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The consequences of goods perishing subsequent to a
contract having been entered into for their sale
Todd, I. A.
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Todd, I. A. (1981)
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2
THE CONSEQUENCES OF GOODS PERISHING SUBSEQUENT TO
A CONTRACT HAVING BEEN ENTERED INTO FOR THEIR SALE
I.A. TODD
Thesis submitted f o r the award of the
degree B.C.L.
Thesis submitted i n 1981
The copyright of this thesis rests with the author.
No quotation from it should be published without
his prior written consent and information derived
from it should be acknowledged.
\ 7 WC( WPA
9
TABLE OF CONTENTS
Page.
9
|
)
I
I
^
Abstract t o t h e s i s
Table of Cases
Table of Statutes
Bibliography
i
i i
vi
viii
Preface
1
Part One: The Meaning o f "Perished"
Introduction
Section A: When W i l l Physical D e t e r i o r a t i o n /
Destruction Cause Goods To Perish?
A U t i l i t y Test
Perishing/Merchantability
Rendered Unmerchantable/Change of I d e n t i t y
A Suggested Test
Recovery/Restoration Possible
Section B: Can Goods Perish I f They Have
Never Existed?
A u t h o r i t y f o r an A f f i r m a t i v e Answer
A u t h o r i t y f o r a Negative Answer
Section C: Can Goods Be Taken To Have
Perished Even Though They Continue To E x i s t
And Have Not Been Subject t o Physical
Deterioration/Destruction?
Stolen Goods/Goods Taken By Mistake
Requisitioned Goods
5
6
Part Two: The Concept of Risk
Section A: Where Risk Passes Prior To
Property And Possession
Is the Buyer w i t h r i s k under an O b l i g a t i o n
t o pay the Contract Price i f the Goods
Perish?
L i a b i l i t y t o pay the Contract P r i c e : An
H i s t o r i c a l Perspective
The S i g n i f i c a n c e of the Passing o f
Property
Recovery o f " l o s s " rather than Recovery
of " p r i c e "
Circumstances i n which the Price may be
recovered
F a i l u r e o f Consideration
Section B: Where Risk Passes w i t h Property
How many r i s k s are t o be borne by the
party w i t h Risk
Risk and Perishing
Risk and Price
F a i l u r e of Consideration
Section C: Apportionment Of Risk Between
Seller And Buyer And Re-vesting Of Risk I n
The Seller
Default i n making or t a k i n g Delivery
Risk and O b l i g a t i o n as Bailee
Request t h a t Delivery be taken
9
10
11
13
IB
19
22
22
24
27
27
29
34
35
36
43
43
47
49
50
53
53
56
58
62
63
63
67
71
Contributory Negligence
Risk and T r a n s i t ( 1 )
Risk and T r a n s i t (2)
Risk and T r a n s i t (3)
Part Three: F r u s t r a t i o n o f the Contract
Section A: F r u s t r a t i o n By Section 7 Sale of
Goods Act 1979
Must the Goods be Specific?
Property and Risk must not have passed
Fault
Exclusion o f s e c t i o n 7
Section B: Consequences Of A Contract
Being F r u s t r a t e d By Section 7
Discharge of both p a r t i e s i n r e l a t i o n t o
Obligations which have not Accrued
Performance o f Obligations which have
Accrued
Compensation f o r Expenses Incurred
Payment f o r Goods Delivered
Section C: F r u s t r a t i o n At Common Law
Section D: Consequences Of A Contract Being
Discharged By Common Law
Discharge o f both p a r t i e s
F i n a n c i a l Adjustments
Prorating
Section E: Can There Be A Common Law
F r u s t r a t i o n Of A Contract For The Sale Of
S p e c i f i c Goods Which Have Perished?
The i n t e n t i o n of Parliament?
E f f e c t o f a Common Law F r u s t r a t i o n
Action f o r the Price or an Indemnity i n
r e l a t i o n t o Actual Loss?
A Casus Omissus
Addendum t o t h e s i s
None of the m a t e r i a l contained i n t h i s t h e s i s has
previously been submitted f o r a degree awarded by any U n i v e r s i
or by any other degree awarding body, save only f o r the poss i b i l i t y t h a t m a t e r i a l published i n academic a r t i c l e s or i n
books, and acknowledged as such i n the t h e s i s , may have been
so submitted.
- i -
ABSTRACT t o t h e s i s e n t i t l e d "The consequences o f goods p e r i s h i n g
subsequent t o a c o n t r a c t having been entered i n t o f o r t h e i r s a l e "
The t h e s i s comprises three P a r t s , together w i t h a preface and an
addendum.
Each o f the Parts focuses upon one of the three i n t e r - r e l a t e d
concepts a p p l i c a b l e where there i s a post-contract p e r i s h i n g of goods.
The concepts o f " p e r i s h i n g " , " r i s k " and " f r u s t r a t i o n " are separately
analysed so as t o i d e n t i f y t h e i r i n d i v i d u a l c h a r a c t e r i s t i c s and i n order
t h a t facets of t h e i r i n t e r - r e l a t i o n s h i p may emerge.
Part One, which deals w i t h the meaning of " p e r i s h i n g " , i s more
d e s c r i p t i v e i n nature than the other two Parts, f o r , when considered i n
i s o l a t i o n , the issues r a i s e d i n t h a t Part are r e l a t i v e l y s t r a i g h t f o r w a r d .
I t i s only when those same issues are re-considered, i n the context of
the concepts o f r i s k and f r u s t r a t i o n , t h a t t h e i r s i g n i f i c a n c e becomes
apparent.
I n Part Two, an analysis i s made of the meaning o f " r i s k "
and instances of the d i v i s i b i l i t y o f r i s k are examined.
D i f f e r e n t views
of the mishaps provided f o r by the s t a t u t o r y term " r i s k " are assessed and,
as p a r t of t h a t e x e r c i s e , the meaning o f "perished" i s re-appraised.
An
analysis i s made, i n Part Three, of the r u l e s which provide f o r f r u s t r a t i o n
of a c o n t r a c t o f sale and f o r the consequences r e s u l t i n g from such
frustration.
An attempt i s made t o i d e n t i f y instances i n which a c o n t r a c t
of sale may be f r u s t r a t e d even though p r o p e r t y , or r i s k , o r , indeed, both
property and r i s k , have passed t o the buyer p r i o r t o the goods p e r i s h i n g .
I n the addendum t o the t h e s i s an o p p o r t u n i t y i s taken t o re-examine
the concepts of " p e r i s h i n g " , " r i s k " and " f r u s t r a t i o n " i n a context i n
which, the separate concepts having already been analysed and d e t a i l e d
s t a t u t o r y and common law p r o v i s i o n s s c r u t i n i s e d , there i s freedom t o
bring together strands which have emerged from the various Parts o f the
thesis.
This o p p o r t u n i t y i s taken i n an attempt t o f i x the r e l a t i o n s h i p
between the
concepts.
-
11 -
TABLE OF CASES
Page.
Asfar v. B l u n d e l l /"1896 7 1 Q.B. 123
Ashington Piggeries v. Christopher H i l l /"1971 7
1 A l l , E.R. 847
~
re Badische Co., Bayer Co. /"1921 7 2 Ch. 331
Barr v . Gibson (1838) 3 Mand W 390
7, 1 1 , 12, 13,
15, 16, 17, 127
18
108
9, 15, 19
Barrow Lane and B a l l a r d L t d . v. P h i l l i p
P h i l l i p s and Company L t d . /~1929_7 1 K.B. 574
27, 29, 32, 102
Beer v . Walker (1877) 46 L.J. Q.B. 677
78
Bevington and Morris v. Dale and Co. L t d . (1902)
7 Com. Cas. 112
Blackburn Bobbin Company v. T.W. A l l e n and Sons
4 1 , 42
/"191B_7 1 K.B. 540
108
B o u l t e r v. A r n o t t (1833) 1 Cr and M 333
44
Bovey v . Castleman 1 L t d . Rayen 67
43
Bou/den Bros, and Co. L t d . v. L i t t l e (1907) 4 C.L.R. 1364
77
B r i t i s h Movietonews L t d . v . London and D i s t r i c t Cinemas
Ltd. /"1952_7 A.C. 166
B.P.
E x p l o r a t i o n v. Hunt (No. 2) /"1979_7 1 W.L.R. 783
B u l l v. Robinson (1854) 10 Ex. 342
20
106, 122
80
Cammell L a i r d and Co. v. The Manganese Bronze and Brass
Co. /"1934_7 A.C. 402
12
Canada A t l a n t i c Grain Export Co. v. E i l e r s (1929)
35 Com. Cas. 90
12
Castle v. P l a y f o r d (1872) L.R. 7 Ex. 98
38, 42
Chandler v. Webster /"19Q4 7 1 K.B. 493
104, 133
C i v i l Service Co-operative Society v. General Steam
Navigation Co. /"19Q3 7 2 K.B. 764
133
Clarke v. Army and Navy Co-operative Society / 1903 7
1 K.B. 155
"
75
- iii -
Page
Clarke v. Hutchins (1811) 14 East 475
86
Colley v. Overseas Exporters /"1921 7 3 K.B. 302
44
Cologan v. London Assurance (1816) 5 M and S 447
10
Comptoir D'Achat e t De Vente du Boeren Bond Beige S/A
v. Luis de Ridder Limitada (The J u l i a n a ) /"1949 7 A.C.
293
"
"
35> 5 1 , 52,
54, 62
Constantine (Joseph) S.S. Line v. I m p e r i a l Smelting
Corporation L t d . /"1942_7 A.C. 154
60
Cunningham L t d . v. R.A. Munro and Co. L t d . (1922)
28 Com. Cas. 42
64
Cutter v. Powell (1795) 6 T.R. 320
105
Denby Hamilton and Co. v. Barden /"1949 7 1 A l l . E.R. 435
39, 4 1 , 42,
64, 67
Dight v. Craster H a l l (Owners) (1913) 6 B.W.C.C. 674
71
Doe'd Dacre v. Dacre (Lady) (1798) 1 B and B 250
64
Federspiel (Carlos) and Co. S.A. v. Chas. Twigg and
Co. L t d . /"1957 7 1 Lloyds Rep 240
59
Fibrosa Spoka Akcyjna v. F a i r b a i r n Lawson Combe
Barbour L t d . /"1943 7 A.C. 32
50, 101, 104,
105, 116, 139
Francis v. Boulton (1895) 12 T.L.R. 75
15, 16
Hadley v. Baxendale (1854) 9 Exch. 341
66
Hansen v. Dunn (1906) 22 T.L.R. 458
15
Hong Guan and Co. L t d . v. R. Jumabhoy and Sons L t d .
/"1960_7 A.C. 684
125
Horn v. M i n i s t e r of Food /"1948 7 2 A l l . E.R. 1036
9, 134
Howell v. Coupland:
22, 93, 110, 113
23, 25, 110
(1874) L.R. 9 Q.B. 462
(1876) 1 Q.B.D. 258
I n g l i s v. Stock (1885) 10 A.C. 263
42
- iv -
Page
Jones v. Just (1868) 18 L.T. 208
14
Karberg (Arnhold) and Co. v. B l y t h , Green, Jourdain and
Co. /_~1915J 2 K.B. 379
134
Koon v. B r i n k e r h o f f (1866) 39 Hun. 130
69
K u r s e l l \J . l imber Operators /~1927 7 1 K.B.
298
54
L a i r d v. Pirn (1841) 151 E.R. 857
45
Logan v. Le Mesurier (1847) 13 E.R.
628
96
Mambre Saccharine Co. v. Corn Products Co. (1918)
24 Com. Cas. 89
134
Maratime N a t i o n a l Fish L t d . v. Ocean Trawlers L t d .
/"1935_7 A.C. 524
125
Martineau v. K i t c h i n g (1872) L.R. 7 Q.B.
436
37, 40, 4 1 ,
42, 47, 48
Mash and M u r e l l v. Joseph Emmanuel L t d . /~1961 7
1 A l l . E.R. 485
"
"
77
McRae v. Commonwealth Disposals Commission (1951)
84 C.L.R. 377
24
Mody v. Gregson (1868) 19 L.T. 458
14
O l l e t t v. Jorden /"1918 7 2 K.B. 41
78
P a c i f i c Motor Auction Pty. L t d . v. Motor C r e d i t s
( H i r e Finance) L t d . /"1965_7 A.C. 867
Palace Shipping Company v. S p i l l e r s and Bakers
69
The Times May 18 1908
15, 16
Pattinson v. Luckley (1875) L.R.
10 Ex. 330
Quinn v. Burch Bros. ( B u i l d e r s ) L t d . /"1966 7 2
370
"
106
Q.B.
89
-
V -
Rendall v. Turnbull (1908) 27 N.Z.L.R. 1067
16
Rowland v. Div/all /"1923 7 2 K.B. 500
131
Rugg v. Minett 11 East 210
128
Sainsbury v. Street /"1972 7 3 A i l . E.R. 1127
25
Sargant and Sons v. Paterson and Co. (1923) 129 L.T.
471
92
re Shipton Anderson and Co. and Harrison Bros, and Co.
/"1915_7 3 K.B. 676
30, 3 1 , 32
Simmons \i. S w i f t 108 E.R. 319
54
Sky Petroleum v. V.I.P. Petroleum L t d . /'1974 7 1 A l l . E.R.
954
"
94
Slades Case (1602) 4 Co. Rep.
43
S t a f f s Motor Guarantee L t d . v. B r i t i s h Wagon /"1934 7
2 K.B. 305
"
~
Sterns v. Vickers L t d . /"1923_7 1 K.B. 78
36, 4 1 , 52
Sumpter v. Hedges /"1898 7 1 Q.B. 676
106
T a r l i n g v. Bates (1827) 108 E.R. 484
136
Taylor v. Caldwell (1863) 3 B and S 826
22, 23, 60,
102, 127
Tenants (Lancashire) L t d . v. C.S. Wilson and Co. L t d .
/"1917 7 A.C. 495
>
69
r e Waite /""1927J 1 Ch. 6Q6
124
25, 111
Waite v. Baker (1848) 2 Ex. 1
83
White and Carter (Councils) L t d . v. McGregor /"1962 7
A.C. 413
>
*
"
66
Wiehe v. Dennis Bros, (1913) 29 T.L.R. 250
69
Wimble Sons and Co. v. Rosenberg and Sons /~1913 7
3 K.B. 757
"
88
Young (Thomas) and Sons L t d . v. Hobson and Partners
(1949) 65 T.L.R. 365
86
- vi-
TABLE OF STATUTES
Page
Sale of Goods Act 1893 (56 and 57 V i c t . , c.71)
Section 6
Section 49(2)
24, 27
45
Marine Insurance Act 1906 (6 Edw. 7. c.41)
Section 57(1)
Section 60
19
19
Law Reform ( F r u s t r a t e d Contracts) Act 1943 (6 and 7 Geo. 6,
c.40)
>
Section
Section
Section
Section
Section
Section
Section
KD
1(2)
K3)
1(4)
2(3)
2(4)
2(5)(c)
t
Section 3
112
115, 116, 120,
121, 123
119
115, 116
123
6, 20, 101, 112
129, 139
6
Law Reform (Contributory Neqliqence) Act 1945 (8 and 9
Geo. 6, c.28)
i
Section
KD
74-76
Sale of Goods Act 1979 (c.54)
>
Section
Section
Section
Section
Section
2(1)
2(4)
5(2)
6
7
Section 13
Section 14(2)
>
>
Section 18
Section 20(1)
Section 20(2)
Section
Section
Section
Section
Section
Section
Section
Section
20(3)
27
30(1)
32(1)
32(2)
32(3)
33
35
131
77
25, 111
6, 28-29
6, 29, 60, 88,
93, e t seq.
141 e t seq.
18
12-17, 57, 78,
99
84
36, 53-58
36, 39, 49,
64-67, 74, 85
67-71, 75
131
107, 123
82
82-87
87-90
74-82
107
-
Vll
-
Page
Sale o f Goods Act 1979 (cont.)
Section 37
Section 49
Section 49(2)
Section 52
Section 54
Section 55(1)
Section 61
Section 62(2)
71-74
138
47
94, 110
51-2
99
6, 64,
25, 111
- viii -
BIBLIOGRAPHY
)
>
I
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- ix -
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1 -
PREFACE
As i n d i c a t e d i n i t s t i t l e , t h i s t h e s i s sets out t o explore the consequences o f goods p e r i s h i n g subsequent t o a c o n t r a c t having been entered
i n t o f o r their sale.
a)
From the o u t s e t , i t has been determined t h a t :
s t a t u t o r y and common law provisions r e l a t i n g t o a pre-contract
p e r i s h i n g of goods w i l l be r e f e r r e d t o only where they a s s i s t i n the
understanding
b)
of the consequences of a p o s t - c o n t r a c t p e r i s h i n g ;
events other than the p e r i s h i n g o f goods which may render per-
formance o f a c o n t r a c t o f sale impossible w i l l , s i m i l a r l y , be considered
only t o the extent t h a t they reveal the existence o f s p e c i a l r u l e s
applicable t o the s i t u a t i o n i n which goods p e r i s h or where they b r i n g
such r u l e s i n t o a sharper focus than would be t h e case i f there were
to be no reference t o those other instances o f i m p o s s i b i l i t y .
A t t e n t i o n i s focused upon the narrow area o f a post-contract
p e r i s h i n g of goods because of the s p e c i a l o p p o r t u n i t i e s i t provides f o r
an analysis of the i n t e r - r e l a t i o n s h i p of fundamental concepts w i t h i n t h e
rules applicable t o contracts of sale.
I n p a r t i c u l a r , the n o t i o n of
" p e r i s h i n g " provides a l i n k between the r e l a t e d concepts o f r i s k and
f r u s t r a t i o n and the s i t u a t i o n i n which goods p e r i s h thus creates a forum
i n which the operation o f these concepts can be examined and t h e i r nature
revealed.
When goods which form the subject matter o f a c o n t r a c t of s a l e
p e r i s h , subsequent t o the making o f the c o n t r a c t , two r e l a t e d , but
separate, questions need t o be answered. The p a r t i e s w i l l wish t o know
which o f them must bear the loss o f the items destroyed
or damaged.
They
w i l l also be concerned as t o the s t a t u s of the agreement they have made
and w i l l wish t o be advised whether or not the c o n t r a c t has survived t h e
p e r i s h i n g of the goods.
I f i t has n o t , they w i l l f u r t h e r wish t o be
advised of the consequences o f the untimely t e r m i n a t i o n of t h e i r bargain.
The answers t o these questions are determined by the a p p l i c a t i o n of the
r u l e s r e l a t i n g t o r i s k and f r u s t r a t i o n .
Not only w i l l a post-contract
- 3 -
p e r i s h i n g o f goods r a i s e these problems and i n t r o d u c e these concepts, i t
w i l l do so u n i q u e l y .
Where a c o n t r a c t f o r the sale o f goods i s f r u s t r a t e d
by supervening i l l e g a l i t y ,
f o r example, the p a r t i e s w i l l need t o determine
only the f a c t t h a t performance of the c o n t r a c t i s discharged
sequences of such discharge.
and the con-
No question of r i s k a r i s e s , f o r t h e goods,
and the wealth they represent, w i l l continue t o e x i s t .
I t i s , then, i n
the event o f a p o s t - c o n t r a c t p e r i s h i n g of goods t h a t the nature o f the
p r i n c i p l e s r e l a t i n g t o r i s k and f r u s t r a t i o n ought t o r e v e a l themselves
most s h a r p l y .
I t w i l l become apparent t h a t the concept of r i s k , and t h e c l a s s i f i c a t i o n
o f events which w i l l c o n s t i t u t e a " p e r i s h i n g " are i n t e r r e l a t e d .
Into this
f a b r i c o f ' r e l a t i o n s h i p s must also be woven the d o c t r i n e of f r u s t r a t i o n ,
for
the L e g i s l a t u r e and the Courts have thought i t a p p r o p r i a t e t o r e f e r
t o the concept o f r i s k when framing r u l e s and p r i n c i p l e s r e l a t i n g t o
frustration.
Thus, not only do the r u l e s o f r i s k and f r u s t r a t i o n apply i n
the same s i t u a t i o n , t h a t i n which goods p e r i s h , b u t , i n a d d i t i o n , one set
of r u l e s has been incorporated i n t o the o t h e r .
This has n o t , however,
r e s u l t e d i n a s i t u a t i o n i n which bath sets o f r u l e s have been subsumed
i n t o one and much of the u n c e r t a i n t y t o be found i n t h i s area r e s u l t s
from t h i s f a c t .
The complexity o f these i n t e r - r e l a t i o n s h i p s i s
heightened by the lack of s t a t u t o r y and, o f t e n , J u d i c i a l d e f i n i t i o n s . A l l
too o f t e n , the a p p l i c a t i o n of r u l e s i s assumed r a t h e r than questioned
and determined and p r i n c i p l e s are hidden, or even l o s t , i n judgments
which r e f e r t o an outcome w i t h o u t adequate reference t o the reasons or
reasoning
leading t o t h i s outcome.
In t h i s t h e s i s , then, an attempt w i l l be made t o i d e n t i f y the nature
of the r u l e s which apply where goods p e r i s h subsequent t o a c o n t r a c t of
sale and t o analyse aspects of t h e i r i n t e r - r e l a t i o n s h i p .
the t h e s i s has been d i v i d e d i n t o three P a r t s .
To t h i s end,
- 4 -
In Part One an attempt i s made t o determine the circumstances i n
which goods w i l l be taken t o have perished, Part Two seeks t o i d e n t i f y
the nature of the concept of r i s k and i n Part Three r u l e s r e l a t i n g t o
f r u s t r a t i o n are examined i n a s e t t i n g provided by one instance of
i m p o s s i b i l i t y , t h a t a r i s i n g out of a post-contract p e r i s h i n g of goods.
Whilst the m a t e r i a l contained i n t h i s t h e s i s has, t o f a c i l i t a t e a n a l y s i s ,
been separated i n t o these three Parts, i t w i l l become apparent t h a t the
Parts are not intended t o be d i s c r e t e .
I t may a s s i s t the reader i n h i s
progress through t h i s t h e s i s i f he i s aware t h a t i t has been w r i t t e n i n
the expectation t h a t i t w i l l r e v e a l possible answers t o what may
i n i t i a l l y appear t o be f a i r l y s t r a i g h t f o r w a r d questions:
a)
what does i t mean t o say t h a t a p a r t y t o a sale o f goods
c o n t r a c t "has r i s k " ?
b)
when w i l l a sale of goods c o n t r a c t be f r u s t r a t e d by reason of
the goods p e r i s h i n g and what are the consequences of the c o n t r a c t
being f r u s t r a t e d as a r e s u l t o f such an event?
F i n a l l y , and somewhat t e n t a t i v e l y , an o p p o r t u n i t y w i l l be taken, i n an
addendum t o the t h e s i s , t o r e f l e c t upon the m a t e r i a l contained w i t h i n the
t h e s i s and, i n the l i g h t o f t h a t m a t e r i a l , t o suggest possible r e l a t i o n ships between the terms " p e r i s h " and " r i s k " .
- 5-
PART ONE
THE MEANING OF "PERISHED"
- 6 -
INTRODUCTION
I n the p o s t - c o n t r a c t s i t u a t i o n much may t u r n on whether or not goods
which form the s u b j e c t matter o f a c o n t r a c t of sale have perished.
(
Section 7 Sale o f Goods Act 1979 provides t h a t where "... there i s an
agreement f o r the sale o f s p e c i f i c goods and subsequently t h e goods,
w i t h o u t any f a u l t on the p a r t o f the s e l l e r or buyer, p e r i s h before t h e
r i s k passes t o t h e buyer, t h e agreement i s avoided" and, q u i t e c l e a r l y ,
a p p l i e s only where goods " p e r i s h " .
Conversely, s e c t i o n 2 ( 5 ) ( c ) Law
Reform ( F r u s t r a t e d Contracts) Act 1943 provides t h a t the Act "... s h a l l
not apply
1
Act
.... ( c ) t o any c o n t r a c t t o which s e c t i o n seven o f t h e Sale o f Goods
1979 (which avoids c o n t r a c t s f o r t h e sale o f s p e c i f i c goods which
p e r i s h before t h e r i s k has passed t o t h e buyer) a p p l i e s , or t o any other
c o n t r a c t f o r t h e s a l e , or f o r t h e sale and d e l i v e r y o f s p e c i f i c goods,
»
where the c o n t r a c t i s f r u s t r a t e d by reason of the f a c t t h a t the goods
have perished".
1943
(
As a r e s u l t o f t h i s s e c t i o n none o f t h e p r o v i s i o n s o f t h e
Act can apply t o a c o n t r a c t f o r the sale o f s p e c i f i c goods which
have "perished".
The s i g n i f i c a n c e o f the goods being considered t o have "perished"
i s , i n the case o f t h e above p r o v i s i o n s , manifest.
There are other
s i t u a t i o n s i n which a f i n d i n g t h a t the goods have "perished" may be e q u a l l y
s i g n i f i c a n t , though the need f o r such a f i n d i n g may, i n i t i a l l y , be less
obvious.
