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FORMATION OF THE CONTRACT. (Ss. 4 to 11).

QUESTION BANK.

Q.1. Define ‘sale’ and ‘Contract of sale. Distinguish it from an ‘agreement to sell. Nov. 07, Apr.2010

Q. 2. Explain fully the sale and agreement to sell. Oct .01, Apr 2000.

Q. 3. State the consequences of goods perishing before sale but after an agreement to sell.

Q. 4. Definition and Nature of sale and agreement to sale.

SHORT NOTES.

1) Essentials of Contract. Nov. 04.

ement to sell (S.8): - But before ‘Sale’:

SYNOPSIS

I. WHAT IS A “CONTRACT OF SALE”? (S. 4(1))

II. WHAT IS ‘SALE’: -(S. 4(3)).

III. WHAT IS AN “AGREEMENT TO SELL” (S.4 (3))-

Essentials of “Agreement to sell”.

1. Contract: -

2. Transfer of goods (not immediate): -

3. “Agreement to sell” becomes sale: -

IV. DISTINCTION BETWEEN ‘SALE’ AND ‘AGREEMENT TO SALE’:

1. Nature of Contract (Executed, executory): -

2. Nature of property (General or particular): -

3. Remedies in case of default of buyer: -

4. Remedies in case of default of seller: -

5. Right to Re-sell: -

6. Risk of loss: -

7. Effect of insolvency of seller: -

8. Effect of insolvency of the buyer: -

V. ‘SALE’ DISTINGUISHED FROM OTHER FORMS OF CONTRACTS: -

1. Distinction between ‘contract of work and labour’ and ‘Contract of sale of goods: -

2. Distinction between ‘Hire purchase contract’ and ‘Contract to the sale of goods: -

VI. FORMALITIES OF THE CONTRACT OF SALE (S.5).

VII. SUBJECT MATTER OF CONTRACT OF SALE

1. Effect of goods (Subject matter) perishing before making the Contract (S.7): -

*****

Comprehensive Legal Analysis: Formation of the Contract of Sale (Sections 4–11)

The Sale of Goods Act, 1930 provides a distinct statutory framework regulating the transfer of movable property. Chapter II of the Act (Sections 4 to 11) delineates the structural requirements, essential elements, and transactional formalities necessary to execute an enforceable contract of sale.

Part I: Statutory Definition and Nature of a Contract of Sale

1. The Statutory Definition (Section 4(1))

Section 4(1) of the Sale of Goods Act, 1930 defines a Contract of Sale as:

"A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price."

The statutory term "Contract of Sale" serves as a generic genus that encompasses two distinct species of commercial transactions:

a. Sale proper (where property transfers immediately).

b. Agreement to Sell (where property transfers at a later stage or upon condition).────────────┘

2. Core Essentials of a Valid Contract of Sale

To satisfy the statutory criteria under Section 4 and Section 5, a contract of sale must possess the following structural components:

a. Two Distinct Parties: There must be a bilateral relationship consisting of a buyer and a seller. A part-owner may contract to transfer their share to another part-owner.

b. Subject Matter: The contract must relate exclusively to "Goods" as defined under Section 2(7) (movable property).

c. Transfer of Property: The object of the contract must be the transfer of general property (complete ownership) from the seller to the buyer, rather than a mere transfer of special property or limited possession.

d. Price as Consideration: Price, defined under Section 2(10) as money consideration for the sale of goods, is the absolute essence of the contract. A pure barter exchange without monetary consideration falls outside the scope of this Act.

e. General Contractual Validity: The agreement must fulfill all fundamental prerequisites of an enforceable contract under Sections 1 to 75 of the Indian Contract Act, 1872 (e.g., free consent, lawful object, and capacity to contract).

Part II: Sale vs. Agreement to Sell (Section 4(3))

A. The Legal Mechanics of a "Sale"

Under Section 4(3), a contract of sale constitutes a Sale when the general property (ownership) in the goods passes instantaneously from the seller to the buyer at the time of entering into the contract. It represents an executed contract.

State of Uttaranchal v. M/s. Khurana Brothers, [AIR 2011 SC 1474]

A contract for the sale of crude resin specified that the commodity remained at the purchaser's absolute risk from the moment a public competitive bid was accepted. The Supreme Court held that the property in the goods and the accompanying risk passed instantly to the purchaser upon the acceptance of the bid, completing an immediate sale.

