Delivery of Goods:
Rules to delivery of goods are given in section 30 of the Act. These are as
follows:
1. Place of delivery
The place of delivery may be stated in the contract of sale, and where it is so
stated, the goods must be delivered at the named place during business

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hours on a working day. But where no place is mentioned in the contract, the
following rules must be followed:

(i) In the case of sale, the goods are to be delivered at the place at which
they are at the time of sale.

(ii) In “an agreement to sell,” the goods are to be delivered at the place
where they are at the time of the agreement to sell.

(iii) In the case of future goods, the goods are to be delivered at the place at
which they are manufactured or produced.

2. Time of delivery
Where under the contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable, time. Further, demand of delivery by the buyer or
the tender of delivery by the seller should be made at a reasonable hour.
What is a reasonable hour is a question of fact.
3. Delivery of goods where they are in possession of a third party:
Where the goods at the time of sale are in the possession of a third person,
there is no delivery by the seller to the buyer unless and until such third
person acknowledges to the buyer that he holds the goods on his behalf.
Such a delivery is known as “constructive delivery” or “delivery by
attornment” and requires the consent of all the three parties, the seller, the
buyer and the person having possession of the goods. Where the seller
hands over the ‘delivery order’ to the buyer, there is no delivery unless the
seller’s agent holding the goods has assented thereto.

4. Expenses of delivery:
Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller.

Delivery of Wrong Quantity:

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Under section 31 of the Act, a seller is duty bound to deliver the goods to the
buyer strictly in accordance with the terms of the contract. A defective
delivery, i.e. delivery of a quantity less or more than that contracted for a
delivery of goods mixed with the goods of a different description not included
in the contract, entitles the buyer:

(i) to reject the whole, or

(ii) to accept the whole, or

(iii) to accept the quantity and quality he ordered and reject the rest of the
goods so delivered.

Remember that in case of rejection of goods because of defective delivery

the buyer is not bound to return them to the seller, but it is sufficient if he
intimates to the seller that he refuses to accept them. Further, the right to
reject the goods is no equivalent to right to cancel the contract. If the buyer
rejects the goods, the seller has a right to tender again goods of contract
quality and quantity subject to the terms and conditions of the contract and
the buyer is bound to accept the same.
Where the buyer accepts the goods, he must pay for what he has actually
accepted, at the contract rate. In case the buyer has accepted short delivery
he is entitled to claim damages for the same from the seller.

Delivery by Installments:
Section 32 of the Act deals with the delivery by instalments. Unless
otherwise agreed, the buyer of goods is not bound to accept delivery thereof
by instalments. If the parries so agree then only the delivery of the goods
may be made by instalments.
When the parties agree that the delivery is to be made by instalments and
each installment is to be separately paid for, and either buyer or seller
commits a breach of contract in respect of one or more instalments, there
arises a question as to whether such a breach amounts to a breach of the
whole of the contract or a breach of only a part of it? The answer to this

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question depends upon the terms of the contract and the circumstances of
the case.
Generally, failure to deliver or pay for one installment does not amount to a
breach of the whole contract, unless from the special circumstances of the
case (e.g., the factory is closed because of a labour strike or the buyer
becomes insolvent) it can be inferred that similar breaches will be repeated.

Acceptance:
Under section 36 of the Act, the buyer is deemed to have accepted the
goods in the following circumstances:

a) When he intimates to the seller that he has accepted the goods.

b) When the goods have been delivered to him, and he does not act to the
goods which is inconsistent with the ownership of seller.

c) When he retains the goods, after the lapse of a reasonable time, without
intimating to the seller that he has rejected them.
Section 37 states that where the buyer rejects the goods having the right to
do so, he is not bound to return them to the seller. However, he must
intimate to the seller that he refuses to accept.
Under Section 38, if a seller is ready and willing to deliver the goods but the
buyer does not take delivery within a reasonable time then the buyer is
liable to the seller for any loss occasioned by his neglect or refusal to take
delivery, and also for a reasonable charge for the care and custody of the
goods.

RIGHTS OF UNPAID SELLER

Unpaid Seller Defined:
The seller of goods is deemed to be an ‘unpaid seller’ s39 (1)(a) when the
whole of the price has not been paid or tendered; or (b) where a bill of
exchange or other negotiable instrument has been received as a conditional
payment, i.e., subject to the realization thereof, and the same has been
dishonoured.
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Rights of an Unpaid Seller:

An unpaid seller has two-fold rights, viz:

(a) Rights of unpaid seller against the goods, and:

(b) Rights of unpaid seller against the buyer personally.

