Sale of Goods - Retention of Title, Risk and the Unpaid Seller
On 1 June, Sen Traders agrees to sell 400 cotton sarees to Basu Stores at ₹1,200 each, total ₹4,80,000. The written terms say: 'Property in the goods will pass to the buyer only on full payment. Risk will pass on delivery.' On 10 June Sen delivers all 400 sarees to Basu's warehouse. Basu pays ₹1,00,000 and agrees to pay the balance within 30 days. On 15 June Basu sells 150 sarees to Chandra, who pays cash and takes delivery without knowing that Sen is unpaid. On 20 June a fire destroys 100 of the 250 sarees still in Basu's warehouse. Basu becomes insolvent on 25 June. Sen wants to take back the 150 sarees from Chandra, stop the 100 burnt sarees from being written off against him, and recover the full balance from Basu's estate. Chandra refuses to return the sarees, saying he is a bona fide purchaser. Sen also claims that because property had not passed, the fire loss is Basu's alone and that he can resell the remaining 150 sarees.
1. When did property and risk pass in the 400 sarees? Who bears the loss of the 100 sarees destroyed by fire?
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Property. The clause says property passes only on full payment. Only ₹1,00,000 of ₹4,80,000 was paid, so property in all 400 sarees remained with Sen. A retention-of-title clause is valid.
Risk. Section 26 of the Sale of Goods Act, 1930 makes risk prima facie pass with property, but the parties can agree otherwise. Here the clause expressly separates risk from property: risk passes on delivery. Delivery took place on 10 June. Therefore risk in the 400 sarees passed to Basu on 10 June, even though property did not.
Fire loss. The 100 sarees destroyed on 20 June were at Basu's risk. The loss falls on Basu, not Sen. Sen cannot reduce the price or claim damages for the burnt goods. The buyer's obligation to pay the price is not extinguished by the fire, because the risk had passed and the goods had already been delivered. If the fire had occurred before delivery, or if delivery had been delayed by Sen's fault, the answer could differ.
2. Can Sen recover the 150 sarees from Chandra under the unpaid seller's rights?
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Unpaid seller's rights. Sen is an unpaid seller because the balance is due. His main rights are lien (possession), stoppage in transit (goods in transit after buyer's insolvency) and resale in limited cases. None of these gives him a right to seize goods from a sub-purchaser who has already taken delivery.
Chandra's position. Basu was a buyer in possession with Sen's consent. A bona fide purchaser from a buyer in possession can acquire a good title under the statutory exception to the nemo dat rule. Chandra paid value, took delivery and had no notice of Sen's unpaid claim. He is therefore likely protected. Even if Chandra were not protected by that exception, Sen's lien and stoppage rights are possessory; they cannot be exercised against goods in Chandra's hands. Sen cannot recover the 150 sarees from Chandra. His remedy is a money claim against Basu's estate.
3. What are Sen's remedies against Basu's estate for the unpaid balance, and how does the fire loss affect the claim?
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Sen can sue Basu's estate for the unpaid price. Because delivery was accepted, the seller may sue for the price even though property was retained. The price is ₹4,80,000 − ₹1,00,000 = ₹3,80,000. The fire does not reduce this claim because risk had passed to Basu on 10 June. Sen cannot resell the 150 sarees still in Basu's warehouse without lawful possession, and he cannot claim the 100 burnt sarees from Basu as damages. In Basu's insolvency, Sen must prove as an unsecured creditor for ₹3,80,000, unless he has a valid retention-of-title claim that can be enforced against goods still in Basu's possession. The retention clause may help him reclaim the 150 unburnt sarees still in Basu's warehouse if they can be identified and are still in Basu's possession, but that right is subject to insolvency law and the rights of any secured creditors. The fire loss itself is Basu's loss.