Identify who holds the goods at the time of sale
Section 36(3) of the Sale of Goods Act, 1930 applies where goods at the time of sale are in a third person’s possession. Under its ordinary rule, delivery by seller to buyer does not take place until that third person acknowledges to the buyer that the goods are held on the buyer’s behalf. Its proviso preserves the operation of issue or transfer of a document of title to goods. Neither an invoice nor a private instruction from seller to warehouse automatically establishes the required acknowledgement.
Read the applicable text: India Code: Sale of Goods Act, 1930, sections 2(4), 19, 26 and 32–36.
Match the acknowledgement to the sale
Check the warehouse’s actual communication, sender authority, buyer, goods, lot, quantity and date. Match it to the agreement and current custody. If the warehouse acknowledges only part, identify what the evidence covers. Under section 34, part delivery in the course of delivering the whole can affect passing of property as delivery of the whole would. A part delivery intended to sever that part from the rest does not operate as delivery of the remainder. An acknowledgement can matter even when there is no physical truck movement.
Keep documents of title, property and risk separate
Where a party relies on a document of title, check section 2(4), which includes a warehouse keeper’s certificate and documents customarily used as proof of possession or control, or authorising transfer or receipt of the goods. Verify that the particular document qualifies and that its issue or transfer had the claimed effect; a storage receipt alone does not necessarily do so. Determine property and risk from their own rules, contract and facts. A delivery conclusion does not by itself establish the answer to every issue on title, payment, insurance or accounting recognition.
Control the reconciliation at close
Maintain a two-sided record from the contract to the warehouse’s lot list and from its acknowledgement back to the buyer’s books. Separate unresolved lots, damaged goods and alleged duplicate claims. The following illustrations quantify evidence coverage and timing; they do not prescribe a valuation or decide every legal consequence of partial delivery.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Instruction precedes acknowledgement
The seller instructs the warehouse on 3 August; the warehouse acknowledges on 6 August that it holds the contracted goods on the buyer’s behalf. The three-day difference matters. Under the ordinary rule and stated facts, the seller’s instruction alone did not establish delivery.
Illustrative example 2: Partial lot coverage
The warehouse holds 200 contracted units and acknowledges 150 on behalf of the buyer. Evidence supports 150 units, or 75%; investigate the other 50 and any effect of partial delivery.
Illustrative example 3: Two lots, one acknowledged
A contract has lot A of 80 units and lot B of 120. The warehouse acknowledges only B. Attribute the evidence to 120 units and keep 80 unresolved rather than treating the 200-unit invoice as acknowledgement.
Illustrative example 4: Conflicting quantity schedules
The seller’s schedule shows 330 units while the warehouse’s acknowledgement identifies 305. Reconcile the 25-unit variance before relying on a full-delivery conclusion.
Illustrative example 5: Separate document route
A warehouse acknowledgement covers 60 of 100 units; the seller relies on a separate alleged document of title for the other 40. Keep the two populations separate and verify the document before counting the 40.
Illustrative example 6: Reconcile an exposure amount
Assume a price of ₹450 each for 160 units and an acknowledgement covering 140. The ₹72,000 contract total includes ₹63,000 of acknowledged units and ₹9,000 of unresolved units at the stated price; this is not an automatic payment rule.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Read the agreed delivery terms | Contract and order documents |
| 2 | Identify the actual third-party possessor | Warehouse records and custody terms |
| 3 | Verify where the goods were at sale | Inventory and location evidence |
| 4 | Identify the contracted lots | SKU, serial and quantity schedule |
| 5 | Obtain acknowledgement to the buyer | Dated warehouse communication |
| 6 | Check authority and scope | Warehouse authorisation and terms |
| 7 | Review any document-of-title route | Original document and transfer evidence |
| 8 | Reconcile partial or disputed quantities | Contract-to-warehouse bridge |
| 9 | Assess property, risk and payment separately | Supported legal and accounting analysis |
| 10 | Retain the complete timeline and exceptions | Review file and follow-up record |
Sixteen practitioner FAQs
1. Does an invoice establish warehouse delivery?
No. Verify the section 36(3) route and the actual acknowledgement or document of title.
2. Who must acknowledge under the ordinary rule?
The third person in possession acknowledges to the buyer.
3. Can the seller’s instruction alone satisfy the rule?
It does not establish the third party’s acknowledgement to the buyer.
4. Does the buyer need to physically remove the goods?
The statutory acknowledgement can establish delivery on the stated facts without physical removal.
5. What if the warehouse addresses its message only to the seller?
Verify whether the necessary acknowledgement to the buyer has occurred.
6. Can a communication cover only part of a shipment?
Yes. Verify its actual scope and analyse partial delivery separately.
7. Does a generic stock balance prove the contracted lot is included?
Identify the actual goods and quantities.
8. Is every warehouse receipt a document of title?
Verify the document’s legal character and operation on the facts.
9. What does the proviso preserve?
The operation of issuing or transferring a document of title to goods.
10. Does this rule decide when ownership passed?
Apply the separate property rules and contract.
11. Does it decide who bears a later warehouse loss?
Assess risk, custody, fault and insurance separately.
12. Can a payment deadline depend on a later document?
Review the actual contract and evidence rather than assuming the delivery date answers every payment question.
13. What if there are duplicate claims to the same lot?
Preserve the custody and title records and seek a supported determination.
14. Does location have to be a formal warehouse?
The provision refers to possession by a third person; verify the facts.
15. Should an internal ERP receipt be dated as delivery without verification?
Use the supported transaction date and accounting analysis.
16. What evidence should be held together?
Keep contract, third-party possession, acknowledgement, any document of title and lot reconciliation together.
Official sources
India Code: Sale of Goods Act, 1930, sections 2(4), 19, 26 and 32–36