Risk Prima Facie Passes with Property under Section 26 of the Sale of Goods Act, 1930: The General Rule, Contractual Allocation of Risk, Delay Caused by Fault, and the Duties of a Party Holding Goods as Bailee

Risk is the question of who bears an accidental loss: if the goods are stolen, destroyed by fire, or deteriorate without anyone's fault, whose loss is it? Section 26 answers that risk follows property. Until ownership passes, the goods are at the seller's risk; once it passes, they are at the buyer's, whether or not delivery has been made. Possession is irrelevant to the default rule. The section then qualifies the rule in three ways: the parties may agree otherwise, a party whose fault delays delivery bears the resulting loss, and a party holding the other's goods remains subject to the duties of a bailee.

The general rule, the three qualifications, and the cases that illustrate them

1. The Section

Section 26, Sale of Goods Act, 1930

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.

2. The General Rule: Res Perit Domino

Risk follows ownership, expressing the maxim that a thing perishes to its owner.
Delivery is irrelevant. A buyer who owns goods still held by the seller bears their loss, as in Tarling v. Baxter, where a haystack sold outright but not yet removed burned down at the buyer's risk.
Before property passes, the seller bears the risk, even if the buyer is in possession, as with goods on approval before the buyer has adopted the transaction.
The practical consequence is that the rules on the passing of property in Sections 18 to 25 also decide who bears accidental loss, which is why those rules are litigated so often.

3. Risk Allocated by Agreement

The words unless otherwise agreed allow the parties to separate risk from property. Risk may pass before property, for example on dispatch though title is reserved until payment, or after it, for example only on delivery to the buyer's premises though property passed earlier. Trade terms such as free on board and cost, insurance and freight carry settled consequences for the passing of risk, and consumer and online sales commonly provide that risk passes only on delivery.

📖 Sterns Ltd. v. Vickers Ltd., [1923] 1 KB 78 (CA)

Facts: A seller sold 120,000 gallons of white spirit forming part of a larger quantity in a storage company's tank. The buyer received a delivery warrant, and the storage company accepted it, but the buyer left the spirit in the tank. The whole contents deteriorated before the buyer's portion was separated.

Held: The Court of Appeal held that the loss fell on the buyer. Although property in an unascertained part of the bulk had not passed, the parties' dealings showed that the risk had passed to the buyer when the storage company accepted the delivery warrant and the buyer chose to leave the spirit there.

Ratio: Risk may pass separately from property where the parties so intend, as where the buyer obtains control of an undivided portion through a delivery warrant.

4. Delay Caused by Fault

📖 Demby Hamilton & Co. Ltd. v. Barden, [1949] 1 All ER 435

Facts: A seller agreed to sell apple juice to be delivered in weekly loads. The buyer failed to take delivery of later loads when due, and the juice set aside for the contract went bad while waiting.

Held: The buyer bore the loss. Delivery had been delayed through the buyer's fault, and the deterioration was a loss which might not have occurred but for that delay. Under the fault proviso, the goods were at the risk of the party in fault.

Ratio: Where one party's fault delays delivery, he bears any loss that would not have happened but for the delay, whoever owns the goods.

The loss must be caused by the delay. A loss that would have happened anyway is not shifted.
Either party may be at fault: a buyer who fails to collect, or a seller who fails to deliver on time.
The proviso operates only for the consequences of the delay, not as a general transfer of all risk.

5. Duties as Bailee

The second proviso preserves the duties of a party holding the other's goods as bailee. A seller who retains goods after property has passed, or a buyer holding goods on approval, must take the care required by Section 151 of the Contract Act. So although the risk of accidental loss follows property, a party in possession remains liable for loss caused by his own failure to take reasonable care of goods that belong to the other.

6. The Position Stated Shortly

Section 26: unless otherwise agreed, risk follows property, whether or not delivery has been made.
Before property passes the seller bears the risk; afterwards the buyer does.
The parties may agree that risk passes before or after property.
Sterns v. Vickers: risk passed with a delivery warrant for an undivided portion, although property had not.
The fault proviso: a party whose fault delays delivery bears loss caused by the delay.
Demby Hamilton v. Barden: juice that went bad while the buyer delayed was his loss.
A party holding the other's goods remains liable as a bailee for want of reasonable care.