Ch 6 Rights of Unpaid Sellers

Question 1

define unpaid seller

Answer 1

an actual seller, or any other person in the position of a seller such as seller’s agent endorsed with bill of lading or an agent who has paid for the goods themselves/directly responsible for price, where:

1. whole price has not been paid and price is due at that point in time
2. must have immediate right of action for the price - right to sue for price!
3. bill of exchange or some negotiable instrument has been received as a conditional payment and the condition has not been fulfilled due dishonour of the instrument or otherwise (e.g. insolvency)

bill of exchange - binding agreement between buyer and seller where the buyer agrees to pay a fixed sum of cash at a predetermined date or upon demand from the seller e.g. promissory note, cheque

Question 2

what are the two kinds of rights an unpaid seller has?

Answer 2

against the goods

against the buyer personally

Question 3

what are the rights an unpaid seller has against the goods?

Answer 3

where property in goods has passed:

1. lien
2. stoppage in transit
3. re-sale

where property in goods has not passed:

1. withhold delivery
2. stoppage in transit

Question 4

what rights does an unpaid seller have against the buyer personally?

Answer 4

1. suit for price
2. suit for damages
3. repudiation of contract
4. suit for interest

Question 5

explain the right of lien

Answer 5

right to retain possession of goods until full price has been paid, available when:

1. goods sold without credit term being offered
2. goods sold on credit but term of credit expired
3. buyer becomes insolvent

arises from the physical possession of the goods, not the legal ownership

• one of the main purposes of lien is to protect sellers in credit transactions

Question 6

6 rules regarding lien

Answer 6

1. seller can keep possession of the goods even if they are holding the goods as an agent or on behalf of the buyer (e.g. holding goods for a few days until transport arranged)
2. based on actual possession and not owning the title to goods - giving title document to buyer doesn’t invalidate right to lien
3. seller loses lien if contract excludes the right to lien
4. lien can only be used to recover price of the goods, not any other costs e.g. storage or dock fees.
5. If the seller has delivered part of the goods, they can hold on to the remaining goods until the buyer pays for both the delivered goods and the rest unless this part is delivered under agreement to give up lien
6. getting a decree for the price of the goods does not cause the seller to lose lien

6 - if sellers were to lose their lien simply by obtaining a decree, they could be vulnerable to buyers who may still delay or refuse payment

Apples Peel Right Every Damn Day

Agent of buyer; Possession not ownership; Recovery of price only; Exclusion of lien in contract; Delivery withheld; Decree for price

Question 7

when does lien terminate/unpaid seller loses lien on goods?

Answer 7

(a) seller gives goods to a carrier for delivery without specifying that they retain lien

(b) buyer or their agent legally takes possession of the goods as their bailee

(c) seller expressly or impliedly waives right to lien either expressly (contract specifies will not hold goods even if not paid; if seller offers credit period or extends an existing one, lien is given up until this period elapses)

(d) if seller accepts a bill of exchange (a promise to pay later), lien is waived while the bill is still valid and returns if the bill is dishonoured or the credit time ends

bailee = someone responsible for holding goods owned by someone else, the bailor

Question 8

explain the right of stoppage in transit

Answer 8

seller can stop the goods while they are being transported to the buyer and resume possession over them as long as they are being transported and retain possession until full payment is received

applies when:

1. buyer becomes insolvent - ceased to pay or cannot pay debts regardless of whether they have committed an act of insolvency or not
2. goods are in transit

Question 9

explain the duration of transit/definition of goods deemed to be in transit

Answer 9

goods are in the course of transit from the time they are delivered to a carrier or other bailee for the purpose of transmission to a buyer, until the buyer/agent takes delivery of them

Question 10

how may a carrier hold goods?

Answer 10

1. as seller’s agent - seller has lien so right of stoppage in transit is irrelevant
2. as buyer’s agent - no lien, no right of stoppage
3. in an independent capacity - right of stoppage but no lien

Question 11

when does transit come to an end?

Answer 11

1. if buyer/agent obtains delivery before goods arrive at appointed destination
2. if carrier acknowledges to buyer/agent that they hold their goods after arriving at appointed destination
3. if carrier wrongfully refuses to deliver goods to buyer/agent
4. part delivery of goods has been made to buyer/agent - remainder of goods can be stopped in transit by seller unless agreement that part delivery gives up possession of all goods

if goods are rejected by buyer’ and carrier/bailee continues to possess them, transit is not at an end

Question 12

how is stoppage in transit effected?

