Page 171 - DMGT102_MERCANTILE_LAWS_I

Unit 13: Transfer of Ownership

13.2.3 Passing of Property in Goods in the Case of Foreign Trade Notes

There are certain terms which are used in the contract of sale of goods in foreign trade. These

terms reflect a number of conditions which are either attached by the parties or by custom and
practice of business people. The most usual of such contracts are: (i) Free on board (F.O.B.) or
Free on Airport (F.O.A.) and (ii) Cost, Insurance and Freight (C.I.F.) and Ex-Ship.

13.3 Unpaid Seller and his Rights

A contract is comprised of reciprocal promises. In a contract of sale, if seller is under an obligation
to deliver goods, buyer has to pay for it. In case buyer fails or refuses to pay, the seller, as unpaid
seller, shall have certain rights.

13.3.1 Who is an Unpaid Seller?

A seller of goods is an unpaid seller when (i) the whole of the price has not been paid or tendered.
(ii) a bill of exchange or other negotiable instrument has been received as conditional payment
and the condition on which it was received has not been fulfilled by reason of the dishonour of

the instrument or otherwise.
13.3.2 Rights of an Unpaid Seller

The rights of an unpaid seller may broadly be classified under two heads, namely: (i) Rights under
the Secs.73-74 of the Indian Contract Act, 1872, i.e., to recover damages for breach of contract.
(ii) Rights under the Sale of Goods Act, 1930: (a) rights against the goods; (b) rights against the
buyer personally. The rights against the goods are as follows:

13.3.3 Lien on Goods (Secs. 47-49)

The word lien means to retain possession of. An unpaid seller who is in possession of goods is
entitled to retain them in his possession until payment or tender of the price in three situations,
namely, (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. Lien can be exercised only for non-payment of the price and not for any other charges
due against the buyer.

Example: The seller cannot claim lien for godown charges for storing the goods in exercise
of his lien for the price.

13.3.4 Right of Stoppage in Transit

This right of the unpaid seller consists in preventing the goods from being delivered to the buyer
and resuming and regaining their possession while in transit, retaining them till the price is paid.
The right of stoppage in transit is earned only where the right of lien is lost and is available only
where the buyer has become insolvent (Sec.50).

Examples: (i) Badal at Delhi orders goods of Anand at Calcutta. Anand consigns and
forwards the goods to Badal. On arrival at Delhi, goods are taken to Badal’s warehouse and left
there. Badal refuses to take the goods and stop payment. The goods are deemed to be in transit
and the unpaid seller can take them back.

LOVELY PROFESSIONAL UNIVERSITY 165