CHAPTER XXII

LEGAL REMEDIES

The Application of Law to Credit Problems. It is not intended that the credit manager should be a practicing attorney able to prosecute and defend cases arising in his business. There is, however, a firm conviction common to most credit men that a knowledge of the particular branch of the law relating to their chosen line of work will make it possible for them to serve and protect the interest of the houses they represent. Credit transactions involve exchanges of economic goods and with the credit element added, the chances of dispute are naturally increased many times. The credit manager finds himself face to face with some one of the more common legal problems every day. In procedure and in numerous points the laws vary in different states and it is not intended to do more than to sketch the general outlines of the principles involved. The more important topics include the legal questions involved in buying and selling goods such as those of the Unpaid Seller's Lien, Stoppage in Transit, Rescission, Resale, Attachment, Garnishment, Replevin and the Bulk Sales Law.

General Considerations of Contract.-The different states of the Union have their own statutes applying to the contract of buying and selling. However, many states have passed what is known as the Uniform Sales Act.

According to the act, contracts for the sale of goods above a certain amount (varying in different states), are enforceable only if the buyer accepts part of the goods and actually receives them, or gives something in earnest to bind the contract, or in part payment, or unless some note or memorandum of the

contract be in writing, signed by the party to be charged or by his agent.

The seller may bring action for the purchase price if title has passed to the buyer and there is wrongful refusal to pay, and, irrespective of passage of title, may bring action if a certain date has been set for payment.

An action may be maintained for damages for non-acceptance if the buyer wrongfully neglects or refuses to pay for the goods and also if the buyer repudiates the contract of sale and gives notification to the seller to proceed no further in carrying out the agreement. Any expense of the seller after such notice is not recoverable.

The Unpaid Seller's Lien.-Even if title to the goods has passed to the buyer, there are certain conditions which may set up a right known as the unpaid seller's lien, enabling the seller to retain the possession of goods.

A seller is still unpaid if he has been given a bad check or note in exchange for the goods.

A lien is the right of one to hold or control and retain or enforce a charge against the property of another until some claim of the former is paid or satisfied.

Under the unpaid seller's lien right, the unpaid seller has a lien on the goods, even though the title or property to the goods has passed to the buyer, and may retain them for the price while he is in possession of them. The right of lien by the seller exists until the tender or payment of the purchase price. In cases where no terms of credit have been extended the seller is in possession of the goods as agent or bailee of the buyer but may retain them until paid. If credit is extended and the terms have expired, the lien right also exists. If credit is extended, and, if during the credit period the buyer becomes insolvent before delivery of the goods, the right to exercise an unpaid seller's lien vests in the seller and he may

refuse to deliver the goods on the theory that one of the implied conditions under which credit was extended was the financial standing of the buyer which has now been impaired.

An unpaid seller loses his lien when he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the property in the goods, or the right to the possession thereof, or when the buyer, or his agent, lawfully obtains possession of the goods, or by specific waiver of the seller. The fact that a judgment or decree for the purchase price of goods has been secured by the seller does not act as a waiver of the lien.

Stoppage in Transit. In the preceding section we have suggested that, as a general rule, the seller who has parted with the possession of merchandise cannot avail himself of this mode of protection. Delivery of goods to a carrier presumably extinguishes the unpaid seller's lien. The right of stoppage in transit is an exception to this rule. Even though title passes to the buyer when delivery was made to the carrier so that the buyer is responsible for the loss of the goods, yet the right of possession can be regained and, if insolvency without payment on the part of the buyer occurs while goods are in transit, such recovery may take place.

Goods are deemed to be in transit from the time they are delivered to carrier and after the time of rejection of the goods by the buyer, even if the seller has refused to receive them back, and they continue in the possession of the carrier or other bailee. Goods are said to be no longer in transit if delivery is obtained by the buyer or his agent before arrival at the point of destination or if the carrier has become the bailee for the buyer or his agent by acknowledgment to him on arrival of the goods at the point of destination even though further destination has been indicated by the buyer.

The exercise of the right is by obtaining actual possession

of the goods, or by giving notice of the claim to the carrier, or other bailee, in possession of the goods. Notice may be given either to the person in actual possession of the goods or to his principal. If given to the principal it must be given at such time and under such circumstances that the principal by the exercise of reasonable diligence may prevent a delivery to the buyer. When such notice is given the carrier must redeliver the goods to, or according to the directions of, the seller, the expenses of such delivery being borne by the seller. If a negotiable instrument of title representing the goods has been issued by the carrier or other bailee he shall not be obliged to deliver or be justified in delivering the goods to the seller unless such document is first surrendered for cancellation.

The Right of Resale. The seller who has possession of the goods through exercise of the unpaid seller's lien rights or through the right of stoppage in transit does not yet have title. Title is in the buyer. If the buyer does not exercise his right to tender the purchase price and claim the goods within a reasonable time, the seller may resell to a third person giving title thereto, and really acting as agent to the buyer to realize on his lien rights. These goods may be resold (1) if they are of a perishable nature, (2) if by contract the right of resale has been reserved on default of buyer, (3) if default has existed for an unreasonable length of time.

The sale may be public or private. Notice should be given but is not necessary to the validity of the sale.

The Right of Rescission.-If a seller has not yet parted with his goods or if he has recovered his lien through the exercise of his right of stoppage in transit he may under certain circumstances rescind the transfer of title and resume ownership of the goods. These circumstances include (1) express

reservation of the right of rescission in case of the buyer's default, (2) excessive length of period of default, (3) repudiation of the sale by the buyer.

On such rescission the seller resumes title or property in the goods, and is not thereafter liable to the buyer upon the contract to sell, but may recover from the buyer for damages sustained. Title or property in the goods is not deemed to pass back to the seller until his intention to resume the same has been evidenced by some overt act, as by notifying the buyer of such intention.

Attachment.-Attachment refers to a seizure or taking into custody by a creditor of a debtor's property by virute of a legal process. A lien on property is secured for the benefit and protection of creditors so that property may be compelled to answer for the obligation. It is found particularly useful in situations where it is possible for assets which are ample at one date, to be found in greatly diminished quantity or perhaps entirely missing at a later date.

Attachment is a statutory right and is available only on the grounds specifically set up in each state. Generally speaking, grounds for attachment include:

I. Non-residence of defendant. This makes property of resident of other states subject to attachment. Leaving the state with intent to make another place his home makes him a non-resident immediately. The fact that a man remains in a state during business hours does not make him a resident if he lives in another state.

2. That the debtor has left the state with the intention of escaping creditors. This does not necessarily mean that he must plan to remain away permanently but merely that in so doing he seeks to avoid creditors.

3. That the debtor conceals or hides himself within the