LAW

OF
SPECIAL
CONTRACTS
SUJITH PS
899
IV SEMESTER
NUALS

TRANFER OF RISK
IN SALE OF GOODS

AKNOWLEDGEMENT

I would like to express my special thanks of

gratitude to my teacher Anil Sir, who gave me the
golden opportunity to do this wonderful project on
the topic Transfer of Risk in Sale of Goods, which
also helped me in doing a lot of Research and I came
to know about so many new things I am really
thankful to them.
Secondly I would also like to thank my parents and
friends who helped me a lot in finalizing this project
within the limited time frame.

INDEX

INTODUCTION

PREVIOUS AND PRESENT STATE OF LAW COMPARED

COMPARISON OF THE LAW OF TRANFER OF RISK IN INDIA AND UK

PRINCIPAL OF SECTION RISK PRIMA FACIE PASSES WITH

PROPERTY

RISK OF UNCERTAINED GOODS

RISK WHERE PRICE PREPAID

REFERENCE

INTRODUCTION
Risk, especially passing of risk, plays a central role in the area of international legislation in
relation to sales contracts. This is one of the most significant components of a contract of sale

between parties, whether international or national; and is the decisive matter that judges and
courts consider in the case of loss or damage of the cargo during the transferal from a seller to a
buyer1. A contract of sale of goods includes transfer of ownership from the seller to buyer .the
transfer of ownership or property is in fact the main object of making a contract of sale. The
heading of the section is: Risk prima facie passes with property.- The goods are at the risk of
the party in whom the property is. It is important to know the precise movement of time at which
the property of goods passes from the seller to buyer. The transfer of risk in the contract of sale is
a question of great practical significance. Literally this section says risk and property goes
together. The general rule is that the risk follows the ownership, irrespective of whether the
delivery has been made or not. If the goods are damaged or destroyed, the loss shall be borne by
the person who was the owner of the goods at the time of damage or destruction. Thus the risk of
loss prima facie is in the person in whom the property is. The basic principles relating to transfer
of risk are given in section 26. Risk of loss rules establish whether the seller may still recover the
price of the goods, and whether the buyer must pay for the goods and take delivery, despite the
fact that they are partially damaged or totally destroyed. Although risk has been dealt with
extensively, it still creates numerous unsolved problems by reason of the constant changes in
modern commerce: container and multimodal transport, bulk consignments, loss of unascertained
goods and interpretation of 'loading' are only some of the problematic areas for which the present
study attempts to propose solutions. Passing of property means passing of title and ownership of
the goods from seller to the buyer. Passing of property is independent of passing of possession.
Property may pass to the buyer at any time after or at the time of execution of the contract but the
possession in actual sense may never come with the buyer, if according to the contract the goods
are transshipped to another destination in the same transit. Sale of Goods Act, 1930, (hereinafter
referred as the Act) provides under section 19(1) that the property passes when the parties
intend it to pass. Hence, parties can incorporate their intentions into the contract which can be
ascertained by having recourse to the terms of the contract, conduct of the parties and the
circumstances of the case. The Act also provides some rules into section 20 to 24 which apply
where the intentions of the parties cannot be gathered under section 19 of it. 2 In an 'ideal' contract
of sale the parties conclude the contract and simultaneously perform their contractual
obligations, e.g. where a consumer buys widgets from a supermarket. Nevertheless, in
1 P. M. Roth, 'The Passing of Risk', (Spring - Summer, 1979)

international transactions where the seller and buyer are situated in different states and the object
of the sale is often of great value, between the time a contract is formed (quite often by exchange
of telex or fax messages) and the time the buyer receives the goods, many unfortunate events
may occur that affect the goods. These events may occur during loading at the seller's premises,
in a vessel during ocean transit, during inland transit, or during unloading at the destination. 3 It
has always been possible that goods can be damaged by variety of factors. As already mentioned
for international sales the problematic here is not what the causes of risk are, the question, at
stake, has been when this risk passes to the buyer. As Cruz stated that it is a common question for
all legal systems and it has resulted in creating different theories to find a proper solution for
both sides of the contract. Indeed, it is true that either with national legislation or with
international conventions, law scholars have produced different approaches for the time of
passing of risk.
PREVIOUS AND PRESENT STATE OF LAW COMPARED
Section 86 of the Indian Act seems to lay down as an inflexible rule of law that the risk follows
the property. According to the English Common Law it is merely a prima facie rule. There is
nothing in the law of England to prevent the parties from agreeing, if they please, that the risk
shall pass at some time or on some condition which is not necessarily simultaneous with the
passing of property.4 And thus the ownership may in particular cases be separated from the risk.
Such a case would arise when the parties are at the distance. The rule mentioned in section 20 of
the English Act, which saves particular agreements and is more comprehensive, should be

