Introduction

When items are bought and sold, it is critical to understand who is responsible for the loss if the
property in the items is destroyed or damaged. Does it pass with the transfer of property? Or are
there any other rules that apply? Section 26 of the Sale of Products Act of 1930 specifies the
various instances in which risk is transferred.

Object/Contents

 Sale of Goods Act, 1930

Section 26

Risk prima facie passes with property.—

“Unless otherwise agreed, the goods remain at the

seller’s risk until the property therein is transferred to the buyer, but when the property therein is

transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not:

Provided that, where delivery has been delayed through the fault of either buyer or seller, the
goods

are at the risk of the party in fault as regards any loss which might not have occurred but for such
fault:

Provided also that nothing in this section shall affect the duties or liabilities of either seller or
buyer as

a bailee of the goods of the other party.”

In the absence of special terms, the risk generally follows the property. The words "unless
otherwise agreed" suggest that the regulation mentioned in this section will apply unless
otherwise agreed. The basic concept in this section is that the products remain at the seller's risk
until the buyer acquires ownership of the goods. Nonetheless, once ownership of the items is
transferred to the buyer, the products remain at the buyer's risk, whether delivery is accomplished
or not.

There are some exceptions to the preceding rule.

1) If the delivery is delayed owing to either party's fault, the party at fault shall be liable for
any damages. If the seller has failed to deliver the items as agreed by the parties and the
goods are damaged or lost owing to that, then the seller will bear the cost. If the buyer
fails to accept delivery of goods despite numerous reminders from the vendor, the buyer
will cover the expense.
2) Whether or not the property in the goods has been transferred, the possessor of the goods
has the same rights and duties as the bailee of the goods. If property damage occurs as a
result of the possessor's negligence, he will be obliged to bear the damage or loss of the
goods as a bailee.

There is nothing to prevent the parties from negotiating that if one party has the property in
the goods, yet if the goods are lost, the other party is to pay for them; parties, in other words,
may contract that the risk should pass on delivery irrespective of the passage of the property.

The contrary agreement described in this section may be in written or inferred from the trade
transaction or by usage binding on both parties. When the items were at the seller's risk for
two months and the two months expired, the risk passed to the buyer after the two months
expired.

where the goods were consigned by railway and the railway receipt, which was taken in the
name of the consignor, was endorsed by the consignor in favour of the buyer and sent to the
 bank with instructions to deliver the railway receipt to the buyer against payment and if the
goods arrive safely but are then stolen before the buyer pays to the bank and goes to take
delivery, it was held that the course of dealing indicated that the property did not pass till the
buyer paid and hence the goods were lying at the seller's risk till payment of the price.

When a contract of sale requires either party to insure the goods during transit, it is assumed
that the party that is required to insure the items in transit assumes the risk of loss.

If A sells goods to B, but continues in possession after sale, he is a bailee of the goods for B.
Similarly if A agrees to sell goods to B, who obtains possession thereof before the property
in the goods passes to him, B is a bailee of the goods for A. In either case the duties and
liabilities of A and B as a bailee for the other are not affected by this section.

Sale is the transfer of property in the products (sold) from the seller to the buyer, and the
transfer of property might occur at the time the contract of sale is made or afterwards.

If the products are specific and in a deliverable state, and the contract is unconditional, the
transfer occurs when the contract is made. In this situation, the transaction is a sale.
However, if the products are not in a deliverable condition or the contract is not
unconditional, the transaction is an agreement to sell rather than a sale.

Illustration

“Ram, a seller of the goods, enters into a contract of sale of goods with Shyam, the buyer, who
visits Ram’s office to check the goods. Both the parties to the contract agree that transfer of
ownership will take place with the execution of the contract, restricting Ram’s right to sell those
goods to someone else. They both agree Ram will bring the goods in the deliverable state in 2
days and after two days, Shyam’s agent will collect the goods from Ram. Both the parties agree
that Ram will take care of Shyam’s goods for 5 days after the contract has been executed (if not
collected) and not beyond the period of 5 days. Hence, the agent of Shyam must turn up within
the stipulated time for collection of the goods. The contract regarding payment was that Shyam’s
bank would transfer the amount to Ram’s account within 3 days of execution of the contract.”

This type of contract is perfectly valid for the Sale of Goods Act, 1930. In this type of contract,
each transaction takes place according to the will of the parties. In this case, the property in the
goods or ownership is transferred at the same time when the contract is concluded, while the
possession of the goods passes at a later stage. If the contract had been silent about the transfer of
risk, then it would have passed with the conclusion of the contract. But in the instant case, it has
been decided by the parties that the risk will transfer after five days of execution of contract if
not collected by the parties.

Now, as per the contract signed between the parties, if the goods are lost or damaged within
those five days after the conclusion of the contract, then the seller will bear the cost. But if the
goods are damaged after five days and the buyer did not collect the goods, then the buyer will
bear the loss. Also, if the goods were lost after the 5th day (if not collected) but due to the
negligence of the seller, then the seller will bear the cost of damage or loss. In case the buyer’s
agent collects those goods before five days, then the risk will transfer with it.

