Mr. Shankar sold 1000 Kgs wheat to Mr. Ganesh on credit of 3 months. Wheat was to be delivered after 10 days of contract. After 5 days of contract, a friend of Mr. Shankar secretly informed him that Mr. Ganesh may default in payment. On the information of friend, Mr. Shankar applied the right to lien and withheld the delivery. With referring to the provisions of the Sale of Goods Act, 1930: \n(i) State, whether Mr. Shankar was right in his decision?\n(ii) What would be your answer if Mr. Ganesh became insolvent within five days of the contract?

According to Section 45(1) of the Sale of Goods Act, 1930 the seller of goods is deemed to be an ‘Unpaid Seller’ when-\n(a) The whole of the price has not been paid or tendered. \n(b) A bill of exchange or other negotiable instrument was given as payment, but the same has been dishonoured, unless this payment was an absolute, and not a conditional payment. \nFurther, Section 47 provides about an unpaid seller’s right of lien. Accordingly, an unpaid seller can retain the possession of the goods and refusal to deliver them to the buyer until the price due in respect of them is paid or tendered. This right can be exercised by him in the following cases only:\n(a) where goods have been sold without any stipulation of credit; (i.e., on cash sale)\n(b) where goods have been sold on credit, but the term of credit has expired; or\n(c) where the buyer becomes insolvent. \nIn the instant case, Mr. Ganesh purchased 1000 Kg wheat from Mr. Shankar on 3 month’s credit which was to be delivered after 10 days of contract. But, after 5 days of contract, one friend of Mr. Shankar secretly informed him that Mr. Ganesh may default in payment. On the belief of friend, Mr. Shankar applied the right to lien and withheld the delivery. \n(i) On the basis of above provisions and facts, it can be said that even Mr. Ganesh was an unpaid seller until the term of credit i.e. has expired, Mr. Shankar had to perform his promise of supplying 1000 Kg of wheat.\n(ii) In case Mr. Ganesh became insolvent before the delivery of wheat, Mr. Shankar had the right to apply the lien and he could withhold the delivery.