2 Sale of Goods: Passing of Risk and Property | ranarizwanhussain. (n.d.). Retrieved

from https://ranarizwanhussain.wordpress.com/2013/04/10/sale-of-goods-passing-ofrisk-and-property/comment-page-1/
3 Transfer of Risk in the Contract of Sale involving Carriage of Goods: Retrieved from
http://www.jus.uio.no/pace/transfer_of_risk_contract_of_sale_involving_carriage_of_g
oods_comparative_study.dionysios_flambouras/doc.html
4 Ramanatha, A. P., & Gupta, S. (2010). Law of sale of goods: An exhaustive
commentary on the Sale of Goods Act, 1930 (p. 220). New Delhi: Universal Law Pub.
Co.

adopted in India. It also provides for cases where delivery is delayed and where the seller or
buyer is acting as a Bailee of the goods for the other party.
COMPARISON OF THE LAW OF TRANFER OF RISK IN INDIA AND UK
Section 26 of the sale of goods Act, 1930 is analogous to section 20 of the (English) Sale of
goods Act, 1979.5 Section 20(1) of the Sale of Goods Act 1979 ('SGA') connects risk with
passing of property.6 Nevertheless, this is a prima facie rule: where the contract provides for
delivery at a particular point, the seller does not deliver until the goods are handed over at that
place (e.g. the buyer's premises or the customs area). Any carrier employed by the seller to get
the goods to the delivery point will be the seller's agent, s 32 will not apply and the goods will be
at the seller's risk until they reach the agreed delivery point. 7 If the sale does not involve carriage
of goods the main rules as to the passing of property (therefore risk) may be summarized as
follows: If the goods are specific (I sell you my horse called 'Quick') the property in them is
transferred to the buyer at such time as the parties to the contract intend it to be transferred (SGA
section 17(1)). The intention of the parties is to be ascertained with reference to the terms of the
contract, the conduct of the parties and the circumstances of the case (SGA section 17(2)). The
Vienna Convention 1980 can be considered one of the most significant developments in relation
to the passing of risk in international contracts for the sale of goods.
From the foregoing analysis it seems that English law is a system which is governed by the rule
that risk passes when the contracting parties intend it to pass. If, however, the intention of the
parties is not clear then the judge will resort to criteria interpretative of the parties' intention.
According to these criteria English law appears to be a mixed system not strictly following
the res perit domino rule:

5 Ramanatha, A. P., & Gupta, S. (2010). Law of sale of goods: An exhaustive commentary on
the Sale of Goods Act, 1930 (p. 220). New Delhi: Universal Law Pub. Co.

6 Martineau v Kitching(1872) LR 7 QB 436

7 Dunlop v Lambert(1839) 6 Cl

(a) In the case of unconditional sale of specific goods, property and thus risk will pass
presumably at the time the contract was concluded;
(b) In the sale of unascertained generic goods property and thus risk will pass when the goods are
unconditionally appropriated to the contract and this event will often occur when the seller
delivers goods answering the contract description to the buyer or to a carrier for transmission to
the buyer (however, in the sale of goods forming an undifferentiated part of an identified bulk,
risk passes on shipment irrespective of property.8

PRINCIPAL OF SECTION RISK PRIMA FACIE PASSES WITH PROPERTY

As general rule said Blackburn J resperit domino the old Civil law maxim, is a maxim of our
law , and , when you can show that the property passed, the risk of the loss is prima facie in the
person in whom the property is. It is thus permissible for the parties to enter into an agreement
that although title to property would pass only on payment the risk would pass at the point of
time when they are dispatched. Under this section the clear meaning is that the risk passes only
with the property, but the section authorizes a contract to contrary under which the risk may pass
even before the title in the property passes.9
Section 26 of the sales of goods states that 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. It states that the risk and
property goes together.
ILLUSTRATIONS
8 Inglis v Stock (1885) 10 App. Cas. 263
9 Multanmal Champalal v CP Shah AIR 1970 Mys 106.

Goods in a house hold in lease and belonging to the tenant was sold by auction under conditions
expressly providing that all lots should be taken to be delivered at the fall of the hammer, after
which time they should remain at the exclusive risk of the purchaser. The rent of the house was
in arrear, and after the sale the landlord threatened to distress on these goods to prevent distress,
the auctioneer paid the rent and handed the net proceeds of the sale to the original owner of the
goods the tenant. It was held that the auctioneer had no right to make this deduction, as the
property in the goods had passed to the respective buyers and seller, therefore, had no further
interest in them the auctioneer in consequence had no implied authority from him to pay the rent
in order to save the goods from distress.10
In another case the defendant purchased 975 bales of rice, being the 11 whole contents of a gola
paid earnest money and took part delivery of the rice. The rest was afterward destroyed by fire.
The property in the whole had passed to him and he was held liable to pay the balance of the
price.12
Furs are delivered on approval with invoice. They are stolen by burglars. By the custom of the
fur trade the goods are at the risk of the person ordering them on approval. The sender can
recover the invoice price from the person to whom he delivered them.13

