Risk and Title to Goods | Sale of Goods Act

The concepts of risk and title to goods are fundamental principles under the Indian Sale of Goods Act, 1930 ("the Act"). These concepts determine the rights, duties, and liabilities of the buyer and the seller in a contract for the sale of goods. While the transfer of title establishes ownership rights, the transfer of risk determines who bears the loss or damage to goods in the event of unforeseen circumstances.

The alignment or separation of risk and title has significant legal and commercial implications, making it essential to understand how these principles function under the Act.

Introduction to Sale of Goods Act, 1930

The Sale of Goods Act, 1930 was enacted to define and amend the law relating to the sale of goods. It provides a comprehensive framework for contracts involving the sale of goods, including rules for the formation of contracts, transfer of ownership, delivery, and rights and duties of the parties.

Under Section 4 of the Act, a contract of sale of goods is defined as:

"A contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price."

The Act distinguishes between two main aspects:

Transfer of title – Who holds legal ownership of the goods.

Transfer of risk – Who bears the risk of loss or damage to the goods.

Meaning of Risk and Title under the Act

(a) Title to Goods

The term title refers to the legal ownership of goods. The person holding the title has the right to possess, use, and dispose of the goods. Transfer of title means the transfer of ownership from the seller to the buyer.

(b) Risk in Goods

The term risk refers to the liability for any loss, damage, or deterioration of goods. If the risk lies with the seller, the seller is responsible for any loss or damage. If the risk lies with the buyer, the buyer bears the consequences of such loss or damage.

Transfer of Title to Goods

The transfer of title or ownership is governed by Sections 18 to 30 of the Act.

(a) When Property in Goods Passes (Section 18)

Under Section 18, the property (title) in goods passes from the seller to the buyer when the parties intend it to pass. The intention is determined by:

• The terms of the contract.
• The conduct of the parties.
• The nature of the goods.

(b) Rules for Passing of Property in Specific and Ascertained Goods (Section 19)

Section 19 lays down the general rule that property in goods is transferred at the time when the parties intend it to be transferred. The intention is determined based on:

• Terms of the contract.
• Conduct of the parties.
• Circumstances of the case.

(c) Sale of Specific Goods in a Deliverable State (Section 20)

If the contract is for the sale of specific goods in a deliverable state, the property passes to the buyer at the time of the contract unless otherwise agreed.

(d) Sale of Specific Goods Not in a Deliverable State (Section 21)

If the goods are not in a deliverable state at the time of the contract, the property does not pass until the seller has put the goods in a deliverable state and the buyer has been notified.

(e) Goods to Be Weighed or Measured (Section 22)

When goods are to be weighed, measured, tested, or otherwise examined to determine the price or quantity, the property does not pass until such an action has been completed.

(f) Sale of Unascertained Goods (Section 23)

If the contract involves unascertained or future goods, the property passes to the buyer only when:

• The goods have been unconditionally appropriated to the contract.
• The seller delivers the goods to the buyer or a carrier without reservation of the right of disposal.

Transfer of Risk in Goods

The transfer of risk is governed by Sections 26 and 27 of the Act.

(a) Risk Follows Ownership (Section 26)

The general rule under Section 26 is that the risk in goods passes with ownership. This means that the party who holds the title also bears the risk of loss or damage unless the contract specifies otherwise.

"Unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer. 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:

If A contracts to sell 100 bags of wheat to B and the goods have been identified and appropriated to the contract, the risk passes to B even if the goods have not yet been delivered. If the wheat is destroyed in transit without the fault of the seller, B bears the loss.

In Sterns Ltd. v. Vickers Ltd., (1923) 1 KB 78 CA, the buyer purchased 1,20,000 gallons of white spirit from a tank owned by a third party and received a delivery warrant acknowledged by the tank owner. The buyer delayed taking delivery for several months, during which the spirit deteriorated. The court held the buyer liable for the loss, as the property had passed by attornment, and the delay in taking delivery made the buyer responsible.

(b) Risk Before Transfer of Property

If the ownership of goods has not yet passed to the buyer, the goods remain at the seller’s risk unless:

• The delay in delivery is caused by the buyer.
• The goods are damaged due to the fault of the buyer.

(c) Delivery by a Third Party (Section 27)

When goods are delivered to a carrier or other third party for transmission to the buyer, the risk passes to the buyer upon delivery to the carrier, unless otherwise agreed.

Exceptions to the General Rule of Risk Passing with Ownership

There are certain exceptions where the risk and ownership may not align:

(a) Sale on Approval or "Sale or Return" (Section 24)

If goods are delivered on a "sale or return" basis, the property does not pass until:

• The buyer signifies acceptance of the goods.
• The buyer retains the goods beyond the reasonable time allowed for return.

(b) Seller’s Right to Disposal (Section 25)

If the seller reserves the right of disposal of goods until certain conditions are met, the property does not pass to the buyer even if the goods are delivered.

(c) Conditional Sales

In contracts where the buyer must fulfill certain conditions before the title passes, the risk remains with the seller until the conditions are fulfilled.

Risk and Title in Case of Breach of Contract

In the event of a breach of contract:

• If the seller wrongfully refuses to deliver the goods, the risk remains with the seller.
• If the buyer wrongfully refuses to accept delivery, the risk shifts to the buyer even though the ownership has not passed.

Conclusion

The principles of risk and title under the Indian Sale of Goods Act, 1930 establish the legal framework governing the transfer of ownership and liability for loss or damage in a sale of goods. While the general rule is that risk follows ownership, exceptions such as conditional sales, delivery terms, and contract-specific provisions can modify this arrangement. Understanding the alignment of risk and title is crucial for ensuring smooth commercial transactions and protecting the legal rights of the parties involved.

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