Page 128 - DMGT407Corporate and Business Laws

Unit 5: Law of Sale of Goods

5.4.3 Risk Prima Facie Passes with Property Notes

Section 26 (First paragraph) reads: 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.

Example: A buys goods of B and property has passed to him; but the goods remain in B’s
warehouse and the price is unpaid. Before delivery a fire burns down the warehouse destroying
the goods. A must pay the price of the goods as A was the owner.
Though risk follows ownership, but the parties may agree otherwise thus separating risk from
ownership. Thus, the parties may provide by their agreement that the risk shall pass at some
time or on some condition not necessarily simultaneous with the passing of the property.
The second paragraph of s. 26 says: 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.

Example: D contracted to supply B 30 quintals of apple juice. Delivery was to be made in
weekly truckloads. D crushed the apples as required and put the juice in casks. Deliveries were
held up at the buyer’s request. Subsequently B took some deliveries and then stopped altogether.
The juice, in the meantime, deteriorated. On B’s refusal to take up further deliveries and pay for
them D filed a suit. Held, the buyer was liable for the loss suffered on account of deterioration
of the juice [Demby Hamilton & Co. Ltd., v. Barden (Endeavour Wines) Ltd. (1947)1 ALL ER 435].

Also, risk and property may be separated by a trade custom.

Example: A ordered furs “on approval” with invoice. By the custom of the fur trade the
goods are at the risk of the person ordering them on approval. The furs were stolen before the
time of approval expired. Held, the buyer must bear the loss although the property had not yet
passed to him.
Also, risk and property may be separated by the agreement of the parties. Further, s.40 provides
as regards risk where goods are to delivered at a distant place. It reads: Where the seller of goods
agrees to deliver them at his own risk at a place other than that where they are when sold, the
buyer shall, nevertheless, unless otherwise agreed, take any risk of deterioration in the goods
necessarily incident to the course of transit.

Furthermore, risk and property may be separated by a term of the contract.

Example: One of the terms adopted by the coffee board for auction of coffee was that the
property in the coffee knocked down to a bidder would not pass until the payment of full price
and, in the meantime, the goods would remain with the seller but at the risk and responsibility
of the buyer. The clause was held to be valid [Consolidated Coffee Ltd. v. Coffee Board (1980) 3
SCC 358].

Self Assessment

Fill in the blanks:

7. In a sale of ……………..goods, the property in them is transferred to the buyer at such
times as the parties to the contract intend it to be transferred.

LOVELY PROFESSIONAL UNIVERSITY 121