Thus, f o r example, i t may be t h a t the concept o f r i s k , as
Equally i n the event o f a p r e - c o n t r a c t mishap s e c t i o n 6 Sale o f Goods
Act 1979 provides t h a t where "there i s a c o n t r a c t f o r the sale o f s p e c i f i c
goods and the goods w i t h o u t the knowledge o f the s e l l e r have perished a t
the time when the c o n t r a c t i s made, the c o n t r a c t i s v o i d " and, again,
a p p l i e s only where the goods have "perished".
- 7 -
r e f e r r e d t o i n the 1979 A c t ,
goods " p e r i s h " .
r e l a t e s only t o the s i t u a t i o n
This p o s s i b i l i t y w i l l be explored i n Part
i n which
Two.
When do goods "perish"? Neither the Sale of Goods Act 1979 nor the
Law Reform ( F r u s t r a t e d Contracts) Act 1943 provides a s t a t u t o r y answer t o
t h i s q u e s t i o n , f o r n e i t h e r provides a d e f i n i t i o n o f the term, despite
2
the
f a c t t h a t both s t a t u t e s c o n t a i n a d e f i n i t i o n s e c t i o n .
Given t h e
absence o f a s t a t u t o r y d e f i n i t i o n one must t u r n t o case-law f o r guidance,
but one must proceed w i t h c a u t i o n .
Most of the cases i n which con-
s i d e r a t i o n has been given t o t h i s problem were not such as t o concern the
Court w i t h the r e s p e c t i v e r i g h t s and l i a b i l i t i e s of t h e p a r t i e s t o t h e
c o n t r a c t o f s a l e , they are e i t h e r insurance cases or cases i n which the
Court was c a l l e d upon t o determine whether f r e i g h t was payable on a
cargo which had been damaged or which had d e t e r i o r a t e d d u r i n g a voyage.
The case which i s most o f t e n r e l i e d upon as an authority'' i n t h i s area,
4
Asfar v. B l u n d e l l , was, f o r example, an a c t i o n a g a i n s t i n s u r e r s i n which
the Court was asked t o determine whether f r e i g h t was payable and whether
or not there had been a t o t a l loss of the cargo so as t o a c t i v a t e an
insurance p o l i c y .
The cases have thus been concerned w i t h one, or more,
of three r e l a t e d , but independent, q u e s t i o n s :
1)
have the goods "perished" or "ceased t o e x i s t " f o r the
purposes of a c o n t r a c t f o r t h e i r sale?
2)
have the goods a r r i v e d a t t h e i r d e s t i n a t i o n so as t o render
the shipper or c h a r t e r e r l i a b l e t o pay f r e i g h t ?
3)
have the goods been t o t a l l y l o s t f o r t h e purposes o f
insurance?
Section 61 Sale of Goods Act 1979; Section 3 Law Reform
Contracts) Act 1943.
(Frustrated
^See, f o r example:
Atiyah
"The Sale of Goods"(4th e d ) , page 4 1 ;
Greig, "Sale of Goods", page 213; "Benjamin's Sale of Goods", page 75;
" C h i t t y on Contracts, S p e c i f i c Contracts", page 370.
/"1896 7 1 Q.B.
123.
^
1
- a Can the answers t o questions 2 and 3 be of assistance when seeking an
answer t o question 1? Most academic w r i t e r s , w i t h varying degrees o f
enthusiasm^ have concluded t h a t they are.
An analysis o f case-law w i l l now be made t o permit answers t o be
suggested t o three questions:
1)
When w i l l p h y s i c a l d e t e r i o r a t i o n / d e s t r u c t i o n cause goods t o
perish?
2)
Can goods p e r i s h i f they have never existed?
3)
Can goods be taken t o have perished even though they continue
t o e x i s t and have not been subject t o p h y s i c a l d e t e r i o r a t i o n /
destruction?
Contrast, f o r example, Greig, "Sale of Goods", page 213 and
Atiyah "The Sale o f Goods ( 4 t h ed), page 4 1 .
- 9 -
SECTION A;
WHEN WILL PHYSICAL DETERIORATION/DESTRUCTION CAUSE GOODS TO PERISH?
I t i s c l e a r t h a t goods which have been so completely destroyed as
to
no longer e x i s t i n specie must be taken t o have perished.
I n some
cases i t has been suggested t h a t t h i s t e s t , o f t o t a l d e s t r u c t i o n , i s
the only one which can be used t o determine whether goods have perished.
The sole question, i t i s argued, i s whether or not the goods s t i l l
correspond w i t h the c o n t r a c t d e s c r i p t i o n .
I n Barr v. Gibson^ the Court
was faced w i t h a s i t u a t i o n i n which a deed had been executed f o r t h e
sale o f a ship i n ignorance o f the f a c t t h a t , a t t h a t time, t h e ship was
aground and could n o t , i n p r a c t i c a l terms, be r e - f l o a t e d .
sale?
Parke B. held t h a t "We are o f the opinion
Was there a
the ship did con-
t i n u e t o be capable of being t r a n s f e r r e d .... though she might be l o s t
w i t h i n the meaning o f a c o n t r a c t o f insurance".
7
The Court refused t o
consider the u t i l i t y o f the goods as a r e l e v a n t f a c t o r ; "She was s t i l l a
ship though a t the time incapable o f being
7
b e n e f i c i a l l y employed
8
as such".
S i m i l a r l y i n Horn v. M i n i s t e r o f Food Morris J., when cons i d e r i n g whether potatoes which had r o t t e d i n a clamp had perished f o r
g
the purposes of Section 7 Sale o f Goods Act 1893, s a i d , o b i t e r , " i t
would be wrong ... t o say t h a t they d i d not answer t o the d e s c r i p t i o n o f
'potatoes', however grave was the d e t e r i o r a t i o n of t h e i r c o n d i t i o n " .
Can i t be then, t h a t "perished" means "destroyed"?
6
( 1 8 3 8 ) 3 M + W 390; 150 E.R. 1196.
7
150 E.R. 1200.
8
/~1948_7 2 A l l E.R. 1036.
9 a t 1039.
Support f o r t h i s
- 10 -
p r o p o s i t i o n can be found, i n a d i f f e r e n t c o n t e x t , i n the r u l e s which
allow the High Court t o make an order f o r r e - s a l e .
R.S.C. provides:
Rule 4(1) Order 29
"The Court may .... make an order f o r the sale .... of
any property (other than land) .... which i s o f a perishable nature or
l i k e l y t o d e t e r i o r a t e i f kept ...".
The 'or' i s s i g n i f i c a n t , goods may
be sold by the Court i f perishable or l i k e l y t o d e t e r i o r a t e ,
i t would
seem t h a t perishable means, i n t h i s c o n t e x t , something other than having
a propensity t o become u n f i t or unmerchantable and, presumably, means being
of such a nature t h a t the goods may do more than " d e t e r i o r a t e " , they may
cease t o e x i s t i n specie.
A Utility
Test
Despite t h e above a u t h o r i t i e s , there has been a growing tendency f o r
the
courts t o take i n t o account the u t i l i t y o f the goods i n order t o
determine whether they have ceased t o e x i s t .
Assurance
I n Cologan v. London
Lord Ellenborough asserted t h a t "there i s a t o t a l loss o f the
t h i n g i f , by any o f the p e r i l s insured a g a i n s t , i t i s rendered of no use
whatsoever although i t might not be e n t i r e l y annihilated"."'''''
u t i l i t y t e s t i n i t s crudest form.
This i s a
I f the goods have some u t i l i t y ,
however marginal, the goods e x i s t ; i f , on t h e other hand, t h e goods have
no u t i l i t y then they have ceased t o e x i s t f o r the purposes o f insurance
even though they continue t o e x i s t i n specie.
The t e s t i s an unhappy
one, c e r t a i n l y i n the sale o f goods c o n t e x t , and, i n t h a t context, would
seem t o have no c l e a r conceptual base.
the
The t e s t r e f e r s t o the u t i l i t y o f
goods but ignores the c o n t r a c t u a l l y contemplated
purpose and,
accordingly, places undue emphasis on an i r r e l e v a n t , r e s i d u a l , u t i l i t y .
(1816) 5 H + S 447; 105 E.R. 1114.
105 E.R. a t 1117, 1118.
- 11 -
Perishing/Merchantability
I n Asfar v. B l u n d e l l
t h e Court o f Appeal was r e q u i r e d t o determine
whether t h e r e was a t o t a l loss o f dates which had been submerged i n
water and impregnated w i t h sewage.
The dates were not t o t a l l y destroyed,
nor
were they l a c k i n g i n u t i l i t y , f o r they were of considerable value f o r
the
purpose of d i s t i l l a t i o n i n t o s p i r i t .
The Court of Appeal held t h a t no
f r e i g h t was payable and t h a t there was a t o t a l loss of the s u b j e c t matter
of the insurance,,
Lord Esher M.R. asserted:
"There i s a p e r f e c t l y
well-known t e s t which has f o r many years been a p p l i e d t o such cases as
the
present, t h a t t e s t i s whether, as a matter o f business, the nature of
12
the
t h i n g has a l t e r e d . "
A l l four judges concerned w i t h t h e case r e l i e d
upon the f a c t t h a t the goods were no longer merchantable.
gave judgment
at f i r s t instance
1 3
asserted t h a t :
Mathew J., who
"Total destruction i s
14
not necessary, d e s t r u c t i o n o f the merchantable character i s s u f f i c i e n t , "
Lord Esher M.R., who d e l i v e r e d the leading Judgment
Appeal, maintained t h a t :
i n the Court o f
".„.<,. the question f o r d e t e r m i n a t i o n i s
whether the t h i n g i n s u r e d , the o r i g i n a l a r t i c l e of commerce, has become
a t o t a l loss.
I f i t i s so changed i n i t s nature by t h e p e r i l s o f the sea
as t o become an unmerchantable t h i n g , which no buyer would buy and no
honest s e l l e r would s e l l , there i s a t o t a l l o s s . "
the
same o p i n i o n :
character as dates.
But ... they had c l e a r l y l o s t any merchantable
I n my judgement i t i s i d l e t o suggest t h a t t h e r e
was not a t o t a l loss of the d a t e s . "
/~1896_7 1 Q.B. 123.
12
" " a t 127.
1 3
1 4
1 3
1 6
/~1895_7 2 Q.B. 196.
a t 201.
/"1896_7 1 Q.B.
a t 130.
Lopes L.J. was of
"The f i r s t p o i n t taken was t h a t there was no t o t a l
loss of the dates.
4
1 3
123, 128.
1 6
Kay L.J. expressly approved the
- 12 -
statement made, a t f i r s t instance, by Mathew J.
17
What, then, i s the t e s t t o emerge from t h i s case?
mean "rendered unmerchantable"?
Does "perished"
Perhaps the answer t o t h i s question l i e s
i n the answer t o another; i s the term "unmerchantable",
as used i n the
t e s t e s t a b l i s h e d i n As far v. B l u n d e l l , the same term as t h a t used i n
s e c t i o n 14(2) Sale of Goods Act 1 9 7 9 ?
Co. v. E i l e r s
19
Wright J. s a i d :
18
I n Canada A t l a n t i c Grain Export
20
" I t seems t o follow t h a t i f goods are sold under a d e s c r i p t i o n
which they f u l f i l , and i f goods under t h a t d e s c r i p t i o n are
reasonably capable i n ordinary use o f several purposes they are
of merchantable q u a l i t y w i t h i n s e c t i o n 14 sub-section 2 of the
Act i f they are*reasonably capable o f being used f o r one or more
such purposes, even i f u n f i t f o r t h a t one of those purposes
which the p a r t i c u l a r buyer intended. No doubt i t i s too wide
t o say t h a t they must be of use f o r some purpose, because t h a t
purpose might be f o r e i g n t o t h e i r ordinary user. Thus i n
Asfar v. B l u n d e l l .... dates were held t o be unmerchantable
as dates because they had been submerged i n the Thames and
became impregnated w i t h sewage, though they were of considerable
value f o r d i s t i l l a t i o n i n t o vinegar."
21
S i m i l a r l y i n Cammell L a i r d and Co. v. The Manqaneze Bronze and Brass Co.
22
Lord Wright asserted:
"What sub-section 2 now means by 'merchantable q u a l i t y ' i s t h a t
goods i n the form i n which they were tendered were o f no use f o r any
purpose f o r which such goods would normally be used and hence not
saleable under t h a t d e s c r i p t i o n ... i t i s immaterial t o consider
i f i t could be s o l d as scrap; thus i n Asfar v. B l u n d e l l dates
were held t o be unmerchantable as dates because they had been
submerged i n the Thames and had become impregnated w i t h sewage
and were useless as dates, though they were of considerable
value f o r d i s t i l l a t i o n i n t o vinegar."
Clearly i n both cases, the term "unmerchantable"
advocated
1 7
at
as used i n the t e s t
i n Asfar v. B l u n d e l l i s equated w i t h the use of t h a t term i n
132.
18
Section 14(2) provides t h a t : "Where the s e l l e r s e l l s goods i n the course
of a business there i s an implied c o n d i t i o n t h a t the goods supplied under
the c o n t r a c t are of merchantable q u a l i t y
19
( 1 9 2 9 ) 35 Com Cas
20
^ a t 102,
U
2 1
103.
/"1934_7 A.C.
22
"at
430.
90.
402.
- 13 -
s e c t i o n 14(2) Sale o f Goods Act.
Does t h i s mean t h a t i f goods are
unmerchantable f o r t h e purposes o f s e c t i o n 1 4 ( 2 ) , they have "perished"
w i t h i n t h e meaning o f , say, s e c t i o n 7?
I t i s submitted t h a t such a con-
c l u s i o n would embrace t o o l i b e r a l an i n t e r p r e t a t i o n o f these cases.
To
a s s e r t t h a t goods which are unmerchantable w i t h i n the Asfar v. B l u n d e l l
t e s t w i l l be unmerchantable f o r t h e purpose o f s e c t i o n 14(2) i s not t o
assert the converse, t h a t goods which are unmerchantable f o r the purposes
of s e c t i o n 14(2) w i l l have "perished" as a r e s u l t o f the t e s t advocated
i n Asfar v. B l u n d e l l .
I f , indeed, a c o u r t was prepared t o accept t h a t goods which had been
rendered unmerchantable f o r t h e purposes o f s e c t i o n 14(2) had "perished"
for
t h e purposes o f s e c t i o n 7 o f t h e A c t , strange consequences would
ensue.
Any s e l l e r
who agreed t o s e l l s p e c i f i c goods would n o t be l i a b l e
t o t h e buyer f o r breach o f s e c t i o n 14(2) i f t h e goods were, w i t h o u t f a u l t ,
rendered unmerchantable p r i o r t o r i s k passing, f o r s e c t i o n 7 o f t h e Act
would avoid the c o n t r a c t .
A f a u l t n o t i o n would thus be imported i n t o
l i a b i l i t y f o r breach o f a c o n t r a c t f o r the s a l e o f s p e c i f i c goods. I f ,
however, the goods were unascertained t h e s e l l e r would be l i a b l e , f o r
s e c t i o n 7 r e l a t e s only t o agreements f o r the sale o f s p e c i f i c
goods.
S i m i l a r l y , the s e l l e r would remain l i a b l e i f t h e goods he i s s e l l i n g had
always been unmerchantable, f o r i n such uses there could hardly be a
"perishing".
I n such circumstances f a u l t would be i r r e l e v a n t i n
establishing l i a b i l i t y
f o r breach.
Rendered Unmerchantable/Change o f I d e n t i t y
None o f the judges involved i n Asfar v. B l u n d e l l a c t u a l l y r e f e r t o
"merchantable q u a l i t y " , the term used i n s e c t i o n 14(2) Sale o f Goods Act
1893.
Mathew J., Lopes L.J. and Kay L.J. r e f e r t o the goods being no
23
longer o f "merchantable
2 3
character"
and Lord Esher M.R. r e f e r s t o "an
/"1895_7 2 Q.B. 196, 201; /"1896_7 1 Q.B. 123, 130 and 132.
- 14 -
unmerchantable
thing"
24
.
The term "merchantable q u a l i t y " \i/as i n use at
25
t h a t t i m e , i n Mody v. Greqson,
f o r example, W i l l i s J. asserted t h a t
"the defendants promised the p l a i n t i f f s
... t h a t the same ... should be of
26
merchantable
quality".
Can any conclusions be drawn from the apparent
r e l u c t a n c e of the judges i n Asfar v. B l u n d e l l t o adopt the term
"merchantable
quality"?
I t i s submitted t h a t very l i t t l e should be
drawn from the f a c t t h a t t h e r e i s no d i r e c t reference t o t h i s term, f o r
i t appears t h a t a t t h a t time (and, indeed, a t the present time) terms such
as "merchantable" and "of merchantable q u a l i t y " were regarded as i n t e r 27
changeable.
I n Jones v. Just
f o r example, t h e Court, when a p p l y i n g
the i m p l i e d term, r e f e r r e d not t o "merchantable q u a l i t y " but t o the r e q u i r e 28
ment t h a t t h e r e be a "merchantable a r t i c l e " .
More weight should, perhaps, be given t o Lord Esher's c o n c l u s i o n
12
t h a t "as a matter of business, the nature of the t h i n g has been altered','
f o r i t would seem t h a t Lord Esher i s r e f e r r i n g not t o q u a l i t y but r a t h e r
to identity.
Lord J u s t i c e Kay, w h i l s t a d m i t t i n g
t h a t "the substance o f
the dates s t i l l remained and t h a t they had not been changed i n t o anything
but dates i n a p e c u l i a r c o n d i t i o n , questioned whether "the law r e q u i r e s
the nature of the t h i n g insured t o be so f a r changed as was suggested i n
29
argument".
2 4
2 5
/"1896_7 1 Q.B.
( 1 8 6 8 ) 19 L.T.
2 6
2 7
Quite c l e a r l y Kay L.J., accepting t h a t t h e r e had been
at
123, 128.
458.
459.
( 1 8 6 8 ) 18 L.T.
208.
at 209.
12
at
2 9
127.
/"1896 7 1 Q.8.
123,
132.
- 15 -
some change i n the nature o f the goods, also recognised t h a t there i s a
requirement t h a t the goods should change i n nature.
I t i s submitted t h a t
i t i s t h i s requirement t h a t i s a t the c e n t r e of the t e s t e s t a b l i s h e d i n
Asfar v. B l u n d e l l .
I t would seem t h a t the goods w i l l have perished, under
t h i s t e s t , when they have been rendered so unmerchantable as t o have undergone, i n a commercial sense, a change of nature/identity»
I t would f o l l o w
t h a t the f a c t t h a t the goods have been rendered unmerchantable w i l l n o t ,
i n i t s e l f , mean t h a t they have p e r i s h e d .
The t e s t t o be used when e s t a b l i s h i n g
whether or not goods have
7
perished would, t h e r e f o r e ,
seem t o remain t h a t advocated
i n Barr v. Gibson.
The goods have perished i f they do not e x i s t " i n specie" and i f they do
e x i s t " i n specie" they have not p e r i s h e d , even though they may be s u b j e c t
to serious defects i n q u a l i t y .
The
judgment
i n Asfar v. B l u n d e l l
may
thus be seen as important i n so f a r as i t provides f o r a more l i b e r a l
approach, than t h a t adopted i n Barr v. Gibson, when determining whether
the goods do e x i s t i n s p e c i e .
Since Asfar v. B l u n d e l l
commercial as w e l l as a p h y s i c a l one.
the t e s t remains one of i d e n t i t y may
31
t h e t e s t i s now
Support f o r t h e p r o p o s i t i o n
be found i n t h e judgment
J . i n Hansen v. Dunn, ^ f o r i n the course of h i s judgment
a
that
o f Kennedy
Kennedy J.
s t a t e d , i n r e l a t i o n t o the consignment i n q u e s t i o n :
" I t s c o n d i t i o n was, no doubt, bad, but I do not f e e l myself
j u s t i f i e d i n h o l d i n g t h a t i t d i d not a r r i v e ' i n specie' as maize,
according t o the t e s t s t a t e d by Lord Esher i n Asfar v. B l u n d e l l . " 3 1
Further support l i e s i n the d e c i s i o n s a r r i v e d a t i n Francis v.
Boulton
7
32
150 E.R.
3 0
3 1
and Palace Shipping Company v. S p l l l e r s and Bakers.
1200.
( 1 9 0 6 ) 22 TLR
at
458.
459.
3 2
( 1 8 9 5 ) 12 TLR
75.
33
T h e Times May
18
1908.
33
I n Francis v.
- 16 -
Boulton a Thames l i g h t e r c a r r y i n g r i c e sank and was covered
f o r two t i d e s .
When t h e l i g h t e r was r a i s e d and the cargo r e t r i e v e d the r i c e was k i l n
d r i e d a t the cost of £68 and s o l d f o r £111.
The Court, i n h o l d i n g t h a t
t h e r e had been no t o t a l l o s s , d i s t i n g u i s h e d Asfar v. B l u n d e l l on t h e
basis t h a t the r i c e was "capable o f being c o n d i t i o n e d and t h a t when k i l n
d r i e d i t was s o l d as r i c e and f e t c h e d about a t h i r d o f i t s sound value"
I n Palace Shipping Co. v. S p i l l e r s and Bakers a consignment o f wheat was
so damaged by sea-water t h a t i t became swollen and d i s c o l o u r e d , l o s t i t s
g l u t e n and gave o f f an o f f e n s i v e s m e l l .
f o r l e s s than one-quarter
I t was s o l d by the
purchasers
o f the expected p r i c e , though when k i l n - d r i e d
i t was l a t e r s o l d f o r h a l f t h e market p r i c e .
Mr. J u s t i c e Walker, accepting
t h a t the wheat could no longer be used f o r making bread, a p p l i e d t h e t e s t
"Was t h e wheat damaged wheat or had t h e whole nature o f the a r t i c l e
altered?"
3 3
He decided t h a t the k i l n - d r i e d wheat, which c o u l d be used f o r
c a t t l e feed was damaged wheat b u t t h a t i t had not ceased t o be wheat. I n
both cases the goods were c l e a r l y unmerchantable under the c o n t r a c t
d e s c r i p t i o n , b u t they had not perished f o r , i n each case, t h e d e f e c t i n
q u a l i t y was not such as t o change the nature o f t h e goods.
The wheat was
"damaged wheat" and t h e r i c e "was s o l d as r i c e " whereas t h e dates i n
Asfar v. B l u n d e l l had, f o r commercial purposes, ceased t o be dates and
had only a "scrap value" ( a l b e i t a considerable one).
I t i s submitted t h a t only where t h e i d e n t i t y o f t h e goods has changed
w i l l the goods be taken t o have perished.
The judgment
o f Cooper J. i n
3
Rendell v. T u r n b u l l ^ appears a t f i r s t t o c o n t r a d i c t t h i s conclusion b u t ,
on c l o s e r a n a l y s i s , the case can be r e a d i l y r e c o n c i l e d w i t h t h e " i d e n t i t y "
at page 75.
33
T h e Times May 18 1908,
3 5
( 1 9 0 8 ) 27 NZLR 1067.
- 17 -
proposition.
The f a c t s of the case are s t r a i g h t f o r w a r d , there was
an
agreement t o s e l l a s p e c i f i c batch of " t a b l e potatoes" which, a t the time
of d e l i v e r y were found t o be u n f i t f o r human food.
the purposes of the New
Act?
Had they perished f o r
Zealand equivalent of s e c t i o n 7 Sale of Goods
Cooper J. asserted t h a t "the f a c t t h a t the potatoes e x i s t e d
3
' i n specie' does not prevent the s e c t i o n applying" ** and thus seemed t o
suggest t h a t the t e s t was one of q u a l i t y r a t h e r than i d e n t i t y , and t h a t
the goods could be taken t o have perished even though t h e i r nature had not
3
changed.
He went on, however, t o say: ^
"They were s o l d as 'table
potatoes' and both p a r t i e s believed them t o be t a b l e potatoes, and I am
s a t i s f i e d t h a t , although t o outward appearances they were 'table potatoes'
they had
.... ceased t o be ' t a b l e potatoes'.
Through t h i s c o n d i t i o n
/"a second growth 7 ... they had as 'table potatoes' perished."
He found,
i n e f f e c t , t h a t the words " t a b l e potatoes" implied " f i t t o be eaten"
t h a t the c o n t r a c t d e s c r i p t i o n thereby incorporated a statement
t o the q u a l i t y of the goods.
and
relating
The goods perished not because they were
unmerchantable but because the d e f e c t i n q u a l i t y which caused them t o be
unmerchantable also took them outside the c o n t r a c t d e s c r i p t i o n .
The f a c t t h a t the t e s t remains one of i d e n t i t y r a t h e r than q u a l i t y
has o f t e n escaped n o t i c e .
Thus, f o r example, Asfar v. B l u n d e l l i s t o be
found i n the English and Empire Digest under an entry which reads:
unmerchantable under o r i g i n a l d e s c r i p t i o n - No f r e i g h t p a y a b l e " .
37
i t i s submitted, i s c l e a r l y not the r u l e and the e n t r y should read:
"Goods
This,
"Goods
so unmerchantable as t o no longer comply w i t h the o r i g i n a l d e s c r i p t i o n No f r e i g h t
at
payable".
1072.
Replacement Volume 41 (published 1965), page 572.
