This article is written by Sparsh Agrawal, student, Symbiosis Law School, Hyderabad. In this article, the importance of lien and its kinds are discussed. Furthermore, relevant judgments with respect to lien are critically analyzed.
Table of Contents
Introduction
Lien is the right to retain the possession of the property of another till the other person meets the demands of the person in possession. The demand could be any- performing a duty or paying a due sum of money. During the developments of trade and commerce, the common law considered lien as a “Self Help” practice. It was named as “self-help” as it did not require any intervention of the courts. When there was further progress in trade and commerce, the Court recognized that leaving such primitive remedies freely can lead to every person recklessly holding on whatever he had. And ultimately, it can hamper trade and commerce.
Lien was in the nature of the remedy and it was recognized as a right. The basis of the contract of lien was that it was not between the parties and the party had its rights because it was imposed law by the common law courts.
The Honorable Supreme Court explained the nature of the Right of Lien by stating that “Lien in its elementary sense is a right of a person to retain the possession of goods until the demands of the possessor are satisfied. Therefore, the Right of Lien is a right granted by law and is merely not granted by a contract”.
The following are the cases where the rights of Lien have been recognized:
- An unpaid seller had a Lien over the goods in possession.
- The agent had a lien on the property of the principal for unpaid remuneration.
- A bailee had a lien on the property in his possession.
The major difference between a pledge and a Lien is that in a lien the person in possession only reserves a right to retain the possession of the goods. He reserves no right to sell the property that is in his possession. Lien is a right while the pledge is a contract between the parties. But, it is implicit that the contracting parties are free to create a lien by contract and waive the right of lien. An important aspect of the pledge is that the person has been given voluntary possession of goods while the lien is the performance of duty for paying a due sum of money.
In the Judgment of Diplock in Tappenden V. Artus, the nature of Lien is described. (artificer means skilled manual worker) It reads as the common law lien of an artificer is very ancient in nature as well as its origin, it is dated in the time where remedies by action upon the contract were still considered as an imperfect stage of development. Pertinently, Lien arises because of the consequence of the contract. It is very tempting for the lawyer who belongs to a 20th-century lawyer to think of a common-law lien as possessing the characteristics of a contractual right, express or implied which has been created by a mutual agreement between parties to a contract. But it would be a mistake in legal nature as, like a right of action for damages, it is a remedy for breach of contract which actually is conferred by the common law to an artificer to whom the possession of the goods has been lawfully given for the purpose of doing his work in return of money as its consideration. A common law lien, however, is not enforceable by action and thus it affords as a defence to an action for recovering the possession of the goods, but for the lien, he would be entitled to immediate possession.
Right of Lien is one of the rights available to the Bailee. The Indian Contract Act, 1872 classifies the Right of Lien into two types: Particular Lien and General Lien. Section 170 of the aforesaid Act gives the exact definition of Particular Lien which states that the Bailee is free to hold control of a precise property with position to the charge which is due. For Example, A gives a piece of cloth to B, a tailor, to stitch it into a pant as soon as it is over and to give a three months’ credit for the price. Therefore, according to this instance, B is not entitled to return the pants until he is paid.
The Indian Contract Act, 1872 specifies that the Right of particular Lien is available to the Bailee, subject to certain conditions. The most important condition among the other conditions is the exercise of skill or labour which is regarding the goods bailed. Further, it has been very often highlighted that the skill or labour exercised by the Bailee must be of such a nature that the mayor will improve the quality of the goods.
Importance of Lien
Lien is the right to retain the possession of the property of another till the other person meets the demands of the person in possession. Lien was in possession of the remedy and it was recognized as a right. The basis of the contract of lien was that it was not between the parties, and the party had its rights because it was imposed law by the common law courts. Therefore, here are the importance of lien.
Protects the Buyer
The existence of lien is very important as it protects the rights of the lenders when there is non-payment of the dues. The loans with collateral, as it is implicit, are less risky for the lender as they can lead to lower interest rates for the borrowers. For example- when a person is purchasing a particular vehicle, it is important for him that he checks all the liens which are there against that vehicle. Moreover, if there is a debt that is an outstanding debt on that particular vehicle, the buyer would run the risk of having it repossessed by the lender.