B. The Legal Mechanics of an "Agreement to Sell"

Under Section 4(3), an Agreement to Sell arises when the transfer of ownership is deferred to a future date or remains contingent upon the subsequent fulfillment of an explicit condition. It represents an executory contract.

a. Conversion Metric (Section 4(4)): An agreement to sell automatically matures into a valid sale when the stipulated timeframe elapses or the underlying conditions are fully satisfied.

C. Exhaustive Distinction Matrix

Basis of Comparison	Sale (Sec. 4(3))	Agreement to Sell (Sec. 4(3))
Nature of Contract	Executed Contract: The contractual purpose is fully completed at inception.	Executory Contract: Performance remains dependent on time or conditions.
Transfer of Ownership	Immediate: Property in the goods transfers to the buyer simultaneously with contract formation.	Deferred: Property transfers at a future date or upon condition fulfillment.
Nature of Rights	Creates a Right in Rem: The buyer acquires an absolute right against the entire world.	Creates a Right in Personam: The buyer acquires a personal right to sue the seller.
Risk of Loss	Passes to the Buyer: If the goods are damaged, the buyer bears the loss (res perit domino).	Remains with the Seller: Risk follows ownership, which has not yet passed.
Remedy for Buyer's Default	The seller can sue for the Full Contractual Price of the goods.	The seller can only sue for Damages for breach of contract.
Remedy for Seller's Default	The buyer can sue for Conversion or specific recovery of the goods as owner.	The buyer can only sue for Damages since they do not hold title.
Right of Re-Sale	The seller cannot re-sell. Doing so constitutes conversion against the buyer.	The seller holds title and can re-sell; the original buyer's recourse is damages.
Insolvency of Seller	The buyer can claim specific recovery of the physical goods from the Official Receiver.	The buyer cannot claim the goods; they can only claim a rateable dividend for money paid.
Insolvency of Buyer	The Official Assignee can claim the goods, but the seller retains a lien or stoppage right.	The seller can refuse delivery of the goods until full payment is received.

Part III: Distinction from Allied Commercial Contracts

1. Contract of Sale vs. Contract for Work and Labor

A contract of sale focuses on the transfer of ownership and the delivery of a chattel. Conversely, if the core substance of the contract is the application of individual skill, expertise, and labor, and any delivery of materials is purely incidental, it is classified as a contract for work and labor.

Example: If an artist is commissioned to carve a statue from a block of their own marble, the supply of the marble is incidental; the true essence is the application of creative skill.

State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [AIR 1958 SC 560]

The Supreme Court affirmed that composite construction contracts ("works contracts") do not constitute a sale of goods because the intention is to execute a structural project, and the materials become part of the immovable property upon installation.

2. Contract of Sale vs. Hire-Purchase Agreement

A hire-purchase agreement is fundamentally a contract of bailment coupled with an option to purchase the goods at the conclusion of all installment payments.

The Key Legal Difference: In a sale, ownership transfers to the buyer. In a hire-purchase arrangement, ownership remains with the financier or bailor until the final installment is paid. The hirer retains the operational option to either complete the purchase or return the asset. If the hirer unauthorizedly sells or pledges the asset prior to making final payment, the third party receives no valid title.

Jaibharat Credit & Investment Co. Ltd. v. State of Maharashtra, (2002) 128 STC 485 (Bom) :

The Court affirmed that under a hire-purchase agreement, ownership of the goods continues to remain with the owner (financier) during the entire hire period, distinguishing it from an immediate sale where property in the goods passes to the buyer instantly.

Part IV: Formalities and Subject Matter (Sections 5 & 6)

1. Statutory Formalities (Section 5)

Section 5 outlines the flexible procedural rules governing contract formation:

a. An offer to buy or sell for a price must be matched by an acceptance.

b. Delivery and payment can be immediate, deferred, or structured via installments.

c. Permissible Formats (Section 5(2)): A contract of sale may be executed in writing, by word of mouth, partly in writing and partly oral, or implied through the direct conduct of the parties.

