RAJIV GANDHI NATIONAL UNIVERSITY OF LAW

PUNJAB

Law of Contracts-2 IInd Semester

Right to Stoppage in Transit: Sale of Goods Act, 1930

SUBMITTED BY: SUBMITTED TO:

Tanmay Doneria Dr. Sangeeta Taak

Roll No. 21039 Assistant Professor of Law

RGNUL, Patiala
Right to Stoppage in Transit: Sale of Goods Act, 1930

ACKNOWLEDGEMENT

The successful completion and ultimate result of this project required a great deal
of guidance, help and direction from innumerable people, and I am extremely
fortunate that Dr. Sangeeta Taak and Ms. Ananya Sharma Assistant Professors of
Law, have given me such direction and help and I cannot help but express my
gratitude to and thank them for giving me the opportunity to start this project. I
am always thankful to the Vice-Chancellor for giving me the opportunity to
showcase my projects and skills at a respected university like RGNUL.

Tanmay Doneria

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Right to Stoppage in Transit: Sale of Goods Act, 1930

Table of Contents
Cover Page ................................................................................................................................ 1

ACKNOWLEDGEMENT ....................................................................................................... 2

Introduction .............................................................................................................................. 4

Who is an unpaid seller? ...................................................................................................... 4

Basis of stoppage in transit ................................................................................................... 5

Duration of Transit (Section 51) .......................................................................................... 5

Transit may come to an end in the following cases ........................................................... 5

Some Scenarios of transit ending: ..................................................................................... 6

How Stoppage is Affected (Section 52) ................................................................................ 6

Legal effect of stoppage in transit ........................................................................................ 6

Modes of Stoppage in Transit ............................................................................................... 7

By Notice from authorized person ..................................................................................... 7

Notice by unauthorized person .......................................................................................... 7

Carrier’s duty ........................................................................................................................ 7

Seller’s duty ........................................................................................................................... 7

Distinction Between Lien and Stoppage in Transit ............................................................. 8

Significant Cases on Right to Stoppage ................................................................................. 8

1. Gilgandra Marketing Co-operative Limited v Australian Commodity and

Merchandise Pvt. Ltd and Ors. ............................................................................................. 8

2. Toll Holdings Ltd. v. Stewart 2016 ................................................................................ 9

Conclusion .............................................................................................................................. 10

Bibliography ........................................................................................................................... 10

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Right to Stoppage in Transit: Sale of Goods Act, 1930

INTRODUCTION

An unpaid seller has been granted certain rights under the sale of goods act to protect his
interests in the interest of justice. There are broadly two categories of rights granted to an
unpaid seller:

a) Rights of unpaid seller against the buyer, this includes sue for price, damage to non-
acceptance, and suit for specific performance.

b) Rights of unpaid seller against goods sold, this includes a possessory lien, a right of
stoppage in transit and a right of resale.

This project deals with the right of stoppage in transit and its various elements.

Who is an unpaid seller?

According to Section 45 of the Sale of Goods Act, 19301 (hereinafter referred to as ‘Sale of
Goods Act’), the seller is considered to be an unpaid one when:

• The entire purchase money has not been paid to the seller.

o Illustration: X sold goods worth Rs. 10,000 to Y but Y paid only 5,000
and failed to pay the balance. In this case, X is an unpaid seller.

• A bill of exchange or other negotiable instrument has been given by the buyer
to the seller as conditional payment and the condition on which such bill of
exchange or negotiable instrument was given has not been fulfilled by reason
of the dishonour of the instrument or otherwise.

o Illustration: X sold goods worth Rs. 10,000 to Y; Y paid using a cheque

but the cheque was dishonoured. In this case, X is an unpaid seller.

The right to stoppage in transit is one of the most essential rights granted to an unpaid seller.
This right entails stopping and recalling or seeking redelivery of the goods back to the seller
when the goods are in the possession of a carrier, or lodged at any place in the course of transit
from the seller to the buyer and upon regaining the possession of the goods the seller has the

1
The Sales of Goods Act, 1930, s.45.

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Right to Stoppage in Transit: Sale of Goods Act, 1930

right to retain them until the price money is tendered or paid. There exist certain conditions
which must be fulfilled before the seller can exercise this right, these conditions are as follows:

• The seller should not have been paid.

• The buyer must not be solvent.
• The seller must not have possession of the goods.
• The buyer must have not received the goods.
• The goods shall be in transit through any mode of transportation.

The right to stoppage in transit is only exercisable against goods which are in transit, if goods
arrive in a damaged condition the seller has a right against such damaged goods only further,
this right can be exercised with respect to such goods which are in transit.