- 18 -
A Suggested Test
I t has been submitted t h a t goods perish when they are p h y s i c a l l y
destroyed or have d e t e r i o r a t e d t o such an extent as t o have changed t h e i r
nature.
Goods which have d e t e r i o r a t e d but have not changed i n nature have
not perished.
I n the l i g h t of the decision of the House o f Lords i n
38
Ash.tnqton Piggeries v, Christopher H i l l
which drew a d i s t i n c t i o n between
the a p p l i c a t i o n o f s e c t i o n 13 Sale o f Goods Act 1893 ( r e l a t i n g t o t h e
i d e n t i t y o f the goods) and s e c t i o n 14 o f the Act ( r e l a t i n g t o t h e q u a l i t y
of the goods), the t e s t t o be used when e s t a b l i s h i n g whether goods have
p h y s i c a l l y perished may be expressed i n a d i f f e r e n t way.
of the goods has d e t e r i o r a t e d t o such an extent
I f the q u a l i t y
t h a t the s e l l e r would
9
be l i a b l e ,to the buyer under s e c t i o n 13 Sale o f Goods Act 1979* (but f o r
the f a c t t h a t he may be r e l i e v e d o f h i s l i a b i l i t y as a r e s u l t o f the c o n t r a c t
being rendered void by s e c t i o n 6 Sale o f Goods Act 1979 or avoided by
s e c t i o n 7 o f the A c t , or as a r e s u l t o f the buyer being taken t o have
acquired the r i s k of the p a r t i c u l a r d e s t r u c t i o n / d e t e r i o r a t i o n ) , the goods
w i l l not e x i s t " i n specie" and w i l l have perished.
On the other hand, i f
the d e t e r i o r a t i o n i n q u a l i t y i s not such as t o cause a breach o f s e c t i o n
13 o f the A c t , the goods must c l e a r l y s t i l l e x i s t " i n specie" and have
not perished.
When determining whether there would be a breach o f s e c t i o n 13 o f
the Act i t would be permissable t o take i n t o account "Commercial expectations"
"The t e s t of d e s c r i p t i o n , at l e a s t where commodities are concerned,
i s intended t o be a broader, more commonsense, t e s t o f a mercantile
character. The question whether t h a t i s what t h e buyer bargained
for has t o be answered according t o such t e s t s as men i n the market
would apply, l e a v i n g more d e l i c a t e questions o f c o n d i t i o n , or
q u a l i t y , t o be determined under other clauses o f the c o n t r a c t or
sections of the Act." (per Lord W i l b e r f o r c e , Ashinqton Piggeries v.
Christopher H i l l ^ O )
3 8
/J 1911
71
A l l E.R. 847.
39
which provides t h a t where "there i s a c o n t r a c t f o r the sale o f goods by
d e s c r i p t i o n , there i s an i m p l i e d c o n d i t i o n t h a t the goods w i l l correspond
w i t h the d e s c r i p t i o n " .
40
/• 1971_/ 1 A l l E.R. 847, 872.
- 19 -
Recovery/Restoration
Possible
A problem i s r a i s e d i n the s i t u a t i o n i n which recovery or
r e s t o r a t i o n o f goods, which are " l o s t " or have d e t e r i o r a t e d , i s comm e r c i a l l y out o f the question but i s not p h y s i c a l l y impossible.
goods perished
i n these circumstances?
Have the
As most o f t h e reported cases
i n v o l v e marine insurance or f r e i g h t a c o n s i d e r a t i o n o f t h i s area may be
instructive.
I n a c o n t r a c t o f marine insurance there may be an a c t u a l
t o t a l loss or a c o n s t r u c t i v e t o t a l loss and the d i f f e r e n c e between t h e
two r e f l e c t s the d i s t i n c t i o n between p h y s i c a l and commercial i m p o s s i b i l i t y .
Section 57(1) Marine Insurance Act 1906 provides t h a t there i s an a c t u a l
t o t a l loss where "the s u b j e c t matter insured i s destroyed, or so damaged
as t o cease t o be a t h i n g o f the kind i n s u r e d , or where the assured i s
i r r e t r i e v a b l y deprived
thereof".
With the p o s s i b l e exception
o f an a c t u a l
t o t a l loss which has r e s u l t e d from t h e assured being " i r r e t r i e v a b l y
deprived" o f the s u b j e c t matter o f the insurance, i t seems c l e a r t h a t where
there i s an a c t u a l t o t a l loss there i s both a commercial and a p h y s i c a l
p e r i s h i n g o f the goods.
Section 60 Marine Insurance Act 1906, however,
defines a c o n s t r u c t i v e t o t a l loss as a loss occasioned where "the s u b j e c t
matter insured i s reasonably abandoned on account o f i t s a c t u a l t o t a l
loss appearing t o be unavoidable, or because i t could not be preserved
from a c t u a l t o t a l loss w i t h o u t an expenditure which would exceed i t s value
when the expenditure had been i n c u r r e d " .
Quite c l e a r l y there can be a
c o n s t r u c t i v e t o t a l loss where goods are p h y s i c a l l y capable o f being
recovered.
I t i s conceivable t h a t t h i s approach would be adopted by a c o u r t
c a l l e d upon t o determine whether goods
have perished
which may be
recovered/restored
f o r the purposes o f s a l e .
This s i t u a t i o n was a n t i c i p a t e d i n an i n t e r e s t i n g problem posed by counsel
41
i n Barr v. Gibson,
"Suppose", he asked the Court, " t h i s had been a ship
(1838) 150 E.R. 1196, 1198.
- 20 -
a t the bottom of the ocean, and the water being very c l e a r i t could be
d i s t i n c t l y seen".
I f one adds t o t h i s s u p p o s i t i o n the f u r t h e r s u p p o s i t i o n
t h a t the vessel could be recovered, but only a t enormous expense, one
creates a t a x i n g problem.
c o n t r a c t of sale?
Has the vessel perished f o r the purposes of a
To ask t h i s question i s not simply t o ask whether a
c o u r t would be prepared t o release the s e l l e r from h i s o b l i g a t i o n s , f o r
i t i s not doubted t h a t , i n a p p r o p r i a t e circumstances, the c o n t r a c t could be
declared v o i d or f r u s t r a t e d (depending
time of
upon the r e l a t i o n s h i p between the
s i n k i n g and the time of making the c o n t r a c t ) on the basis t h a t
the p a r t i e s "never agreed t o be bound i n a fundamentally d i f f e r e n t s i t u a t i o n
42
which has now
unexpectedly
emerged".
The q u e s t i o n r e l a t e s r a t h e r t o t h e
consequences of any f r u s t r a t i o n f o r , the goods being s p e c i f i c , i t would be
necessary t o determine whether or not the goods have perished i n order t o
a s c e r t a i n the r u l e s t o be used t o e s t a b l i s h t h e consequences o f the
frustration.
I t would seem t h a t there are two p o s s i b l e approaches.
The
Court could conclude t h a t the goods have not perished and t h a t t h e basis
o f the f r u s t r a t i o n i s , q u i t e s i m p l y , the f a c t t h a t t h e manner of performance i s so changed as t o be r a d i c a l l y d i f f e r e n t t o t h a t
by the p a r t i e s .
contemplated
The other p o s s i b i l i t y i s t h a t t h e Court would
adopt the
approach used i n insurance cases and conclude t h a t where there i s a cons t r u c t i v e t o t a l loss there i s also a p e r i s h i n g of the goods.
The
first
approach a t t r a c t s the p r o v i s i o n s of the law Reform ( F r u s t r a t e d Contracts)
43
Act 1943, the second does n o t .
An adoption of the c o n s t r u c t i v e t o t a l loss approach, i n cases
i n v o l v i n g issues r e l a t i n g t o the c o n t r a c t of s a l e , would r a i s e t h e
i n e v i t a b l e question o f the p o i n t of time a t which the goods would be taken
^ p e r Viscount Simon, B r i t i s h Movietonews L t d . v. London and D i s t r i c t
Cinemas L t d . /~1952_7A.C. 166, 185.
43
See s e c t i o n 2 ( 5 ) ( c ) Law Reform F r u s t r a t e d Contracts Act.
- 21 -
t o have perished.
Would goods p e r i s h when they have so d e t e r i o r a t e d as
t o have changed i n n a t u r e , even though a t t h a t time the p o s s i b i l i t y o f
r e s t o r a t i o n has not been considered, or would they p e r i s h when they have
been changed i n nature and t h e p o s s i b i l i t y o f r e s t o r a t i o n has been considered and, l e g i t i m a t e l y , r e j e c t e d ?
The question i s not merely academic
f o r , i f r i s k has passed t o t h e buyer d u r i n g t h e i n t e r v a l between change i n
nature and r e j e c t i o n o f the p o s s i b i l i t y of r e s t o r a t i o n , s e c t i o n 7 Sale o f
Goods Act 1979 w i l l only apply i f t h e Court concludes t h a t the goods had
perished p r i o r t o r i s k passing.
only be determined
Perhaps the question o f p e r i s h i n g can
a f t e r a lapse o f time but the p r o v i s i o n s o f t h e
s e c t i o n , c o n t a i n i n g t h e requirement t h a t t h e goods p e r i s h , a r e deemed t o
have taken, immediate e f f e c t .
I f so, one c o u l d n o t e s t a b l i s h whether the
goods had perished u n t i l t h e p o s s i b i l i t y o f r e s t o r a t i o n had been considered and r e j e c t e d as not p o s s i b l e .
The p r o v i s i o n s o f s e c t i o n 7 would,
however be r e t r o s p e c t i v e l y a c t i v a t e d so t h a t the c o n t r a c t was avoided a t
r
the time o f t h e i n c i d e n t which caused t h e goods t o be ' l o s t ' or t o change
i n nature.
- 22 -
SECTION B:
CAN GOODS PERISH IF THEY HAVE NEVER EXISTED?
The word "perished" would seem t o i n d i c a t e an existence which has
terminated.
existed?
Can goods be said t o have perished i f they have never
Were i t not f o r the p r o v i s i o n o f the Sale o f Goods Act 1979
and the Law Reform ( F r u s t r a t e d Contracts) Act 1943, t h i s question would
appear t o have more p h i l o s o p h i c a l than l e g a l importance.
These p r o v i s i o n s
do, however, e x i s t and courts have been asked t o provide an answer t o
t h i s very question.
A u t h o r i t y f o r an A f f i r m a t i v e Answer
44
I n Howell v. Coupland
there was an agreement t o s e l l 200 tons o f
potatoes t o be grown on land belonging t o t h e defendant.
Sufficient
acreage was sown t o produce the crop but an appearance o f b l i g h t r e s u l t e d
i n crop f a i l u r e .
The Court granted a d e c l a r a t i o n t h a t the s e l l e r was
r e l i e v e d o f h i s o b l i g a t i o n s t o d e l i v e r though i t i s not c l e a r whether the
Court d i d so on the basis t h a t the goods had perished.
Blackburn J .
assumed t h a t the goods had perished and t h a t t h e c o n t r a c t was s u b j e c t t o
45
the r u l i n g i n Taylor v. Caldwell.
The other members o f the Court,
Archibald J. and Quain J., agreed t h a t the case was w i t h i n the r u l e i n
Taylor v. Caldwell but d i d not expressly r e f e r t o a " p e r i s h i n g " o f the
goods. Archibald J. l a i d emphasis on the f a c t t h a t the goods should be
46
47
" i n existence",
w h i l s t Quain J. r e l i e d upon the notion o f v i s major.
44
45
46
47
Law Rep. 9 Q.B. 462.
at 465, 466.
at 467,
at 466,
- 23 -
As Archibald J. and Quain J. both r e f e r r e d t o Taylor v. Caldwell, the
f a c t t h a t they d i d not r e f e r t o the goods having "perished" may not be
48
s i g n i f i c a n t , f o r G l a n v i l l e Williams asserts
t h a t the word " p e r i s h " i n
s e c t i o n 7 Sale of Goods Act i s a reference t o the r u l e i n Taylor v.
Caldu/ell.
Reliance upon the r u l e , t h e r e f o r e , i s possibly a r e c o g n i t i o n
t h a t there has been a " p e r i s h i n g " .
49
Howell v. Coupland was considered, on appeal,
by a f u l l c o u r t of
the Court of Appeal which a f f i r m e d the d e c i s i o n of the D i v i s i o n a l Court
on the basis t h a t there was an i m p l i e d term t h a t before the time f i x e d
for
performance the goods should be i n existence.
Only one member of the
Court, M e l l i s h L.J., spoke of the goods " p e r i s h i n g " , a s s e r t i n g t h a t
" i f the t h i n g perishes before the time f o r performance, the vendor i s
excused from performance"."^
Recognising
t h a t there was
"a d i s t i n c t i o n "
which could be drawn between goods which have perished and goods which
have never e x i s t e d he doubted t h a t there was
p r i n c i p l e " " ^ i n such cases.
"any r e a l d i f f e r e n c e i n
At t h a t time he was probably c o r r e c t .
Whilst none of the other members of the Court r e f e r r e d t o a " p e r i s h i n g "
they a l l c l e a r l y r e l i e d upon the r u l e i n Taylor v. Caldwell.
Did Howell v. Coupland e s t a b l i s h t h a t goods can p e r i s h even though
they have never existed?
Eight judges considered the case and a l l
a r r i v e d at the same d e c i s i o n .
All,
d i r e c t l y or i n d i r e c t l y , r e l i e d upon the
d e c i s i o n i n Taylor v. Caldwell but only two r e f e r r e d d i r e c t l y t o a
"perishing".
G l a n v i l l e Williams concludes t h a t " i t was held i n Howell v.
Coupland t h a t goods t h a t f a i l t o m a t e r i a l i s e 'perish' f o r the purposes of
48
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943", page 89.
A 9
( 1 8 7 6 ) 1 Q.B.D. 258.
5 0
at
262.
- 24 -
the r u l e " ,
48
( i . e . t h e r u l e i n Taylor v. C a l d w e l l ) .
I t i s submitted
t h a t i t i s c o r r e c t t o say t h a t the goods were h e l d t o have perished f o r
the purposes o f the r u l e i n Taylor v. Caldwell and, i f one accepts t h a t
s e c t i o n 7 Sale o f Goods Act 1979 gives s t a t u t o r y e f f e c t t o t h i s r u l e i t
i s possible t h a t Howell v. Coupland i s also a u t h o r i t y f o r the p r o p o s i t i o n
t h a t such goods " p e r i s h " f o r the purposes o f t h a t s e c t i o n .
A u t h o r i t y f o r a Negative Answer
I n McRae v. Commonwealth Disposals Commission^^ t h e r e was a sale o f
a s h i p which not only d i d not e x i s t , b u t never had e x i s t e d .
The Court
considered the p r o v i s i o n s o f s e c t i o n I I V i c t o r i a n Goods Act 1928, which
corresponds w i t h s e c t i o n 6 Sale o f Goods Act 1979 and provides "Where
there i s a c o n t r a c t f o r the sale o f s p e c i f i c goods and t h e goods w i t h o u t
the knowledge o f t h e s e l l e r have perished a t the time when the c o n t r a c t i s
made the c o n t r a c t i s void",.
asserted
Dixon J . and F u l l g a r J., i n a j o i n t judgment,
t h a t " i t seems c l e a r t h a t the s e c t i o n has no a p p l i c a t i o n t o t h e
f a c t s o f t h e present case.
Here the goods never e x i s t e d and the s e l l e r
52
ought t o have known t h a t they d i d not e x i s t " .
McTiernan J., d i d not consider the p o i n t .
not c l e a r .
The t h i r d judge,
The basis o f the d e c i s i o n i s
Did the Court decide t h a t s e c t i o n I I ( s e c t i o n 6) has no
a p p l i c a t i o n where t h e goods have never e x i s t e d or d i d they decide t h a t
the s e c t i o n could not apply where the goods have never e x i s t e d and the
s e l l e r should have been aware o f t h i s ?
The determining
f a c t o r may have
been the f a c t t h a t the goods had never e x i s t e d b u t , e q u a l l y , i t may have
48
" T h e Law Reform ( F r u s t r a t e d Contracts) Act 1943", page 89.
5 1
( 1 9 5 1 ) 84 C.L.R. 377.
52
at 410.
- 25 -
been the f a c t t h a t the vendor should have been aware o f the nonexistence.
I t i s d i f f i c u l t t o determine whether t h e Court denied t h e
p o s s i b i l i t y o f a c o n s t r u c t i v e p e r i s h i n g or admitted the p o s s i b i l i t y o f
constructive
notice.
In r e W a i t e ^ A t k i n L.J., r e f e r r i n g t o the d e c i s i o n i n Howell v.
Coupland, suggested t h a t " i n as much as we a r e now bound by the p l a i n
language o f the code I do not t h i n k t h a t d e c i s i o n s i n cases before 1893
54
are
o f much value".
Lord A t k i n suggested t h a t Howell v. Coupland was
covered, not by s e c t i o n 7 Sale o f Goods Act 1893, but by s e c t i o n 5(2) o f
the Act o r , perhaps, by common law p r i n c i p l e s r e t a i n e d by s e c t i o n 61(2)
of the A c t . ^
I n Sainsbury v. S t r e e t ^ MacKenna J . adopted t h i s view and
asserted t h a t s e c t i o n s
6 and 7 o f the Act "are, i n my o p i n i o n ,
dealing
w i t h goods e x i s t i p g " . ^
Lord A t k i n ' s r e j e c t i o n o f pre-Sale o f Goods A c t a u t h o r i t y i s i n
l i n e w i t h the approach t o the i n t e r p r e t a t i o n o f c o d i f y i n g s t a t u t e s
58
suggested by Lord H e r s c h e i l i n Bank o f England v. vaqliano Bros.:
" I t h i n k the proper course i s i n the f i r s t instance t o examine the language
o f the s t a t u t e and t o ask what i s i t s n a t u r a l meaning, uninfluenced by
any c o n s i d e r a t i o n s
derived
from the previous s t a t e o f the law, and not t o
s t a r t w i t h i n q u i r i n g how t h e law p r e v i o u s l y
stood, and. then, assuming
t h a t i t was probably intended t o leave i t u n a l t e r e d , t o see i f the words
of the enactment w i l l bear an i n t e r p r e t a t i o n i n conformity
5 3
w i t h t h i s view".
/"1927_7 1 Ch. 606.
54
^ a t 631.
5 5
5 6
5 7
5 8
a t 631; see now sections
5(2) and 62(2)
/"1972 7 3 A l l E.R. 1127.
a t 1133.
/"1891 7 A.C. 107, 144 and 145.
Sale of Goods Act 1979.
- 26 -
I t may, however, be u n r e a l i s t i c t o expect t h a t a Court w i l l not be prepared t o seek guidance from pre-1893 case-law when i n t e r p r e t i n g the prov i s i o n s o f the Sale o f Goods Act 1979. Academic w r i t e r s , c e r t a i n l y , have
been r e l u c t a n t t o ignore the 'old' law. Professor A.L. Diamond p o i n t s out59
that
the 15th e d i t i o n o f Chalmers "Sale o f Goods Act" r e f e r s t o 863
cases decided be Fore the 1B93 Act was passed.
Ihe f i g u r e s f o r Atiyah's
"The Sale o f Goods" (3rd ed) and Fridman's "Sale o f Goods" are 438 and
490,
respectively.
Perhaps the best argument i n support o f a r e j e c t i o n o f the approach
favoured i n Howell v. Coupland i s the f a c t t h a t the case pre-dates not only
the Sale o f Goods Act 1893 but also the Law Reform ( F r u s t r a t e d Contracts)
Act 1943. • The provisions of the 1943 Act have so i n t e n s i f i e d the importance
of determining whether s p e c i f i c goods have perished as t o surely
discourage
any modern c o u r t from seeking guidance from judges who expressed t h e i r
views i n a p a r t i c u l a r l e g a l context and could not have appreciated t h e
r a m i f i c a t i o n s o f those views being i n t e r p r e t e d
31 M.L.R. 384.
i n a d i f f e r e n t context.
- 27 -
SECTION C:
CAN GOODS BE TAKEN TO HAVE PERISHED EVEN THOUGH THEY CONTINUE TO EXIST
AND HAVE NOT BEEN SUBJECT TO PHYSICAL DETERIORATION/DESTRUCTION?
Stolen Goods/Goods Taken by Mistake
In Barrow Lane and B a l l a r d L t d . v. P h i l l i p P h i l l i p s and Company L t d . ^
a c o n t r a c t was made f o r the sale o f a s p e c i f i c parcel o f goods l y i n g a t
a
wharf.
Unknown t o the s e l l e r 109 bags out o f a t o t a l consignment o f
700 had been s t o l e n a t the time o f the c o n t r a c t , other bags were s t o l e n
a f t e r the making o f the c o n t r a c t and, u l t i m a t e l y , only 150 were d e l i v e r e d .
The Court considered the a p p l i c a t i o n o f s e c t i o n 6 Sale o f Goods Act 1893
and, i n so doing, faced two problems.
One problem r e s u l t e d from t h e f a c t
t h a t the goods had not ceased t o e x i s t , they had been misappropriated
but,
no doubt, continued t o e x i s t a t the time o f the c o n t r a c t and, indeed,
were p o t e n t i a l l y recoverable a t t h a t time.
The other problem arose from
the f a c t t h a t only some o f the goods contracted f o r had been s t o l e n a t the
time o f the making o f the c o n t r a c t .
The f i r s t problem was disposed of
very e a s i l y by Wright J. who asserted t h a t "the goods have ceased t o
e x i s t f o r a l l purposes r e l e v a n t t o the c o n t r a c t " . ^
The second problem
caused more heartsearching but Wright J., concluding t h a t a l l the goods
had perished as a r e s u l t o f the disappearance o f some, u l t i m a t e l y
determined
t h a t the c o n t r a c t was void as a r e s u l t o f s e c t i o n 6 Sale of
Goods Act 1893.
The disposal of the f i r s t of the two problems faced by
the Court r a i s e s i n t e r e s t i n g questions.
What, f o r example, would be the
e f f e c t of a recovery of s t o l e n goods i n such a s i t u a t i o n ?
6 0
6 1
/"1929_7 1 K.B. 574.
a t 583.
- 28 -
I f goods have perished a t the time o f making the c o n t r a c t s e c t i o n 6
Sale o f Goods Act 1979 w i l l render the c o n t r a c t v o i d , i n which case a
subsequent recovery o f the goods would be of no account f o r , the c o n t r a c t
being a n u l l i t y , i t cannot r e v i v e .
The problem i s t o be found, however,
i n determining the time a t which the goods p e r i s h .
Wright J. was u n c e r t a i n
i n h i s treatment o f the problem, a s s e r t i n g t h a t t h e goods had perished
because "they had been s t o l e n and taken away and cannot be f o l l o w e d or
discovered anywhere".^
Section 6 Sale o f Goods Act 1979 imposes a t e s t
which i s " f r o z e n " i n t i m e ; the question t o be determined i s whether the
goods had perished a t t h e time o f the making o f t h e c o n t r a c t .
Can i t be
t h a t t h e t e s t i s f r o z e n i n time but the p r i n c i p a l component o f t h e q u e s t i o n ,
the
requirement t h a t the goods have p e r i s h e d , can only be determined w i t h
hindsight?
Such a s i t u a t i o n i s not unknown t o the law. The common law
actus reus o f murder, f o r example, r e q u i r e s death w i t h i n a year and a day
of the i n j u r y being i n f l i c t e d .
The other requirements o f t h e actus reus
may be immediately determined b u t the requirement o f death may only be
determined a f t e r t h e passage o f t i m e .
A death w i t h i n a year and a day
w i l l r e s u l t i n a murder having been committed, a death a f t e r t h a t time w i l l
not.
S i m i l a r l y , i t may be t h a t the question o f p e r i s h i n g o f goods can
only be determined a f t e r the passage o f t i m e .
I f the goods are not recovered
they have perished and had perished when s t o l e n .
Conversely, goods which
are recovered have not perished and had not perished when s t o l e n . I f
t h i s approach i s t o be adopted the obvious problem a r i s e s of determining
the
p o i n t o f time a t which i t can be accepted t h a t the goods cannot be
" f o l l o w e d or discovered".
I t may be t h a t ,
on g r o u n d s o f c e r t a i n t y ,
a court
would conclude t h a t s t o l e n goods " p e r i s h " as soon as they are s t o l e n .
at 583.
- 29 -
I f so,.further problems a r i s e .
Consider the f o l l o w i n g s i t u a t i o n :
X, a r e t a i l e r , has two antique vases i n h i s shop.
by mistake, takes d e l i v e r y of the o t h e r .
t o buy the vase mistakenly taken by Y.
and Q?
Y buys one b u t ,
Q then telephones X and agrees
I s there a c o n t r a c t between X
The vase has not been s t o l e n but i t has, n e v e r t h e l e s s , ceased t o
e x i s t f o r the purposes o f the c o n t r a c t u n t i l r e t u r n e d .
Y has no c r i m i n a l
i n t e n t and w i l l probably r e t u r n the vase t o X, b u t he may n o t . I f Y does
r e t u r n t h e vase t o X, perhaps a matter o f minutes a f t e r t h e 'sale' t o Q,
would Q be able t o avoid l i a b i l i t y on the c o n t r a c t on t h e basis t h a t t h e
agreement i s s u b j e c t t o s e c t i o n 6 Sale o f Goods A c t 1979?
i n d i c a t e s t h a t such a p r o p o s i t i o n cannot be supported.