2. The Subject Matter (Section 6)

The subject matter must consist of existing goods (owned or possessed by the seller) or future goods (to be manufactured or acquired after the contract is signed).

a. Contingent Goods (Section 6(2)): A contract may depend upon an uncertain contingency that may or may not happen.

b. Present Sale of Future Goods (Section 6(3)): Any purported present sale of future goods operates in law as an Agreement to Sell.

Part V: Perishing of Goods and Allocation of Risk (Sections 7 & 8)

The statutory rules governing the destruction of specific goods determine contract validity and the allocation of financial risk:

1. Goods Perishing Before the Formation of Contract (Section 7)

Where there is a contract for the sale of specific goods, and those goods have perished or become so damaged as to no longer match their description without the seller's knowledge at the time the bargain is struck, the contract is void. This rule is rooted in the doctrine of mutual mistake and impossibility of performance.

Example: If A contracts to buy a specific horse from B, and unknown to both parties, the horse had died prior to the agreement, the contract is void.

Couturier v. Hastie, (1856) 5 HL Cas 673:

A contract was entered into for the sale of a cargo of corn in transit. Unknown to the parties, the corn had fermented and been sold by the ship's captain at an intermediate port before the contract was signed. The House of Lords held the contract void due to the total destruction of the subject matter.

2. Goods Perishing After an Agreement to Sell But Before the Sale (Section 8)

Where there is an agreement to sell specific goods, and subsequently, the goods perish or become materially damaged without any fault on the part of the seller or buyer before the risk passes to the buyer, the agreement is avoided.

Example: A agrees to sell a horse to B, granting B an 8-day trial period with the liberty to return it. If the horse dies on the third day without the fault of either party, the contract is avoided.

Elphick v. Barnes, (1880) 5 CPD 321

This case established that if goods delivered on a "sale or return" basis perish within the trial window without the buyer's negligence, the seller bears the loss as ownership has not transferred.

I. WHAT IS A “CONTRACT OF SALE”? (S. 4(1))

S.4 defines a ‘contract of sale, whereas S. 5 lays down formalities required for making a Contract of sale.

S. 4 (1) defines a “Contract of sale of goods as a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price”.

Thus, the term contract of sale is a general term comprising two types of contracts, viz.

i) Sale, and

ii) Agreement to sell.

There may be a sale contract between one part owner and another. A contract of sale may be absolute or conditional. Price is the essence of the Contract of sale.

II. WHAT IS ‘SALE’: -(S. 4(3)).

“When under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale”.

Thus, the exchange of property for a price in money is the essence of ‘sale’. In a sale, ownership transfer must occur; mere transfer of possession will not do [In Re, Ancherline Ltd.]. Thus, if A pays Rs. 25000 to B and B immediately transfers ownership of the horse, it is a sale.

State of Uttaranchal v. M/s. Khurana Brothers, (2010) 14 SCC 454

Facts- The Contract for the sale of crude resin was interred between the State Government and the petitioner. The term of the Contract stated that the resin would be at the purchaser’s risk from the date of acceptance of a bid.

Issue- Whether the property and risk thereto have passed on bid.

Held- The property in goods and risk thereto has passed to the purchaser on acceptance of the bid itself.

III. WHAT IS AN “AGREEMENT TO SELL” (S.4 (3))-

Where under a contract of sale, the transfer of the property in the goods is to take place at a future time or subject to some condition (thereafter to be fulfilled, subject to which the property in the goods is to be transferred), it is an agreement to sell.

Illustration

A agrees to sell his motorcycle to B on the condition that B pays Rs. 20,000 as the price within one month. This is an agreement to sell. But when B pays Rs. 20,000 as the price of the motorcycle to A within one month, it becomes a sale.

Essentials of “Agreement to sell”.

The essentials of an agreement to sell are as follows: -

1. Contract: -

There must be a valid Contract between the persons. All the essentials mentioned in the general Contract from S. 1 to S. 75 must be fulfilled to make the Contract valid.

2. Transfer of goods (not immediate): -

In an agreement to sell, the property in goods passes to the buyer on a future date or after the condition mentioned in such Contract is fulfilled.

3. “Agreement to sell” becomes sale: -

“Agreement to sell” becomes sale proper when the time elapses or the condition is fulfilled, subject to which the property in the goods is to be transferred.