(a) Rights of unpaid seller against the goods, and:

An unpaid seller has the following rights against the goods not-withstanding
the fact that the property in the goods has passed to the buyer (s. 40(1) ):
1. Right of lien;
2. Right of stoppage of goods in transit;
3. Right of resale.

Unpaid Seller’s Lien

(Definition of Lien: A lien’ is a right to retain possession of goods (but not
to resell them) until the contract price has been paid)
1. Right of Lien (Sec. 41):
‘Lien’ is the right to retain possession of goods and refuse to deliver them to
the buyer until the price due in respect of them is paid or tendered. An
unpaid seller in possession of goods sold is entitled to exercise his lien on the
goods in the following cases:
(a) where the goods have been sold without any stipulation as to credit;
(b) where the goods have been sold on credit, but the term of credit has
expired;
(c) where the buyer becomes insolvent, even though the period of credit
may not have yet expired.

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In the case of buyer’s insolvency, the lien exists even though gods had been
sold on credit and the period of credit has not yet expired. When the goods
are sold on credit the presumption is that the buyer shall keep his credit
goods. If, therefore, before payment the buyer becomes insolvent, the seller
is entitled to exercise this right and hold the goods as security for the price.
The unpaid seller’s lien is possessory lien, i.e. the lien can be exercised as
long as he seller remains in possession of the goods. He may exercise his
right of lien notwithstanding that he is in possession of the goods as agent or
bailee for the buyer.

It should be emphasised that a lien depends on possession. S.41

and S42 apply only where the unpaid seller is in possession. If he
loses possession he loses his lien or right of retention.
Termination of Lien:
Section 43 states that the unpaid seller of goods loses his lien in the
following cases:
(a) When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the right of disposal of the
goods; or

(b) when the buyer or his agent lawfully obtains possession of the goods; or
(c) when the seller expressly or impliedly waives his right of lien.
An implied waiver takes place when the seller grants fresh term of credit or
allows the buyer to accept a bill of exchange payable at a future date or
assents to a sub-sale which the buyer may have made.

2. Right of Stoppage of Goods in Transit or Stoppage in Transitu:

The right of stoppage in transit means the right of stopping further transit of
the goods while they are with a carrier for the purpose of transmission to the
buyer, resuming possession of them and retaining possession until payment
or tender of the price. Thus, in a sense this right is an extension of the right
of lien because it entitles the seller to regain possession even when the
seller has parted with the possession of the goods:

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 When can this right be exercised? (Sec. 44)
An unpaid seller can exercise this right only when:
a) the buyer becomes insolvent. The buyer is said to be insolvent when he has
ceased to pay his debts in the ordinary course of business, or cannot pay
his debts as they become due, whether he is declared an insolvent or not;
and.
b) the property has passed to the buyer. If property has not passed to the buyer
then this right is terms as the “right of withholding delivery”; and
c) the goods are in the course of transit. This means that goods must be neither
with the seller nor with the buyer nor with their agent. They should be in
the custody of a carrier as an independent middleman (i.e., in his own right
as a carrier) e.g., railway and common carriers whose business is to
transport goods or others. The carrier must not be either seller’s agent or
buyer’s agent. Because if he is seller’s agent, the goods are still in the
hands of seller in the eye of law and hence there is no transit, and if he is
buyer’s agent, the buyer gets delivery in the eye of law and hence question
of stoppage does not arise.

Duration of transit: (Section 45)

Since the right of stoppage in transit can be exercised only so long as the
goods are in the course of transit, it becomes necessary to know as to when
the transit begins and when it comes to an end. When the transit comes to
an end, the right to stoppage cannot be exercised.

According to Section 45, goods are deemed to be in course of transit from

the time when they are delivered to a carrier or other bailee for the purpose
of transmission to the buyer, until the buyer or his agent takes delivery of
them. Thus the transit continues so long as the goods are not delivered to
the buyer or his agent no matter whether they are lying at the destination
with the carrier awaiting transmission or are in actual transit. The goods are
still deemed to be in transit if they are rejected by the buyer and the carrier
or other bailee continues in possession of them, even if the seller has
refused to receive them back.
The transit is deemed to be at an end and the seller cannot exercise his right
of stoppage in the following cases:

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(a) When the buyer or his agent takes delivery of the goods after the goods
have reached destination.