Common sense
What, however, i f
the c o n t r a c t i s not s e t aside and Y does not r e t u r n t h e vase?
I f , faced by problems such as t h i s , c o u r t s were prepared t o accept t h a t
goods p e r i s h only when i t has been determined t h a t they cannot be recovered
r i s k may, i n the case o f a p o s t - c o n t r a c t t h e f t , pass t o t h e buyer, under
the terms o f the c o n t r a c t , between t h e f t and d e t e r m i n a t i o n o f nonrecoverability.
The c o n t r a c t would not then be f r u s t r a t e d by s e c t i o n 7.
Would a c o u r t be prepared t o impose such a burden upon t h e purchaser?
Requisitioned Goods
The statement made by Wright J . i n Barrow Lane and B a l l a r d L t d . v.
P h i l l i p P h i l l i p s and Company L t d . t h a t goods have perished i f they "have
ceased t o e x i s t f o r a l l purposes r e l e v a n t t o t h e c o n t r a c t " i s very wide.
Such an approach would suggest t h a t goods have perished where, f o r example,
they have been r e q u i s i t i o n e d .
disagree.
Most academic w r i t e r s would, however,
Cheshire and F i f o o t a s s e r t , i n r e l a t i o n t o s e c t i o n 7 Sale o f
Goods A c t , t h a t "unless the goods have perished
apply.
s e c t i o n 7 does not
I f the c o n t r a c t i s f r u s t r a t e d by some other event, as where the
goods are r e q u i s i t i o n e d by t h e Government a f t e r the agreement has been made
- 30 -
the s e c t i o n i s excluded".
Re Shipton Anderson and Co. and Harrison
Bros, and Co.^ i s c i t e d as a u t h o r i t y .
T r e i t e l asserts t h a t "The Act
of 1943 i s only excluded where the cause o f f r u s t r a t i o n i s the
p e r i s h i n g of the goods.
Thus the Act applies where the c o n t r a c t i s
64
f r u s t r a t e d by i l l e g a l i t y or r e q u i s i t i o n " .
Sutton and Shannon,
r e f e r r i n g t o the p r o v i s i o n s of the Law Reform (Frustrated
Contracts)
Act 1943, claim t h a t " i t i s only cases where the c o n t r a c t i s f r u s t r a t e d
by reason of the f a c t t h a t the goods have perished t h a t are excluded
from
the operation o f the Act. A c o n t r a c t f o r the sale even o f s p e c i f i c goods
may be f r u s t r a t e d by other events, such as ... the goods being
r e q u i s i t i o n e d by the Government.
presumably a p p l y " . ^
To a l l such cases the Act w i l l
Atiyah s t a t e s t h a t "Perishing o f s p e c i f i c goods
i s the only instance of f r u s t r a t i o n provided f o r by the Act / " i . e . the
Sale o f Goods Act 1979 7 but there i s no doubt t h a t a t Common Law a
c o n t r a c t f o r the sale of s p e c i f i c goods may be f r u s t r a t e d by any event
which destroys the whole basis of the c o n t r a c t " . ^
Again, Atiyah c i t e s
as a u t h o r i t y re Shipton Anderson and Co. and Harrison Bros, and Co.
What was decided i n r e Shipton Anderson and Co. and Harrison Bros,
and Co.?
The Court, c a l l e d upon t o consider a sale o f s p e c i f i c goods
which had been subsequently
r e q u i s i t i o n e d by H.M. Government, held t h a t
the s e l l e r was excused from performance.
Lord Reading C.J., d e l i v e r i n g
the leading judgement, reviewed the r u l e i n Taylor v. Caldwell and went on
t o say:
" I t i s t o be observed t h a t i n t h a t r u l e s t r e s s i s l a i d upon the
Cheshire and F i f o o t ' s "Law of Contract" ( 8 t h ed) 562.
/"1915 7 3 K.B. 676.
T r e i t a l "Law of Contract" (3rd ed) 778.
"Sutton and Shannon on Contracts" ( 7 t h ed) 385.
'"TheSale of Goods" ( 4 t h ed) 167.
- 31 -
perishing
contract.
before breach o f t h e t h i n g which was t h e foundation o f the
The p r i n c i p l e o f t h e case seems t o me e q u a l l y a p p l i c a b l e t o
t h a t now under c o n s i d e r a t i o n ,
Executive,
where by reason o f t h e l a w f u l a c t o f the
the t h i n g , i n a sense, has perished.
C e r t a i n l y i t i s no
longer i n the power o f the s e l l e r s t o perform t h e i r c o n t r a c t " . ^
J. and Lush J . agreed w i t h t h e judgment
Darling
o f Lord Reading C.J., b u t made
no express reference t o the goods having p e r i s h e d .
I t i s clear
Lord Reading C.J. was aware o f a d i s t i n c t i o n between a p h y s i c a l
that
perishing
and a r e q u i s i t i o n which no longer permits a d e l i v e r y o f t h e goods t o the
buyer.
His handling o f t h i s d i s t i n c t i o n i s , however, u n c e r t a i n .
speaks o f p e r i s h i n g
f i n a l sentence:
He
" i n a sense" and would appear t o "hedge" w i t h h i s
"Certainly
i t i s no longer i n the power o f the s e l l e r s
t o perform t h e i r c o n t r a c t " .
The m a j o r i t y o f academic w r i t e r s c l e a r l y adopt t h e view t h a t there
has, i n t h i s case, been no p e r i s h i n g
would disagree.
o f goods, b u t t h e r e a r e some who
G l a n v i l l e Williams asserts when r e f e r r i n g t o re Shipton
Anderson, t h a t "a s p e c i f i c p a r c e l o f wheat which had been s o l d f o r
d e l i v e r y was held t o 'perish' when i t was r e q u i s i t i o n e d by the Government
before delivery".-
68
—
Macleod suggests t h a t "the term /'perished 7
would ... seem t o include
....
those s i t u a t i o n s where t h e goods are u n a v a i l a b l e
t o t h e p a r t i e s f o r the completion o f the c o n t r a c t
f o r some reason which i s
69
beyond the c o n t r o l o f the p a r t i e s " .
Indeed, Macleod goes f u r t h e r than
t h i s and maintains t h a t i t may not be going too f a r " t o suggest t h a t t h e
goods have perished where, s u b j e c t t o the de minimus r u l e , any p a r t o f
6 7
68
/"1915_7 3 K.B. 676, 682.
" T h e Law Reform ( F r u s t r a t e d
69„
Contracts) Act 1943" 89.
Sale and Hire Purchase" 253.
- 32 -
them are c o n t i n u a l l y unavailable t o the p a r t i e s f o r the performance o f
the c o n t r a c t " . ^
I t must be noted t h a t i n re Shipton Anderson the Court was not faced
w i t h the provisions
of t h e Law Reform ( F r u s t r a t e d Contracts) Act 1943
and the question of the s p e c i f i c goods having perished would not have
appeared s i g n i f i c a n t .
Nevertheless i t i s clear t h a t the r e q u i s i t i o n e d
goods had, i n the words o f Wright J. i n Barrow Lane and B a l l a r d v. P h i l l i p
P h i l l i p s and Company L t d . , 'beased t o e x i s t f o r a l l purposes relevant t o the
c o n t r a c t " and i t would seem u n r e a l i s t i c t o impose upon c o n t r a c t i n g
parties
r u l e s which d i f f e r according t o whether t h e goods which form the subject
matter o f the contract have been s t o l e n or r e q u i s i t i o n e d .
I t i s submitted
t h a t re Shipton Anderson i s not a u t h o r i t y f o r the p r o p o s i t i o n
that
r e q u i s i t i o n e d goods have perished, the equivocal judgement o f Lord Reading
C.J. i s t o o weak a base f o r such a conclusion.
I t i s also submitted,
however, that the case i s not c l e a r a u t h o r i t y f o r the p r o p o s i t i o n
that
r e q u i s i t i o n e d goods have not perished.
By analogy w i t h Barrow Lane and B a l l a r d v. P h i l l i p P h i l l i p s and Co.
L t d . i t would seem possible t o suggest t h a t goods perish whenever they
have "ceased t o e x i s t " f o r a l l purposes relevant t o the c o n t r a c t " . I f
t h i s p r o p o s i t i o n can be accepted i t would seem t h a t there i s a p e r i s h i n g
of goods whenever they have been rendered unavailable t o the s e l l e r .
There would, o f course, remain s i t u a t i o n s i n which the contract could be
f r u s t r a t e d by reason other than t h a t o f the goods having perished. I f ,
for example, the contract were t o be rendered i l l e g a l , the goods could
not be taken t o have ceased t o e x i s t f o r the purposes o f the c o n t r a c t ,
even though the contract would be f r u s t r a t e d .
The f r u s t r a t i n g event
would r e l a t e t o the contract i t s e l f rather than t o the subject matter o f
7 0
a t 254.
- 33 -
the c o n t r a c t and would be, so as t o apeak, a f r u s t r a t i n g event which
operated i n personam r a t h e r than i n rem.
- 34 -
PART TWO
THE CONCEPT OF RISK
- 35 -
SECTION A:
WHERE RISK PASSES PRIOR TO PROPERTY AND POSSESSION
Given t h a t the goods, which form t h e subject matter of the c o n t r a c t
of s a l e , have perished, the question of who bears the loss i s one which
needs t c be determined.
Central t o t h a t question are the associated
problems of e s t a b l i s h i n g what i s meant by loss and of determining whether
t h a t term has a constant meaning i n a l l circumstances. The key t o these
issues i s the concept of r i s k , a concept which, together w i t h those of
ownership and possession, forms the t r i l o g y of concepts attaching t o a
c o n t r a c t of s a l e .
the
Sometimes one p a r t y , e i t h e r s e l l e r or buyer, w i l l
own
goods, possess them and have the r i s k of t h e i r d e s t r u c t i o n or
d e t e r i o r a t i o n , the c o n t r a c t being e i t h e r completely executory or comp l e t e l y executed.
Often one p a r t y , the buyer, w i l l own the goods and
have the r i s k of d e s t r u c t i o n w h i l s t the other has possession of the goods.
I t can happen t h a t the buyer can own the goods w h i l s t the s e l l e r
them and has r i s k .
possesses
I n each of these s i t u a t i o n s one t h i n g i s constant, he
who has r i s k has e i t h e r ownership or possession.
I n one s i t u a t i o n ,
however, the concept of r i s k can be i s o l a t e d from i t s companions and
subjected t o s c r u t i n y , the s i t u a t i o n being t h a t i n which the s e l l e r has
ownership and possession w h i l s t the buyer has r i s k .
I t is i n this
s i t u a t i o n , where r i s k i s a l l t h a t the buyer has "acquired" under the cont r a c t , t h a t the concept of r i s k and the attendant notion of loss should
r e v e a l t h e i r true nature.
I t i s not usual f o r r i s k t o pass p r i o r t o ownership and. possession
but
"the
the
the s i t u a t i o n i s not uncommon.
I n c . i . f . c o n t r a c t s , f o r example,
property may pass e i t h e r on shipment or on tender / of documents 7,
1
r i s k generally passes on shipment" and, apparently, "the present
"*"per Lord Porter, Comptoir D'Achat e t De Vente du Boeren Bond Beige
S/A v. Luis de Ridder Limitada (The Juliana) /~1949 /A.C. 293, 309.
- 36 -
s i t u a t i o n under a c . i . f . c o n t r a c t i s t h a t r i s k very commonly passes
2
before p r o p e r t y " .
the
Section 20(1) Sale o f Goods Act 1979 provides t h a t
goods remain at the s e l l e r ' s r i s k u n t i l property i s t r a n s f e r r e d ,
whereupon they are at the buyer's r i s k , "unless otherwise agreed".
Quite
c l e a r l y , t h e r e f o r e , r i s k can pass t o the buyer, i n advance o f p r o p e r t y ,
as a r e s u l t of agreement between the p a r t i e s , which agreement may be
implied by the C o u r t ?
The second sub-section of s e c t i o n 20 incorporates
another s i t u a t i o n i n which the draftsman envisaged the p o s s i b i l i t y of
r i s k passing ahead of ownership and possession.
"
I t provides t h a t :
where d e l i v e r y has been delayed through the f a u l t of e i t h e r buyer
or s e l l e r the goods are a t the r i s k of the party i n f a u l t as regards any
loss which might not have occurred but f o r such f a u l t " .
I t w i l l be noted
t h a t t h i s sub-section r e s u l t s i n only one aspect of r i s k passing, r i s k of
loss which would not otherwise have occurred.
The r i s k of other loss would
be determined, subject t o contrary agreement, by the normal r u l e , res
p e r i t domino.
I n a l l of these s i t u a t i o n s , as a r e s u l t of agreement, com-
mercial p r a c t i c e or f a u l t , r i s k may pass t o the buyer ahead of property
and possession.
What f o l l o w s from the f a c t t h a t the buyer has acquired
r i s k i n goods which he n e i t h e r possesses nor owns?
I s the Buyer w i t h Risk under an O b l i g a t i o n t o pay the Contract Price i f
the Goods Perish?
Is the buyer, where r i s k has passed p r i o r t o property and possession,
l i a b l e t o the s e l l e r f o r the p r i c e of the goods i f the goods perish?
Academic opinion i s d i f f i c u l t t o gauge f o r , o f t e n , w r i t e r s tend t o assert
Benjamin, "Sale of Goods" 1557.
3
E.g. Sterns v. Wickers L t d . /"1923 7 1 K.B. 78.
The question of the d i v i s i b i l i t y of r i s k i s one which w i l l be. discussed
l a t e r i n t h i s P a r t , see Section C.
- 37 -
merely t h a t the buyer must bear "the l o s s " .
Those who consider the nature
of t h i s l i a b i l i t y u n i v e r s a l l y accept o r , perhaps, assume t h a t i f the r i s k
has passed t o the buyer he must, i f the goods p e r i s h , pay t o the s e l l e r the
agreed c o n t r a c t price'' and t h a t t h a t sum c o n s t i t u t e s the s e l l e r ' s l o s s .
No attempt i s made t o d i s t i n g u i s h between those s i t u a t i o n s i n which
property has passed t o the buyer and those i n which i t has not and the
clear inference i s t h a t the buyer must pay the contract p r i c e , because he
has r i s k , whether or not he has property i n the goods.
There i s some, l i m i t e d , j u d i c i a l support f o r t h i s assumption.
In
Martineau v. K i t c h i n q ^ Blackburn J. considered the s i t u a t i o n i n which
property and possession remains w i t h the s e l l e r w h i l s t r i s k i s w i t h the
buyer.
assume t h a t i t /"property 7 had not passed.
agreement between the p a r t i e s was
I f the
'though they /"the goods 7 s h a l l
not be yours, I s t i p u l a t e and agree t h a t i f I keep them beyond, the month
1
the r i s k s h a l l be upon y o u ; and then the goods p e r i s h ; t o say t h a t the
buyer could set up t h i s defence and say, 'Although I s t i p u l a t e d t h a t the
r i s k should be mine, yet inasmuch as an accident has happened which
destroyed them, I w i l l have no part of t h i s r i s k , but w i l l throw i t
e n t i r e l y upon you because the property d i d not pass t o me' i s a p r o p o s i t i o n
which, s t a t e d i n t h i s way, appears t o be absolutely
a r e d u c t i o ad absurdum;
and t h a t i s r e a l l y what the argument amounts t o . I f the p a r t i e s have
s t i p u l a t e d t h a t , i f a f t e r the two months the goods remain i n the s e l l e r ' s
warehouse, they s h a l l , nevertheless, remain there at the buyer's r i s k , i t
would be a manifest absurdity
t o say t h a t he i s not t o pay f o r them." I t
i s submitted t h a t i t may w e l l be absurd t o deny, i n such circumstances,
t h a t the buyer, bearing the r i s k , must s u f f e r the l o s s .
I t may, however,
E.g. Atiyah "The Sale of Goods" 4 t h ed. page 161; Anson "Law of Contract"
23rd ed. page 480; Sealey "Risk i n the Law of Sale" 1972 31 C.L.J. 225.
6
( 1 8 7 2 ) L.R.
7 Q.B.
436.
- 38 -
not f o l l o w t h a t because he has t h e r i s k , and must s u f f e r t h e l o s s , the
buyer must pay the c o n t r a c t
In Castle v. P l a y f o r d
price.
7
the Court o f Exchequer Chamber appeared t o
determine t h a t the o b l i g a t i o n t o pay the p r i c e does a r i s e when the
s e l l e r ' s goods p e r i s h w h i l s t a t the buyer's r i s k .
loss o f a consignment
The case involved the
o f i c e , the p r i c e o f which was t o be determined, by
weighing, upon a r r i v a l a t i t s d e s t i n a t i o n .
The pleadings requested the
•
Court t o award the s e l l e r the "value" o f t h e cargo,
request t h a t the Court should award the c o n t r a c t
which may be a
price.
Certainly
M a r t i n B., a t f i r s t i n s t a n c e , would appear t o equate "value" w i t h
price
when r e f e r r i n g t o the p o s s i b i l i t y t h a t the terms o f the c o n t r a c t
"accelerate
t h e defendants' l i a b i l i t y
the event o f a p e r i s h i n g
t o pay the value o f the goods" i n
9
of the subject matter.
I n the Court o f
Exchequer Chamber, however, the Court was less c e r t a i n i n i t s use o f the
term "value".
Cockburn C.J. construed t h e c o n t r a c t
as meaning t h a t " t h e
defendant undertook t h a t i f the cargo should be shippe-d and the b i l l s o f
lading
t r a n s f e r r e d t o him, he would pay f o r i t according t o a c e r t a i n
r a t e ; and i f i t perished he would pay f o r i t according t o what might be a
f a i r estimation
o f i t s value a t t h e time i t went down"."^
Blackburn J.
asserted t h a t "when the ship went down t h e r e would be so much i c e on board,
and, i n a l l p r o b a b i l i t y , upon an ordinary
voyage so much would have melted;
and what the defendant has taken upon h i m s e l f t o pay i s the amount which,
i n a l l p r o b a b i l i t y , would have been payable f o r the i c e " . The two seem t o
7
( 1 8 7 2 ) L.R. 7 Ex. 98.
8
See L.R. 5 Ex. 165.
9
L.R. 5 Ex. 165, 168.
10
( 1 8 7 2 ) L.R. 7 Ex. 98, 99.
- 39 -
be t a l k i n g o f d i f f e r e n t r e l i e f f o r the p l a i n t i f f .
Blackburn J. i s
c l e a r l y a s s e r t i n g t h a t the defendant was l i a b l e t o pay a sum equal t o an
e s t i m a t i o n o f the c o n t r a c t p r i c e .
Cockburn C.J., on the other hand, r e f e r s
t o the buyer's o b l i g a t i o n t o pay, t o the s e l l e r , a sum equal t o the value
of t h e i c e "when the s h i p went down", n o t , i t w i l l be noted, a sum equal t o
the
estimated p r i c e , which p r i c e was t o have been determined only upon
arrival.
the
I t would appear t h a t w h i l s t Blackburn J. was o f the o p i n i o n t h a t
buyer should pay the p r i c e , Cockburn C.J. concluded t h a t the buyer
should compensate the s e l l e r f o r h i s a c t u a l l o s s , t h e l o s s t o be assessed
on t h e basis o f , say, the replacement
value o f t h e consignment.
As,
however, both Cockburn C.J. and Blackburn J. gave judgement f o r the
p l a i n t i f f and as the r e l i e f requested was ambiguous, i t i s d i f f i c u l t t o
determine the a c t u a l nature o f the award.
Another case i n which i t i s d i f f i c u l t t o a s c e r t a i n t h e nature o f t h e
sum awarded i s Denby Hamilton and Co. v. B a r d e n . ^
As a r e s u l t o f the
p r o v i s o t o s e c t i o n 20 Sale o f Goods Act 1893 (now s e c t i o n 20(2)) t h e
purchaser had acquired r i s k i n r e l a t i o n t o goods o f the s e l l e r which had
perished.
The s e l l e r claimed the c o n t r a c t p r i c e o r , as an a l t e r n a t i v e ,
damages f o r f a i l u r e t o take d e l i v e r y and i t i s n o t c l e a r from the j u d g 12
ment whether the sum awarded represented the p r i c e or damages f o r breach.
Even i f the sum awarded by S e l l e r s J., i n Denby Hamilton and Co. v. Barden,
was the c o n t r a c t p r i c e the case would s t i l l be dubious a u t h o r i t y f o r a
x ±
/~1949_7 1 A l l E.R. 435.
12
The f a c t t h a t S e l l e r s J. considered the s e l l e r s duty t o m i t i g a t e ( a t
page 438) i s o f no assistance f o r , w h i l s t there i s normally no
o b l i g a t i o n t o m i t i g a t e when suing f o r the p r i c e , the proviso t o s e c t i o n 20,
imposing l i a b i l i t y on the p a r t y a t f a u l t f o r "any loss which might not
have occurred but f o r such f a u l t " , c l e a r l y i n c o r p o r a t e s a s i m i l a r n o t i o n
i n t o any c l a i m brought i n r e l i a n c e upon the p r o v i s o , whether t h e c l a i m
be f o r the p r i c e or f o r some other sum.
- 40 -
general p r o p o s i t i o n t h a t the p r i c e can be recovered where the buyer has
r i s k , but not property, i n goods which have perished. The award o f the
p r i c e might merely r e f l e c t the unwillingness of a court t o permit a buyer,
who has, i n breach o f c o n t r a c t , d e f a u l t e d i n t a k i n g d e l i v e r y o f the goods,
t o r e s i s t a claim f o r the p r i c e by r e l y i n g upon the f a c t t h a t property
has n o t , as a d i r e c t r e s u l t o f h i s own d e f a u l t , passed t o him. Such s
n o t i o n was introduced by Blackburn J. i n Martineau v. K i t c h i n q : ^
"As a general r u l e
res p e r i t domino, the o l d C i v i l law
maximj i s a maxim o f our law, and when you can show t h a t t h e
property passed, the r i s k o f the loss prima f a c i e i s on the
person i n whom the property i s
But the two are not
inseparable
By the C i v i l law i t always was considered
t h a t i f there was any weighing, or anything o f the s o r t which
prevented the c o n t r a c t from being p e r f e c t a emptio, whenever
t h a t was occasioned by one o f the p a r t i e s i n mora, and i t
was h i s d e f a u l t
he s h a l l have t h e r i s k j u s t as i f
there was emptio perfecta
when the weighing i s delayed i n
consequence of the i n t e r f e r e n c e o f the buyer so t h a t property
d i d not pass
because the non-completion o f the bargain
and s a l e , which would a b s o l u t e l y t r a n s f e r the p r o p e r t y , was
owing t o the delay o f the purchaser, the purchaser should bear
the r i s k j u s t as i f property had passed."13
I n Martineau v. K i t c h i n q t h e p l a i n t i f f s e l l e r had, on 21st March 1870,
d e l i v e r e d t o the buyer a notice s t a t i n g "please remove the f o l l o w i n g
sugars now l y i n g here a t your r i s k
".
The f i r e , which destroyed
the sugar, d i d not break out u n t i l 24th A p r i l 1870 and Blackburn J. drew
a t t e n t i o n t o "another reason which i n t h i s case would c l e a r l y apply the delay i n weighing i s q u i t e as much the f a u l t o f the purchaser as o f
the s e l l e r s .... i t i s the buyer, i n e f f e c t who requests t h a t .... the
weighing should be postponed f o r a time.
Therefore i t i s i n consequence
14
of h i s delay t h a t the weighing does not take place".
6
( 1 8 7 2 ) L.R. 7Q.B. 436.
1 3
14
A t pages 454, 456.
Page 456.
Perhaps both
- 41 -
Martineau v. K i t c h i n q and Denby Hamilton and Co. v. Barden should be
regarded as cases i n which, w h i l s t property had not passed t o the buyer,
the
courts were prepared t o apply something analogous t o an estoppel t o
prevent the buyer r e l y i n g upon t h i s .
Such an "estoppel" would,
presumably,
apply only where, as i n these cases, the delay i n t r a n s f e r r i n g property
was d i r e c t l y a t t r i b u t a b l e t o the f a u l t of the buyer, whether such f a u l t
amounted t o a breach o f c o n t r a c t ^ or not."^
The e f f e c t o f the "estoppel"
would be t h a t the s e l l e r could, i n such circumstances, recover the p r i c e
even though property had not passed.
The nature o f the award made i n both Castle v. Playford and
Denby Hamilton and Co. v. Barden may be d i f f i c u l t t o determine, i n
7
Bevinqton and Morris v. Dale and Co. Ltd.,"*" another p o t e n t i a l a u t h o r i t y
i n t h i s area, circumstances conspired so as t o render the nature o f the sum
awarded by the Court not so much d i f f i c u l t t o determine as a matter o f no
account.
The purchaser had r e c e i v e d , on sale or r e t u r n terms, goods
which were s t o l e n from him p r i o r t o the passing o f p r o p e r t y . Accepting
the
existence of a trade custom t h a t r i s k passed t o the buyer as soon as he
received the goods, the Court found f o r the p l a i n t i f f s e l l e r and determined
t h a t the purchaser must bear the l o s s .
