Transfer of Risk Under Sale of Goods

Legal Aspects of
Business

Samriddhi Khatri
80303190071
Section - A
 TRANSFER OF RISK UNDER SALES OF GOODS

INTRODUCTION

The general rule prevalent in India is that the risk of damage or loss of movable property lies with
the owner of the good. The Latin term ‘res perit domino’ expresses that the thing is lost to the
owner of the property. This principle is applicable in the case of sale of movable property. The
movable property includes every kind of movable property, including stocks and shares, growing
crops, grass, and things attached to or forming part of the land that is agreed to be severed before
sale or under the contract of sale. It does not apply to actionable claims and money. The barter or
exchange of goods is not covered under this Act as it is governed by the general provisions of the
Indian Contract Act, 1872.

 
 Section 26 of the Sale of Goods Act, 1930

 It states that the goods are the owner’s risk if the property in them has not been transferred
to the buyer. But if the property has been transferred to the buyer then the goods are
buyer’s risk. This provision is applicable if no specific provision has been signed by the
parties to the contract in their contract regarding this. This rule is applicable irrespective of
the fact that delivery has been made or not.

 It means that the risk is associated with ownership and not with mere possession of the
property. To decide whether the risk has been passed or not, we first need to find whether
the property in goods i.e. the ownership has passed or not.
 The passing of risk means the transfer of the liability for damage or loss of the property
from the seller of the immovable property to the buyer. The risk in the property prima facie
passes with the property, but if the parties to the contract agree to pass the risk on the
property at some other level of transaction, then that is also possible, depending upon the
terms of their contract. It is also possible that that the title, risk, and possession of the
property pass independent of each other from the seller to the buyer in a sale’s transaction.
 EXCEPTIONS

There are two exceptions to the general law that the risk passes with the transfer of property in the
goods. These are:

If the delivery has been delayed due to the fault of either party, then the liability of damage will lie
on the party at fault. If the seller has failed to deliver the goods as agreed by the parties and the
goods are damaged or lost due to that, then the seller will bear the cost. If the buyer has failed to
take delivery of goods despite many reminders by the seller, then the buyer will bear the cost.

In Demby Hamilton & Co. Ltd. v. Barden, the sellers agreed to supply 30 tons of apple juice by
samples. The seller crushed 30 tons of apples at once to ensure that they are according to the
samples and filled them in the casks. After some instalments had been delivered, the buyer
refused to take further deliveries. The apple juice became putrid. It was held that the property in
the goods was still with the sellers, but the loss had to be borne by the buyer.

Irrespective of the fact that the property in the goods has been transferred or not, the possessor of
the good has same rights and duties as bailee of the goods. If the damage to the property occurs
due to the negligence of the possessor of the goods, as a bailee, he will be liable to bear the
damage or loss of the goods.

EXAMPLES

Risk follows ownership –

Example 1. A purchased a suit length from B’s shop. But he left the cloth in B’s shop to be
collected by him later on. Incidentally fire broke down in the shop as a result of which the suit
length gutted. The loss would fall on A because at the time of loss of cloth, he had become its
(good) owner.

Example 2. Peter is auctioning his great-grandfather’s wristwatch at a function. In a true auctioneer

style, he manages to get a gavel (hammer used by auctioneers) and sets up a table inviting bids for
the historical watch. He manages to get the highest bid of Rs 25,000. As he strikes the gavel to
signify acceptance of the bid, he accidentally damages the watch. In this case, the property had not
passed to the bidder. Hence, the risk was Peter’s and he will have to bear the loss.