It allows the seller or an agent to recover the amount
Lien is the right to retain the possession of the property of another till the other person meets the demands of the person in possession. The demand could be any- performing a duty or paying a due sum of money. In case the principal or the buyer fails to pay the amount to the agent or a sailor, the agent can recover the amount by selling the security and such right came into existence because of the lien.
Importance of lien when buying a business
It is advisable that when one person is buying a particular business, he should make sure that the business assets which are there are not encumbered by liens and this could hamper the growth and progress of the business. Therefore, one can actually protect themselves when negotiating the business.
Recovering the necessary and extra orbit expenses
The importance of lien comes into existence when it comes to recovering the necessary and extra orbit expenses which the seller or the agent reserves to have. In the case of Gopaldas v. Thakurdas, the High court reviewed the provision of the agent’s lien. The agent was the firm for the commission of agents who brought some goods for the principals who were under them. Even the principal supplied the money for buying the goods. But at some other times, the agent spent the money from his own pocket.
Therefore, the agent sold the goods of the principal to recover his due amount. It was observed by the court that the agent selling the goods of the principal may not be justified since he didn’t have any authority over the goods of the principal. However, the agent spent some amount from his own pocket and he is in apposition as a tacit pledgee reserves a right to recover the amount as much of his outlay as possible by selling the goods which belong to his custody.
Types of Lien
The two types of Lien which are recognized by the common law courts are:
- Particular lien
- General lien
In Particular lien, the person reserves the right to retain the possession of the goods until the charges due in respect of the property are paid.
A general lien is a right to retain the possession for the payment of the sum which is owed and even if the payment is not connected with the property in possession.
Section 170 of the Indian Contract Act, 1872 deals with a particular lien while Section 171 deals with General Lien.
Particular lien
Bailee’s particular lien, which is specified under section 170, states that where the Bailee has in accordance with the purpose of Bailment, rendered any service which involves activity such as the exercise of Labor skill in respect of the goods which are bailed, he has in absence of the contract to the contrary, a right in order to retain such type of goods until he receives due remuneration for the services he has rendered in respect of them.
Illustrations
(a) A delivers a watch to B, a shopkeeper, to repair his watch and which is to be done accordingly. B is entitled to retain the watch till he is paid for the services that he has rendered.
(b) A gives a piece of cloth to B who is a tailor in order to make a shirt. B promises A to deliver the shirt as soon it is finished, and to give three months credit for the price. Therefore, B is not entitled to retain the court until he is paid.
(c) A gives a machine to B who is running a transport business to transport the carrier from one location to another.
Let us analyze this particular principle with the help of the court Judgments-
In the case of Hatton V. Car Maintenance Company, Limited, the owner of the car and the company entered into an agreement where the condition was supposed to maintain the car, repair it and supply adequate petrol. The owner was supposed to pay Rs. 8000 to the owner of the company, but the company was not paid the above-stated amount. Then, the company exercised the lien over the car.
The learned Judge Sargeant J noted that whenever a particular article is repaired, the repairer is bound to get a lien on the article for the number of his charges. However, he said that he certainly can’t find the authorities which are cited which will depict if the contractor does not improve the article but just to maintain its former condition, that whether he gets lien for the amount spent for the maintenance.
Thus, it can be concluded that a lien is not available in each and every case where the services have been rendered, and it is only available when the actual skill and labour i.e. manpower is applied to the goods, which ultimately results in the improvement of the goods. In the above-stated case law, it was just for the maintenance of the good but not for the improvement of the condition of the goods.
Pennycuick J, in the case of In Re Southern Livestock Producers Ltd, held that it is perfectly clear enough that unless and until, bailee establishes the scope of improvement he will have no lien, he even narrated an example which stated that it will be quite illogical that a Kennel keeper should have a lien for stripping off a dog, but not for boarding it. The stated that it would be impossible for him to introduce a complex modification into a well-established principle.
