Reservation Of Right of Disposal

Reservation of right of disposal - this is a right vested in the seller by which he reserves to himself the right to dispose of goods until certain conditions are fulfilled. Therefore, when the goods are delivered to carrier certain conditions are fulfilled. Therefore, when the goods are delivered to a carrier or other bailee, the seller can reserve the right of disposal of the goods and in such cases the property in goods will not pass to the buyer until the conditions imposed by the seller are fulfilled.




For example, A sells certain goods to B upon the condition that B must pay the price before delivery of the goods. Here the seller has reserved his right of disposal by making the delivery of the goods conditional upon the payment of the price. The property in goods will not pass to B until the price is paid by him.

From the above it should be clear to you that the delivery of goods to the carrier does not mean transfer of property if the seller has reserved the right of disposal to himself. The seller may reserve the right of disposal of goods either expressly or by implication. When the seller exercises this right expressly he may do so at the time of entering into the contract or at the time of making appropriation of unascertained goods.

In the following two cases, the seller is deemed to have reserved the right of disposal to himself.

Where the goods are shipped or delivered to a railway administration for carriage and by the bill of lading or railway receipt, as the case may be, they are deliverable to the order of the seller or his agent Section 23(2). In such a case the seller keeps to himself the right of dealing with the goods and also the right of demanding possession of the goods from the carrier. For example, A sold some goods to B with the terms that the goods shall be sent by railway. The railway receipt is taken in the name of B, but it was sent by A to his agent. The goods were damaged in the course of journey. A will have to bear the loss because the property in goods has not got passed to the buyer. However, if the bill of lading or railway receipt are endorsed in the name of the buyer and sent to him, the properly in goods passes to the buyer because then the buyer becomes entitled to take possession of the goods from the carrier.

Where the seller of goods draws a bill of exchange on the buyer for the price of the goods and sends the bill of exchange along with the bill of lading or the railway receipt, to the buyer to secure acceptance or payment of the bill of exchange, the property in goods will not pass to the buyer until the buyer accepts the bill of exchange. If the buyer does not accept the bill of exchange, he must return the bill of lading or railway receipt to the seller. If he wrongfully retains the bill of lading or railway receipt, the property in the goods does not pass to the buyer [Section 25(3)]. In such a case, as soon as the bill of exchange is accepted, the ownership is transferred to the buyer.

Passing of risk: The general rule is that ‘the risk prima facie passes with the ownership’ i.e., the goods are at the risk of the party who has the ownership of the goods. According to Section 26 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. For example, A bids Rs 5,000 for a costly flower case at a sale by auction. After the bid, when the auctioneer struck his hammer to signify acceptance of the bid, he hit the case which was destroyed. The loss will have to be borne by the seller, because the ownership of goods has not yet passed from the seller to the buyer.

The general rule that the risk passes with the ownership is only a prima facie rule and is subject to the following exceptions:

i) The rule is not applicable where the parties have made some agreement to the contrary. For example, if the parties have agreed that during the transit the goods shall be the property of the seller but they shall be at the risk of the buyer.

ii) The rule is not applicable, where delivery has been delayed through the fault of either buyer or seller. In such a case the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault. For example, A contracted to sell 100 casks of apple juice to B to be delivered in February. B took the delivery of part of the juice but made a default to accept the remaining casks. Consequently, the juice became unfit for consumption. The loss will have to be borne by the buyer. It should however be remembered that the general rule shall not affect the duties or liabilities of either seller or buyer as a bailee of goods for the other even when the risk has passed.

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