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CMA Intermediate · Business Laws and Ethics · Sale of Goods Act, 1930

Kavita Mills agrees on 1 March to sell a specific lot of 200 bales of cotton to Arvind Textiles, with risk to pass on delivery on 20 March. On 10 March the godown is destroyed by lightning without fault of either party and the lot perishes. What is the effect?

The agreement is avoided. Under Section 8, where specific goods covered by an agreement to sell perish without fault of seller or buyer before the risk passes to the buyer, the agreement is thereby avoided and neither party is bound to perform.

  1. AThe agreement is avoidedCorrect
  2. BArvind Textiles must pay the price since the agreement was made earlier
  3. CKavita Mills must deliver 200 bales from other stock
  4. DThe agreement continues until the parties renegotiate

Explanation

Section 8 applies to an agreement to sell specific goods that perish without fault of either party before the risk passes to the buyer. Here the risk was to pass on 20 March, so the agreement is avoided. Option B wrongly puts the loss on the buyer.

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