(b) When the buyer or his agent obtains delivery of the goods before their
arrival at the appointed destination.

(c) When the goods have arrived at their destination and the carrier
acknowledges to the buyer or his agent that he holds the goods on his
behalf.

(d) When the goods have arrived at their destination but the buyer instead
of taking delivery requests the carrier to carry the goods to some further
destination and the carrier agrees to take them to the new destination.

(e) When the carrier wrongfully refuses to deliver the goods to the buyer or
his agent.

(f) When part delivery of the goods has been made to the buyer with an
intention of delivering the whole of the goods, transit will be at end for the
remainder of the goods also which are yet in course of the transit.

How right of stoppage is exercised? (Sec. 46)

The unpaid seller may exercise his right of stoppage in transit either:
(a) By taking actual possession of the goods, or
(b) By giving notice of his claim to the carrier or other bailee in whose
possession the goods are.
Such notice may be given either (a) to the person in actual possession of the
goods, or (b) to his principal. In the latter case, notice must be given well in
advance to enable the principal to communicate with his agent or servant in
time, so as to prevent delivery to the buyer.
It is the duty of the carrier, after receiving due notice, not to deliver the
goods to the buyer but to redeliver them to, or according to the directions of
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the seller. If by mistake he delivers the goods to the buyer, he can be made
liable for conversion. The expenses of redelivery are to be borne by the
seller.

Lien and Stoppage in Transit Distinguished:

The main points of distinction between these two rights of an unpaid seller
are as follows:
The seller’s lien attaches when the buyer is in default, whether he be solvent
or insolvent. The right of stoppage in transit arises only when the buyer is
insolvent.
Lien is available only when the goods are in actual possession of the seller
while right of stoppage is available when the seller has parted with
possession and the goods are in the custody of an independent carrier.
The right of lien comes to an end once the seller hands over possession of
the goods to the carrier for the purpose of transmission to the buyer. On the
other hand, the right of stoppage in transit commences after the seller has
delivered the goods to a carrier for the purposes of transmission to the buyer
and continues until the buyer has acquired their possession.
The right of lien consists of retaining the possession of the goods while the
right of stoppage consists regaining of the goods.
Effects of Rights of Lien and Stoppage in Transit:
The unpaid seller’s right of lien or stoppage in transit is not affected by any
sale or other disposition of the goods which the buyer might have made. For
example, P sells certain goods to R and delivers them to a carrier for
transmission to R. before the goods reach their destination P comes to know
that R has become insolvent. In the meanwhile R sells those goods to Q. the
sale of goods between R and Q will not affect the right of P to stop them in
transit.
But there are two exceptional cases when these two rights of the unpaid
seller are affected by a sale or other disposition of the goods by the buyer.
These exceptions are:
When the seller has assented to the sale or other disposition which the buyer
may have made. (s.47)
When a document of title to goods (e.g., a bill of lading or railway receipt)
has been issued or transferred to a buyer, and the buyer transfers the

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 document to a person who takes the document in good faith and for
consideration, then:
if such last mentioned transfer was by way of sale, the unpaid seller’s right
of lien or stoppage in transit is defeated, and
if such last mentioned transfer was by way of pledge, the unpaid seller’s
right of lien or stoppage in transit can only be exercised subject to the rights
of the pledge. But in this case the unpaid seller may require the pledge to
satisfy his claim against the buyer first out of any other goods or securities of
the buyer in the hands of the pledge.

3. Right of Resale:
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,
namely, ‘lien and ‘stoppage in transit’, would not have been of much use
because these rights only entitle the unpaid seller to retain the goods until
paid by the buyer. If the buyer continues to remain in default, then should
the seller be expected to retain the goods indefinitely, specially when the
goods are perishable? Obviously, this cannot be the intention of the law.
Section 48 therefore, gives to the unpaid seller a limited right to resell the
goods in the following cases:

a) where the goods are of a perishable nature; or

b) where such a right is expressly reserved in the contract in case the buyer
should make a default; or
c) where the seller has given a notice to the buyer of his intention to resell
and the buyer does not pay or tender the price within a reasonable time.