When considering the nature of
t h a t l o s s , however, the Court found, u n f o r t u n a t e l y , t h a t the cost o f
replacement was i d e n t i c a l t o the invoiced p r i c e and, as a r e s u l t , gave no
consideration t o the basis f o r determining the amount o f the award.
There are few other cases d i r e c t l y on the p o i n t .
the
I n Sterns v. Wickers
Court o f Appeal was faced w i t h a s i t u a t i o n i n which goods had
d e t e r i o r a t e d p r i o r t o property passing but subsequent t o the buyer's
^ A s i n Denby Hamilton and Co. v. Barden.
^ A s i n Martineau v. K i t c h i n q .
17
3
( 1 9 0 2 ) 7 Com. Cas. 112.
/~1923 7 1 K.B. 78.
3
- 42 -
a c q u i s i t i o n of r i s k .
The Court was, however, only c a l l e d upon t o determine
whether or not the buyer could sue f o r the d e t e r i o r a t i o n i n q u a l i t y i n the
goods which were d e l i v e r e d t o him.
The f a c t t h a t the r i s k had passed
simply r e s u l t e d i n the buyer l o s i n g h i s r i g h t t o sue and, the goods not havi
perished, the s e l l e r ' s remedy i n such a s i t u a t i o n was not considered.
18
S i m i l a r l y i n I n g l i s v. Stock,
where there was a loss of goods forming an
undivided p o r t i o n of a l a r g e r consignment, the nature of the s e l l e r ' s
remedy was not at issue.
The Court, which accepted t h a t r i s k had passed
t o the buyer p r i o r t o property, was p r i m a r i l y concerned t o e s t a b l i s h
whether or not the buyer had an insurable i n t e r e s t i n the goods which had
perished.
The defendant insurance company, which contended t h a t n e i t h e r
property nor r i s k had passed t o the buyer, argued t h a t the buyer could not
have an insurable i n t e r e s t a t the time of the l o s s .
This was the only
defence r e l i e d upon and the extent of the buyer's i n t e r e s t , i f an insurable
i n t e r e s t was found t o e x i s t , was not r a i s e d .
The cases i n which the courts have a c t u a l l y considered the consequences of the s e l l e r ' s goods p e r i s h i n g w h i l s t i n h i s possession, a t the
r i s k of the buyer, thus provide meagre a u t h o r i t y f o r the p r o p o s i t i o n t h a t
the buyer i s l i a b l e to pay the p r i c e .
The t r u e nature of the sums awarded
i n both Castle v. Playford and Denby Hamilton and Co. v. Barden i s a matter
f o r conjecture and the problem of determining the sum t o be awarded i n
Bevington and Morris v. Dale and Co. L t d . was s h o r t - c i r c u i t e d by a convenient f i n d i n g of f a c t .
Martineau v. K i t c h i n q , together, p o s s i b l y , w i t h
Denby Hamilton and Co. v. Barden, may be a u t h o r i t y f o r the p r o p o s i t i o n
t h a t the p r i c e can be recovered, where the s e l l e r has retained property i n ,
and possession o f , the goods, only i f the r e t e n t i o n of property was
inadvertent and due t o the d e f a u l t of the buyer.
(1885) 10 App. Cas.
263.
Short of t h i s p o s s i b i l i t y
- 43 -
there i s l i t t l e support f o r the n o t i o n t h a t the s e l l e r may
c o n t r a c t p r i c e from a buyer who
recover the
has acquired nothing under the c o n t r a c t
other than the r i s k of d e s t r u c t i o n .
L i a b i l i t y t o pay the Contract P r i c e :
I t may,
An H i s t o r i c a l Perspective
perhaps, be i n s t r u c t i v e , a t t h i s s t a g e
}
t o determine the
o r i g i n s and trace the development of the a c t i o n a v a i l a b l e t o a s e l l e r
of goods f o r recovery of the p r i c e .
I n i t i a l l y the a c t i o n l a y i n Debt
which, at f i r s t , lay only when the goods had been d e l i v e r e d t o the buyer.
" I n the a c t i o n of debt 'the defendant was conceived of as having i n h i s
possession something belonging t o the p l a i n t i f f which he might not
19
reasonably keep but ought t o surrender'.
had s o l d , or l e n t , or deposited
wished t o be paid t h a t sum,
Now
i t i s clear t h a t i f A
goods t o or w i t h B f o r a f i x e d sum,
the a c t i o n of debt would l i e .
and A
I t i s equally
c l e a r t h a t t i l l the possession of the goods had been handed over no such
20
a c t i o n could be brought".
By Henry VI's r e i g n , however, i t had
become possible f o r the s e l l e r t o sue i n debt upon an agreement t o s e l l a
21
specific chattel.
Holdsworth sees i n t h i s the o r i g i n of the n o t i o n t h a t
i n a c o n t r a c t of sale of s p e c i f i c goods property passes at the time of
22
23
making the c o n t r a c t .
As a r e s u l t of Slade's case
the a c t i o n of Debt
24
was v i r t u a l l y superceded by I n d e b i t a t u s Assumpsit.
I n 1696
i t was held
t h a t t h i s a c t i o n would only l i e where Debt would l i e , being a v a i l a b l e ,
19
H.L.R. v i 260.
?n
S i r W i l l i a m Holdsworth:
21
See Y.B.
22
"A History of English Law"
23
( 1 6 0 2 ) 4 Co.
"A H i s t o r y of English Law"
20 Hy v . i . T r i n . p i .
4.
Vol. I l l page 355.
Rep.
24
Bovey v. Castleman 1 L t d . Rayen 67.
v o l . I l l page 420.
- 44 -
t h e r e f o r e , only where the goods had been d e l i v e r e d o r , i f they had n o t ,
where property i n them had passed.
The p o s i t i o n was s u b s t a n t i a l l y the same a t the time o f t h e passing
2S
of the Sale o f Goods Act 1893.
I n Colley v. Overseas Exporters
McCardie J., r e v i e w i n g the pre-1893 law, i d e n t i f i e d only two s i t u a t i o n s
i n which t h e s e l l e r could recover t h e p r i c e .
The f i r s t was provided f o r
by t h e i n d e b i t a t u s count f o r goods s o l d and d e l i v e r e d which, according
26
t o B u l l e n and Leake:
"Precedents o f Pleading"
was pleaded t h u s :
"Money payable by t h e defendant t o the p l a i n t i f f f o r goods sold and
d e l i v e r e d by t h e p l a i n t i f f t o t h e defendant".
27
I n B o u l t e r v. A r n o t t
the
I t had been e s t a b l i s h e d ,
, t h a t t h i s count would not l i e b e f o r e d e l i v e r y o f
goods t o the buyer.
Quite c l e a r l y a s e l l e r c o u l d not have brought
such an a c t i o n where t h e goods t o be t r a n s f e r r e d had perished p r i o r t o
delivery.
The only other s i t u a t i o n i n which t h e p r i c e c o u l d be recovered
was provided f o r by the i n d e b i t a t u s count f o r goods bargained and s o l d ,
pleaded as f o l l o w s :
"Money payable by t h e defendant t o t h e p l a i n t i f f
28
f o r goods bargained and s o l d by t h e p l a i n t i f f t o t h e defendant."
"This
count was a p p l i c a b l e where upon a s a l e o f goods t h e property had passed
t o t h e purchaser and t h e c o n t r a c t had been completed i n a l l respects except
d e l i v e r y , and the d e l i v e r y was not a p a r t o f the c o n s i d e r a t i o n f o r the
p r i c e or a c o n d i t i o n precedent t o i t s payment.
29
passed the count would not l i e . "
I f t h e property had n o t
Having reviewed t h e pre-1893 s i t u a t i o n
McCardie J. concluded t h a t " I n my view the law as t o the circumstances
/"1921_7 3 K.B. 302.
under which an a c t i o n w i l l l i e f o r the p r i c e o f goods has not been
( 3 r d ed) page 380.
2 5
2 6
2 7
( 1 8 3 3 ) 1 Cr. and M. 333.
28
"Precedents o f Pleading" page 39.
2 9
p e r McCardie J., a t page 310, c i t i n g Atkinson v. B e l l (1828) 8 B and C
277.
- 45 -
changed by the Sale o f Goods Act 1893".
In arriving at this
conclusion
McCardie J. d i d not overlook s e c t i o n 49 (2) Sale o f Goods Act 1893, which
provided f o r one s i t u a t i o n i n which the s e l l e r could b r i n g an a c t i o n f o r
3
the p r i c e where no property had passed, "*" f o r he l a t e r incorporated the
provisions o f t h a t sub-section i n t o h i s conclusion:
" I n my opinion
no a c t i o n w i l l l i e f n r the p r i c e o f the
goods u n t i l the property has passed, save only i n the s p e c i a l
cases provided f o r by s e c t i o n 49 ss 2. This seems p l a i n on
both the code and on common law p r i n c i p l e . I have searched i n
vain f o r a u t h o r i t y t o the c o n t r a r y . " ^ ^
I t seems q u i t e c l e a r t h a t , a t common law, the passing o f property
was the determining f a c t o r i n r e l a t i o n t o the a v a i l a b i l i t y o f an
a c t i o n f o r the p r i c e .
Apart from the p r o v i s i o n s o f s e c t i o n 49(2) Sale
of Goods Act 1979, the importance o f property having passed has not been
diminished, by the passing o f the 1893 Act nor by i t s re-enactment i n 1979.
I t would appear, as a r e s u l t , t h a t i t should not be possible t o sue a buye
f o r the p r i c e , where r i s k has passed but property has n o t .
The S i g n i f i c a n c e o f the Passing o f Property
What, however, i s the "mischief" behind these rules?
s e l l e r only sue where he has parted w i t h property?
Why can the
The answer may, perhap
3
be t h a t suggested by Parke B. i n L a i r d v. Pirn? a case i n v o l v i n g an a c t i o n
f o r breach o f a c o n t r a c t t o s e l l land.
Where there i s such a breach,
Baron Parke asserted, the s e l l e r can only sue the buyer f o r the c o n t r a c t
p r i c e i f the conveyance has been executed and the l e g a l estate t r a n s f e r r e d
per McCardie J., a t page 310.
3
"^"Where, under a c o n t r a c t o f s a l e , the p r i c e i s payable on a day c e r t a i n
i r r e s p e c t i v e of d e l i v e r y , and the buyer w r o n g f u l l y neglects or refuses
t o pay such p r i c e , the s e l l e r may maintain an a c t i o n f o r the p r i c e , a l though the property i n the goods has not passed, and the goods have not
been appropriated t o the c o n t r a c t . "
3 2
A t page 310.
(1841) 151 E.R. 857.
- 46
-
34
s h o r t of t h a t the s e l l e r can only sue f o r damages.
The reason f o r
t h i s was, he claimed, t h a t " i t i s c l e a r t h a t he /~the s e l l e r 7 cannot
have the land and i t s value too".''"' Baron Parke went on t o c l a i m t h a t
"A party cannot recover the f u l l value of a c h a t t e l , unless under circumstances which import t h a t the property has passed t o the defendant, as i n
the case of goods s o l d and d e l i v e r e d , where they have been a b s o l u t e l y
parted w i t h and cannot be s o l d again".
I f the i n a b i l i t y t o r e - s e l l i s
the underlying requirement of the r u l e t h a t p r o p e r t y must have passed
before the s e l l e r can maintain an a c t i o n f o r the p r i c e , i s i t p o s s i b l e
t h a t the s e l l e r can sue f o r the p r i c e where p r o p e r t y has not passed b u t ,
the goods having perished, i t i s c l e a r t h a t a r e - s a l e i s not possible?
A persuasive voice i s t h a t of Sealey"^ who,
p o i n t i n g out t h a t r i s k i s
nowhere d e f i n e d i n the Sale of Goods Act, a t t r i b u t e s many of the doubts
which e x i s t i n t h i s area t o t h a t l a c k of d e f i n i t i o n and
r u l e s r e l a t i n g t o r i s k as an o b l i g a t i o n / r i g h t .
r i s k i s not defined or delineated
t o the lack
of
Sealey concludes t h a t
by the Sale of Goods Act because i t i s
a negative concept which r e p l a c e s , or n e g a t i v e s , i n c e r t a i n circumstances,
conditions
which, n o r m a l l y , are p r e - r e q u i s i t e t o the enforcement o f o t h e r
"primary" o b l i g a t i o n s .
Normally, f o r example, the s e l l e r must e s t a b l i s h .
t h a t he has
passed p r o p e r t y t o the buyer i f he i s t o be able t o sue f o r
the p r i c e .
Where, however, the buyer has
the r i s k , Sealey asserts t h a t
the incidence of r i s k negatives the requirement t h a t property must pass
and
allows the s e l l e r t o sue
and may
f o r the p r i c e .
The
argument i s a t t r a c t i v e
w e l l r e f l e c t a r a t i o n a l i s a t i o n of the apparently i n t u i t i v e f e e l i n g
34
Though the e q u i t a b l e order of s p e c i f i c performance would now be a v a i l able t o compel performance and render the purchaser l i a b l e t o pay the
price
3 5
A t page 854
36
3 7
At page
854.
" R i s k i n the Law
of Sale"
31 C.L.J.
225.
47 -
which has l e d academic o p i n i o n t o the b e l i e f t h a t an a c t i o n f o r the
p r i c e can l i e , even where property has not passed, i f t h e goods have
perished when a t the buyer's r i s k .
Further support f o r t h i s view may be
developed by analogy w i t h t h e p r o v i s i o n s o f s e c t i o n 49(2) Sale o f Goods
3
Act. "'"
The L e g i s l a t u r e presumably enacted s. 49(2) on the basis t h a t t h e
buyer, having agreed t o pay the c o n t r a c t p r i c e , even though t h e goods have
not been d e l i v e r e d t o him and property has not vested i n him, must be
taken t o have waived h i s r i g h t t o r e q u i r e these p r e - r e q u i s i t e s
t e n d e r i n g the p r i c e .
before
I f so, i t would seem t o f o l l o w t h a t i n those
circumstances i n which r i s k has passed ahead o f property as a r e s u l t o f
express agreement between t h e p a r t i e s , t h e buyer would be s i m i l a r l y
taken t o have waived performance o f these o b l i g a t i o n s o f the s e l l e r
which, normally,
are p r e - r e q u i s i t e s t o an a c t i o n f o r the p r i c e .
I tis,
f r o m ' t h i s p o i n t , a s h o r t step t o take t o the f u r t h e r conclusion
t h a t where
r i s k passes as a matter o f law, r a t h e r than agreement, t h e buyer w i l l ,
again, be taken t o have l o s t h i s r i g h t t o i n s i s t upon performance o f
these p r e - r e q u i s i t e o b l i g a t i o n s .
Recovery of " l o s s " r a t h e r than Recovery o f " p r i c e "
Another approach t o t h e problem o f determining
the s e l l e r ' s remedy
where h i s goods have perished w h i l s t a t t h e buyer's r i s k emphasises t h e
r e l a t i o n s h i p between " r i s k " and " l o s s " r a t h e r than t h a t between " r i s k "
38
and
"price".
I n Martineau v. K i t c h i n q , Cockburn C.J. asserted
" l o o k i n g a t a l l the circumstances o f the case, i t i s impossible
that
t o doubt
"Where, under a c o n t r a c t o f s a l e , t h e p r i c e i s payable on a day c e r t a i n
i r r e s p e c t i v e o f d e l i v e r y , and the buyer w r o n g f u l l y neglects or refuses
t o pay such p r i c e , t h e s e l l e r may maintain an a c t i o n f o r the p r i c e , a l though the property i n the goods has not passed, and the goods have not
been appropriated t o the c o n t r a c t . "
3 8
A t page 451.
- 48 -
t h a t the t r u e i n t e n t i o n of the p a r t i e s ...... was t h a t the property was
w i t h the buyer and no longer i n the s e l l e r s a t the time o f the f i r e ,
and t h e r e f o r e the t h i n g having perished, perishes t o the dominus,
namely the buyer, and not t o the s e l l e r s , who had ceased t o have anything
to do w i t h i t " . The approach adopted by the Lord Chief J u s t i c e implies
t h a t the i n i t i a l question t o be determined by the Court i s t o determine
whether the goods were owned by the s e l l e r or the buyer, so as t o
determine who has s u f f e r e d the l o s s .
the
Having established who has suffered
loss the Court should then determine who must bear the r i s k of
that loss.
I n Martineau v. K i t c h i n q the s e l l e r , having t r a n s f e r r e d
ownership, had no i n t e r e s t i n the goods, the buyer having both
property and r i s k .
The s e l l e r was, t h e r e f o r e , able t o sue, on the
c o n t r a c t , f o r the p r i c e , " l e a v i n g the buyer t o s u f f e r the loss of h i s
goods.
but
What, however, of the s i t u a t i o n i n which the s e l l e r has property
the buyer has r i s k ?
I f the goods have perished i t would seem clear
t h a t the goods being those of the s e l l e r i t i s he, the s e l l e r , who
suffered a loss.
the
has
The buyer has the r i s k and, t h a t being so, he must bear
l o s s , b u t , i n t h i s s i t u a t i o n , the loss t o be borne i s t h a t which
would, but f o r the passing o f r i s k , have f a l l e n upon the s e l l e r .
Consider
as an example, the s i t u a t i o n i n which the s e l l e r has agreed t o s e l l the
buyer s p e c i f i c goods or unascertained goods from a s p e c i f i c b u l k .
Assume
t h a t r i s k i n these goods has passed t o the buyer but property has n o t .
The p e r i s h i n g of the s p e c i f i c goods, or of the s p e c i f i c source, w i l l be
the
seller's loss.
I f i t i s possible t o f r u s t r a t e a c o n t r a c t i n which
39
r i s k has passed t o the buyer,
the c o n t r a c t u a l o b l i g a t i o n t o d e l i v e r
w i l l be discharged and, as a r e s u l t , the goods, which may w e l l have been
unique only i n so f a r as they were i d e n t i f i e d f o r the purposes of the
39
See
later.
- 49 -
c o n t r a c t of s a l e , may cease t o have any unique q u a l i t y .
I f so, the
s e l l e r ' s loss i s obviously the cost o f replacing h i s stock.
the buyer be l i a b l e f o r the price?
Why should
This i s not the s e l l e r ' s loss and,
the goods being those o f the s e l l e r i t i s the s e l l e r ' s loss t h a t the
buyer i s obliged t o bear.
Circumstances i n which the Price may be Recovered
When, then, can the s e l l e r b r i n g an a c t i o n f o r the p r i c e as a r e s u l t
of h i s goods having perished a t the buyer's r i s k ?
1)
I t i s possible t h a t where the goods are a t the buyer's r i s k as
a r e s u l t o f the operation o f s e c t i o n 20(2) Sale o f Goods Act
.1979, the buyer may be sued f o r the price " j u s t as i f
property had passed".
2)
Where the goods are a t the buyer's r i s k because o f express
agreement between the p a r t i e s there would seem t o be l i t t l e
support f o r the p r o p o s i t i o n t h a t the s e l l e r can sue f o r the
price.
The case-law i s less than decisive and an h i s t o r i c a l
perspective would i n d i c a t e t h a t such an a c t i o n can only be
brought when property has passed.
To maintain t h a t the s e l l e r
cannot sue f o r the price i s not t o deny t h a t the s e l l e r may s t i l l
have an a c t i o n , f o r the buyer does have the r i s k .
I t would seem
l i k e l y t h a t , i f an a c t i o n f o r the price i s not a v a i l a b l e t o t h e
s e l l e r , the most l i k e l y a l t e r n a t i v e would be t o sue f o r the
replacement value o f the goods which have perished.
I t may be, however, t h a t the s e l l e r may be able t o b r i n g an
a c t i o n f o r the price on the basis t h a t the buyer, having
agreed t o accept r i s k , has waived h i s r i g h t t o i n s i s t upon
d e l i v e r y or the t r a n s f e r o f property.
3)
I t may be the case t h a t , i n a l l s i t u a t i o n s i n which r i s k has
- 50 -
passed t o the buyer p r i o r t o the s e l l e r having t r a n s f e r r e d
property, the d o c t r i n e o f r i s k would, as Sealey asserts, be
taken t o obviate the requirement t h a t the s e l l e r perform prer e q u i s i t e o b l i g a t i o n s before b r i n g i n g h i s a c t i o n f o r the p r i c e .
I f so, the p r i c e would always be recoverable.
F a i l u r e o f Consideration
A l l o f the above a l t e r n a t i v e s assume t h a t , whatever the a c t i o n
a v a i l a b l e t o the s e l l e r , i f the goods p e r i s h , w h i l s t a t the buyer's r i s k ,
he must be l i a b l e t o compensate the s e l l e r f o r h i s l o s s .
considering
When, however,
the s i t u a t i o n i n which r i s k attaches t o t h e buyer who has
neither property i n , nor possession o f , the goods he has agreed t o buy,
i t i s d i f f i c u l t t o avoid a r r i v i n g a t the conclusion t h a t t h e buyer has,
i f the goods perish p r i o r t o the passing o f property or possession,
received no b e n e f i t under the c o n t r a c t .
The r e c e i p t o f the r i s k
itself
i s a l l t h a t the buyer has acquired and t h i s i s hardly a b e n e f i t , f o r the
only r i g h t t h i s would seem t o confer upon the buyer i s the r i g h t , now
t h a t he has an insurable i n t e r e s t i n the goods, t o enter i n t o a p o l i c y o f
insurance, which " r i g h t " i s , i n r e a l i t y , a mere power t o n e u t r a l i s e an
obligation.
The buyer has, a d m i t t e d l y , received a promise t h a t he w i l l
receive d e l i v e r y o f , and property i n , the goods he has agreed t o buy,
but "when one i s considering
the quasi-contractual
the law o f f a i l u r e o f consideration and of
r i g h t t o recover money on t h a t ground, i t i s ,
generally speaking, not the promise which i s r e f e r r e d t o as the con40
s i d e r a t i o n , but the performance o f the c o n t r a c t " .
has conferred
none o f the b e n e f i t s contracted
Given t h a t the s e l l e r
f o r one i s l e d t o consider
per Viscount Simon - Fibrosa Spoka Akcyjna v. F a i r b a i r n Lawson Combe
Barbour L t d . /~1943_7A.C. 32, 48.
- 51 -
- t h e p r o v i s i o n s of s e c t i o n 54 Sale o f Goods Act 1979 which provides:
"Nothing i n t h i s Act s h a l l a f f e c t the r i g h t of the buyer
t o recover
money paid where the c o n s i d e r a t i o n f o r the payment o f i t has
The s e c t i o n could not be couched i n stronger terms.
failed."
I t would
i n d i c a t e t h a t , where property and possession have not been t r a n s f e r r e d
by the s e l l e r , the buyer could recover any money p a i d , n o t w i t h s t a n d i n g
the f a c t t h a t he has t h e r i s k , and i t i m p l i e s t h a t ;the buyer could refuse
t o pay any money i f he has not already done so.
Lord Simonds emphasised
the s i g n i f i c a n c e of s e c t i o n 54 of the Act when, i n The
Julianahe
asserted t h a t , i n r e l a t i o n t o a c . i . f . c o n t r a c t , the passing o f r i s k was
o f no account i f there was a complete f a i l u r e o f c o n s i d e r a t i o n :
"The s e l l e r s ....... urged t h a t the r i s k i n the goods had passed t o
the buyers, even i f p r o p e r t y had n o t , and t h a t the insurance cont r a c t made by the s e l l e r s was a v a i l a b l e f o r the buyers
I am unable t o see how /Ehis 7 a s s i s t s the s e l l e r s . I f the contract is
a c o n t r a c t f o r the sale o f rye t o be performed
by i t s p h y s i c a l or symbolic d e l i v e r y , what relevance has i t t h a t
the s e l l e r s say a t a c e r t a i n stage t h a t the r i s k has passed and
the insurance i s a v a i l a b l e ? I t may w e l l be t h a t , i f t h e r e i s any
v a l i d i t y i n these p r o p o s i t i o n s , the buyers r e c o v e r i n g upon the
insurance p o l i c i e s would h o l d the proceeds f o r the b e n e f i t o f the
s e l l e r s , but t h i s does not seem t o me t o touch the question
whether there has been a t o t a l f a i l u r e o f c o n s i d e r a t i o n . "
Can i t be t h a t where goods p e r i s h w h i l s t i n the possession o f a
s e l l e r who has r e t a i n e d property i n them, the buyer has no o b l i g a t i o n
t o compensate the s e l l e r , even though the buyer has r i s k ?
Perhaps so,
but i t may be t h a t t h e problem of a f a i l u r e of c o n s i d e r a t i o n w i l l , i n
r e a l i t y , r a r e l y a r i s e i n those s i t u a t i o n s i n which the s e l l e r has
property i n the goods w h i l s t the buyer has r i s k .
I f the reason f o r
property remaining i n the s e l l e r i s the buyer's d e f a u l t i n t a k i n g
d e l i v e r y , the Courts may w e l l be disposed t o t r e a t the buyer " j u s t as i f
t h e r e was an emptio p e r f e c t a " .
