Liens are a common occurrence in the world of contracts. They provide a legal way for parties to ensure payment and security for the services they provide or the goods they sell. In this article, we will explain lien under Contract Act 1872 with examples.
What is a Lien?
A lien is a legal right that allows a person or entity to retain possession of property belonging to another person until a debt or duty owed by the owner of the property is discharged. In simpler terms, a lien is a form of security for a debt. It is a way of ensuring that the debt is paid before the owner of the property can regain possession.
Types of Liens
1. Possessory Lien: This type of lien allows a person or entity to retain possession of a property until a debt is discharged. Examples of possessory liens include mechanics` liens, artisans` liens, and common law liens.
2. Equitable Lien: This type of lien is a right over a property that arises from an agreement or contract between the parties.
3. Statutory Lien: This type of lien is created by a statute or law, such as a tax lien or a judgment lien.
Lien under Contract Act 1872
Under the Contract Act 1872, a lien is defined as the right of a person in possession of goods to retain them until the payment of a debt is made. Section 171 of the Act provides that a person who is in possession of goods belonging to another person may retain the goods until the payment of any debt due by the owner of the goods for services rendered in respect of the goods.
Example of Lien under Contract Act 1872
Let us assume that ABC Construction Company enters into a contract with XYZ Construction Company to provide certain materials for the construction of a building. ABC Construction Company delivers the materials to XYZ Construction Company and invoices them for the cost of the materials.
However, XYZ Construction Company fails to pay the invoice and ABC Construction Company exercises their right to retain possession of the materials until the debt is paid. This is an example of a lien under the Contract Act 1872.
In conclusion, a lien is a legal right that allows a person or entity to retain possession of property belonging to another person until a debt or duty owed by the owner of the property is discharged. Under the Contract Act 1872, a lien is the right of a person in possession of goods to retain them until the payment of a debt is made. Liens are essential for ensuring payment and security for the services or goods provided in a contract.