§ 1036. After the contract of sale is completed, the vendor still retains the right to reassume the possession of goods, while on their way to the vendee, if they be unpaid for, and if the vendee become insolvent during their carriage. This right is called the right of stoppage in transitu, which, although unknown to the ancient common law, has been engrafted upon it by courts of equity, and become part of the law-merchant.2 Inasmuch, however, as it is founded in equity, it cannot be so exercised as to interfere with the just rights of third persons, acquired bond fide. Thus, if a vendee pay for goods by a bill of exchange, and resell them to a third person before the bill is dishonored, and before the vendee's insolvency, the right of stoppage in transitu is determined.3 The right of stoppage in transitu supersedes the lien of the carrier for a general balance between him and the consignee; but the lien of the carrier or wharfinger, in respect to the particular subject, supersedes that of the seller.4
§ 1037. The stoppage of goods in transitu does not operate to rescind the contract of sale, but only to revest in the vendor that possession which is the sole foundation for his equitable lien on the goods for the purchase-money.1 The vendee, therefore, at any time after stoppage, may recover the goods, upon payment or tender of the price; and the vendor may maintain an action for goods bargained and sold, notwithstanding the stoppage in transitu, if he be ready to deliver them up to the vendee upon payment.2 If, however, a consignee of goods ascertains that he is insolvent before he knows of the arrival of the goods, or pays their price or the freight thereon, and executes a bill of sale thereof to the consignor, and delivers it to a third person for him, this operates as a stoppage in transitu of the goods.3
1 See Heinekey v. Earle, 8 El. & B. 410 (1857), and the note of the American editor.
2 Ellis v. Hunt, 3 T. R. 465; Newsom v. Thornton, 6 East, 17; Hodgson v. Loy, 7 T. R. 440; Law Mag. vol. v. p. 155. Lord Mansfield, however, in Assignees of Burghall v. Howard, 1 H. Bl. 366, n., declares that the rule is founded, "not upon principles of equity only, but the laws of property." See, also, Lord Loughborough's opinion in Mason v;. Lickbarrow, 1 H. Bl. 362 et seq. See post, § 1048 and note.
3 Hawes v. Watson, 2 B. & C. 540; Dixon v. Yates, 5 B. & Ad. 313; Miles v. Gorton, 4 Tyrw. 295; 2 C. & M. 504.
4 Oppenheim v. Russell, 3 Bos. & Pul. 42; Morley v. Hay, 3 Man. & Ryl. 396; 2 Kent, Comni. lect. 39, p. 541.
§ 1038. The right of stoppage in transitu is a right, however, confined to a vendor or consignor; and it must be exercised by him either personally or by some person acting for him adversely against the buyer. A ratification, by the vendor, of an act of stoppage in transitu made after the delivery, will not be sufficient.4 But there are cases in which this right is recognized, although the contract under which the goods were consigned may not be literally a contract of sale; as where a factor or agent purchases goods for his principal, and consigns them to him on credit, with an additional charge of commission, and no privity exists between such principal and the vendor, the agent or factor may stop the goods in transitu.5 A mere surety for the price of the goods cannot, however, stop them; and even a countermand made by the buyer in behalf of the seller, will not enure to the benefit of the seller, if it interfere with the rights of third persons.6
1 See Rogers v. Thomas, 20 Conn. 53; Martindale v. Smith, 1 Q. B. 389; Chandlers. Fulton, 10 Texas, 2.
2 Kymer v. Suwercropp, 1 Camp. 109; Hodgson v. Loy, 7 T. R. 440; Rowley v. Bigelow, 12 Pick. 313; Long on Sales, Rand's ed. 337, and cases cited; 2 Kent, Comm. 541; Edwards v. Brewer, 2 M. & W. 375; Miles v. Gorton, 2 C. & Mees. 504; Boorman v. Nash, 9 B. & C. 145; Clay v;. Harrison, 10 B. & C. 99.
3 Grout v. Hill, 4 Gray, 361 (1855).
4 Bird v. Brown, 4 Exch. 786. 5 Feise v. Wray, 3 East, 93.
6 Feise v. Wray, 3 East, 93; 2 Selw. Nisi Prius, 1270 (11th ed.), Stoppage in Transitu; Siffken v. Wray, 6 East, 371; Richardson v. Goss,
But if such a countermand be assented to by the seller, and the rights of no third persons intervene, the contract of sale is thereby rescinded.1 No person, having a mere lien upon goods, without any property in them, possesses the right of stoppage in transitu. For a mere lien is determined by such a voluntary parting with the actual possession as is incidental to this right.2 But whenever the vendor can stop the goods in the hands of the carrier, he can retain them in his own possession, if he has not delivered them to the carrier.3
§ 1039. There are two necessary prerequisites to the right of stoppage in transitu; and these are, 1st. That the vendee be insolvent; 2d. That the goods be unpaid for. The insolvency of the vendee does not, of itself, remit to the vendor the right of possession, nor rescind the contract, but only invests the vendor with the privilege of stopping the goods as a security for the price, if he chooses to exercise it. Any well-founded information of such an embarrassment on the part of the vendee as to disable him from honoring his drafts, or meeting the demands of his creditors, is a sufficient insolvency to justify the vendor in stopping the goods.4 But, inasmuch as it is a privilege allowed to the seller, for the express purpose of protecting him against the insolvency of the buyer, he cannot exercise it, unless the buyer be insolvent. And if, from excess of caution, or misinformation, he stop the goods when the buyer is not actually insolvent, the buyer is entitled to the goods, and to an indemnification for the expenses incurred in consequence of the stoppage.5
§ 1040. With regard to payment, the rule is, that the vendor is only deprived of the right of stoppage upon the payment of the whole price. A partial payment only reduces the lien of the vendor pro tanto, but does not deprive him of the right of repossessing himself of all the goods, and retaining them until the whole price is paid.1 Neither would the receipt of a bill of exchange for the goods be such a payment as to defeat the right.2 Where the goods, however, are consigned in payment of an existing debt, the consignor has no right of stoppage; because, as no price is due, he would have no lien on the goods.3 But, wherever there are reciprocal liabilities on an unsettled account between vendor and vendee, the vendor has a right of stoppage, and is not obliged to wait for a final adjustment and balance of accounts.4