Thus, it has been noted that in common law, lien has been limited to cases where the scope of improvement is necessary where there is the exercise of labour and skill. However, there are no substantial case laws available in Indian Courts.
This lien involves:
Exercise of Labor or Skill
The right is highly subjected to the scope of improvement and conditions. The first and foremost thing in the case is that the Bailee must have rendered some service that involves the improvement of the goods. In accordance with the judgment which is mentioned in Hatton v. Car Maintenance Company, Ltd, it can be proved that scope of improvement is necessary for the exercise of labour and skill.
In Accordance with Contract
The second most important element is that the skill and labour, both, must be exercised in accordance with the terms of the contract as well as the purpose of the bailment.
Goods on which Labor or Skill Bestowed
The third element is that only such goods can be considered for the retention on which the bailee had actually faced trouble and expense. And, he reserves no right to retain the goods which belong to the Bailor and are in his custody.
Possessory Right
Lastly, this particular right also depends upon the possession and also is lost as soon as possession of the goods is lost. Pertinently, after repairs, the delivery of possession which is affected puts an end to the lien which the repairer has for the charges of repairs and it cannot be revived because the repairer had undertaken further repairs which are merely out of grace and they are not a matter of a fresh Contract.
In the case of Kalloomal Tapeshwari Prasad and Co., M/s v. M/s R.C. and F. Ltd, it was observed that the activities of a stockist under the contract include unloading, loading, stacking as well as storing. The court in this particular case upheld the decision that the above-stated services do not lead to an improvement in the condition of the goods.
General Lien [ Section 171 ]
A general lien is defined under Section 171 of the Indian Contract Act, 1872. Section 171 talks about the General Lien of bankers, factors, wharfinger, attorneys and policy brokers, in absence of a contract to the contrary, retain, as a security for the general balance of the account, and any goods which are to be bailed to them unless there is an express contract to that effect.
Generally, the service providers are given the privilege of general lien. These identity service providers reserve a right to retain the goods which are bailed to them for the sake of a general balance of sum which is due to their customer. This particular Section is quite anxious to limit the use of general liens by telling that no person reserves a right to claim a general lien unless the parties have provided for it in their contract in express terms. Lien is considered as a ‘primitive remedy’ and common law does not encourage it but just took a note of it. A general lien could particularly impede trade and commerce because everybody can hold onto goods of one and another.
In a particular case of Rushforth v. Hadfield, particular carrier goods made an attempt to claim a general lien on the ground for its usage of practice for trade and commerce. He carefully noted that there is a disadvantage in the case of general lien when there is a case of insolvency. In this particular case, it was also noted that general lien causes a great deal of inconvenience when it comes to the generality of the traders because they give plenty of advantages to certain individuals, a special privilege who claim to have the special privilege against the body of the creditors instead of coming with them for the sake of insolvent of the state.
Therefore, in accordance with this particular Section, parties which are entitled and reserve a right of General lien are as follows:
- Bankers
- Factors
- Wharfingers
- Attorneys of High Court
- Policy-brokers
Bankers
The general lien of the bankers is considered to be as judicially recognized and it mainly deals with the goods and securities deposited by the customers in the bank accounts of the customers, provided by a condition that there is no contract which is implied, inconsistent with such type of lien. When a certain type of gold ornaments was pledged with a particular Bank as a bailee because the lien extends on the borrower and the borrower then paid back the loan amount.
The same bank kept something for the security because the loan of another type was taken by the same borrower. In this case, the bank reserves a right to be held entitled to do so that they are having satisfaction for the other loan also.
There is also a relevant case where the Bank provided some financial assistance to the sugar factory which was against the pledge of its entire stock and it was stored in seven godowns of that factory owner as security. The stock was seized for the sake of payment. In this case, the Court held that the commissioner of sugar could not prevail over the rights which are reserved for the Bank. The bank was held to be entitled to the rights of godown and subsequently, it was sold at the public auction.
Factors
Factor means that an agent was entrusted with the possession of the goods and the purpose of selling them was for the principal. When the person is given the possession of the goods in the ordinary course in the business for the purpose of sale. Then he will be having the general lien on such types of goods.