Answer 12

1. seller can take actual possession of goods or
2. seller can give notice of claim to carrier/bailee, either to person in actual possession (carrier/bailee) who must then re-deliver goods to seller at seller’s expense OR to their principal (such that principal can communicate this to their agent in time to prevent deliver to the buyer)

principal here is often the BUYER. could be manager of carrier company if independent carrier. seller may be principal but dont reference this as not very likely

Question 13

explain the liability of a carrier in the cse of conversion

Answer 13

conversion is the wrongful appropriation of goods

if carrier delivers to buyer or refuses to deliver to seller after proper notice by the seller to stop goods in transit, will be liable to SELLER for conversion

if transit ends and carrier wrongfully returns goods to seller, will be liable to BUYER for conversion

Question 14

distinguish between right of lien and right of stoppage in transit

Answer 14

1. right of stoppage applies only when buyer is insolvent but lien applies even when buyer is able to pay but doesn’t
2. lien applies to goods in actual or constructive possession of seller, but right to stoppage can only apply when goods are in possession of an intermediary between seller (who has parted with possession) and buyer (who has not yet acquired possession)
3. lien ends when possession is surrendered by seller, but right of stoppage BEGINS when goods leave possession of seller and continues unles buyer/agent acquires possession
4. lien is to retain possession while right of stoppage is to REGAIN possession

I’m Pretty Sleepy Right now

Insolvency; Possession; Stops and starts; Retain vs Regain possession

Question 15

explain the effect of sub-sale or pledge by buyer on the unpaid seller’s right of lien and stoppage in transit

Answer 15

if the buyer sells or pledges goods to someone before paying for them, right to lien and stoppage in transit is NOT affected unless:
1. seller agree to it
2. seller transfers document of title to buyer and buyer transfers this via sale to someone who takes it in good faith and for consideration
3. in the case of a pledge, the seller does not respect the rights of the pledgee (e.g. reimbursing them for any deposit they may have made to original seller)

good faith and consideration are two legal principles that protect an innocent third party buyer from action against an unpaid seller

good faith = they were unaware of any dispute between buyer and seller, or insolvency of buyer - is a well-intentioned buyer

for consideration = in exchange for something of value, usually money - not a gift!

Question 16

what right does an unpaid seller have against a third party pledgee in the case of a buyer pledging goods to them

Answer 16

can require the pledgee to first satisfy the seller’s claim (i.e., pay the seller what they are owed) using any other goods or securities that belong to the buyer in the pledgee’s possession, before anything else

Question 17

explain the right of re-sale

Answer 17

can re-sell if:

1. goods are perishable
2. notice has been given to buyer of intention to re-sell and the buyer does not pay or tender price within a reasonable time
3. seller expressly holds right to resale in the event of buyer defaulting

if there is loss to the seller upon resale, can claim it from buyer as damages for breaching contract, and does not have to give buyer any surplus made on resale AS LONG AS NOTICE IS GIVEN!!!!!

paying = actual act of fulfilling the payment

tendering = the offer or attempt to make the payment, which may or may not be accepted

if no notice, loss cannot be recovered and buyer is entitled to entire surplus

Question 18

how is a contract of sale affected by lien or stoppage in transit?

Answer 18

exercising these rights does not rescind a contract of sale, subject to prrovisions relating to the unpaid seller’s right of resale contained in section 54

If the seller resells the goods to a new buyer after exercising a lien or stoppage in transit (and possibly providing notice to the original buyer), the original contract is effectively terminated and original buyer loses their rights to the goods

Question 19

explain the right of withholding delivery of goods

Answer 19

section 46 says if property in goods not passed to buyer, unpaid seller holds a right to withhold delivery, in addition to other remedies

difference b/w this and lien and stoppage in transit:

lien only applies when property has passed. withholding applies when property has not passed. while stoppage in transit can be done regardless of ownership, this can only be done when property has not passed.

Question 20

what rights of the seller against the buyer called as opposed to rights against the goods?

Answer 20

in personam

in rem

Question 21

are rights in personam in addition to rights in rem?

Answer 21

yes

Question 22

explain the right to sue for price

Answer 22

buyer refuses to pay the price when it is due:

if property has passed, seller may sue for price of goods

even if property has not passed, seller may sue for price because refusal to pay by the agreed date is considered breach of contract. This is an exception to the rule that in agreements to sell, the seller can only sue for damages and not price.

Question 23

explain the right to sue for damages for non-acceptance

Answer 23

section 56 - if buyer wrongfully refuses to accept and pay for goods, seller can sue for non-acceptance

sec 73 outlines measure of damages

sec 44 refers to buyer’s liability in this situation

Question 24

rights of seller if buyer repudiates contract before due date of delivery

Answer 24

1. treat contract as subsisting and wait till date of delivery OR
2. treat contract as rescinded and sue for damages, known as ‘rule of anticipatory breach of contract’

2. Since the seller is not completing the sale, they cannot claim the price for the goods as if the sale had gone through.

Question 25

explain the right of seller to sue for interest

Answer 25

if there is a specific agreement between seller and buyer about interest on the price of the goods from the date payment is due, seller may recover this interest

if no specific agreement, seller may charge interest on the price when it becomes due from a day they must notify buyer of

in the absence of contract to the contrary, court may award interest on the price to the seller at a rate it deems fit from the date of tender of goods or date on which price was payable