IV. DISTINCTION BETWEEN ‘SALE’ AND ‘AGREEMENT TO SALE’:

There are the following points of distinction between ‘Sale’ and ‘Agreement to Sale.’

1. Nature of Contract (Executed, executory): -

A ‘sale’ is an executed contract. Whereas ‘agreement to sell’ is an ‘executory contract’, because its execution depends upon the fulfilment of a condition or lapse of time subject to which an agreement is made.

2. Nature of property (General or particular): -

A sale affects a transfer of the general property (ownership) in the goods to the buyer and, therefore, creates a right in rem..

Whereas, in ‘agreement to sell’ the ‘particular property in goods transfers; therefore, right in personam is created.

3. Remedies in case of default of buyer: -

In an ‘agreement to sell, if the buyer makes a breach of a contract, the seller is entitled to the damages because ownership has not passed to the buyer, whereas in the case of a ‘Sale,’ since the ownership has passed to the buyer, the seller is entitled to sue for the price of the goods sold.

4. Remedies in case of default of seller: -

In the case of an ‘agreement to sell, if the seller commits a breach, the buyer can only claim damages (because the goods are still the property of the seller).

But in the case of a ‘Sale,’ if the seller defaults in transferring goods (since the buyer has become the owner), the buyer can sue for damages or be held liable for conversion..

5. Right to Re-sell: -

In a Contract of an agreement to sell (since the ownership has not passed to the buyer), the seller can sell the goods to any other person, and the buyer can only sue for damages.

Whereas, in the Contract of ‘sale’ (since the ownership has passed to the buyer), the seller will be guilty of conversion if he sells the goods to any other person, and the buyer can sue and recover those goods as owner, even from the third person.

6. Risk of loss: -

In an agreement to sell, since ownership does not pass to the buyer, the risk of loss, deterioration or destruction of goods remains with the seller. However, in ‘sale’, it passes to the buyer.

7. Effect of insolvency of seller: -

In an agreement to sell, if the buyer, who has paid for goods but not received those (goods), finds that the seller has become insolvent, he can claim the amount back (i.e. rateable dividend).

Whereas in ‘Sale’ (since ownership has passed to the buyer, and the seller becomes insolvent, without transferring goods (possession) to the buyer), the buyer is entitled to recover the goods, specifically.

8. Effect of insolvency of the buyer: -

In an agreement to sell, if the buyer becomes insolvent without paying for the goods (since the ownership has not passed to the buyer), the seller may refuse to deliver the goods unless paid.

In case of a ‘Sale’ (since ownership has passed to the buyer), if the buyer becomes insolvent without paying for the goods, the seller should deliver the goods first (unless he is entitled to the right of retaining or stoppage in transit over the goods) and claim the price due.

V. ‘SALE’ DISTINGUISHED FROM OTHER FORMS OF CONTRACTS: -

There are other types of Contract, which closely resemble sale, but they are entirely different in their nature and effect; they are: -

1. Distinction between ‘contract of work and labour’ and ‘Contract of sale of goods: -

A contract of sale contemplates the delivery of chattel. But if the substance of the Contract is the exercise of skill and labour, and the delivery of the chattel is only incidental, it is a contract for work done and labour supplied.

E.g. X promises to carve a block of marble belonging to himself into a beautiful statue for sale to Y. This is a contract for work and labour to carve a beautiful statue, and not a contract of sale of goods to deliver a marble peace. Therefore, the supply of marble blocks by X to Y is incidental to the works contract for the supply of beautiful statues carved in marble.

2. Distinction between ‘Hire purchase contract’ and ‘Contract to the sale of goods: -

Hire purchase is a contract of bailment coupled with an option to purchase the goods hired. E.g. A ‘Bank’ is the owner of the motorcycle, transfers it to B, who agrees to pay the price thereof in suitable monthly instalments. Although there is the delivery of the motorcycle to B, the ownership thereof remains with the Bank, ‘B’, in this case, has two options: (i) either to purchase the motorcycle after paying off all instalments or (ii) to return the motorcycle to the Bank. But if, in the meantime, the hirer sells or pledges the goods, the purchaser or pledgee does not get a good title.

