Right of stoppage in Transit for Sale

Contents
Introduction ................................ ................................ ................................ .......................... 2 Stoppage in transit ................................ ................................ ................................ ................ 2 Section 50 Right of stoppage in transit ................................ ................................ ............... 3 Section 45 Unpaid seller ................................ ................................ ................................ .... 3 Section 51 Commencement and end of transit. ................................ ................................ ... 4 Conclusion ................................ ................................ ................................ ............................ 8

National Law Institute University, Bhopal

Page 1

Right of stoppage in Transit for Sale

Introduction Stoppage in transit

Where the goods have been delivered to a carrier or other bailee for the purpose of transmission to the buyer, who has become insolvent, the seller may stop the goods as long as they are in transit. This is one of the methods of protecting the unpaid seller against the risk of his goods going to the possession of an insolvent. In Booth Steamship Co v Cargo Fleet Iron Co1, as Lord READING said: it is a right founded upon the plain reason that one mans shall not be applied to the payment of another mans debts. Lien and stoppage in transit distinguished. -Both the rights are designed for the protection of the unpaid seller. The effect of their exercise is also the same, because when the seller stops the goods in transit he resumes possession and the goods once again fall into the spell of his lien until the price is paid. Yet, it is important to keep them distinct, because, though the rights are analogous, they are in certain respects governed by different considerations.2 The following are the point of difference1) The sellers lien attaches when the buyer is in default, whether he be solvent or insolvent. The right of stoppage in transit only arises when the buyer is insolvent.3 2) Lien is exercisable as long as the seller is in possession, stoppage in transit as long as the goods are passing through channels of communication for the purpose of reaching the hands of the vendee.4 3) Lien ends where the right of stoppage commences. When the seller hands over possession to the carrier, his lien ends and the right of stoppage in transit commences.

[1916] 2 KB 570 at 580 th Chalmer s SALE OF GOODS, 124 (13 Edn by Seighart, 1957) 3 Ibid 4 Bowen LJ in Kendall v Marshall, Stevens & Co, (1883) 11 QBD 356 at 368
2

National Law Institute University, Bhopal

Page 2

Right of stoppage in Transit for Sale

Section 50 Right of stoppage in transit
Subject to the provisions of this Act, when the buyer of goods becomes insolvent, the unpaid seller, who has parted with the possession of the goods, has the right of stopping them in transit, that is to say, he may resume possession of the goods as long as they are in course of transit, and may retain them until payment or tender of the price. The first requirement is that the seller should be unpaid; second, that the buyer should have become insolvent; third, that the property should have passed to the buyer, for if the seller reserves the right of disposal, the goods remain his property, and, therefore, under his lien; and last, the goods should be in course of transit. The first three requirements are questions of fact which can be easily ascertained. The last requirement is also question of fact, but this fact, namely, whether the goods are in transit, is sometimes difficult to ascertain. The goods may be in the custody of a carrier and yet there may not be transit. Contrarily, they may not be with a carrier and yet they may be in transit. Much depends upon the capacity in which the middleman holds the goods. If he holds the goods as an agent for the seller, there is no transit because the goods are under the sellers lien. If he holds them as an agent of the buyer, there is no transit because the buyer has acquired possession, which puts to an end to the sellers rights against the goods. It is only when he holds the goods as an independent contractor, that is, in his own right as a carrier or bailee, that there is transit in law and that there is question of stoppage in transit. It is not necessary that the goods should be actually moving. CAIRNS LJ says: the essential feature of stoppage in transit is that the goods should be in possession of a middleman, or some person intervening between the vendor who has parted with and the purchaser who has not yet received them.5

Section 45 Unpaid seller

The seller of goods is deemed to be an unpaid seller within the meaning of this Acti. when the whole of the price has not been paid or tendered;

Schotsmans v Lancashire & Yorkshire Rly Co, (1867) 2 Ch App 332 at 338: 36 LJ Ch 361

National Law Institute University, Bhopal

Page 3

Right of stoppage in Transit for Sale

ii. when 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.

Section 51 Commencement and end of transit.

Section 51 tries to solve the difficulty by laying down basic propositions which govern the commencement and end of transit: Delivery to buyer [S. 51(1)] 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, transit ends when the goods are delivered to the buyer or his agent. In G I P Rly Co v Hanmandas 6, the seller consigned the goods with G I P Rly Co for transportation to the buyer. On arrival at the destination the company had delivered the goods to the buyer who had loaded them on his cart, but the cart had not yet left the railway compound when a telegram was received by the company to stop the goods. The company did not do so and were sued by the seller in damages. It was held that the transit had ended as soon as the goods were handed over to the buyer. The railway company was, therefore, left with no power to stop them. Where the buyer does not accept the goods, the transit does not end even if the goods have been landed at the port of destination. This happened in James v Griffin7 where on arrival of the goods at the port of destination in river Thames, the buyer sent his son to have the goods landed, but told him that, on account of his insolvency, he did not intend to receive the goods and would like the seller to have them. When the goods were so lying, the sellers instruction to stop them was received. The buyers trustee in bankruptcy claimed the goods. Interception by buyer [S. 51(2)] The transit ends when the buyer or his agent takes delivery of the goods from the carrier before their arrival at the appointed destination. It may be wrongful for the carrier to deliver the goods to the buyer before their arrival at the appointed destination and the carrier may be held liable in damages for depriving the seller of his opportunity, but transit ends with that. The mere fact that
6 7

ILR (1889) 14 Bom 57 (1837) 4 M & W 623: LJ Ex241.

