Effects of sub-sale or pledge by buyer (Section 53):
The right of lien or stoppage in transit is not auected by the buyer selling or pledging the goods unless the seller has assented to it. This is based on the principle that a second buyer cannot stand in a better position than his seller. (The first buyer).
The right of stoppage is defeated if the buyer has transferred the document of title or pledges the goods to a sub-buyer in good faith and for consideration.
Example: A sold certain goods to B of Mumbai and the goods are handed over to railways for transmission to B. In the mean time, B sold these goods to C for consideration. B becomes insolvent. A can still exercise his right of stoppage in transit.
Exceptions: (a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.
Example: A entered into a contract to sell cartons in possession of a wharfinger to B and agreed with B that the price will be paid to A from the sale proceeds recovered from his customers. Now B sold goods to C and C duly paid to B. But anyhow B failed to make the payment to A. A wanted to exercise his right of lien and ordered the wharfinger not to make delivery to C. Held that the seller had assented to the resale of the goods by the buyer to the sub-buyers. As a result A’s right to lien is defeated (Mount D. F. Ltd. vs Jay & Jay (Provisions) Co. Ltd ).
(b) When a document of title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value i.e. for price, then, the proviso of sub-section (1) stipulates as follows:
(i) If the last-mentioned transfer is by way of sale, right of lien or stoppage in transit is defeated, or
(ii) If the last mentioned transfer is by way of pledge, unpaid seller’s right of lien or stoppage only be exercised, subject to the rights of the pledgee.
However, the pledgee may be required by the unpaid seller to use in the first instance, other goods or securities of the pledger available to him to satisfy his claims. [Sub-section (2)].
Effect of stoppage:
The right of stoppage is defeated if the buyer has transferred the document of title or pledges the goods to a sub-buyer in good faith and for consideration.
Example: A sold certain goods to B of Mumbai and the goods are handed over to railways for transmission to B. In the mean time, B sold these goods to C for consideration. B becomes insolvent. A can still exercise his right of stoppage in transit.
Exceptions: (a) When the seller has assented to the sale, mortgage or other disposition of the goods made by the buyer.
Example: A entered into a contract to sell cartons in possession of a wharfinger to B and agreed with B that the price will be paid to A from the sale proceeds recovered from his customers. Now B sold goods to C and C duly paid to B. But anyhow B failed to make the payment to A. A wanted to exercise his right of lien and ordered the wharfinger not to make delivery to C. Held that the seller had assented to the resale of the goods by the buyer to the sub-buyers. As a result A’s right to lien is defeated (Mount D. F. Ltd. vs Jay & Jay (Provisions) Co. Ltd ).
(b) When a document of title to goods has been transferred to the buyer and the buyer transfers the documents to a person who has bought goods in good faith and for value i.e. for price, then, the proviso of sub-section (1) stipulates as follows:
(i) If the last-mentioned transfer is by way of sale, right of lien or stoppage in transit is defeated, or
(ii) If the last mentioned transfer is by way of pledge, unpaid seller’s right of lien or stoppage only be exercised, subject to the rights of the pledgee.
However, the pledgee may be required by the unpaid seller to use in the first instance, other goods or securities of the pledger available to him to satisfy his claims. [Sub-section (2)].
Effect of stoppage:
The contract of sale is not rescinded when the seller exercises his right of stoppage in transit. The contract still remains in force and the buyer can ask for delivery of goods on payment of price.
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