Reservation of Title, Transit Loss and Defective Seed
Meghdoot Seeds Ltd contracted to sell to Suryodaya Agro 500 jute bags, 50 kg each, of certified Grade A basmati seed 'conforming to the sample given on 4 April', at ₹6,400 a bag, delivery by handing the consignment to a carrier nominated by the buyer. On 20 April Meghdoot handed 500 bags to Suryodaya's nominated transporter at Mundra and took a clean lorry receipt. The lorry receipt was, however, drawn 'to the order of Meghdoot Seeds Ltd' and was endorsed in favour of Suryodaya only on 26 April; the invoice likewise carried the words 'property in the goods to pass on payment'. On 23 April a fire in the transporter's godown destroyed 200 bags. The remaining 300 reached Suryodaya on 28 April; on inspection, 90 bags contained Grade B seed. On 30 April Suryodaya resold all 300 bags to a retailer at ₹7,100 a bag. On 5 May it wrote to Meghdoot rejecting the 90 bags and claiming the price of the 200 destroyed bags plus damages. Meghdoot has received no payment at all.
1. Who bears the loss of the 200 bags destroyed by fire on 23 April?
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Risk follows property, subject to agreement. Section 26 of the Sale of Goods Act, 1930 provides that the risk prima facie passes with property, whether delivery has been made or not. Section 39(1) says delivery of goods to a carrier for transmission to the buyer is prima facie delivery to the buyer - but that presumption is displaced here.
Property had not passed on 23 April. For unascertained goods, section 23 requires unconditional appropriation with the assent of the buyer; and section 25(1) provides that where the seller reserves the right of disposal of the goods, property does not pass until the conditions imposed are fulfilled. Meghdoot reserved title twice over: the lorry receipt was drawn to its own order and endorsed only on 26 April, and the invoice stated that property passes on payment. On 23 April, therefore, property - and with it risk - remained with Meghdoot.
Result. Meghdoot cannot recover the price of the 200 bags; the loss lies on it. It may have a claim against the transporter for negligence, but that is a separate remedy.
Caution. Section 26 allows the parties to agree otherwise, and an FOB term can shift risk on shipment. Here the express reservation of title until payment prevails, because it is the specific term and was never waived.
2. Can Suryodaya reject the 90 bags of Grade B seed on 5 May, given its resale of all 300 bags on 30 April? What is its remedy instead?
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There is a clear breach of condition. In a sale by description and sample, sections 16(2) and 17 of the Sale of Goods Act imply that the goods must correspond with the description and that the bulk must correspond with the sample. Grade B seed in 90 bags breaches those conditions. Under section 13, a breach of condition may be treated as a breach of warranty entitling the buyer to damages rather than rejection - but the buyer must still have preserved his right to reject.
The resale destroyed the right to reject. Section 42 deems the buyer to have accepted the goods when he does an act in relation to them inconsistent with the ownership of the seller, or retains them beyond a reasonable time without intimating rejection. By reselling all 300 bags at ₹7,100 on 30 April and only writing on 5 May, Suryodaya accepted the goods, including the 90 non-conforming bags. The rejection letter is therefore ineffective.
Remedy. Suryodaya must keep the bags and claim damages for breach of warranty - the difference between the value of Grade A seed and the value of Grade B seed at the time of delivery, together with any consequential loss that was foreseeable (section 73, Indian Contract Act). It cannot claim the full contract price of the 90 bags. Had it inspected on 28 April and rejected the 90 bags before reselling, the outcome would have been different.
3. Meghdoot has received no payment. What rights does it have against the 300 bags delivered, and against Suryodaya generally?
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The unpaid seller's real remedies are gone. Section 46 gives the unpaid seller a lien on the goods while in his possession, a right of stoppage in transit (sections 50 to 52) and a right of resale in limited cases (section 54). Here possession has passed, and the goods have also reached the buyer, so neither lien nor stoppage is available; a right of resale cannot be exercised once property and possession have both left the seller.
Property in the 300 bags passed on 26 April. The endorsement of the lorry receipt and the subsequent delivery to Suryodaya satisfied the section 25 condition; property passed and the price became due. Meghdoot's primary remedy is therefore a suit for the price under section 55, together with interest.
Set-off and quantification. Against that price claim Suryodaya can set off damages for the 90 non-conforming bags, the measure being the difference in value between Grade A and Grade B seed at delivery. Meghdoot cannot claim the price of the 200 destroyed bags at all, because property in them never passed.
Practical point. Meghdoot's reservation of title protected it only while it held the documents; once it endorsed the lorry receipt without payment, it lost both its security and its lien, retaining only a personal claim against the buyer.