The term “factor” means an agent assigned with the possession of the goods for the only purpose of selling it to the principal. For the purpose of sale, he is free to hold the ownership of goods in the ordinary course of commerce. He is also entitled to the Right of general lien for the amount due. For Example, if a Bicycle was delivered to an agent, he was entitled to detain the possession of the Bicycle until his charges are paid. It is important to note that in order to avail the Right of Lien, the goods must or should be delivered to the factor in the course of commerce.
Wharfingers
The word Wharf means a place that is contiguous with water and it is used for the purpose of loading and unloading of the goods. It as a general lien means that goods are bailed to him until the Wharfingers that is the charge due for the Wharf is paid.
Attorney of the High Court
The attorney or a solicitor also reserves a right of general lien when it comes to his payment of fees for the services which he has rendered. The Supreme Court in the landmark case of R.D Saxena v Balram clearly pointed out that the advocate papers over the lien will have no right over the fee which is said to be unpaid.
Policy brokers
The insurance agent also holds a right with respect to general lien. His rights extend to the clients who have taken the insurance policy and also the amount which is due to him which the client is supposed to pay.
Lien of a finder of goods
The Sale of Goods Act, 1930 grants certain rights to an unpaid seller in the case when the goods have already been transferred to the buyer but the buyer fails to pay the price of the said goods to the seller. One such right is the right of Lien.
Lien means the seller’s right to keep the certain property of the buyer until the buyer pays the debt of the goods that were sold to him. The rights of the unpaid seller are explained in Sections 46, 47, and 49 of this particular act.
The unpaid seller can exercise this right by retaining the goods of the buyer or by refusing to deliver the goods of the buyer until the amount which is due to the buyer is paid to the seller. In the case of transfer of the ownership the seller can still refuse the payment to the buyer until the amount due is paid by the buyer.
This contract of sale will not be void ab initio if the unpaid seller exercises this right against the goods bought by the buyer. The right of lien is to retain the possession of goods. Therefore, it is necessary that the goods have to be in possession of the seller even after the sale agreement. This right is not affected by the transfer of title to the buyer. In fact, right of lien is a right which can be Section 47 of the aforementioned Act states the situations in which this right can be exercised in case the amount due to buyer is not paid to the seller.
Where the goods are sold without any stipulation as to credit
Under this provision, which is specified by the Sales of Goods act, 1830 if the buyer agrees to pay the price of the goods, then the seller cannot refuse to deliver such goods to the buyer. This provision is for cash sale. The paying of price and goods delivery are concurrent conditions unless otherwise specified according to the agreement.
In other words, if the seller does not sell his goods on credit, he expects the buyer to pay the amount for the goods immediately. And, if the buyer refuses to pay or expresses his unwillingness to pay the price, the seller can exercise the right of lien and retain with himself the goods until the buyer pays the whole amount.
In Miles v. Gorton, it was held that in a contract where there are no specifications about the payment or delivery of the goods, then the seller can retain the goods of the buyer until the latter pays the price of the goods. Meanwhile the risk of such goods will be the responsibility of the seller under his possession.
When there is a credit sale on goods
The right of lien can be exercised by the unpaid seller when there is the expiry of the credit period. In the case where the seller has sold the goods on a credit basis, then the seller can retain the goods with himself if the buyer is not willing to pay the amount after the expiration of the time period of credit.
If the buyer becomes insolvent before the goods are delivered to him
The seller can exercise the right of Lien. If the seller sells the goods on credit and the time period of credit is not expired yet, and the buyer becomes insolvent during the period, then, the seller can exercise his right of lien towards the buyer. Section 2(8)of Sale of Goods Act, 1930 defines the term ‘insolvent’ as, any person who has ceased to pay or is not in a position to pay the debts which have become due irrespective of the commission of an act of insolvency or not.
Lien of a finder of goods
Under Section 221, the agent is given lien property, for recovering the dues from the principal. The section states that in the absence of any contract, an agent is bound and entitled to retain the goods, papers and property which can either be movable or immovable, of the principal amount which was received by him, until the particular amount due to himself for the commission, disbursements and the services which have been rendered in respect of the same which have been paid or had accounted to him.
