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 the course of transit and may retain them until payment or tender of the price.
Meaning of transit: Transit does not mean that the goods should be in motion. If the goods are delivered to the carrier or other bailee by the seller the transit is commenced and it comes to an end when the buyer acquires possession thereof. Therefore, when goods are in the hands of a middle man, goods are said to be in transit. Even if the goods arrive at the destination of the buyer the transit continues until the buyer obtains possession from the middleman. When the right of lien ends, right of stoppage in transit begins.
Now, if the buyer becomes insolvent after the unpaid seller has parted with the possession of the goods, the unpaid seller can resume the possession of goods by exercising his right of stoppage in transit. In order that the seller may be able to exercise his right of stoppage in transit, following essentials must be present:
Essentials: (1) The seller must be unpaid wholly or partly; (2) The buyer must have become insolvent; (3) The goods must be in transit, for example, the seller must have parted with the possession of the goods and the buyer must not have received the goods.
The right of stoppage in transit can be exercised in respect of part of the goods in transit even if part has been acquired by the buyer.
Duration of transit: Goods are deemed to be in course of transit from the time when they are delivered to carrier or other bailee for the purpose of transmission to the buyer, until the buyer or his agent in that behalf takes delivery of them from such carrier bailee or both.
The transit begins from the time when the seller parts with the possession of the goods and comes to an end when the buyer acquires possession there of. When the buyer acquires possession of the goods, the right of the seller to affect stoppage in transit comes to an end.
When does transit of goods come to an end? The transit of goods comes to an end when the buyer acquires possession. The buyer acquires possession or is deemed to acquire possession of the goods under following:
1) When the buyer takes delivery of the goods from the carrier or other bailee
2) When the buyer or his agent in that behalf obtains delivery of the goods before their arrival at the appointed destination. This is done in anticipation by the buyer or the seller exercising his right of stoppage in transit.
3) When the carrier or bailee on arrival of the goods at the appointed destination, acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent.
4) When the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent.
5) When part delivery of the goods has been given in such circumstances as to show an agreement to give up the possession of the whole of his goods.
When buyer refuses the goods: If the goods are rejected by the buyer and the carrier or other bailee continues in possession of them the transit is not deemed to be at an end, even if the seller has refused to receive them back. When the buyer does not accept the goods, the transit continues.
How is stopping in transit affected? The right of stoppage may be affected by unpaid seller in any the following ways:
1) By taking actual possession of the goods; or (2) by giving notice of his claim to the carrier or other bailee in whose possession the goods are, to re-deliver the goods to the seller or according to his directions.
Notice of stoppage may be given either to the person in actual possession of the goods or to his principal. When the notice is given to the principal, in order to be effective, it shall be given at such time and in such circumstances that the principal, by the exercise of reasonable diligence, may communicate it to his servant or agent in time to prevent delivery to the buyer. If the carrier fails to comply with the notice or directions of the seller he may be sued for damages.