Basis of stoppage in transit: The right to stoppage in transit is based upon the plain reason of
justice that one man’s goods shall not be used for the payment of another man’s debt. It is the
right not only to countermand delivery to the purchaser but to order re-delivery to the vendor.2

Duration of Transit (Section 51)3: Goods are considered to be in the course of transit from
the time the seller delivers them to a carrier or a bailee for delivery to the buyer until the buyer
or his agent takes delivery of the said goods.4

Transit may come to an end in the following cases:

1. When the purchaser or his agent obtains delivery of the goods before they arrive at
the pre-planned destination of delivery, thereby transit ends when the purchaser or
his agent has obtained the possession of goods.

2. When the merchandise reaches the pre-planned destination of delivery and the
carrier of the bailee (the seller) informs the buyer or any person authorized by him
that he holds the goods, then the transit ends.

2
Sir Dinshah Fardunji Mulla, Mulla The Sale of Goods Act and The Indian Partnership Act, LexisNexis, Gurgaon,
2012.
3
The Sales of Goods Act, 1930, s.51.
4
Bethell v Clark

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Right to Stoppage in Transit: Sale of Goods Act, 1930

Some Scenarios of transit ending:

• The buyer or his agent obtains delivery before the goods reach the destination. In
such cases, the transit ends once the delivery is obtained.5

• Once the goods reach the destination and the carrier of bailee informs the buyer or
his agent that he holds the goods, then the transit ends.6

• If the buyer refuses the goods and even the seller refuses to take them back the
transit is not at an end.7

• In some cases, goods are delivered to a ship chartered by the buyer. Depending on
the case, it is determined if the master is functioning as an agent or carrier of the
goods.8

• If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or
his agent, the transit ends.9

• If a part-delivery of the goods has been made and the unpaid seller stops the
remaining goods in transit, then the transit ends for those goods. This is provided
that there is no agreement to give up the possession of all the goods.10

How Stoppage is Affected (Section 52)11: There are two ways of stopping the transit of goods:
The seller takes actual possession of the goods If the goods are in the possession of a carrier or
other bailee, then the seller gives notice of stoppage to him. On receiving the notice, the carrier
or bailee must re-deliver the goods to the seller. The seller bears the expenses of the re-delivery.

Legal effect of stoppage in transit: The exercise of the right of stoppage in transit does not
mean that the seller cancels the sale or that the property re-vests in him. The seller gets the right
to repossess the goods. This right of stoppage in transit enables the unpaid seller to gain priority
in regard to the goods over general creditors of the insolvent buyer as by stopping the goods in
transit the carrier is put under an obligation by section 52(2) of the act to redeliver the goods

5
The Sales of Goods Act, 1930, s.51 (2).
6
The Sales of Goods Act, 1930, s.51 (3).
7
The Sales of Goods Act, 1930, s.51 (4)
8
The Sales of Goods Act, 1930, s.51 (5)
9
The Sales of Goods Act, 1930, s.51 (6)
10
The Sales of Goods Act, 1930, s.51 (7)
11
The Sales of Goods Act, 1930, s.52.

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Right to Stoppage in Transit: Sale of Goods Act, 1930

to the unpaid seller who thereby reacquires possession of the goods. Moreover, it puts the seller
in a position in which he can exercise his statutory power of resale under section 54(2) of the
act. After repossessing the goods, the seller is bound to deliver the goods if the price is paid or
tendered within a reasonable time either by the buyer or the official assignee or receiver in
bankruptcy or assignee in insolvency. The benefit of the contract would vest in the official
assignee who may complete the contract for the benefit of creditors.

Modes of Stoppage in Transit12: The two modes are either taking actual possession of the
goods or giving notice to the carrier or bailee or his agent not to deliver the goods to the buyer
or his agent.

By Notice from authorized person: The section does not prescribe any form of notice;
it may be oral or in writing. A telegram stating ‘don’t deliver may be sufficient. The
section provides that notice be given to the person who is actually in possession. The
essence is diligent communication. Notice to the principal must be given in advance so
as to enable the principal to give effective notice to the person in actual possession.

Notice by unauthorized person: Notice of stoppage in transit given by an

unauthorized person will not be valid unless the act is ratified by the seller before the
transit is at the end. If ratification is made after the transit has terminated, ratification is
ineffectual to alter retrospectively the ownership of the goods which had vested in the
official assignee of the bankrupt buyer.

Carrier’s duty: As soon as the carrier receives notice of the seller’s claim, he has to use
reasonable diligence in communicating it to his servant or agent to prevent delivery of the
goods to the buyer and then redeliver the goods to the seller or according to the seller’s
direction.13

Seller’s duty: The carrier must give effect to the seller’s claim as soon as he is satisfied that it
is made by or on behalf of the seller. Corelative to the duty of the carrier is the duty of the seller
to the carrier to give him appropriate directions for delivery of goods back to him, and pay
freight due in respect of the goods, failure to do so will lead to him being liable to the carrier.14

12
The Sales of Goods Act, 1930, s.52.
13
Avtar Singh, The Sale of Goods Act, EBC, New Delhi, 2010.
14
Sir Dinshah Fardunji Mulla, Mulla The Sale of Goods Act and The Indian Partnership Act, LexisNexis,
Gurgaon, 2012.