I f , on the other hand, r i s k i s on the
Comptoir D'Achat e t De Vente du Boeren Bond Beige S/A
Ridder Limitada / 1949 7 A.C. 293, 315.
v. Luis de
- 52 -
buyer as a r e s u l t o f express agreement between t h e p a r t i e s and t h e s e l l e r
42
has changed h i s p o s i t i o n i n r e l i a n c e upon t h e buyer's undertaking,
the
buyer may w e l l be estopped from p o i n t i n g t o t h e f a i l u r e o f c o n s i d e r a t i o n .
I f there i s no basis f o r an estoppel t h e buyer may s t i l l be unable t o
invoke the p r o v i s i o n s o f s e c t i o n 54, f o r , i n many s i t u a t i o n s i n which r i s k
has passed before property, there w i l l be, as i n Sterns v. Wickers,
something a k i n t o a c o n s t r u c t i v e d e l i v e r y o f the goods which would l e a d
the Court t o conclude t h a t t h e buyer has received some b e n e f i t .
I t was
s a i d , f o r example, i n the J u l i a n a t h a t
" i n those cases i n which i t has been held t h a t r i s k w i t h o u t t h e
property has passed t o t h e buyer i t has been because the buyer
r a t h e r than t h e s e l l e r was seen t o have an immediate and
p r a c t i c a l i n t e r e s t i n the goods, as f o r instance where he has an
immediate r i g h t under t h e storekeeper's d e l i v e r y warrant t o t h e
d e l i v e r y o f a p o r t i o n o f an undivided bulk i n s t o r e or an
immediate r i g h t under s e v e r a l c o n t r a c t s w i t h d i f f e r e n t persons
t o t h e whole o f a b u l k not y e t a p p r o p r i a t e d t o the s e v e r a l
contracts'.'.^
C l e a r l y a c o u r t would be disposed t o f i n d t h a t the buyer had
acquired some i n t e r e s t i n t h e goods, amounting t o a b e n e f i t received
under the c o n t r a c t , f o r i f no b e n e f i t can be shown t h e n o t i o n o f f a i l u r e
of c o n s i d e r a t i o n may negative t h e passing o f r i s k .
Such a r e s u l t would
n o t , i t i s submitted, accord w i t h commercial e x p e c t a t i o n s .
I t i s sub-
m i t t e d t h a t where goods p e r i s h a t t h e buyer's r i s k , i n circumstances
i n which n e i t h e r p r o p e r t y nor possession have been t r a n s f e r r e d , the
buyer i s l i a b l e t o t h e s e l l e r .
The e x t e n t o f t h i s l i a b i l i t y i s , however,
a matter o f some doubt.
42
E.g.
43
when n e g o t i a t i n g h i s insurance
per Lord Normand, page 319.
cover
- 53 -
SECTION B;
WHERE RISK PASSES WITH PROPERTY
Normally r i s k w i l l pass t o the purchaser a t the same time t h a t he
acquires property i n the goods and i n t h e absence of any contrary
agree-
ment and o f any d e f a u l t i n r e l a t i o n t o d e l i v e r y , t h i s w i l l always be the
44
case.
What i s meant i n these circumstances by the assertion t h a t t h e
buyer has r i s k ?
Hon/ many r i s k s are t o be borne by the party w i t h Risk?
45
Sealey reminds us
t h a t a c o n t r a c t i n g party i s s u b j e c t t o a v a r i e t y
of r i s k s , .including:
1)
the r i s k t h a t the other may be dishonest;
2)
the r i s k t h a t the other may become i n s o l v e n t ;
3)
the r i s k t h a t changing market conditions
may make h i s bargain
an unfortunate one;
4)
the r i s k t h a t the goods may p e r i s h ; and
5)
the r i s k t h a t the contract may be f r u s t r a t e d .
The wording o f s e c t i o n 20 Sale o f Goods Act 1979 points t o the meaning
of " r i s k " f o r the purposes o f the Act.
The section provides t h a t "the
goods" are a t the s e l l e r ' s r i s k u n t i l property i s t r a n s f e r r e d , b u t t h a t
t h e r e a f t e r "the goods" are a t the buyer's r i s k .
Clearly r i s k r e l a t e s t o
the goods themselves rather than t o the nature o f the bargain e f f e c t e d .
I t has no r e l a t i o n t o the dishonesty or insolvency o f one o f the c o n t r a c t i n g
p a r t i e s , nor t o f l u c t u a t i o n s i n market
Section 20 Sale o f Goods Act 1979.
31 Cambridge Law Journal page 228.
conditions.
- 54 -
I t would a l s o appear t h a t a p a r t y w i t h r i s k does not bear t h e
r i s k of a f r u s t r a t i n g event:
"The agreement of p a r t i e s t h a t the buyers should bear the r i s k
of a loss a g a i n s t which the insurance was provided f o r by t h e
c o n t r a c t i s not evidence of an i n t e n t i o n t h a t t h e buyers were
a l s o t o take the r i s k of a f r u s t r a t i o n which was not w i t h i n
the contemplation of the contract."46
47
G l a n v i l l e Williams r e f e r s
t o d i c t a by S c r u t t o n L.J. i n K u r s e l l v. Timber
48
Operators
t o the e f f e c t t h a t a c o n t r a c t f o r the sale o f goods would be
f r u s t r a t e d by supervening i l l e g a l i t y even though p r o p e r t y , and t h e r e f o r e
r i s k , had passed t o the buyer.
He maintains t h a t i f t h i s dictum i s c o r r e c t
the concept of r i s k i s c o n f i n e d t o one p a r t i c u l a r r i s k ; t h e r i s k t h a t t h e
goods p e r i s h .
G l a n v i l l e Williams does n o t , h i m s e l f , accept t h a t t h e concept o f
r i s k i s so l i m i t e d and a s s e r t s , i n r e l a t i o n t o the term " r i s k " as used
i n s e c t i o n 20 o f t h e Sale o f Goods Act t h a t " i t means a l l r i s k " , i n c l u d i n g
r i s k o f a f r u s t r a t i n g event.
There are pre-Act cases i n which the con-
cept of r i s k i s r e f e r r e d t o i n e q u a l l y wide terms. Thus, f o r example,
49
50
i n Simmons v. S w i f t
Bayley J. asserts
t h a t ; "Two questions are
involved i n t h i s case:
f i r s t , whether the property i n t h e bark was
vested i n the defendant so as t o throw a l l r i s k s upon him
I tis
submitted, however, t h a t such statements cannot d e t r a c t from the c l e a r
wording of the Act.
Section 20 r e f e r s t o "the goods" being a t the r i s k
of s e l l e r or buyer and i t would r e q u i r e an unacceptably extravagent
extension of t h i s c o n t i n g e n t l i a b i l i t y t o b r i n g w i t h i n the s e l l e r or buyer's
46
per Lord Normand, Comptoir D'Achat e t de Vente du Boeren Bond Beige
v. Luis De Ridder Limitada (The J u l i a n a ) /~1949 7 A.C. 293, 319.
47
S/A
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943" page 84, footnote 34.
4 8
4 9
5 Q
/'1321J 1 K.B. 298, 312.
1 0 8 E.R. 319.
a t page 321.
- 55 -
r i s k the p o s s i b i l i t y o f , say, supervening i l l e g a l i t y .
An event which
renders subsequent discharge of the c o n t r a c t u a l o b l i g a t i o n s i l l e g a l
attacks performance o f the contract rather than the subject matter o f the
c o n t r a c t ; i t operates " i n personam" rather than " i n rem". Only an event
which i n t e r f e r e s w i t h the goods themselves w i l l , i t i s submitted, f a l l
w i t h i n the ambit o f that aspect o f r i s k which i s provided f o r by
s e c t i o n 20 o f the A c t .
This conclusion
i s a r r i v e d a t by Smith
51
who defines r i s k
52
as
"... t h e p a t r i m o n i a l ( i . e . economic) loss s u f f e r e d by the s e l l e r or t h e
buyer as the case may be by reason o f the p h y s i c a l d e s t r u c t i o n o f the
goods or such damage t h e r e t o t h a t they cease t o be o f the kind described
by the contract o f sale - but i n such circumstances t h a t t h e party s u f f e r i n g
the loss i s not thereby released from performing h i s o b l i g a t i o n s under t h e
contract".
I n t h i s d e f i n i t i o n of r i s k two features o f t h e concept are
clearly stated:
1)
The concept of r i s k does not discharge t h e c o n t r a c t u a l
o b l i g a t i o n s o f e i t h e r p a r t y ; such discharge f a l l s w i t h i n the
rules r e l a t i n g t o f r u s t r a t i o n of contract.
2)
Risk r e l a t e s t o loss r e s u l t i n g from the goods having
perished.
Smith asserts t h a t t h e loss must r e s u l t from e i t h e r physical
d e s t r u c t i o n o f the goods or such damage t o the goods t h a t they
cease t o be of the kind described by the c o n t r a c t of sale. I t
w i l l be r e c a l l e d t h a t i n Part One o f t h i s t h e s i s the d e f i n i t i o n
of " p e r i s h i n g " was extended t o cover t h i s k i n d o f damage t o t h e
goods, t h a t i s t o say, damage such as t o change the nature of
the i d e n t i t y of the goods (see pages 13-18).
51,,
P r o p e r t y Problems i n Sale", T.B. Smith,
at page 23.
- 56 -
I f the second o f these two features i s c o r r e c t l y s t a t e d , and i t has
been submitted above t h a t such i s the case, the s i g n i f i c a n c e of the
goods being deemed t o have "perished" i s manifest.
Risk and Perishing
I f the goods have perished, then they u / i i l f a l l w i t h i n the r i s k t h a t ,
v i r t u e of s e c t i o n 20 Sale o f Goods Act 1979, l i e s e i t h e r w i t h s e l l e r or
buyer.
I f they have not, then the question o f who bears t h e loss of an
untoward event w i l l not be determined
by reference t o s e c t i o n 20, f o r t h e
r i s k o f t h i s loss i s not provided f o r i n t h a t s e c t i o n .
The seemingly
"academic" discussion o f the meaning o f " p e r i s h i n g " i n Part One o f t h i s
t h e s i s should now f a l l properly i n t o perspective.
I t may, a t t h i s stage,
be appropriate t o r e - v i s i t some o f the issues considered i n Part One.
In Part One there was d e t a i l e d c o n s i d e r a t i o n o f the r e l a t i o n s h i p
between the meaning o f the term "perished" and the term "unmerchantable".
I t was f i n a l l y concluded
t h a t goods which had become unmerchantable
would only be considered t o have perished where they are "so unmerchantable
as t o no longer comply w i t h the o r i g i n a l d e s c r i p t i o n " .
(This statement i s
almost i d e n t i c a l t o t h a t incorporated i n t o Smith's d e f i n i t i o n o f r i s k . )
There may, i n some cases, be considerable heartsearching as t o whether the
d e t e r i o r a t i o n i n , or damage caused t o , goods i s s u f f i c i e n t l y dramatic t o
have r e s u l t e d i n such a d e v i a t i o n from t h e c o n t r a c t u a l l y
i d e n t i t y of the goods.
for
contemplated
Much may t u r n on the r e s u l t s o f such heartsearching
i f r i s k has passed t o the purchaser he must bear the loss r e s u l t i n g
from a p e r i s h i n g of the goods, he w i l l not, however, bear the loss of
any untoward event which r e s u l t s i n less swingeing damage t o or
d e t e r i o r a t i o n i n the goods.
Goods which r e t a i n t h e i r c o n t r a c t u a l i d e n t i t y
w i l l not have perished, though they may very w e l l be unmerchantable.
As
- 57 -
a r e s u l t , the s t a t e o f the goods w i l l , u l t i m a t e l y , be a cause o f concern
for
t h e s e l l e r r a t h e r than the buyer, f o r he w i l l , i n a l l p r o b a b i l i t y , be
l i a b l e f o r t h e i r unmerchantable s t a t e . ^
The f a c t t h a t r i s k has passed
t o t h e purchaser w i l l not r e l i e v e the s e l l e r o f t h i s l i a b i l i t y , f o r the
purchaser
bears only the r i s k o f t h e goods p e r i s h i n g .
S i m i l a r l y , t h e r e was i n Part One a d e t a i l e d c o n s i d e r a t i o n of the
l i k e l i h o o d o f goods being considered t o have "perished" where they had
been s t o l e n , or r e q u i s i t i o n e d , or even where, as i n Howell v. Coupland
they never came i n t o e x i s t e n c e .
There was considerable weight o f
academic o p i n i o n t h a t goods which had been r e q u i s i t i o n e d had not
"perished".
A l l o f the academic w r i t e r s r e f e r r e d t o , however, had
a r r i v e d at' t h i s conclusion when contemplating the r u l e s r e l a t i n g t o
f r u s t r a t i o n and the a p p l i c a b i l i t y or n o n - a p p l i c a b i l i t y o f the Law Reform
( F r u s t r a t e d Contracts) Act 1943. I t i s questionable whether they would
have formed a s i m i l a r o p i n i o n had they been c o n s i d e r i n g t h e consequences
of a r e q u i s i t i o n i n g i n r e l a t i o n t o t h e concept o f r i s k .
I t i s , perhaps, t h i s s i t u a t i o n t h a t best i l l u s t r a t e s t h e i n t e r r e l a t i o n s h i p between " p e r i s h i n g " , " r i s k " and " f r u s t r a t i o n " .
I f "risk"
r e l a t e s only t o loss r e s u l t i n g from a p e r i s h i n g o f the goods, then any
buyer who bears r i s k merely because o f the o p e r a t i o n o f s e c t i o n 20 Sale
of Goods Act 1979 ( r a t h e r than by express agreement, i n which case the
p a r t i e s may have made s p e c i f i c reference t o the events which are considered t o be a t the " r i s k " o f the p a r t i e s ) w i l l not be responsible where
goods are r e q u i s i t i o n e d , f o r he i s not responsible f o r any l o s s other than
t h a t which r e s u l t s from a p e r i s h i n g o f t h e goods.
I f a c o n t r a c t f o r the
sale o f goods cannot be f r u s t r a t e d where property has passed t o the
"^as a r e s u l t of the i m p l i e d undertaking as t o m e r c h a n t a b i l i t y contained
i n s e c t i o n 14(2) o f the 1979 A c t .
- 58 -
buyer,
then t h e s e l l e r w i l l notr be released from h i s o b l i g a t i o n t o
d e l i v e r and, i n the event o f the r u l e s r e l a t i n g t o r i s k being i n a p p l i c a b l e ,
there would seem t o be no reason why he should not be l i a b l e i n damages
for non-delivery (even though the goods r e q u i s i t i o n e d are those o f the
buyer).
S i m i l a r l y , even though the buyer has " r i s k " i n t h e goods, he would
not be l i a b l e t o pay the p r i c e .
Property i n t h e goods having passed t o
the buyer, the s e l l e r would normally a n t i c i p a t e t h a t , i n the event of an
untoward event, he could t r a n s f e r h i s loss and recover t h e p r i c e from a
buyer w i t h r i s k .
I f , however, the d o c t r i n e of r i s k does not apply i n the
non-perishing s i t u a t i o n so as t o negative t h e s e l l e r ' s o b l i g a t i o n t o
d e l i v e r , he would not s a t i s f y t h i s p r e - c o n d i t i o n t o an a c t i o n f o r the p r i c e
and would, thus, be unable t o sue.
Where goods do p e r i s h , or are deemed t o have perished, the r e s u l t i n g
economic loss must c l e a r l y be borne by the party w i t h r i s k .
Here,
however, the question o f quantum r a i s e s i t s e l f .
Risk and Price
I t has been suggested e a r l i e r i n t h i s Part t h a t the s e l l e r may n o t be
able t o recover the p r i c e o f t h e goods from a purchaser w i t h r i s k where
those goods perish p r i o r t o property passing.
Where property has passed
then, c l e a r l y , t h a t ceases t o be a bar t o recovery o f t h e price.and such
an a c t i o n would, without doubt, be recognised by any Court c a l l e d upon t o
determine the p o s i t i o n o f the p a r t i e s i n the event o f goods p e r i s h i n g
w h i l s t the property o f , and a t the r i s k o f , the purchaser.
There a r e ,
perhaps, two l o g i c a l j u s t i f i c a t i o n s f o r t h i s approach.
1)
The goods are those of the purchaser
his
loss.
and t h e i r loss i s , t h e r e f o r e ,
Had the s e l l e r r e t a i n e d r i s k , the purchaser could
see the discussion i n Part Three.
- 59 -
have t r a n s f e r r e d h i s loss t o the s e l l e r .
This n o t being the
case, however, the purchaser must bear h i s own l o s s .
This loss
i s dehors the c o n t r a c t , i n the same way t h a t a p e r i s h i n g o f
the goods several months a f t e r discharge of a l l c o n t r a c t u a l
o b l i g a t i o n s and w h i l s t the goods were i n the possession of
the buyer would be unrelated
t o the c o n t r a c t .
the goods, having t r a n s f e r r e d property
The s e l l e r of
t o the purchaser would,
perhaps, be deemed t o have d e l i v e r e d t o the buyer and would
t h u s , by having discharged t h i s one outstanding
removed a bar t o an a c t i o n f o r the p r i c e .
o b l i g a t i o n , have
Support f o r the
view t h a t a passing of property w i l l be accompanied by such a
•deemed d e l i v e r y i s t o be found i n the judgment
i n Carlos Federspiel
o f Pearson J.
and C° S.A. v. Charles Twiqq and C° L t d . " ^
i n which i t i s asserted t h a t
an a p p r o p r i a t i o n by t h e s e l l e r
w i t h the assent o f the buyer may be s a i d always t o i n v o l v e an
a c t u a l or c o n s t r u c t i v e d e l i v e r y .
I f the s e l l e r retains
possession he does so as b a i l e e f o r the b u y e r " . ^
2)
An a l t e r n a t i v e approach would be t h a t of S e a l e y ^ who would
assert t h a t the buyer must pay the p r i c e purely and simply
as a r e s u l t of h i s having r i s k .
render immaterial
This "negative concept" would
t h e f a c t t h a t there had been no d e l i v e r y ,
which would normally be a p r e - r e q u i s i t e t o an a c t i o n f o r the
p r i c e , and leave no bar t o such an a c t i o n .
Each of the explanations o u t l i n e d above would appear t o j u s t i f y the
view t h a t the s e l l e r can recover the p r i c e from a purchaser w i t h r i s k
5 5
/"1957_7 1 Lloyds Rep. 240.
^ a t page 255.
"^31 Cambridge Law Journal, page 225.
- 60 -
where goods p e r i s h w h i l s t i n the s e l l e r ' s possession but subsequent t o
the
passing o f property t o the purchaser.
I t may, however, be possible t o approach the problem from a d i f -
ferent tack.
the
I f the goods p e r i s h a f t e r property and r i s k has passed t o
buyer, s e c t i o n 7 Sale of Goods Act 1979 cannot operate so as t o
release the s e l l e r from h i s o b l i g a t i o n t o d e l i v e r the goods.
However i n
s
58
such a s i t u a t i o n , G l a n v i l l e Williams argues,
the s e l l e r ' s o b l i g a t i o n i s
discharged a t common law by operation o f the r u l e i n Taylor v. Caldwell.
I f so, the s e l l e r cannot be sued f o r non-delivery and the c o n t r a c t i s
59
"off".
How then, i t may be asked, can the buyer be l i a b l e f o r t h e
contract price?
Not having e f f e c t e d d e l i v e r y , the s e l l e r has not
s a t i s f i e d a necessary p r e - c o n d i t i o n t o an a c t i o n f o r the p r i c e which, as
a r e s u l t , ought not t o be a v a i l a b l e t o him.
The s e l l e r w i l l , t h e n , on t h i s
argument, lose h i s r i g h t t o sue f o r the p r i c e .
I f r i s k had been w i t h him,
at the time of d e s t r u c t i o n of the goods, he would also have had t o have
borne the loss o f the goods, which loss would be represented by the
purchase p r i c e paid by him f o r the goods ( o r the cost of manufacturing
them i f he i s the manufacturer).
his
His l o s s , had the goods perished a t
r i s k would thus have been as f o l l o w s :
a)
r i s k being w i t h him, he would not have had a c l a i m t o r e -
imbursement f o r the loss r e s u l t i n g from d e s t r u c t i o n o f the goods and
would have had t o have borne t h a t loss h i m s e l f ;
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943, page 27.
59
G l a n v i l l e Williams would deny t h a t both p a r t i e s t o the c o n t r a c t a r e . d i s charged from t h e i r o b l i g a t i o n s , f o r he argues ( a t page 27) t h a t t h e r u l e
i n Taylor v. Caldwell discharges only the s e l l e r , f o r i t i s only h i s
o b l i g a t i o n t h a t i s now "impossible" t o perform. The buyer i s only released
i f he can p o i n t t o a f a i l u r e of c o n s i d e r a t i o n and, where property has
passed, he w i l l not be i n a p o s i t i o n t o do so. This argument i s , however,
r e j e c t e d i n C h i t t y on Contracts (General P r i n c i p l e s 1307) where i t i s
pointed out t h a t s e c t i o n 1(1) of the Law Reform ( F r u s t r a t e d Contracts) Act
1943 r e f e r s t o i m p o s s i b i l i t y of performance and asserts t h a t "... the
p a r t i e s t h e r e t o have f o r t h a t reason been discharged from f u r t h e r performance of the c o n t r a c t
S i m i l a r l y , i t has been asserted t h a t ".... when
f r u s t r a t i o n occurs ... i t does not merely provide one party w i t h a defence
i n an a c t i o n brought by the other. I t k i l l s the c o n t r a c t i t s e l f and d i s charges both p a r t i e s a u t o m a t i c a l l y " (per Viscount Simon, Joseph Constantine
S.S. Line v. I m p e r i a l Smelting Corporation L t d . /"1942 / A.C. 154, 163J.
- 61 -
b)
t h e c o n t r a c t being f r u s t r a t e d , he would have l o s t h i s claim t o
the c o n t r a c t u a l l y agreed p r i c e which, i n e f f e c t , means t h a t he
would have l o s t h i s opportunity t o make a p r o f i t .
I n the s i t u a t i o n presently envisaged, however, the r i s k i s not w i t h t h e
s e l l e r , i t i s w i t h the buyer.
The s e l l e r has n o t , t h e r e f o r e , l o s t h i s
r i g h t t o be indemnified i n respect o f the loss a r i s i n g from the
d e s t r u c t i o n o f the goods.
Does i t also f o l l o w t h a t he has a r i g h t t o be
indemnified against t h e l o s t opportunity t o make a p r o f i t ?
Can i t not be
argued t h a t the concept o f r i s k throws upon the purchaser only t h e
o b l i g a t i o n t o indemnify the s e l l e r i n respect o f the loss a r i s i n g from
the d e s t r u c t i o n o f the goods?
This loss may be represented
by t h e sum
t h a t a prudent businessman would have insured the goods f o r w h i l s t they
formed p a r t o f h i s stock.
Any other v a l u a t i o n of the goods r e l a t e s t o a
c o n t r a c t u a l bargain which has been f r u s t r a t e d .
We have seen t h a t r i s k does
not r e l a t e t o the r i s k o f a f r u s t r a t i n g event.
Why then should a
purchaser w i t h r i s k indemnify a s e l l e r who has, by v i r t u e o f t h a t
f r u s t r a t i n g event, been deprived o f h i s opportunity t o perform a c o n t r a c t
and make a p r o f i t ?
This approach t o the nature of r i s k depends f o r i t s v a l i d i t y upon t h e
n o t i o n t h a t a c o n t r a c t o f sale can be discharged by f r u s t r a t i o n even
though property and r i s k have passed. The other, a l t e r n a t i v e , approaches
t o the meaning o f r i s k where property and r i s k l i e w i t h the purchaser,
assume t h a t such a c o n t r a c t cannot be f r u s t r a t e d and s t r i v e t o f i n d some
explanation as t o the reason why the s e l l e r i s not t o be held l i a b l e f o r
non-delivery where h i s c o n t r a c t u a l o b l i g a t i o n t o do so has not been d i s charged by t e r m i n a t i o n of the c o n t r a c t .
given t o t h i s problem i n Part Three.
Further c o n s i d e r a t i o n w i l l be
- 62 -
F a i l u r e o f Consideration
Whatever may be t h e nature o f the buyer's r i s k , and whether the sum
t h a t he must pay t o the s e l l e r i s the c o n t r a c t p r i c e or some other sum,
i t seems c l e a r t h a t where property has passed t o the purchaser he cannot a v a i l
himself o f a claim t h a t there has been a f a i l u r e o f c o n s i d e r a t i o n . I n
the J u l i a n a Lord Simonds a s s e r t e d ^ t h a t " i n law there cannot be- a
f a i l u r e o f consideration i f the property has passed".
A buyer having
property and r i s k w i l l , t h e r e f o r e , should the goods perish p r i o r t o
d e l i v e r y , be l i a b l e t o the s e l l e r .
may be questioned,
Only the extent o f t h i s
liability
there can be no doubting t h a t the l i a b i l i t y
exists.
/"1949 7 A.C. 293, 315.
itself
- 63 -
SECTION C;
APPORTIONMENT OF RISK BETWEEN SELLER AND BUYER AND RE-VESTING- OF RISK
IN THE SELLER
So f a r , the notion o f r i s k has been t r e a t e d as being necessarily
indivisible.
