Story Case

Mr. Rudyard Farlow visited the Barns Linseed Oil Distributing Company and bought twenty barrels of XX pure linseed oil. The twenty barrels were set aside and marked with Mr. Farlow's mark. It was understood that payment should be made in ten days. Mr. Farlow, at the same time, arranged to call for the oil on the following day, and the salesman of the distributing company said, "All right, the oil is yours."

Immediately following the transaction, Farlow was called away on account of the sickness of his mother, and did not stop again at the oil company until the ten days of credit had elapsed. One of his men, however, had called, on the day after the purchase and had taken five barrels of the oil. Mr. Farlow now desired to remove the remainder, but the company refused to allow the oil out of its possession unless he paid cash. Mr. Farlow contended that the oil belonged to him; it was branded with his personal brand and set aside, and furthermore, the agent of the company had told him that he could get it at any time. How can it be proper for the company to keep the oil if this statement of Mr. Farlow is correct?

Ruling Court Case. Arnold Vs. Delano, Volume 4 Cushing, Massachusetts Reports, Page 33; Volume 50 American Decisions, Page 754

Sowerby and Grant, partners in trade, purchased sixty cords of wood from Delano. A note, payable in six months, was given in payment. The wood at the time of the sale was on Delano's land, and there continued. Sowerby and Grant became insolvent, and Arnold was made assignee. He demanded the wood. Delano claimed that he had a lien upon it for the purchase price. Arnold contended that he waived his lien by giving credit.

Mr. Chief Justice Shaw said: "When goods are sold, and there is no stipulation for credit or time allowed for payment, the vendor has, by Common Law, a lien for the price; in other words, he is not bound actually to part with the possession of the goods without being paid for them. The term "lien" imparts, that by the contract of sale, and a formal, symbolical, or constructive delivery, the property has vested in the vendee, because no man can have a lien on his own goods. The very definition of a lien is a right to hold goods, the property of another, in security for some debt, duty, or other obligation.

A lien for the price is incident to the contract of sale, when there is no stipulation therein to the contrary, because a man is not required to part with his goods until he is paid for them. But, when credit is given by agreement, the vendee has a right to the custody and actual possession on a promise to pay at a future time. He may then take the goods away, and into his own actual possession, and if he does so, the lien of the vendor is gone, it being a right incident to the possession.

But the law, in holding that a vendor, who has thus given credit for goods, waives his lien for the price, does so on one implied condition, which is, that the vendee shall keep his credit good. If, therefore, before payment, the vendee becomes bankrupt or insolvent, and the vendor still retains the custody of the goods, or any part of them, or if the agent or carrier is on his way to the vendee, and has not yet delivered the goods into his actual possession, the vendor, before he does so, can regain his actual possession, by a stoppage in transition, then his lien is restored and he may hold the goods as security for the price." Judgment was given for Delano.

Ruling Law. Story Case Answer

When goods are sold which are yet unpaid for, the seller is permitted to retain possession of them as security for the purchase price. This is known as the vendor's lien. He may waive this lien either expressly or by implication. If he gives up his possession, that is a waiver, for his lien continues only so long as his possession continues. If he extends credit, that is a waiver, because he indicates his willingness to rely upon the credit of buyer alone for security. But if the buyer becomes insolvent while he retains possession, the waiver is ineffectual, and he may then continue to hold the goods as security for the purchase price. The vendor may exercise his lien even after he has parted with the possession of the goods, if they have not yet been delivered and he learns of the insolvency of the buyer. This frequently happens when goods are in transit, and is called "stoppage in transit."

In the Story Case, Mr. Farlow was right; the oil did belong to him and the oil company could not have sold it to another for a reasonable time. But although the title was in Mr. Farlow, yet the right of possession was in the oil company, because since the ten days period of credit had expired, the seller could assert his lien upon the oil for the purchase price still due.