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Right to Stoppage in Transit: Sale of Goods Act, 1930

Distinction Between Lien and Stoppage in Transit15

Lien Stoppage in Transit

Its essence is to retain possession. Its essence is to regain possession.

The seller’s possession of goods is the sine The following are sine qua non:
qua non.
(a)seller parting with possession of goods.

(b)possession with a carrier and

(c) buyer not having not acquired

possession.

This right can be exercised even when the This right can only be exercised when the
buyer is not insolvent. buyer is insolvent

SIGNIFICANT CASES ON RIGHT TO STOPPAGE

1. Gilgandra Marketing Co-operative Limited v Australian Commodity and

Merchandise Pvt. Ltd and Ors.

Facts:

Gilgandra Marketing Co-operative used to sell wheat; they made 10 contracts to sell
their wheat to Australian Commodity and Merchandise Pvt. Ltd. (hereinafter known as
ACM), between 1.02.2010 and 12.03.2010. Each agreement consisted of a sale note
which included standard terms and conditions in the contracts. According to the
standard terms and conditions, Gilgandra delivered the wheat to a container terminal
and ACM arranged for the shipment. Gilgandra issued an invoice to ACM which they
did not pay, in furtherance of this Gilgandra issued a notice for stoppage while the
goods were in transit.

15
Sir Dinshah Fardunji Mulla, Mulla The Sale of Goods Act and The Indian Partnership Act, LexisNexis,
Gurgaon, 2012.

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Right to Stoppage in Transit: Sale of Goods Act, 1930

Legal issues:
• Whether the travel of products under the GM contracts had stopped when they
arrived in Sydney or whether their travel continued till Bangladesh.
• Whether right to stoppage being exercised by Gilgandra is contingent on the
exercise of the carrier’s lien to recover cargo charges?
Decision:

The court held that the wheat which was delivered by Gilgandra Marketing Co-
operative was still in transit even after it left from Sydney to Bangladesh as the Wheat
Containers were still in transit just on a different vessel which was according to the
standard terms by the ACM.

Further, the court held that the notice issued by Gilgandra for stoppage of goods is the
seller’s expression of his lien for unpaid purchase money but the carrier’s lien for
transportation charges would outweigh everything else. So, an unpaid seller looking to
practice its right of stoppage must anticipate that it will need to provide an undertaking
or something to the effect as to ensure the carrier pays any cargo cost including the cost
incurred by him in storing and/or re-delivering the goods back to the seller.

2. Toll Holdings Ltd. v. Stewart 2016

Facts:
Stewart delivered TVs to his buyer located in Australia by availing transportation
services from Toll Holdings Pvt. Ltd. (hereinafter known as Toll), While the goods
were in transit the seller was left unpaid and administrators were assigned to the
purchaser who went bankrupt. After a meeting with the administrator, the seller emailed
the carrier to hold the goods and recall them. Toll did not adhere to the email as they
were concerned about the costs they would incur if they stayed at the terminal pursuant
to this, they lodged requests with the Australian Customs to store the merchandise at
their distribution centres and to give delivery orders to the purchaser’s unpacking
contractor to empower it to collect the goods.
Legal Issues:
• Whether the seller or the administrators were entitled to the goods stored in the
distribution centres?

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Right to Stoppage in Transit: Sale of Goods Act, 1930

• Whether Toll is liable for damages in conversion to the provider since it

discharged the goods even after accepting the notice of stoppage from the seller?
Decision:
The court held that although the email from Stewart contained a notice to effect the
stoppage in transit the goods were discharged to the unpacking contractor so they were
no longer in transit and therefore the seller had lost the right of stoppage. But Toll was
held liable for acting in contravention of the notice issued by the seller.

CONCLUSION

The right to stoppage in transit is an important right granted to an unpaid seller to secure his
rights to the goods. The unpaid seller is allowed to use this right by either taking physical
custody of the goods or notifying the carrier or the bailee who has control of the items. In the
latter case, the notice must be made such that the seller can transmit it to his servant or agent
in time to prevent delivery to the buyer by exercising due care. Further, the seller also has the
right to resale the goods after he has regained possession of the goods. If the goods are of
perishable nature and the buyer has failed to pay the purchase money then the seller can resell
the goods but if the goods are non-perishable in nature, then the seller must first give notice to
the buyer. But the scope of this project is limited to the right to stoppage in transit (section 50-
52), so we shall limit our discussion within the bounds of the topic.

BIBLIOGRAPHY

Books:
1. Mulla Sale of Goods Act and Indian Partnership Act by Shir Dinshah Fardunji
Mulla 10th Edition.
2. EBC Sale of Goods Act by Avtar Singh 8th Edition.
3. Sale of Goods Act by Dr R.K Bangia
Internet Sources:
4. Lexis Nexis Advance
5. Indiankanoon.org
6. SCC Online
7. Lexisnexis.co.uk
8. Ipleaders blog

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