What do you understand by Unpaid Seller's lien? When this lien is terminated?

Question: What do you understand by Unpaid Seller's lien? When this lien is terminated? [JJS 2018]

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Answer

Sale of Goods Act, 1930 lays down the provision regarding the rights and duties of an unpaid seller. Section 45 of the Act defines an unpaid seller as a seller who has not been paid the full price of the goods sold or has received a bill of exchange or other negotiable instrument as conditional payment, and the condition on which it was received has not been fulfilled

It is imperative to note that the unpaid seller has certain rights, subject to the fact whether the ownership or property in the goods has already passed to the buyer or not. Let us discuss the rights of the unpaid seller in both situations as per the Sales of Goods Act:-

Section 46(1) of the Act provides the following rights to the unpaid seller when the property in the goods has passed to the buyer:-

a. Right of lien on the goods for the price while he has them.

b. Right to stop the goods in transit after he has parted with possession of the goods if the buyer becomes insolvent.

c. Right to re-sell the goods (subject to the goods being of a perishable nature or the unpaid seller exercising its right of lien or stoppage in transit).

According to Section 47(1), the Right of Lien of the unpaid seller allows him to retain possession of the goods until the buyer makes the full payment to him for the unpaid goods. This right to possession of unpaid goods can be exercised in the following situations.

• Where the goods have been sold without any stipulation of credit.
• Where the goods have been sold on credit but the term of credit has expired.
• Where the buyer becomes insolvent.
• The unpaid seller is also entitled to exercise its right of lien if he has the goods as an agent of the buyer or as a bailee for the buyer.

According to Section 49(1), the unpaid seller's lien gets terminated in the following scenarios:-

• When the unpaid seller delivers the goods to a carrier or other bailee for transmission to the buyer without reserving the right of disposal of the goods.
• When the buyer or his agent lawfully obtains possession of the goods.
• When the unpaid seller has waived its right of lien over the goods.

Reliance is placed on the case of Pawan Hans Helicopters Ltd. v. Aes Aerospace Ltd. (2008), wherein the Hon'ble High Court of Delhi upheld the legal position that when an unpaid seller has unpaid goods, he can exercise his right of lien on the goods for the price.

In M/s. Carona Sahu Co., Private Ltd. v. State of Maharashtra, 1966 AIR 1153, the Hon’ble Supreme Court, lays down the settled law in these words:-

"In the case of contract for sale of unascertained goods the property does not pass to the purchaser unless there is unconditional appropriation of the goods in a deliverable state to the contract. In the case of such a contract, delivery of the goods by the vendor to the common carrier is an appropriation sufficient to pass the property.”