RISK OF UNCERTAINED GOODS

Goods made by agreement, be at the risk of the buyer although they are, at the time of the
incidence of risk, uncontained, and the property therein has in consequence, not passed to buyer.
Where by contract the goods are to be shipped by the seller free on Board, the risk prima facie
attaches to the buyer on the shipment, whether the goods are at that time specific or
10 Sweeting v turner (1871) LR 7QB 310.
11
12Shoshi mohun pal v Nobo Krishto (1878) 4 Cal 801
13 Bevington v Dale (1902) 7 Com Cas 112

unascertained 14 Where there is a contract for the sale of unascertained goods no property in the
goods is transferred to the buyer unless and until the goods are ascertained. Unless a different
intention appears, the following are rules for ascertaining the intention of the parties as to the
time at which the property in the goods is to pass to the buyer. Rule 1.where there is an
unconditional contract for the sale of specific goods, in a deliverable state, the property in the
goods passes to the buyer when the contract is made, and it is immaterial whether the time of
payment or the time of delivery, or both, be postponed. Rule 2.where there is a contract for the
sale of specific goods and the seller is bound to do something to the goods, for the purpose of
putting them into a deliverable state, the property does not pass until such thing be done, and the
buyer has notice thereof. Rule 3.Where there is a contract for the sale of specific goods in a
deliverable state, but the seller is bound to weigh, measure, test, or do some other act or thing
with reference to the goods for the purpose of ascertaining the price, the property does not pass
until such act or thing be done, and the buyer has notice thereof. Rule 4.when goods are
delivered to the buyer on approval or "on sale or return" or other similar terms the property
therein passes to the buyer:
(a)When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction:
(b)If he does not signify his approval or acceptance to the seller but retains the goods without
giving notice of rejection, then, if a time has been fixed for the return of the goods, on the
expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time.
What is a reasonable time is a question of fact. Rule 5.
(1)Where there is a contract for the sale of unascertained or future goods by description, and
goods of that description and in a deliverable state are unconditionally appropriated to the
contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the
seller, the property in the goods thereupon passes to the buyer. Such assent may be express or
implied, and may be given either before or after the appropriation is made.
(2)Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or
other Bailee (whether named by the buyer or not) for the purpose of transmission to the buyer,
14 Stock v wingren (1889) 58 LJ QB 519

and does not reserve the right of disposal, he is deemed to have unconditionally appropriated the
goods to the contract.
Mainly there are two types of ascertained goods. They are generic unascertained and
unascertained goods from a specific source. The former kind are sold purely by description, such
as 100 tonnes of King Edward potatoes, are subject to a firm rule, that is no exceptions, the seller
undertakes the entire responsibility of ensuring the potatoes are available for delivery and he
accepts all risks incidental to seeing that they are supplied. Blackburn Bobbin v Allen was one of
the leading case. Regarding unascertained goods from a specific source, if the source ceases to
exist at the time of the contract, the contract is void as it is impossible to perform the contract,
for example, 100 tons of King Edward potatoes out of the 200 tones now in the seller's store; the
contract will be frustrated if the entire 200 tones are destroyed, that is, both the seller and buyer
are excused. It is essential to distinguish between purely generic unascertained goods e.g. 500
tons of wheat, from unascertained goods from a specific source, e.g. 500 tons from a specific
ship. If the purely generic goods perish it is still possible to perform the contract, so the seller
must obtain goods from another source. If he doesnt he must pay damages for non-delivery.
Risk and property generally goes together, the two are not inseparable. Sometimes risk may be in
one party and property in another. The section itself recognizes one instance of a case of this
kind. Section 20(2) of English Sale of Goods law where delivery has been delayed through the
fault of either the buyer or seller, the party at fault must bear the risk of any loss which might not
have occurred but for the delay buyer bought 30 tons of apple juice, and took delivery.
(Buyer bought 30 tons of apple juice, and took delivery of 20.5 tons. He failed to give
instructions for the delivery of the rest, which went putrid. The court held that the buyer was at
fault and therefore had to bear the loss)15
RISK WHERE PRICE PREPAID
If the price of the goods is payable before delivery and no intention appears in the contract that
the price shall be re-paid or shall cease to be payable, if delivery is not made, the buyer must
bear risk. Where the seller agreed to deliver the goods only on a contingency which falls without