I t i s not, however, always possible t o neatly a l l o c a t e
the whole o f the r i s k t o e i t h e r s e l l e r or buyer, f o r , i n c e r t a i n circumstances, each may bear an aspect o f r i s k .
S i m i l a r l y , i t may appear from
t h a t which has so f a r been w r i t t e n t h a t , short o f the buyer r e p u d i a t i n g
the c o n t r a c t f o l l o w i n g a breach by t h e s e l l e r , t h e passing o f r i s k i s
f i n a l and i r r e v e r s i b l e .
This i s n o t , however, always the case.
An
apportionment o f r i s k between s e l l e r and buyer, or a r e v e s t i n g o f r i s k i n
the s e l l e r may take place where:
1)
one party has defaulted i n making or t a k i n g d e l i v e r y ;
2)
one o f the p a r t i e s i s i n breach o f his o b l i g a t i o n s as
bailee o f the goods;
3)
the goods are i n t r a n s i t , and,
a)
they are l i k e l y t o d e t e r i o r a t e as a "necessary i n c i d e n t "
t o the t r a n s i t , o r ,
b)
the s e l l e r has e f f e c t e d an unreasonable c o n t r a c t o f
carriage, or,
c)
the t r a n s i t i s by sea and the s e l l e r has not given the
buyer notice s u f f i c i e n t t o permit him t o insure t h e goods f o r
the d u r a t i o n o f the voyage.
Default i n making or t a k i n g Delivery
Whilst s e c t i o n 20 Sale o f Goods Act 1979 makes basic p r o v i s i o n for
the r i s k t o pass, i n i t s e n t i r e t y , a t the same time as property, an
obvious instance o f apportionment i s contained
i n t h e second
sub-section
- 64 -
t o the s e c t i o n , which s t i p u l a t e s t h a t :
where d e l i v e r y has been delayed through the f a u l t o f
e i t h e r buyer or s e l l e r the goods are a t the r i s k o f the p a r t y
i n f a u l t as regards any l o s s which might not have occurred but f o r
such f a u l t " .
This proviso a p p l i e s where t h e r e has been a delay i n d e l i v e r y
through the " f a u l t " of e i t h e r p a r t y t o the c o n t r a c t o f s a l e .
Fault i s
d e f i n e d , i n s e c t i o n 61(1) o f the A c t , as meaning a "wrongful act or
d e f a u l t " . . Presumably the s e l l e r , or buyer, i s only i n " d e f a u l t " i f he i s
i n breach of an o b l i g a t i o n t o make or take d e l i v e r y , ^ i n which case there
i s only an apportionment o f r i s k where the delay i n d e l i v e r y was, i n i t s e l f ,
a breach of c o n t r a c t .
I n such circumstances the party i n breach must
bear some of the r i s k , even though the 'general' r i s k may be upon t h e
other p a r t y .
The party i n d e f a u l t must bear the r i s k o f l o s s "which might
not have occurred but f o r such f a u l t " w h i l s t the other p a r t y r e t a i n s t h e
62
r i s k i n r e l a t i o n t o other l o s s .
I t i s s i g n i f i c a n t t h a t the word "might"
i s used i n the p r o v i s o , f o r t h i s choice o f word would appear t o have cons i d e r a b l e i m p l i c a t i o n s i n r e l a t i o n t o the e v i d e n t i a l problem of t h e burden
of p r o o f and the s u b s t a n t i v e question o f c a u s a t i o n .
Co. L t d . v. B a r d e n ^ S e l l e r s J. c i t e s ^
4
I n Denby Hamilton and
Benjamin on Sale o f Personal
The word " d e f a u l t " does not n e c e s s a r i l y have such a c o n n o t a t i o n . I n Doe
d. Dacre v. Dacre (Lady) (1798) 1 B & B 250, 258 Eyre C.J. asserted t h a t ,
" I do not know a l a r g e r or looser word than ' d e f a u l t '
i n i t s largest
and most general sense i t seems t o mean, f a i l i n g ...... I t i s a r e l a t i v e
term and takes i t s colour from i t s c o n t e x t " . Support f o r t h e view t h a t ,
i n the present c o n t e x t , a breach o f c o n t r a c t i s r e q u i r e d may, however, be
found i n the judgment of Lord Hewart L.C.J, i n J.J. Cuninqham L t d . v.
Robert A. Munro and Co. L t d . (1922) 28 Com. Cas. 42, i n which he held t h a t
a delay by a purchaser i n t a k i n g d e l i v e r y d i d not throw any r i s k upon him,
as he was n o t , a t the time of d e t e r i o r a t i o n of the goods, under an
o b l i g a t i o n t o take d e l i v e r y .
62
An example of such 'other l o s s ' may be found i n the f o l l o w i n g a s s e r t i o n
by P o t h i e r : " I f I s e l l you a horse, and make d e f a u l t i n d e l i v e r y , and i t i s
s t r u c k by l i g h t n i n g i n my s t a b l e s , the loss f a l l s on me, because the
accident would not have happened i f I had duly d e l i v e r e d the horse. But
i f the horse dies from a disease which would have k i l l e d him i n any case,
I am not l i a b l e " (Contrat de Vente, a r t i c l e 58).
6 3
/"1949_7 1 A l l E.R.
at page 437.
435.
- 65 -
Property
65
which s t a t e s :
"Moreover, the r i s k t o be borne by the party i n d e f a u l t i s
the r i s k of loss which 'might' not otherwise have occurred; and
the p r o v i s i o n seems t o throw on the p a r t y i n f a u l t the onus o f
showing p o s i t i v e l y t h a t the loss would have occurred
independently of h i s f a u l t " .
S e l l e r s J. doubted t h a t the words of the proviso placed the burden of
proof upon the party i n d e f a u l t and was of the opinion t h a t , " a l l the
f a c t s and circumstances have t o be looked a t ...... i n order t o see whether
the loss can p r o p e r l y be a t t r i b u t e d t o the f a i l u r e of the buyer t o take
d e l i v e r y of the goods at the proper t i m e " . ^
He f u r t h e r a s s e r t e d ^ t h a t
"the r e a l question i s whether the loss which has accrued was brought about
by the delay i n d e l i v e r y " .
At t h i s stage i t would appear t h a t S e l l e r s J.
has gone beyond the words of the s t a t u t e .
As a r e s u l t of so doing he
68
concludes
thatr i f the s e l l e r i s i n a p o s i t i o n t o s e l l the goods e l s e -
where and acquire other goods f o r d e l i v e r y , at the postponed time, t o
the o r i g i n a l buyer, a f a i l u r e t o make such a sale w i l l place upon the
s e l l e r the r i s k of loss or d e t e r i o r a t i o n .
I t i s submitted t h a t t h i s
conclusion i s only v a l i d i f one approaches the problem of causation
p o s i t i v e l y , asking the question, "was
cause of the loss?".
the delay i n t a k i n g d e l i v e r y the
From such a s t a r t i n g p o i n t i t might f o l l o w t h a t the
s e l l e r should bear t h a t loss which ' r e s u l t s ' from h i s f a i l u r e t o r e - s e l l .
I f , however, one adopts a more negative approach and the question posed i s
"might the loss not have occurred i f there had been no delay i n
d e l i v e r y ? " , i t can more r e a d i l y be appreciated t h a t any f a i l u r e of the
s e l l e r t o r e - s e l l cannot a l t e r the f a c t t h a t the loss would not have
occurred
but f o r the d e f a u l t i n t a k i n g d e l i v e r y .
The Sale of Goods Act
requires the question t o be posed negatively and there would seem t o be
no good reason why t h i s approach should not be
65
66
7th e d i t i o n , page 426.
I.-Z-I
page 437.
* ^ a t page 438.
6 8
a t page 438.
adopted.
- 66 -
There i s , o f course, an o b l i g a t i o n on the p a r t o f the s e l l e r t o
m i t i g a t e h i s l o s s , i n the event o f breach, and any f a i l u r e t o do so
w i l l be r e f l e c t e d i n the damages awarded f o r the breach.
This o b l i g a t i o n
69
w i l l , however, only be s i g n i f i c a n t i n an a c t i o n f o r damages
and would
not r e l a t e t o an a c t i o n f o r the p r i c e .
7
Fridman ^ p o i n t s t o a f u r t h e r problem o f causation which a r i s e s out
of s e c t i o n 20(2).
He suggests t h a t the sub-section i s so worded t h a t the
t e s t i s one o f directness rather than f o r e s i g h t .
I f the buyer has
defaulted i n t a k i n g d e l i v e r y i t would seem t h a t he must take the r i s k o f
any loss which might not have a r i s e n but f o r such d e f a u l t , even though he
could not have contemplated such l o s s .
A s e l l e r b r i n g i n g an a c t i o n f o r
damages f o r non-acceptance would, o f course, be able t o recover only
7
such loss as could have been contemplated by the buyer. ^
This suggestion
together w i t h the question o f m i t i g a t i o n , emphasises the care w i t h which
a s e l l e r must frame h i s a c t i o n when suing i n respect o f loss which might
not have occurred but f o r d e f a u l t on the p a r t o f the buyer.
72
statement o f c l a i m must s t a t e t h e s p e c i f i c remedy claimed
The s e l l e r ' s
and,
presumably, any claim f o r damages would a t t r a c t r u l e s r e l a t i n g t o m i t i g a t i
and remoteness.
I s the s e l l e r confined t o such a claim?
misled by the f a c t t h a t the buyer i s i n breach.
One must not be
A buyer who i s not i n
d e f a u l t , but who has r i s k i n the goods, i s l i a b l e t o the s e l l e r , should
the goods p e r i s h , because he has t h e r i s k .
In a situation f a l l i n g within
s e c t i o n 20(2) the buyer i s , because of h i s d e f a u l t , l i a b l e t o the s e l l e r
69
W h i t e and Carter (Councils) L t d . v. McGregor /"1962_7 A.C. 413, and see
Benjamin's'Sale of Goods, a r t i c l e 1173.
70
T h e Sale of Goods, page 240.
71
H a d l e y v. Baxendale (1854) 9 Exch. 341.
72
R.S.C. Ord. 18 r 15 ( 1 ) .
- 67 -
independently of the breach and the s e l l e r ' s remedy w i l l not, t h e r e f o r e ,
necessarily be an a c t i o n f o r damages, though he may
r e l a t i o n t o the b r e a c h . ^
e l e c t t o sue i n
I f the s e l l e r does not b r i n g an a c t i o n f o r
damages he u / i l l not hav/e been under a duty t o m i t i g a t e and the
of causation may,
question
indeed, be determined by reference t o directness
rather
than f o r e s i g h t .
/"A
s e l l e r w i l l , however, only need t o r e l y upon the second sub-
s e c t i o n t o s e c t i o n 20 where property and r i s k has not passed t o the
buyer i n accordance w i t h the general p r o v i s i o n contained
i n section
20.
The property not having passed t o the buyer, there must be doubt as t o
the a v a i l a b i l i t y of an a c t i o n f o r the p r i c e .
I f , however, i t i s accepted
t h a t the n o t i o n of r i s k obviates the need f o r property t o have passed,
i t would f o l l o w t h a t an a c t i o n f o r the p r i c e would be a v a i l a b l e t o the
seller. 7
I t would appear, then, t h a t the apportionment of r i s k which r e s u l t s
from s e c t i o n 20(2) i s t h a t the party who
has property i n the goods w i l l ,
normally, bear the "general" r i s k of l o s s , w h i l s t the party i n d e f a u l t
w i l l bear the r i s k of any loss which might not have occurred but f o r such
default.
he may
I t i s submitted
t h a t where the party i n d e f a u l t i s the buyer,
have t o bear such loss even though the s e l l e r could have acted
to minimise the loss but has f a i l e d t o do
Risk and O b l i g a t i o n as
so.
Bailee
To f r e e the s e l l e r of the duty t o m i t i g a t e w i l l not, i n every
s i t u a t i o n , f r e e him from a l l r e s p o n s i b i l i t y i n r e l a t i o n t o the goods,
for
the t h i r d sub-section
of s e c t i o n 20 s t i p u l a t e s t h a t :
"Nothing i n
'"as i n Denby Hamilton and Co. v. Barden /"1949_7 1 A l l E.R. 435, where
the s e l l e r claimed the c o n t r a c t p r i c e or, as a n " a l t e r n a t i v e , damages
for breach.
- 68 -
t h i s s e c t i o n a f f e c t s t h e d u t i e s or l i a b i l i t i e s of e i t h e r s e l l e r or
buyer as a b a i l e e .... o f t h e goods o f the other p a r t y " .
I t should be
noted t h a t t h i s sub-section does not impose a bailment i n any s i t u a t i o n ,
nor does i t i n d i c a t e the d u t i e s o f t h e b a i l e e .
The proviso merely
r e t a i n s whatever l i a b i l i t y there may be a t common law.
I t i s not easy t o appreciate t h a t a s e l l e r who has never l o s t
possession o f the goods which form the s u b j e c t matter o f the sale can
possess such goods under a bailment.
The buyer, who would be t h e b a i l o r
i n r e l a t i o n t o any such bailment, has never come i n t o possession o f the
goods and, as a r e s u l t , cannot have d e l i v e r e d the goods t o the s e l l e r .
The existence o f a d e l i v e r y appears t o be basic t o the n o t i o n o f bailment.
Jones on B a i l m e n t , ^ f o r example, i d e n t i f i e s f i v e categories o f bailment:
1)
a g r a t u i t o u s deposit w i t h the b a i l e e , who must keep i t f o r the
b a i l o r (depositum);
2)
the d e l i v e r y o f a c h a t t e l t o t h e b a i l e e , who i s t o do something
without reward t o or w i t h the c h a t t e l (mandatum);
3)
t h e g r a t u i t o u s loan of a c h a t t e l by the b a i l o r t o the b a i l e e
for the b a i l e e t o use (commodatum);
4)
the pawn or pledge o f a c h a t t e l by the b a i l o r t o the b a i l e e ,
who i s t o hold i t as a s e c u r i t y f o r a loan or debt or t h e f u l f i l m e n t o f an o b l i g a t i o n ( p i g n u s ) ;
5)
the h i r e o f a c h a t t e l or services by the b a i l o r t o the b a i l e e
for reward ( l o c a t i o c o n d u c t i o ) .
A l l of the categories involve a t r a n s f e r o f possession.
i s , indeed, defined i n Halsbury's Laws of E n g l a n d ^ as "
of personal c h a t t e l s on t r u s t
74
F i r s t e d i t i o n (1786).
75
Fourth e d i t i o n (para. 1501).
Bailment
a delivery
" and i n Crossley Vaine on Personal
- 69 -
7
P r o p e r t y ^ as "
e s s e n t i a l l y a d e l i v e r y on terms
". No
a c t u a l d e l i v e r y i s made t o a s e l l e r who remains i n possession o f the
goods, but i t i s possible f o r a c o n s t r u c t i v e
d e l i v e r y t o have been made.
I t was, f o r example, accepted i n Wiehe v. Dennis B r o s .
7 7
that a seller
who continued t o possess a pony he had sold d i d so as a b a i l e e .
The
p l a i n t i f f purchaser had expressly requested the defendant s e l l e r t o
r e t a i n the pony i n order t h a t he might continue t o c o l l e c t money a t the
I n t e r n a t i o n a l Horse Show f o r "Our Dumb Friends League", and such an
express request presumably amounted t o a c o n s t r u c t i v e d e l i v e r y so as t o
c o n s t i t u t e mandatum.
S i m i l a r l y , i n S t a f f s Motor Guarantee L t d . v.
78
B r i t i s h Wagon
Mackinnon J. Found t h a t a s e l l e r who had s o l d goods t o a
finance company, from which he had then h i r e d the goods under a h i r e
purchase agreement, was a b a i l e e o f the goods, even though there had been
no d e l i v e r y t o him.
I n P a c i f i c Motor Auction Pty. L t d . v. Motor Credits
79
(Hire Finance) L t d .
the J u d i c i a l Committee o f the Privy Council
80
i d e n t i f i e d t h i s bailment as one which arose from an attornment,
p o i n t i n g out t h a t there was a separate and express t r a n s a c t i o n
creating
the bailment. What, however, o f the s i t u a t i o n i n which there i s no
express agreement t h a t the s e l l e r should r e t a i n the goods?
What, indeed,
of the s i t u a t i o n i n which there i s express agreement t h a t he should not
r e t a i n possession, but should, instead, make d e l i v e r y t o the purchaser?
Can a bailment be implied i n such circumstances? I t would appear t h a t
81
one can. I n Koon v. B r i n k e r h o f f
Haight J., r e l y i n g on Story on the Law
7
^ F i f t h e d i t i o n (page 76).
77
( 1 9 1 3 ) 29 T.L.R. 250.
7 8
7 9
/"1934_7 2 K.B. 305.
/"1965_7 A.C. 867.
80 4.
a t page 885.
81
( 1 8 8 6 ) 39 Hun 130.
- 70 -
of Sales, asserted t h a t "
where the delay ( i n d e l i v e r y ) i s
occasioned by t h e vendee .... the vendor i s only l i a b l e
depositary
and mandatory
".
as a
Relying t o some extent on t h i s
82
a u t h o r i t y , Halsbury's Laws of England
assert t h a t , "
a seller i n
possession of the buyer's goods i s i n respect thereof probably subject t o
the o b l i g a t i o n s of a bailee f o r reward u n t i l the e x p i r a t i o n o f the time
expressly or by i m p l i c a t i o n appointed f o r the buyer t o take d e l i v e r y .
A f t e r the e x p i r a t i o n of t h a t time the s e l l e r i s probably subject t o the
83
obligations of a gratuitous bailee".
I t should be noted t h a t the above
84
passage r e f e r s t o the s e l l e r being i n possession o f the buyer's goods.
Section 20(3) Sale o f Goods Act 1979 confirms t h a t the s e l l e r w i l l
only
be considered t o be a bailee i f property has passed, f o r i t provides t h a t
the s e l l e r r e t a i n s h i s l i a b i l i t y as b a i l e e " o f the goods o f the other
party".
The t h i r d sub-section t o s e c t i o n 20 also provides t h a t nothing i n
t h a t s e c t i o n s h a l l a f f e c t the o b l i g a t i o n s o f the buyer as bailee o f the
82
goods.
Halsbury's Laws
i n d i c a t e t h a t a buyer i n possession o f the
s e l l e r ' s goods, perhaps on sale or r e t u r n terms, i s probably a bailee f o r
reward u n t i l the e x p i r a t i o n o f the time appointed f o r passing o f property
A f t e r a v a l i d r e j e c t i o n o f the goods and t h e e x p i r a t i o n o f a reasonable
time f o r the s e l l e r t o remove them, the buyer becomes a g r a t u i t o u s
Taken together, the various provisions
bailee
o f section 20 would seem t o
indicate that:
1)
where property has passed t o t h e buyer, he w i l l have r i s k i n
the goods, but a s e l l e r i n possession r e t a i n s h i s o b l i g a t i o n s
as b a i l e e ;
82
Third e d i t i o n (page 7 9 ) .
83
s u b s t a n t i a l l y the same conclusion i s a r r i v e d a t i n Benjamin's Sale of
Goods (para. 417).
84
as does Benjamin's Sale o f Goods, supra.
- 71 -
2)
where property has not passed t o t h e buyer, t h e s e l l e r
will
have general r i s k i n the goods, but the buyer w i l l have r i s k
i n r e l a t i o n t o any loss which might n o t have occurred b u t f o r
d e f a u l t on h i s p a r t i n t a k i n g d e l i v e r y .
The buyer w i l l , i n
a d d i t i o n , be l i a b l e as a b a i l e e o f t h e goods should he have
came i n t o possession o f them.
Request t h a t D e l i v e r y be taken
Section 20 must, however, be considered t o g e t h e r w i t h t h e separate
p r o v i s i o n s o f s e c t i o n 37 o f t h e 1979 A c t . Section 37 provides t h a t :
"When t h e s e l l e r i s ready and w i l l i n g t o d e l i v e r the goods, and
requests the buyer t o take d e l i v e r y , and the buyer does n o t
w i t h i n a reasonable time a f t e r such request take d e l i v e r y o f the
goods, he i s l i a b l e t o t h e s e l l e r f o r any loss occasioned by
his n e g l e c t or r e f u s a l t o take d e l i v e r y , and also f o r a
reasonable charge f o r the care and custody o f t h e goods".
This s e c t i o n throws upon the buyer t h e r i s k o f any l o s s , p r o v i d i n g
such
loss
has been "occasioned by" t h e buyer's d e f a u l t .
I n Diqht v .
85
Craster H a l l (Owners)
Cozens-Hardy M.R. equated t h e words "occasioned
86
by" w i t h "due t o "
and, as a r e s u l t , i t would appear t h a t s e c t i o n 37 may
be taken t o e s t a b l i s h t h a t the buyer must bear t h e r i s k o f any loss due
to his f a u l t .
What does t h i s s e c t i o n add t o s e c t i o n 20?
Apart from
g i v i n g t h e s e l l e r t h e r i g h t t o sue f o r storage charges, the s e c t i o n
appears t o be intended t o throw some element o f r i s k upon the buyer i n
default.
ascertain.
The e x t e n t of t h i s " e x t r a " r i s k i s , however, d i f f i c u l t t o
I f the buyer has property i n the goods he w i l l , by s e c t i o n 20,
normally have general r i s k i n r e l a t i o n t o them, and i f property has not
passed, he w i l l i n any event have r i s k i n r e l a t i o n t o loss which r e s u l t s
(1913) 6 B.W.C.C. 674.
at page 676.
- 72 -
from any d e f a u l t on h i s p a r t "in t a k i n g d e l i v e r y .
Perhaps the t r u e
r e l a t i o n s h i p of s e c t i o n 20 and s e c t i o n 37 can be determined by reference
t o the nature of the r i s k t r a n s f e r r e d .
Section 20 deals w i t h r i s k i n
r e l a t i o n t o "the goods" and whatever i s the o b l i g a t i o n imposed upon a
buyer who bears such r i s k , i t would seem t h a t i t cannot be greater than
an o b l i g a t i o n t o pay t o the s e l l e r the contract p r i c e .
Section 37,
however, r e l a t e s t o "any l o s s " and, perhaps, would cover other, consequential,
loss flowing from the buyer's d e f a u l t .
The s e l l e r may, f o r
example, have t o pay someone t o remove the goods, or t h e i r remains, from
h i s premises, or he may, due t o t h e f a c t t h a t he has l o s t storage space,
have s u f f e r e d a slowdown i n the turnover of his stock, r e s u l t i n g i n loss
of p r o f i t on sales which would otherwise have taken place.
I t should be
noted t h a t , u n l i k e section 20, s e c t i o n 37 requires the s e l l e r t o expressly
request the buyer t o take d e l i v e r y .
Where the buyer d e f a u l t s i n t a k i n g d e l i v e r y , i n circumstances i n which
property has not passed from the s e l l e r , there would, then, appear t o be
the f o l l o w i n g apportionment of r i s k :
1)
The buyer has r i s k i n r e l a t i o n t o loss which might n o t have
occurred but f o r h i s d e f a u l t .
and,
This r i s k r e l a t e s t o the goods
a t most, involves an o b l i g a t i o n t o pay f o r them should
they p e r i s h .
2)
The buyer also has r i s k i n r e l a t i o n t o any consequential l o s s ,
provided there has been an express request t h a t he should take
delivery.
3)
The s e l l e r r e t a i n s only a p a r t i a l r i s k , the r i s k o f loss which
would have occurred whether or not t h e buyer had defaulted i n
taking
delivery.
—
87
/"Fridman suggests
t h a t i t i s possible t h a t s e c t i o n 37 o f t h e
Sale o f Goods, page 240.
- 73 -
Act may provide a means by which the s e l l e r of t h e goods can r e l i e v e
himself o f h i s o b l i g a t i o n s as b a i l e e where property has passed t o the
buyer.
There would appear t o be some support f o r t h i s view i n the
sections.
Section 20(3), which makes reference t o the s e l l e r ' s
o b l i g a t i o n s as a b a i l e e , i s couched i n r e s t r i c t e d terms.
The second
sub-section o f s e c t i o n 20 i s so worded as t o create an out-and-out
exception t o the general r u l e t h a t r i s k passes w i t h property
t h a t one aspect o f r i s k i s t o be c a r r i e d by the buyer.
and provides
The t h i r d sub-
s e c t i o n i s not so p o s i t i v e l y expressed and merely provides f o r t h e
r e t e n t i o n o f common law l i a b i l i t y .
t h a t "nothing
Further, s e c t i o n 20(3)
indicates
i n t h i s s e c t i o n s h a l l a f f e c t t h e d u t i e s or l i a b i l i t i e s o f
e i t h e r s e l l e r or buyer as a bailee
This wording may be contrasted
o f the goods o f the other p a r t y " .
w i t h the much stronger wording o f sections
l i k e s e c t i o n 54 o f the Act, which provides t h a t "Nothing i n t h i s Act
s h a l l a f f e c t the r i g h t o f the buyer or the s e l l e r
".
Presumably
s e c t i o n 20(3) was i n s e r t e d merely t o e s t a b l i s h t h a t a general passing o f
r i s k , i n accordance w i t h s e c t i o n 20, d i d not, i n i t s e l f , r e l i e v e t h e
s e l l e r o f h i s o b l i g a t i o n s as a b a i l e e .