Jaibharat Credit & Investment Co. Ltd. v. State of Maharashtra, (2002) 128 STC 485 (Bom)

The court held that, unlike the sale, even though the hirer pays money in consideration of using goods, ownership continues with the seller. This is the difference between a sale and a hire purchase.

VI. FORMALITIES OF THE CONTRACT OF SALE (S.5).

S. 5 provides formalities for the ‘formation of a Contract of sale’. According to this section, the following are requirements for the formation, viz-

1) Offer to sell or buy goods and acceptance of such offer.

2) Delivery of goods, either immediate or future.

3) Payment of price is either immediate, instalments, or future.

4) It may be made-

a) in writing,

b) by word of mouth,

c) partly in writing and partly oral,

d) implied (from the conduct of parties).

In short, all the requirements of a valid Contract under the Indian Contract Act are, required to be fulfilled for the completion of a contract of sale.

VII. SUBJECT MATTER OF CONTRACT OF SALE

(Existing or future goods) (S. 6): -

The goods, which form the subject of the Contract of sale, may be either existing goods owned or possessed by the seller or future goods. There may also be a contract for the sale of goods, the acquisition of which by the seller depends upon a contingency, which may or may not happen, e.g. ‘A’ agrees to sell the sugar to ‘B’ in England if A gets through shipping it in India.

Where the seller purports to effect a present sale of future goods under a contract of sale, the Contract operates as an agreement to sell. For example, A agrees to supply B with a specified quantity of vegetable seeds, and B agrees to sow these seeds on his farm and sell the vegetables obtained to A at the given price. This is an agreement for the sale of goods by B to A.

1. Effect of goods (Subject matter) perishing before making the Contract (S.7): -

Where there is a contract for the sale of specific goods, and such goods, at the time of the making of the Contract, perished or damaged without the knowledge of the seller, makes the contract void.

E.g. A agrees to buy from B a specific horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The Contract is void.

2. Effects of goods perishing after the agreement to sell But before ‘Sale’ (S. 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 or are damaged (so as no longer to answer to their description in the agreement) before the risk passes to the buyer, the agreement is thereby avoided.

E.g. A contracts to sell a horse to B on the condition that B may keep it for eight days for trial and that B would be at liberty to return the horse to A at the expiry of eight days if he did not find the horse suitable. Though no fault of A or B, the horse dies three days after it was given by A to B for trial. The Contract between A and B is avoidable.

*****

Comprehensive Legal Analysis: Formation of the Contract of Sale (Sections 4–11)

Part I: Statutory Definition and Nature of a Contract of Sale

1. The Statutory Definition (Section 4(1))

Section 4(1) of the Sale of Goods Act, 1930 defines a Contract of Sale as:

"A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price."

The statutory term "Contract of Sale" serves as a generic genus that encompasses two distinct species of commercial transactions:

a. Sale proper (where property transfers immediately).

b. Agreement to Sell (where property transfers at a later stage or upon condition).────────────┘

2. Core Essentials of a Valid Contract of Sale

To satisfy the statutory criteria under Section 4 and Section 5, a contract of sale must possess the following structural components:

a. Two Distinct Parties: There must be a bilateral relationship consisting of a buyer and a seller. A part-owner may contract to transfer their share to another part-owner.

b. Subject Matter: The contract must relate exclusively to "Goods" as defined under Section 2(7) (movable property).

c. Transfer of Property: The object of the contract must be the transfer of general property (complete ownership) from the seller to the buyer, rather than a mere transfer of special property or limited possession.

d. Price as Consideration: Price, defined under Section 2(10) as money consideration for the sale of goods, is the absolute essence of the contract. A pure barter exchange without monetary consideration falls outside the scope of this Act.

e. General Contractual Validity: The agreement must fulfill all fundamental prerequisites of an enforceable contract under Sections 1 to 75 of the Indian Contract Act, 1872 (e.g., free consent, lawful object, and capacity to contract).

Part II: Sale vs. Agreement to Sell (Section 4(3))

A. The Legal Mechanics of a "Sale"

State of Uttaranchal v. M/s. Khurana Brothers, [AIR 2011 SC 1474]

B. The Legal Mechanics of an "Agreement to Sell"

a. Conversion Metric (Section 4(4)): An agreement to sell automatically matures into a valid sale when the stipulated timeframe elapses or the underlying conditions are fully satisfied.

