Section 26 of the Sale of Goods Act, 1930: risk prima facie passes with property

Section 26 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Section 26 answers a plain commercial question: if the goods are lost or damaged, whose loss is it? Its answer, "unless otherwise agreed", is that the goods stay at the seller's risk until the property passes to the buyer, and are at the buyer's risk once it does, whether or not delivery has been made. Two provisos deal with delay through fault and with the duties of a bailee.

Unless otherwise agreed, goods remain at the seller's risk until the property is transferred to the buyer; once it is transferred, the goods are at the buyer's risk whether delivery has been made or not. First proviso: 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. Second proviso: nothing in the section affects the duties or liabilities of either party as a bailee of the other party's goods.

Reading note

This article follows the consolidated text of the Act consulted (latest amendment shown: Act 28 of 1993); later amendments should be checked in the official text. "Property" is the general property in goods (section 2(11)); "fault" is "wrongful act or default" (section 2(5)); and when property passes is the subject of sections 18 to 25, beginning with Sections 18-19. Section 26 opens with the words "Unless otherwise agreed", so a written allocation of risk replaces the default. Risk clauses repay a careful contract review before goods move.

The main rule

"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."

Take the sentence in three pieces.

1. "Unless otherwise agreed": the parties may agree a different allocation of risk. The section is a default.
2. Before property passes: the goods "remain at the seller's risk".
3. After property passes: the goods "are at the buyer's risk whether delivery has been made or not".

The last phrase breaks the link between risk and possession. A buyer who has become owner but has not yet received the goods carries the risk. Equally, a seller who still has the goods but has passed the property to the buyer no longer carries it, subject to the provisos.

Example (the writer's own, not printed in the Act): On 1 March, Sethi Cycles sells a particular motorcycle to Bose. The contract is unconditional, the vehicle is ready, and the property passes under section 20 on that day. Bose will collect it on 10 March. A fire on 5 March damages the vehicle in Sethi Cycles' showroom. Property had passed; absent a different agreement, the vehicle was at Bose's risk, although it had not been delivered.

A second example (also the writer's own): The same contract says the property passes on delivery. The fire happens on 5 March, before delivery. The property had not passed, so the vehicle remained at the seller's risk.

First proviso: delay through the fault of either party

"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."

The proviso has these parts.

• Trigger: delivery has been delayed, and the delay arose through the fault of the buyer or the seller.
• Effect: the goods are at the risk of the party in fault.
• Limit: only "as regards any loss which might not have occurred but for such fault". The party in fault bears the loss that would not have occurred without the delay.

So the proviso is narrower than a full transfer of risk. It picks out the loss connected with the delay.

Example (the writer's own): Property has passed to the buyer, Rani Stores, who agreed to collect bags of sugar on 10 July but does not come until 25 July. Meanwhile a monsoon leak at the seller's godown damages the bags, which would have been safely removed by 10 July. The delay was through the buyer's fault, so the proviso puts the loss, which might not have occurred but for that fault, on the buyer. In the reverse case, if the seller's fault had delayed delivery after property passed, the seller would bear the loss that the delay caused.

Second proviso: duties as bailee

"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."

This preserves the position of a person who holds the goods of the other as a bailee. A seller who keeps goods that now belong to the buyer holds them, in some sense, as a bailee. A buyer who holds goods that still belong to the seller, for example goods on trial, may be in the same position. Section 26 does not remove the bailee's duties. For the Contract Act on bailment and a bailee's care of goods, see Section 148 of the Indian Contract Act, 1872 (bailment defined) and Section 151 of the Indian Contract Act, 1872 (care to be taken by bailee). Those provisions apply to a sale of goods under section 3 of this Act so far as they are not inconsistent with it.

Table: who bears the risk

How this links with other sections

• Section 8 avoids an agreement to sell specific goods if they perish without fault before "the risk passes to the buyer"; section 26 tells you when that is. See Sections 6-8.
• Sections 20 to 25 decide when property passes, which in turn fixes the starting point of risk; see sections 20 to 22 and section 25.
• Sections 39 and 40, in Chapter IV, deal with risk and deterioration in transit; those sections are explained in later articles.

Drafting points

• Write the risk clause separately from the transfer clause. The default ties them together, but the parties may separate them. Say, for example, "risk passes on delivery to the carrier" or "risk remains with the seller until the goods are unloaded at the buyer's premises".
• Cover insurance. The Act's text does not deal with insurance in this section; allocate it by contract.
• Record the cause of delay. The first proviso depends on fault; dated emails and delivery notes help show it.
• Mind the bailee duties. A party who holds the other's goods should know the duty of care that attaches.

Need help allocating risk of loss?

If your contract is silent or unclear about who bears loss during storage or transit, we can review and vet the contract and propose a risk clause that fits when ownership and delivery actually happen.

Key takeaways

• Unless otherwise agreed, goods are at the seller's risk until property passes and at the buyer's risk afterwards, whether or not delivered.
• Where delivery is delayed by the fault of either party, that party bears loss which might not have occurred but for the fault.
• The duties of a bailee are not affected by section 26.
• The parties may agree otherwise.
• Read section 26 together with the sections on passing of property.

Read next

• Sections 18-19 of the Sale of Goods Act, 1930: goods must be ascertained and property passes when intended
• Section 25 of the Sale of Goods Act, 1930: reservation of right of disposal
• Section 27 of the Sale of Goods Act, 1930: sale by a person who is not the owner
• Section 151 of the Indian Contract Act, 1872: care to be taken by bailee

Disclaimer: Based on the consolidated text of the Sale of Goods Act, 1930 consulted on 2 October 2026, whose latest amendment shown is Act 28 of 1993. It explains the words of the statute only; later amendments and the way courts apply these sections should be checked. This article is general information, not legal advice; check the official text before acting.