Therefore, the principal can come to owe the money in two ways, that the agent should have incurred expenses for the agency or it could be for his commission or remuneration.
In the case of Gopaldas v. Thakurdas, the High court reviewed the provision of the agent’s lien. The agent was the firm for the commission of agents who brought some goods for the principals who were under them. Even the principal supplied the money for buying the goods. But at some other times, the agent spent the money from his own pocket. Therefore, the agent sold the goods of the principal to recover his due amount.
It was observed by the Court that the agent selling the goods of the principal may not be justified since he didn’t have any authority over the goods of the principal. However, the agent spent some amount from his own pocket and he is in opposition as a tacit pledgee to reserve a right to recover as much of his outlay as possible by selling the goods which belong to his custody.
This particular Section gives the right to the agent so that he can retain the goods, that would not be a part of the possession until the dues are paid. However, this doesn’t mean that the agent has a right to sell the goods. If the principal pledges the goods, then the principal becomes a pawnee. And the lien of such goods is not governed by Section 221 of the Indian Contract Act, 1872 but under the provisions of the Bailment and Pledge.
A lien reserves a right only to retain the possession in the property of the principal. If there is a condition that the rights of the principal are considered to be limited, as the agents are the third parties to the agreement, then the lien will be also limited. A lien is lost when the agent actually losses possession. The agent is successful in delivering the property to the agent, through any of the means, the lien is lost.
Conclusion
Lien is one of the rights available to a person to retain possession of goods owned by another person until the assertion of the person having the control is satisfied. Under the Indian Contract Act, 1872 the Bailee is free to employ or operate the Right of Lien in a Contract of Bailment.
The Honorable Supreme Court explains the nature of the Right of Lien by stating that “Lien in its elementary sense is a right of a person to retain the possession of goods until the demands of the possessor are satisfied. Lien can be considered as a person of great value. A bailee who is handling several hundred TEU’s (twenty-foot equivalent units) a day, especially where none of those containers are subject to outstanding debt.
In my opinion, General Lien is a much more effective tool in securing the outstanding debt. But it is subjected to its own limitations and risks, particularly from a potential liability point of view. Basically, if there is a general operator who is seeking to exercise a lien and then resolve to see the matter through something which is potentially difficult as a matter of commercial negotiations to a successful conclusion.
A lien can be subjected to a large number of risks, but despite risks liens actually continue huge assistance and support to operators. A well-drafted Lien clause can be considered to be huge assistance and support to the operators. In the terminals of Lien worldwide, the group and subsidiary of a particular company, and with respect to the matter of debt and liabilities ranging from far wider than traditional terminal services.
References
- The Indian Contract Act, 1872 (Bare Act) S.Gogia & Co., Hyderabad.
- Contract-II by R.K. Bangia, Allahabad Law Agency,2009.
- Black’s Law Dictionary
- Contract and Specific Relief by Avtar Singh, Eastern Book Company, 2012.
- Pollock and Mulla: The Indian Contract Act, LexisNexis, New Delhi,2007
Cases Referred
- Diplock in Tappenden v. Aurtus, (1964)2 QB 185
- Hatton v. Car Maintenance Company Limited, (1915) 1 Ch 621
- In re Southern Livestock Producers Ltd., (1964) 1 WLR 24
- Bevan v Waters, (1828) 3 C & P 520
- Skinner v Jager, ILR (1883) 6 All 139
- Chase v Westmore, (1816) 15 M&S 180
- Eduljee v. Café John Bros, ILR 1944 Nag 37
- Mercantile Bank of India ltd v Rochaldas gidumal and co, AIR 1926 Sind 225
- K. Sita v Corporation Bank, (1999) 3 An WR 393 (AP)
- EH.Parakh v King-Emperor, AIR 1926 Oudh 202
- Miles v Gorton (1834) 2 C & M 504, at p.511 : 39 R.R. 820
- R.D. Saxena v Balram Prasad Sharma, (2000) 7 SCC 264.
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