Sale of Goods: Passing of Risk and Property

PictureSale of Goods: Passing of Risk and Property

Rana Rizwan Hussain*

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.

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 sale’s 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 Shah & Co[1] 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 fulfillment 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 fulfillment 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,[2] 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 shipowner 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 shipowner. Since, there was no evidence of fulfillment of condition precedent i.e., payment of remaining 20 percent price; 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.


*B.A. (Government College University, Lahore), LL.B. (University of Punjab), LL.M. (University of London); Advocate High Courts of Pakistan, Member Lahore High Court Bar Association; Founding Partner at HUSSAIN AND ASSOCIATES, Adjunct Professor of Commercial Law at Punjab Law College, Lahore; hnachambers@gmail.com

[1] Multanmal Champalal v C P Shah & Co AIR 1970 Mys 106

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

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