If on a resale there is a loss to the seller, he can recover it from the

defaulting buyer. But if there is a surplus on the resale, the seller can keep it
with him because the buyer cannot be allowed to take advantage of his own
wrong. If, however, no notice of resale [as required in case (c) above] is
given to the buyer, the right of seller to claim loss and retain surplus, if any,
is reversed. In other words, if the unpaid seller fails to give notice of resale to
the buyer, where neither the goods are of perishable nature nor such a right
was expressly reserved, he cannot recover the loss from the buyer and is
under an obligation to hand over the surplus, if any, to the buyer, arising
from the resale. Thus, it will be seen that giving of notice to the buyer, when
so required, is very necessary to make him liable for the breach of contract.
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It is so because such a notice gives an opportunity to the buyer either to pay
the price and have the goods, or, if he cannot pay, to supervise the sale to
see that the same is properly made.

It is important that absence of notice, when so required, affects the rights of

the unpaid seller himself only as discussed above and it does not affect the
title of the subsequent buyer who will acquire a good title to the goods.
Section 48(3) specially declares “Where an unpaid seller who has exercised
his right of lien or stoppage in transit resells the goods, the buyer acquires a
good title thereto as against the original buyer, notwithstanding that no
notice of the resale has been given to the original buyer”.

Rights of Unpaid Seller against the Buyer Personally:

The unpaid seller, in addition to his rights against the goods as discussed
above, has the following three rights of action against the buyer personally:

1. Suit for price: (Sec. 49)

Where property in goods has passed to the buyer; or where the sale price is
payable ‘on a day certain’, although the property in goods has not passed;
and the buyer wrongfully neglects or refused to pay the price according to
the terms of the contract, the seller is entitled to sue the buyer for price,
irrespective of the delivery of goods.

2. Suit for damages for non-acceptance: (Sec. 50)

Where the buyer wrongfully neglects or refuses to accept and pay for the
goods, the seller may sue him for damages for non-acceptance. The seller’s
remedy in this case is a suit for damages rather than an action for the full
price of the goods.

RIGHTS OF THE BUYER

The buyer has the following rights against the seller for breach of contract:

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1. Suit for damages for non-delivery: (Sec. 51)
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. The
measure of damages shall be the estimated loss directly and naturally
resulting, in the ordinary course of events, from the seller’s breach of
contract. If the goods in question have a ready market the measure of
damages is prima facie to be ascertained by the difference between the
contract price and market price on the date of breach.

2. Suit for specific performance: (Sec. 52)

Where there is breach of a contract for the sale of specific or ascertained
good, the buyer may file a suit for the specific performance of the contract.
This remedy is discretionary and will only be granted when damage would
not be an adequate remedy, for instance, the subject-matter of the contract
is rare goods, say, a picture by a dead painter.

3. Suit for damages or breach of warranty: (Sec. 53)

Where there is a breach of warranty by the seller, or where the buyer elects
or is compelled to treat breach of condition as breach of warranty, the buyer
is entitled to file a suit for damages if the price has already been paid. But if
the buyer has not yet paid the price he may ask the seller for a reasonable
reduction in price.

4. Suit for rescission of contract and for damages for breach of

‘condition’:
The breach of ‘condition’ entitles the buyer to treat the contract as
repudiated. Accordingly, where there is a breach of ‘condition’ by the seller,
the buyer is entitled to file a suit for rescission of the contract. Also, he may
claim damages for loss suffered on the footing that the whole contract is
broken and the seller is guilty of non-delivery.

5. Suit for recovery of the price together with interest: (Sec. 53)
If the buyer has already paid the price of the goods to the seller and the
goods are not delivered or they are stolen one, he can sue the seller for the
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refund of the price and also for the interest at reasonable rate from the date
of payment to the date of refund.

AUCTION SALE

In an auction sale, the auctioneer invites bids from prospective

purchasers and sells the goods to the highest bidder. Section 58 lays down
the following rules relating to an auction sale:

Where goods are put up for sale in lots, each lot is prima facie deemed to be
the subject of a separate contract of sale.
The sale is complete when the auctioneer announces its completion by the
fall of the hammer or in other customary manner, say, by saying words like
“one, two, three” and, until such enouncements is made, any bidder may
retract his bid. On the other hand, the auctioneer is also not bound to accept
the highest bid if he feels that is much below his expectation. Of course, his
not accepting the highest bid would injure his business reputation because it
is the custom of trade that goods must be sold to the highest bidder.

The seller or any one person on his behalf can bid at the auction, provided
such a right to bid has been expressly reserved at the time of notifying the
auction sale.
The sale may be notified to be subject to a reserved or upset price. It is a
price below which the auctioneer will not sell, and if he by mistake knocks
down the lot for less than the reserved price, no valid contract comes into
existence and he can refuse to deliver the goods to the highest bidder.

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