When goods are bought and sold, it is important to understand who has the liability to bear the loss in case the property in the goods is destroyed or damaged. Does it transfer with the passing of property? Or are there some other rules governing it? Section 26 of the Sale of Goods Act, 1930 describes the different scenarios under which the passing of risk takes place.
Passing of Risk (Section 26)
When goods are sold, they remain at the seller’s risk until the property in the goods is transferred to the buyer. Once the property is passed, the goods are at the buyer’s risk even if the delivery has not been made.
There are some points that you need to remember about the passing of risk:
- It holds true unless the buyer and seller have agreed to some other terms.
- In cases where the delivery has not been made, if the delay in delivery is due to the fault of the seller, then the risk lies with the seller. If the delay is due to a fault of the buyer, then the goods are at the buyer’s risk.
- Regardless of the buyer or the seller bearing the risk, the duties and responsibilities of both of them as a bailee of goods for the other party, remain unaffected.
Hence, we can say that under ordinary circumstances, the seller bears the risk until the property is passed to the buyer which also passes the risk to him. The parties may, however, decide to pass the risk before or after passing the property in the goods to the buyer.
Let us take a look at an example. 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.
Learn the Auction sale here.
Solved Example on Passing of Risk
Question: Peter agrees to sell 50 kilograms of potatoes to John to be delivered after 30 days. They also agree that the delivery will be made in two parts of 25 kilograms each, on consecutive days. This will make it easier for Peter to deliver the goods
John accepts the delivery on the first day. However, when Peter’s delivery boy goes to deliver the second lot, John is not available. Further, he does not answer any phone calls too. Consequently, the potatoes become unfit for use. Who will bear the loss?
Answer: According to the terms of the contract, Peter kept his promise and attempted delivery of potatoes on two consecutive days. Since John defaulted on his promise of accepting the delivery, he will have to bear the loss. This is explicitly mentioned in Section 26. ‘The duties and liabilities of the seller or the buyer as bailee of goods for the other party remain unaffected even when the risk has passed generally.’