National Law Institute University, Bhopal

Page 4

Right of stoppage in Transit for Sale

the buyer takes his seat as a passenger in the ship which is carrying the goods does not amount to delivery to the buyer before their arrival at the appointed destination. This kind of arrangement was found to exist in Lyons v Honffnung.8 The buyer was at Sydney. He instructed the seller to send the goods to Sydney from where they would be going to Kimberley and that he would go by the same ship and would take the goods with him. It was not known as a fact whether the buyer sailed in the ship, but he became insolvent and the seller gave notice to stop. It was held that the notice was effective. It was not the buyer who was carrying the goods. The carrier was carrying both, the goods and the buyer, and the transit had not ended by the buyers entry into the ship. Acknowledgement to buyer [S. 51(3)] When the goods have arrived at their appointed destination and the carrier acknowledges to the buyer or his agent that he is now holding the goods on his behalf, the transit is at an end, and it is immaterial that the goods are still with the carrier or that the buyer has indicated a further destination. It requires a very clear acknowledgement to put an end to the original contract of carriage. In Whitehead v Anderson9, a quantity of timber sold was consigned on board a ship. The ship arrived at the destination. The buyer was bankrupt at the time. Nevertheless his agent went on board the ship, saw the timber and told the captain that he had come to take possession of it. The captain said he would deliver it on freight being paid. Before this could be done, the seller sent a notice to stop and consequently the goods were delivered to the sellers agent. It was held that the carrier was within his rights in returning the goods to the seller because the transit had not ended. The captains agreement to deliver was conditional and the condition, being not fulfilled, the buyer had not acquired constructive possession. Rejection by buyer [S.51(4)] If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them, the transit is not at an end. This will be so even if the seller himself has refused to take back the goods.

8 9

(1890) 15 App Cas 391 PC. (1842) 9 M & W 518: 60 RR 819

National Law Institute University, Bhopal

Page 5

Right of stoppage in Transit for Sale

Delivery to ship chartered by buyer [S. 51(5)] Where the goods are delivered to a ship chartered by the buyer, it is a question of fact in each case whether the carrier is acting independently or as agent of the buyer. If the circumstances show that the carrier is acting as an agent of the buyer, then the transit is at an end as soon as the goods are loaded on board the ship. Thus, whether the goods were delivered on board the ship belonging to the buyer, and by the bills of lading also the goods were deliverable to the buyer, the transit ended as soon as the goods were put on board.10 But the mere fact that the ship chartered by the buyer and he has given no indication of the destination of the goods does not mean that the carrier has become the agent of the buyer. In Rosever China Clay Co, ex p:11 the contract was for the sale of china clay at f. o. b. Fowey. The buyer chartered a ship and instructed the seller to load the goods at Fowey, which was accordingly done. The destination of the ship was not told to the seller, nor any bill of lading signed. The sellers gave notice stopping the goods. The notice was held to be effective. The principle is this, said JAMES LJ, when the vendor knows that he is delivering the goods to someone as carrier, who is receiving them in that character, he delivers them with the implied right of stopping them so long as they remain in the possession of carrier as carrier. Wrongful refusal to deliver [S. 51(6)] Where the carrier wrongfully refuses to deliver the goods to the buyer or his agent, the transit is at an end. It is obvious that the goods should have arrived at their destination, because otherwise the carrier has the right to refuse to deliver them. Bird v Brown 12 shows when refusal to deliver is wrongful. The goods had arrived at their destination. The buyer being insolvent, a merchant, acting for the seller but without his authority, gave stop notice to the carrier. Subsequently to that the trustee of the bankrupt buyer demanded the goods. The carrier refused to deliver the goods and handed them to the merchant. Subsequently to this the seller ratified the unauthorised stop notice. The court said: There could be no valid stoppage in transitu after the formal demand of the goods by Bird (Trustee). The goods had then arrived at Liverpool, the master was bound to deliver the goods to Bird and he could
10

Scotsmans v Lancashire & Yorkshire Rly Co, (1867) 2 Ch App 332: 36 LJ Ch 361. (1879) 11 Ch D 560 at p. 568 12 (1850) 4 Ex 786: 80 RR 775
11

National Law Institute University, Bhopal

Page 6

Right of stoppage in Transit for Sale

not by his wrongful detainer of them prolong the transit and so extend the time during which the stoppage might be made. Part delivery [S. 51(7)] Where the goods have been delivered in part, the seller may stop the remainder of the goods, unless the part delivery shows an agreement to give up the possession of the whole.

National Law Institute University, Bhopal

Page 7

Right of stoppage in Transit for Sale

Conclusion
The right of stoppage in transitu, that is the right to reclaim the possession of the goods while still in transit, from the seller to the buyer, was founded in the civil law, and looked upon as a remedy of the court of equity primarily, but is now, and has been for a long time, looked upon as a legal remedy and right, and is of universal application in courts of law. It is an extension of the right of the vendor's lien. The lien is lost by parting with possession of the goods, but the right to resume the lien may be acquired, by the exercise of this right of stopping the goods in transit up to any time previous to the vendee's actually acquiring possession of the goods. The right arises with the transfer of title to the goods and the delivery to the carrier to be turned over to the purchaser. It may be said to begin where the hen leaves off. The right of stoppage in transitu, arising from original ownership, can only be exercised by the vendor, or one standing in his position; it could not be exercised by one having a mere lien on the goods.

National Law Institute University, Bhopal

Page 8