In this blog post, Sunidhi, a student of the Rajiv Gandhi National University of Law, Patiala has written about the transfer of risk in case of movable goods. The blog post also highlights the exception to the general rule.

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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.[1] 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.

 

Whose risk is it?

 Buying-and-Selling-FAQs-390

Section 26

Section 26 of the Sale of Goods Act, 1930 states 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

delivery4

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 installments 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.[2]

  • 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.

It can be easier to understand it with the help of the following illustration;

“X, a seller of the goods, enters into a contract of sale of goods with Y, the buyer, who visits X’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 X’s right to sell those goods to someone else. They both agree X will bring the goods in the deliverable state in 2 days and after two days, Y’s agent will collect the goods from X. Both the parties agree that X will take care of Y’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 Y must turn up within the stipulated time for collection of the goods. The contract regarding payment was that Y’s bank would transfer the amount to X’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.

Footnotes:

[1] Section 2(7), Sale of Goods Act, 1930.

[2] Demby Hamilton & Co. Ltd. v. Barden, (1949) 1 All E.R. 435.

 

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