The effect of perishing of goods may be discussed under the following heads

Sections 7 and 8 deal with the effect of perishing of goods on the rights and obligations of the parties to a contract of sale. Under these Sections, the word ‘perishing’ means not only physical destruction of the goods but it also covers:

(a) Damage to goods so that the goods have ceased to exist in the commercial sense, i.e., their mechantable character as such has been lost by water and becomes almost stone or where sugar becomes sharbat and thus are unsaleable as cement or sugar;

(b) Loss of goods by theft (Barrow Ltd. vs. Phillips Ltd.);

(c) Where the goods have been lawfully requisitioned by the government (Re Shipton, Anderson & Co.).

It may also be mentioned that it is only the perishing of specific and ascertained goods that affects a contract of sale. Where, therefore, unascertained goods form the subject-matter of a contract of sale, their perishing does not affect the contract and the seller is bound to supply the goods from wherever he likes, otherwise be liable for breach of contract. Thus where A agrees to sell to B ten bales of Egyptian cotton out of 100 bales lying in his godown and the bales in the godown are completely destroyed by fire, the contract does not become void. A must supply ten bales of cotton after purchasing them from the market or pay damages for the breach.

The effect of perishing of goods may be discussed under the following heads:

1. Perishing of goods at or before making of the contract (Sec. 7):

This may again be divided into the following sub-heads:

(i) In case of perishing of the whole of the goods:

Where specific goods form the subject- matter of a contract of sale (both actual sale and agreement to sell), and they, without the knowledge of the seller, perish, at or before the time of the contract, the contract is void. This provision is based either on the ground of mutual mistake as to a matter of fact essential to the agreement, or on the ground of impossibility of performance, both of which render an agreement void ab-initio.

Illustrations :

(a) A sold to B a specific cargo of goods supposed to be on its way from England to Bombay. It turned out, that before the day of the bargain, the ship conveying the cargo had been cast away and the goods were lost. Neither party was aware of the fact. The agreement was held to be void (Hastie vs Conturier).

(b) A agrees to sell to B a certain horse. It turns out that the horse was dead at the time of bargain, though neither party was aware of the fact. The agreement is void.

(ii) In case of perishing of only ‘a part’ of the goods. Where in a contract for the sale of specific goods, only part of the goods are destroyed or damaged, the effect of perishing will depend upon whether the contract is entire or divisible. If it is entire (i.e., indivisible) and only part of the goods had perisohed, the contract is void. If the contract is divisible, it will not be void and the part available in good condition must be accepted by the buyer.

Illustration :

1. There was a contract for the sale of a parcel containing 700 bags of Chinese groundnuts of different qualities. Unknown to the seller, 109 bags had been stolen at the time of the contract. The seller delivered the remaining 591 bags, and on the buyer’s refusal to take them, brought an auction for the price. It was held that the contract, being indivisible, had become void by reason of the loss of the goods and the buyer was not bound to take delivery of 591 bags or pay for the goods (Barrow Ltd. vs. Philips Ltd.) (Note that, had there been all bags of the same weight and quality for certain price per bag, the contract would have been divisible and the buyer could not have avoided the contract as to those goods which had actually perished).

2. Perishing of goods before sale but after agreement to sell Sec. 8:

Where there is an agreement, to sell specific goods and subsequently the goods, without, any fault on the part of the seller or buyer, perish before the risk passed to the buyer, the agreement is there by avoided. This Provision is based or the ground of Supervening impossibility of performance which makes a contract void.

If only part of the goods agreed to be sold perish, the contract becomes void if it is indivisible. But if it is divisible then the parties are absolved from their obligations only to the extent of the perishing of the goods (i.e., the contract remains valid as regards the part available in good condition).

It must further be noted that if fault of either party causes the destruction of the goods, then the party in default is liable for non-delivery or to pay for the goods, as the case may be (Sec. 26). Again, if the risk has passed to the buyer, he must pay for the goods, though undelivered [unless otherwise agreed risk prima facie passes with the property (Sec. 26).]

Illustrations :

(a) A buyer took a horse on a trial for 8 days on condition that if found suitable for his purpose, the bargain would become absolute. The horse died on the 3^rd day without any fault of either party. Held, the contact, which was in the form of an agreement to sell, becomes void and the seller should bear the loss (Elphick vs. Barnes).

(b) A, had contracted to erect machinery on M’s premises, the price was to be paid on completion. During the course of the work, there was a fire which completely destroyed the premises and the machinery. It was held that both parties were excused from further performance and A was not entitled to any payment as the price was payable on the completion of entire work (Appleby vs. Myers.).

Effect of Perishing of Future Goods :

As observed earlier, a present sale of future goods always operates as an agreement to sell [Sec. 6(3)]. As such there arises a question as to whether Section 8 applies to a contract of sale of future goods (amounting to an agreement to sell”) as well? The answer is found in the leading case of Howell vs. Coupland, where it has been held that future goods, if sufficiently identified, are to be treated as specific goods, the destruction of which makes the contract void. The facts of the case are as follows:

Illustration :

C agreed to sell to H 200 tons of potatoes to be grown on C’s land. C sowed sufficient land to grow the required quantity of potatoes, but without any fault on his part, a disease attacked the crop and he could deliver only about ten tons. The contract was held to have become void.