C. Exhaustive Distinction Matrix

Basis of Comparison	Sale (Sec. 4(3))	Agreement to Sell (Sec. 4(3))
Nature of Contract	Executed Contract: The contractual purpose is fully completed at inception.	Executory Contract: Performance remains dependent on time or conditions.
Transfer of Ownership	Immediate: Property in the goods transfers to the buyer simultaneously with contract formation.	Deferred: Property transfers at a future date or upon condition fulfillment.
Nature of Rights	Creates a Right in Rem: The buyer acquires an absolute right against the entire world.	Creates a Right in Personam: The buyer acquires a personal right to sue the seller.
Risk of Loss	Passes to the Buyer: If the goods are damaged, the buyer bears the loss (res perit domino).	Remains with the Seller: Risk follows ownership, which has not yet passed.
Remedy for Buyer's Default	The seller can sue for the Full Contractual Price of the goods.	The seller can only sue for Damages for breach of contract.
Remedy for Seller's Default	The buyer can sue for Conversion or specific recovery of the goods as owner.	The buyer can only sue for Damages since they do not hold title.
Right of Re-Sale	The seller cannot re-sell. Doing so constitutes conversion against the buyer.	The seller holds title and can re-sell; the original buyer's recourse is damages.
Insolvency of Seller	The buyer can claim specific recovery of the physical goods from the Official Receiver.	The buyer cannot claim the goods; they can only claim a rateable dividend for money paid.
Insolvency of Buyer	The Official Assignee can claim the goods, but the seller retains a lien or stoppage right.	The seller can refuse delivery of the goods until full payment is received.

Part III: Distinction from Allied Commercial Contracts

1. Contract of Sale vs. Contract for Work and Labor

Example: If an artist is commissioned to carve a statue from a block of their own marble, the supply of the marble is incidental; the true essence is the application of creative skill.

State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd., [AIR 1958 SC 560]

2. Contract of Sale vs. Hire-Purchase Agreement

A hire-purchase agreement is fundamentally a contract of bailment coupled with an option to purchase the goods at the conclusion of all installment payments.

Jaibharat Credit & Investment Co. Ltd. v. State of Maharashtra, (2002) 128 STC 485 (Bom) :

The Court affirmed that under a hire-purchase agreement, ownership of the goods continues to remain with the owner (financier) during the entire hire period, distinguishing it from an immediate sale where property in the goods passes to the buyer instantly.

Part IV: Formalities and Subject Matter (Sections 5 & 6)

1. Statutory Formalities (Section 5)

Section 5 outlines the flexible procedural rules governing contract formation:

a. An offer to buy or sell for a price must be matched by an acceptance.

b. Delivery and payment can be immediate, deferred, or structured via installments.

c. Permissible Formats (Section 5(2)): A contract of sale may be executed in writing, by word of mouth, partly in writing and partly oral, or implied through the direct conduct of the parties.

2. The Subject Matter (Section 6)

The subject matter must consist of existing goods (owned or possessed by the seller) or future goods (to be manufactured or acquired after the contract is signed).

a. Contingent Goods (Section 6(2)): A contract may depend upon an uncertain contingency that may or may not happen.

b. Present Sale of Future Goods (Section 6(3)): Any purported present sale of future goods operates in law as an Agreement to Sell.

Part V: Perishing of Goods and Allocation of Risk (Sections 7 & 8)

The statutory rules governing the destruction of specific goods determine contract validity and the allocation of financial risk:

1. Goods Perishing Before the Formation of Contract (Section 7)

Example: If A contracts to buy a specific horse from B, and unknown to both parties, the horse had died prior to the agreement, the contract is void.

Couturier v. Hastie, (1856) 5 HL Cas 673:

2. Goods Perishing After an Agreement to Sell But Before the Sale (Section 8)

Example: A agrees to sell a horse to B, granting B an 8-day trial period with the liberty to return it. If the horse dies on the third day without the fault of either party, the contract is avoided.

Elphick v. Barnes, (1880) 5 CPD 321

This case established that if goods delivered on a "sale or return" basis perish within the trial window without the buyer's negligence, the seller bears the loss as ownership has not transferred.

*****