Thus Res Perit Domino is applicable, and the loss of the good(s) falls upon its owner.

It may be asked who receives the benefit.

The section addresses the risk, but it is quiet on the benefit accrual. The inverse of the rule res
perit demino holds true, and by analogy, the advantages or fruits of the things sold belong prima
facie to the person who owns the goods.

CIF Contract

Under a cost, insurance, and freight (CIF) contract, the buyer is effectively the insurer of
his products, and the risk passes to him on and after shipment by the seller, subject to the
 seller's obligation to offer such valid and effective documentation as the contract
contemplates or as is customary.

The responsibilities imposed on a seller under a CIF contract are also well known, some of
which relate to items and others to papers. In the case of commodities, the seller is required to
transport goods of the contract description on board a ship destined for the contract destination.
If there is a late shipment or the seller has loaded goods onto a ship that is not bound to the
contract destination as specified, the logical inference must be that the seller has not loaded
goods conforming to a contract destination. When the seller is in breach at the threshold, his
liability does not end with the shipment of the products or, in any case, when the shipping
documents were handed over through the banking channels during the letter of credit
negotiations. It will also make no difference whether the buyers had a right of action against the
insurers or the carrier.

FOB contract

In the case of a contract for the sale of goods to be shipped F.O.B., or free on board, the property
and risk in the products do not pass to the buyer until the commodities are actually loaded onto
the ship.

Case Study:

1) Martineau v Kitching
Sugar was agreed to be sold, with the price payable ‘Prompt at one month; goods at
seller’s risk for two months’, to be kept at the seller’s premises and drawn down by the
buyers as wanted. After two months and after only some of the sugar had been drawn
down by the buyers, a fire destroyed the rest. The buyer having disputed his liability to
pay for the undelivered sugar which had been burned in the fire, the seller brought an
action ‘to recover the price of [the] sugars sold’ and the question was whether the sellers
were so entitled. It was held, on the ground that the property in the titlers undelivered had
passed to the defendant, and whether it had passed or not, that, by the terms of the
 contract of sale, the risk, after the lapse of the two months, was in the buyer, and the loss
was, therefore, his.
Secondly, since there was no contract between the plaintiffs and their customers as to
insurance, the plaintiffs was under no obligation in the matter, and were entitled to
appropriate to their own losses the whole sum received from the insurance offices. The
property in the title undelivered had passed to the defendant.
It was held that ‘As a general rule res perit domino, the old civil law maxim, is a maxim
of our law; and when you can show that the property has passed, the risk of the loss
prima facie is in the person in whom the property is.’
‘As a general rule res perit domino, the old civil law maxim, is a maxim of our law; and
when you can show that the property has passed, the risk of the loss prima facie is in the
person in whom the property is.’ and ”[A]ssume that [property] had not passed. If the
agreement between the parties was, ‘I contract that when you pay the price I will deliver
the goods to you, but the property shall not be yours, they shall still be my property so
that I may have dominion over them; but though they shall not be yours, I stipulate and
agree that if I keep them beyond the month the risk shall be upon you;’ and then the
goods perish; to say that the buyer could then set up this defence and say, ‘Although I
stipulated that the risk should be mine, yet, in as much as an accident has happened which
has destroyed them, I will have no part of that risk, but will throw it entirely upon you
because the property did not pass to me,’ is a proposition which, stated in that way,
appears to be absolutely a reductio ad absurdum; and that is really what the argument
amounts to. If the parties have stipulated that, if after the two months the goods remain in
the sellers’ warehouse, they shall, nevertheless, remain there at the buyer’s risk, it would
be a manifest absurdity to say that he is not to pay for them; that where the parties have
stipulated that the risk shall be on one side, it matters not whether the property had passed
or not. The parties here have by their express stipulation impliedly said, after the two
months the goods shall be at the risk of the buyer, consequently it is the buyer who must
bear the loss.’

2) Demby Hamilton & Co Ltd v Barden

X contracted to sell 30 tons of apple juice to be delivered to Y. X accordingly crushed the
apple to make juice and put the juice in casks pending delivery. Y was late in taking
delivery and some juice went bad. It was held that the first proviso applied and Y (buyer)
was liable as he bore the risk of deterioration which was due to his delayed taking of
delivery. The contract in this case required that delivery should be as per sample. So it
would have been very difficult for the seller to obtain the goods (i.e., apple juice) which
complied with the sample which meant that apples had to be from the same district.
Moreover, the season was also ending. Under these circumstances the seller could not
have reasonably disposed of these goods (i.e., apple juice) and minimise the loss on the
buyer. Thus to meet with his obligation towards the buyer (i.e., delivery as per sample)
the seller had to keep 30 tons of juice at the same time.