15 (1949) 1 KB 78 (CA)

the sellers fault16 the goods being specific, the seller is discharged by law from delivering the
goods.17
For a bond with an embedded call option, the higher a bond's interest rate relative to current
interest rates, the higher the prepayment risk. For example, on a mortgage-backed security, the
higher the interest rate relative to current interest rates, the higher the probability that the
underlying mortgages will be refinanced. Investors who pay a premium for a callable bond with
a high interest rate take on prepayment risk. In addition to being highly correlated with falling
interest rates, mortgage prepayments are highly correlated with rising home values, as rising
home values provide incentive for borrowers to trade up in homes or use cash-out refinances,
both leading to mortgage prepayments.18
Where the buyer is entitled in a certain event under an express power to revert the property in the
goods in the seller, the risk of loss or damage to the goods caused the buyers fault, while they are
in the buyers possession, and before he has an opportunity of exercising his election, attaches to
the seller as the contingent owner of the goods.
CONCLUSION
Passing of risk means passing of liability of loss and damage of goods from seller to the buyer,
irrespective of the fact whether the title has yet passed or not. Section 26 of the Act provides that
the risk prima facia passes with the property. It is a general rule which is subject to exceptions,
which can be created through the agreement between the parties. In a sales transaction where
delivery of the goods is delayed due to the fault of either party the risk of loss and damage,
which may occur due to that fault, is upon the faulting party. Parties can also agree upon different
points of time for transfer of risk and property. Indian Court in Multanmal Champalal v C P

16 Whincup v turner (1871) LR 6 CP 78 or

17 Tayler v cadwell (1863) 3 B&s 826
18 Prepayment Risk Definition | Investopedia. (n.d.). Retrieved from
http://www.investopedia.com/terms/p/prepaymentrisk.asp

Shah & Co19 held that it is permissible for the contracting parties to enter into an agreement that
although property does not pass, the risk passes and they may fix the point of time when it so
passes. Section 25 of the Act gives right to the seller to keep the goods at his disposal till
the fulfilment of a certain condition. In case such right of disposal of goods is reserved by the
seller the risk passes to the buyer at the time when property would have passed if there had been
no reservation of right of disposal of goods. In other words when the option of reservation of
right is exercised, the property does not pass and it remains at the disposal of the seller till
the fulfilment of condition precedent but the risk travels to the buyer earlier. A Free On board
(FOB) contract is a good example where risk and property pass at the time of shipment but if the
seller reserves the right of disposal of goods till the payment of full price the risk passes at the
time of shipment but the property passes when the full price is paid. If the buyer pays the full
price before the goods are shipped then the risk and property pass together at the time of
shipment. Similarly in a Cost, Insurance and Freight (CIF) contract there is a general
presumption that the property passes with the delivery and acceptance of goods while the risk
passes at the time of shipment of goods. It means that in a CIF contract risk may pass before the
property. In an English case Mitsui & Co Ltd and Another v Flota Mercante Grancolombiana
SA,20 cartons of prawns were shipped upon 80 percent payment of price by the buyers. The
contract contained FOB terms according to which the risk and property pass at the time of
shipment. Seller reserved the right of disposal of goods till the payment of remaining 20 percent
purchase price as a result of which property did not pass with the shipment. At the time of
discharge, prawns were found to be damaged. Buyers brought a legal action against the shipowner for damage to the goods. In an objection by the ship-owner it was contended that the
buyers did not have the title to sue as the ownership of goods had not passed to them at the time
of damage of goods. The Appeal court held that where goods were damaged on board, only the
person owning the goods at the time of damage could sue the ship-owner. Since, there was no
evidence of fulfilment of condition precedent i.e., payment of remaining 20 percent price;

19 Shah AIR 1970 MYS 106.

20 Mitsui & Co Ltd and Another v Flota Mercante Grancolombiana SA[1988] 1 WLR
1145

therefore, the property was found to have not passed to the buyers. Hence, the claim of the
buyers admitted at the trial level was reversed by the Appeal court.
Thus, the risk and property can pass separately from seller to the buyer and the cases where the
risk passes before the property the buyer becomes liable for loss and damage of the goods even
before he becomes owner. In opposite, if the delivery of goods is delayed due to the fault of the
seller or parties otherwise agree the transfer of risk subsequent to transfer of property, seller
remains liable for loss and damage of the goods even after he has lost the ownership.21

REFERENCE

MULLA SALE OF GOODS ACT, POLLOC AND MULLA

THE SALE OF GOODS ACT, PS ATIYAH JOHN
LAW OF SALE OF GOODS, P RAMANATHA AIYAR
BUSINESS LAW, AVATAR SINGH

21 Sale of Goods: Passing of Risk and Property | ranarizwanhussain. (n.d.). Retrieved from
https://ranarizwanhussain.wordpress.com/2013/04/10/sale-of-goods-passing-of-risk-andproperty/comment-page-1/