Section 37, however, may provide
a means by which the s e l l e r can d i v e s t himself o f such o b l i g a t i o n s .
Should
he expressly request the buyer t o take d e l i v e r y o f the goods, a f a i l u r e t o
do so w i t h i n a reasonable time w i l l throw any loss upon t h e buyer.
/"One cannot, however, escape the problem o f causation.
The buyer
takes, under s e c t i o n 37, t h e r i s k o f loss occasioned by (due t o ) h i s
f a i l u r e t o take d e l i v e r y .
What i f a buyer does not take d e l i v e r y when
requested t o do so, and the goods are subsequently destroyed, or s t o l e n ,
i n circumstances i n which i t i s clear t h a t the s e l l e r has been i n breach
of even the l i m i t e d o b l i g a t i o n s of a g r a t u i t o u s bailee?
What would be
taken t o have caused such l o s s , the d e f a u l t i n t a k i n g d e l i v e r y or the
- 74 -
breach o f bailment?
I t i s submitted t h a t i t would be the l a t t e r . 7
Contributory Negligence
A f u r t h e r instance o f apportionment o f r i s k as a r e s u l t o f f a u l t
might be thought t o a r i s e from the provisions of the Law Reform
( C o n t r i b u t o r y Negligence) Act 1945. C e r t a i n l y , t h i s i s considered t o be
88
a r e a l p o s s i b i l i t y i n Benjamin's Sale o f Goods.
Section 1(1) o f the
1945 Act provides:
"Where any person s u f f e r s damage as the r e s u l t p a r t l y o f h i s
own f a u l t and p a r t l y o f the f a u l t o f any other person or
persons, a c l a i m i n respect of t h a t damage s h a l l not be
defeated by reason o f t h a t f a u l t o f the person s u f f e r i n g the
damage, but the damages recoverable i n respect t h e r e o f s h a l l
be reduced t o such extent as the Court t h i n k s j u s t and
equitable having regard t o the claimant's share i n the r e s p o n s i b i l i t y f o r the damage".
Consider, f o r example, the s i t u a t i o n i n which property has not passed
from the s e l l e r t o the buyer, the buyer has defaulted i n t a k i n g
d e l i v e r y and the goods have perished, p a r t l y as a r e s u l t o f t h e s e l l e r
f a i l i n g t o take care o f them.
The s e l l e r would, i n such circumstances,
b r i n g an a c t i o n against the buyer, r e l y i n g upon s e c t i o n 2 0 ( 2 ) .
the buyer invoke the provisions o f the 1945 Act?
Could
He would need t o show
t h a t the s e l l e r had been a t " f a u l t " w i t h i n the meaning o f s e c t i o n 4 of
the 1945 Act, which provides t h a t :
"
' f a u l t ' means negligence,
breach of s t a t u t o r y duty or other a c t or omission which gives r i s e t o a
l i a b i l i t y i n t o r t or would, apart from t h i s Act, give r i s e t o the defence
of c o n t r i b u t o r y negligence". I t would seem t h a t negligent mis-performance
of a c o n t r a c t i s n o t , o f i t s e l f , considered t o be " f a u l t " w i t h i n the
89
meaning of section 4.
I n Quinn v. Burch Bros. ( B u i l d e r s ) L t d .
9
asserted: ^
8 8
p a r a . 419.
8 9
/"1966_7 2 Q.B. 370.
90
at page 380.
P a u l l J.
- 75 -
" I n my judgement, i n l o o k i n g t o see whether t h e r e was a f a u l t
w i t h i n the meaning o f the Act, one cannot look a t the manner
i n which a c o n t r a c t has been broken; only the terms o f the
c o n t r a c t and the consequences o f a breach of any such term.
I n order to apply the Act one has t o f i n d t h a t t h e r e was
some term which imported a duty not t o be n e g l i g e n t and a
breach o f t h a t term".
Thus, the nature of the breach of c o n t r a c t i s not i n i t s e l f s i g n i f i c a n t ,
the
important f a c t o r i s the e x i s t e n c e of a duty of care which, i n a con-
t r a c t u a l s i t u a t i o n , may r e s u l t from a term o f the c o n t r a c t o r , presumably,
may e x i s t independently o f the c o n t r a c t .
There are circumstances i n
which a s e l l e r o f goods may be i n breach of such a duty o f care when
misperforming h i s c o n t r a c t , as, f o r example, when he s e l l s goods which
91
are
dangerous per se w i t h o u t warning the buyer o f the danger.
the
s i t u a t i o n p r e s e n t l y envisaged, however, the s e l l e r would not appear
t o be i n breach o f any such d u t y .
In
The property i n t h e goods not having
passed t o the buyer, the e x i s t e n c e of a duty a r i s i n g out o f a bailment
would not appear t o be l i k e l y and the l a c k of care on the p a r t o f the
s e l l e r would appear t o amount t o no more than n e g l i g e n t misperformance
of t h e c o n t r a c t u a l o b l i g a t i o n .
Where property has passed t o the buyer and the s e l l e r holds t h e
goods as b a i l e e f o r the buyer, the s e l l e r w i l l , should he be i n breach o f
the
b a i l m e n t , be i n breach of a duty of
care owed'to t h e buyer and, i n
such circumstances i t might appear t h a t the p r o v i s i o n s of t h e 1945 Act
could apply.
They w i l l , however, only be s i g n i f i c a n t should the Court
f i n d the buyer l i a b l e t o the s e l l e r .
I n circumstances i n which t h e r e
has been a breach o f bailment i t would appear t h a t t h e buyer would not be
l i a b l e t o the s e l l e r , d e s p i t e the f a c t t h a t he has r i s k .
Section 20(3)
does, a f t e r a l l , expressly reserve the s e l l e r ' s o b l i g a t i o n s as b a i l e e .
I t may be t h a t the buyer would be l i a b l e t o the s e l l e r i n circumstances
as i n Clarke v. Army and Navy Co-operative Society /"1903 7 1 K.B. 155.
- 76 -
i n which the p r i c e he has agreed t o pay f o r the goods exceeds t h e i r market
value.
His a c t i o n against the s e l l e r , f o r w r o n g f u l i n t e r f e r e n c e w i t h goods,
92
w i l l be f o r the value o f t h e goods
w h i l s t the s e l l e r w i l l be able t o
sue the buyer f o r the p r i c e ( t h e property having passed).
Even here,
however, i t would appear t h a t t h e p r o v i s i o n s o f t h e 1945 Act would be o f
l i t t l e a s s i s t a n c e , f o r s e c t i o n 1(1) o f the Act provides t h a t "
damages recoverable
s h a l l be reduced t o such e x t e n t as the Court
t h i n k s j u s t and e q u i t a b l e
the
the
".
Where t h e s e l l e r sues f o r the p r i c e ,
buyer must counterclaim i n respect o f t h e breach o f bailment. I t
would appear t h a t t h e 1945 Act has l i t t l e s i g n i f i c a n c e i n r e l a t i o n t o
apportionment
of r i s k .
Risk and T r a n s i t ( 1 )
So f a r , we have considered instances o f apportionment
of risk i n
s i t u a t i o n s i n which i t i s l i k e l y t h a t the goods have e i t h e r not l e f t t h e
s e l l e r ' s possession o r , a l t e r n a t i v e l y , have a c t u a l l y been d e l i v e r e d t o
the
buyer p r i o r t o p e r i s h i n g . The remaining instances o f apportionment
of r i s k r e l a t e t o t h e s i t u a t i o n i n which goods have been dispatched by
the
s e l l e r and p e r i s h w h i l s t i n t r a n s i t t o t h e buyer.
Section 33 Sale o f Goods Act 1979 provides t h a t :
"Where the s e l l e r o f goods agrees t o d e l i v e r them a t h i s own
r i s k a t a place other than t h a t where they are when s o l d , t h e
buyer must, nevertheless (unless otherwise agreed) take any
r i s k of d e t e r i o r a t i o n i n the goods n e c e s s a r i l y i n c i d e n t t o
the course o f t r a n s i t " .
In the circumstances envisaged
i n s e c t i o n 33 t h e r e i s c l e a r p r o v i s i o n
for
The s e l l e r has the "general" r i s k i n the
an apportionment
of r i s k .
goods and the buyer bears a p a r t i c u l a r r i s k , he must bear any loss which
i s n e c e s s a r i l y i n c i d e n t t o the t r a n s i t .
This apportionment
Clerk and L i n d s e l l on Torts (14th e d i t i o n ) para. 337.
only takes
- 77 -
place, however, where the several requirements o f s e c t i o n 33 are complied
w i t h , t h a t i s t o say:
1)
t h e s e l l e r has agreed t o d e l i v e r the goods a t a place other
than t h a t where they are s o l d ;
93
2)
the goods have been s o l d , t h a t i s t o say property has passed
(and, as a r e s u l t general r i s k would normally have passed t o
the buyer);
3)
the s e l l e r has agreed t o d e l i v e r a t h i s own r i s k (despite
the f a c t t h a t r i s k would, otherwise, probably be upon the
buyer).
What o f the s i t u a t i o n i n which a l l o f t h e requirements o f s e c t i o n 33
are complied w i t h save f o r the f a c t t h a t the s e l l e r has not expressly
94
agreed t o d e l i v e r a t h i s own r i s k ?
Sassoon argues
t h a t i f the buyer
must, because o f s e c t i o n 33, bear the r i s k o f loss which i s necessarily
i n c i d e n t t o the t r a n s i t when the s e l l e r has expressly undertaken t o
send the goods a t h i s own r i s k , i t must f o l l o w , a f o r t i o r i , t h a t t h e
buyer has such r i s k where the s e l l e r has made no such express promise.
Such a conclusion i s , however, apparently a t odds w i t h the f o l l o w i n g
95
d i c t a o f Diplock J. i n Mash and M u r r e l l v. Joseph Emmanuel L t d . :
" I t i s e x t r a o r d i n a r y d e t e r i o r a t i o n o f the goods due t o abnormal
c o n d i t i o n s experienced during t r a n s i t f o r which the buyer takes
the r i s k . A necessary and i n e v i t a b l e d e t e r i o r a t i o n d u r i n g
t r a n s i t which w i l l render them unmerchantable on a r r i v a l i s
normally one f o r which the s e l l e r i s l i a b l e " .
Diplock J. a r r i v e d a t t h i s conclusion having considered the pleadings i n
96
Bowden Brothers and Co. L t d . v. L i t t l e ,
which s t a t e t h a t the appellants
s.2(ft) Sale o f Goods Act 1979.
28 M.L.R. 180.
/"1961 7 1 A l l E.R. 485, 493.
(1907) 4 C.L.R. 1364.
- 78 -
had promised t h a t "the onions upon a r r i v a l i n Sydney would be i n
merchantable c o n d i t i o n except f o r such d e t e r i o r a t i o n as would be t h e
necessary and i n e v i t a b l e r e s u l t o f the t r a n s i t , yet t h e onions upon
97
a r r i v a l were not i n such c o n d i t i o n " .
Diplock J.
regarded t h i s express
warranty (which i s , i n e f f e c t , the promise made by the s e l l e r i n the
s e c t i o n 33 s i t u a t i o n ) as the converse o f t h e warranty ( o f merchantable
q u a l i t y ) implied by s e c t i o n 14(2) Sale of Goods Act 1979. I n a r r i v i n g a t
98
t h i s conclusion he r e l i e d upon Beer v. Walker.
I n t h a t case a whole-
s a l e r , i n London, s o l d a q u a n t i t y o f dead r a b b i t s t o a r e t a i l e r i n
B r i g h t o n , the r e t a i l e r agreeing t o pay the cost o f t r a n s i t .
Upon
a r r i v a l a t Brighton some o f t h e r a b b i t s were found t o be u n f i t f o r
human food.
Grove J. expressly found t h a t t h e t r a n s i t was i n the
"usual course" and t h a t the r a b b i t s which were u n f i t f o r human food had
become so i n the ordinary course o f t r a n s i t .
He nevertheless held t h a t
the implied warranty t h a t goods should be f i t f o r t h e i r purpose extended
t o the time a t which, i n the ordinary course o f t r a n s i t , the r a b b i t s should
reach t h e i r d e s t i n a t i o n , and, f u r t h e r , maintained t h a t they should remain
so f i t u n t i l the r e t a i l e r should have a reasonable o p p o r t u n i t y o f dealing
w i t h them i n the ordinary course o f business.
t o O l l e t t v. Jordan
99
Diplock J. a l s o r e f e r r e d
100
i n which A t k i n J. concluded
that, "
the
u
e f f e c t o f the d e c i s i o n i n Beer v. Walker i s t h a t the c o n d i t i o n t h a t t h e
goods must be merchantable means t h a t they must be i n t h a t c o n d i t i o n when
appropriated t o the c o n t r a c t and t h a t they w i l l continue so f o r a
reasonable time.
That does not necessarily mean t h a t goods s h a l l be
97
at page 493.
98
9 9
(1877) 46 L.J.Q.B. 677.
/"1918 7 2 K.B. 4 1 .
100
a t page 47.
- 79 -
merchantable on d e l i v e r y i f the vendee d i r e c t s them t o be sent by
a long and unusual t r a n s i t
Diplock J. agreed w i t h AtkinJ.'s
analysis of the meaning of the decision i n Beer v. Walker and held t h a t
goods should be merchantable u n t i l a r r i v a l a t t h e i r d e s t i n a t i o n .
The
defendant appealed, t o the Court of Appeal, on two grounds:
1) t h a t Diplock 3, had drawn a wrong inference o f fact,- the
appellant contending t h a t the t r a n s i t was not a normal voyage
as submitted by the p l a i n t i f f s ;
2) t h a t the warranty recognised by Diplock J. was not j u s t i f i e d at
law.
The Court of Appeal e l e c t e d not t o argue the second ground o f appeal,
for i t ass.umed, f o r the purposes- of the appeal, t h a t the warranty
existed.
I t nevertheless found f o r the a p p e l l a n t on the basis t h a t ,
because of lack of v e n t i l a t i o n , the voyage was not a normal one and
t h a t there was no evidence t h a t the goods would not have survived normal
transit.
The goods were, t h e r e f o r e , at the r i s k of the buyer as a r e s u l t
of the abnormality of the voyage, not as a r e s u l t o f t h e i r having perished
as a necessary i n c i d e n t t o the t r a n s i t .
This conclusion i s d i r e c t l y a t odds w i t h the a f o r t i o r i
advanced by Sassoon.
argument
B r i n g i n g together the r u l e contained i n s e c t i o n 33
and the case-law o u t l i n e d above one might a r r i v e a t the f o l l o w i n g conclusions:
1)
Where r i s k i s upon the buyer,
but the s e l l e r , having agreed
t o send the goods t o the buyer, undertakes r i s k during t r a n s i t ,
the
buyer, nevertheless, has r i s k of unavoidable loss which
r e s u l t s from normal t r a n s i t .
2)
Where r i s k i s upon the buyer, and the s e l l e r , having agreed t o
send the goods t o the buyer, does not undertake t o do so a t h i s
- 80 -
own r i s k , the buyer has t o take the r i s k of loss r e s u l t i n g
from abnormal t r a n s i t . The s e l l e r , however, has r i s k i n
r e l a t i o n t o loss r e s u l t i n g from normal t r a n s i t .
I t would thus appear t h a t , i n r e l a t i o n t o loss which i s necessarily
i n c i d e n t t o the t r a n s i t , the buyer i s i n a worse s i t u a t i o n where the
s e l l e r has expressly undertaken t o d e l i v e r a t h i s own r i s k than he would
be i n the absence o f such an express s t i p u l a t i o n . Conversely, the
s e l l e r would only have r i s k i n r e l a t i o n t o such loss where he had elected
not t o undertake r i s k f o r the d u r a t i o n o f the t r a n s i t .
The very p e r v e r s i t y o f such conclusions
their validity.
appreciated
1)
compels one t o question
Sassoon a s s e r t s ' ^ t h a t the t r u e p o s i t i o n can be
only upon drawing a d i s t i n c t i o n between two s i t u a t i o n s :
I n the f i r s t s i t u a t i o n , a s e l l e r dispatches
d e t e r i o r a t e during t r a n s i t .
goods which
A l l goods matching the c o n t r a c t
d e s c r i p t i o n would, n e c e s s a r i l y , perish during t h a t p a r t i c u l a r
course o f t r a n s i t and the goods dispatched
d e t e r i o r a t e no more
than would any other goods o f the genre.
2)
I n the second s i t u a t i o n , a s e l l e r dispatches
goods which perish
during t r a n s i t because o f an inherent d e f e c t , which defect i s
not common t o a l l goods of the genre.
Other goods, matching
the c o n t r a c t d e s c r i p t i o n , could have survived the t r a n s i t .
Sassoon concludes t h a t the case-law o u t l i n e d above r e l a t e s t o the f i r s t
s i t u a t i o n whereas s e c t i o n 33 l e g i s l a t e s f o r the second.
I n support of
102
t h i s conclusion Sassoon c i t e s B u l l v. Robinson
-
asserted"* ^ t h a t "
1 0 1
102
103
i n which Alderson B.
hoop-iron t o be manufactured i n S t a f f o r d s h i r e ,
/"1962 7 J.B.L. 351, 354 and /"1965 7 28 M.L.R. 180 a t 190, 191.
(1854) 10 Ex 342.
at
page 345.
- a l -
and t o be forwarded by canal and r i v e r , t o be d e l i v e r e d i n L i v e r p o o l ,
must be accepted by the vendee, i f only so d e t e r i o r a t e d as a l l such i r o n must
necessarily be d e t e r i o r a t e d i n i t s t r a n s i t from S t a f f o r d s h i r e t o
Liverpool".
Alderson B. concluded t h a t "A manufacturer who c o n t r a c t s t o
d e l i v e r a manufactured a r t i c l e a t a d i s t a n t place must, indeed, stand the
r i s k o f any e x t r a o r d i n a r y or unusual d e t e r i o r a t i o n ; but we t h i n k t h a t the
vendee i s bound t o accept the a r t i c l e , i f only d e t e r i o r a t e d t o t h e
extent t h a t i t i s necessarily subject t o the course o f t r a n s i t from one
place t o the other, o r , i n other words, t h a t he i s subject t o and must
bear the r i s k o f d e t e r i o r a t i o n necessarily consequent upon the t r a n s mission" .
I t would seem, then, t h a t where goods are dispatched t o the buyer,
at h i s general r i s k , and the s e l l e r does not undertake r i s k during
t r a n s i t , the s e l l e r w i l l not bear any p a r t o f the r i s k where the goods
perish as a necessary i n c i d e n t t o the course o f t r a n s i t .
Section 33 w i l l
not apply d i r e c t l y t o the s i t u a t i o n , but the existence o f i t s provisions
would surely persuade a Court t h a t a buyer cannot be i n a b e t t e r
situation,
v i s - a - v i s the s e l l e r , where the s e l l e r has refused t o provide an undert a k i n g t h a t he w i l l carry r i s k than he would upon the g r a n t i n g o f such an
undertaking.
Where s e c t i o n 33 does apply there i s , as previously s t a t e d , a clear
apportionment o f r i s k between s e l l e r and buyer.
The s e l l e r has t h e r i s k
he has undertaken, save f o r the r i s k o f d e t e r i o r a t i o n i n the goods which
i s necessarily i n c i d e n t t o the t r a n s i t .
This r i s k i s upon the buyer.
The r i s k upon the buyer i s , however, a r i s k i n r e l a t i o n t o " d e t e r i o r a t i o n " .
Would there be a s i m i l a r a l l o c a t i o n o f r i s k where the goods perish?
If
the perishing o f the goods i s necessarily i n c i d e n t t o the course o f t r a n s i t ,
would the buyer s u f f e r the l o s s , even though the s e l l e r has undertaken t o
- 82 -
t r a n s p o r t t h e goods at h i s r i s k ?
Surely i f i t i s not thought appropriate
t h a t t h e s e l l e r should bear the r i s k o f an i n e v i t a b l e d e t e r i o r a t i o n , i t i s
even less appropriate t h a t he should bear the r i s k of a d e t e r i o r a t i o n so
massive t h a t i t r e s u l t s i n the goods being taken t o have perished.
One cannot", however, ignore the use o f the word " d e t e r i o r a t i o n " i n
s e c t i o n 33. Perhaps the best c o n s t r u c t i o n o f s e c t i o n 33 i s one which
would r e s u l t i n the buyer bearing t h e r i s k o f any p e r i s h i n g necessarily
i n c i d e n t t o the course o f t r a n s i t p r o v i d i n g the p e r i s h i n g r e s u l t s from a
n a t u r a l d e t e r i o r a t i o n of the goods.
The buyer would n o t , however, be l i a b l e
f o r a p e r i s h i n g which i n e v i t a b l y r e s u l t s from t h e t r a n s i t but which a r i s e s
independently of a n a t u r a l d e t e r i o r a t i o n .
circumstances
One c o u l d , f o r example, contemplate
i n which a s e l l e r would agree t o d e l i v e r goods t o a p o r t sub-
j e c t t o a h o s t i l e blockade.
As a r e s u l t o f t h i s t r a n s i t t h e ship c a r r y i n g
the goods i s sunk, or taken, by the h o s t i l e force and the goods a r e l o s t .
Section 33 would, i t i s submitted, have no a p p l i c a t i o n here.
The s e l l e r
has taken upon himself the r i s k o f the venture and t h a t i s t h a t .
The
reference t o " d e t e r i o r a t i o n " i n s e c t i o n 33 i s not, i t i s submitted, exclusive
of p e r i s h i n g , i t i s , however, r e s t r i c t i v e o f the cause of p e r i s h i n g .
Risk and T r a n s i t ( 2 )
Section 32 Sale o f Goods Act 1979 c o n s i s t s o f three sub-sections,
two o f which provide, p o t e n t i a l l y , f o r an apportionment
s e l l e r and buyer.
o f r i s k between
The 'key* sub-section, sub-section ( 1 ) , provides t h a t :
"Where, i n pursuance o f a c o n t r a c t o f s a l e , t h e s e l l e r i s a u t h o r i s e d
or r e q u i r e d t o send the goods t o the buyer, d e l i v e r y o f t h e goods t o
a c a r r i e r , whether named by the buyer or n o t , f o r the purpose of
transmission t o the buyer i s prima f a c i e deemed t o be a d e l i v e r y of
the goods t o the buyer."
Sub-section
( 2 ) , however, provides t h a t :
"Unless otherwise authorised by the buyer, the s e l l e r must make
such c o n t r a c t w i t h the c a r r i e r on behalf of the buyer as may be
reasonable having regard t o the nature of the goods and the other
circumstances o f the casej.and i f the s e l l e r omits bo do so, and the
see Part One f o r a c o n s i d e r a t i o n of circumstances i n which goods w i l l
be taken t o have perished as a r e s u l t of d e t e r i o r a t i o n .
- 83 -
goods are l o s t or damaged i n course of t r a n s i t , the buyer may
decline t o t r e a t the d e l i v e r y t o the c a r r i e r as a d e l i v e r y
t o h i m s e l f , or may hold the s e l l e r responsible i n damages".
What i s t h e e f f e c t o f t h i s second sub-section?
The sub-section provides
t h a t the buyer may, i n the circumstances s p e c i f i e d t h e r e i n , e l e c t t o
exercise e i t h e r of two remedies.
1)
He may e i t h e r :
d e c l i n e t o t r e a t the d e l i v e r y t o the c a r r i e r as a d e l i v e r y t o
h i m s e l f , or
2)
hold the s e l l e r responsible i n damages.
What e f f e c t w i l l these remedies have upon the a l l o c a t i o n of r i s k ?
Should the buyer e l e c t t o t r e a t the goods as not having been
d e l i v e r e d , h i s remedy u/ould, presumably, be t o sue f o r damages f o r nondelivery.
However, i f the general r i s k i s on the buyer, t h i s remedy may
not be a v a i l a b l e t o him, f o r most academic w r i t e r s would accept t h a t i f
the buyer has r i s k he must, i f the goods p e r i s h , pay the c o n t r a c t p r i c e
even though they have not been d e l i v e r e d t o h i m . " ^
I t i s , however,
possible t h a t the sub-section w i l l , i n some circumstances, d i v e s t the
buyer of r i s k which would, but f o r the sub-section, be on him.
This
would appear t o be the case where the property, and t h e r e f o r e the r i s k ,
only passed t o the buyer upon d e l i v e r y of the goods t o the c a r r i e r .
In
Waite v. B a k e r " ^ Parke B. s a i d , i n r e l a t i o n t o a c o n t r a c t f o r
unascertained goods:
" I t may be admitted, t h a t i f goods are ordered by a person, a l though they are t o be selected by the vendor, and t o be d e l i v e r e d
t o a common c a r r i e r t o be sent t o the person t o whom they have
been ordered, the moment the goods, which have been selected i n
pursuance o f the c o n t r a c t , are d e l i v e r e d t o the c a r r i e r , the
c a r r i e r becomes the agent o f the vendee, and such d e l i v e r y amounts
t o a d e l i v e r y t o the vendee; and i f there i s a binding c o n t r a c t
between the vendor and the vendee
then there i s no doubt
t h a t the property passes by such d e l i v e r y t o the c a r r i e r " .
see page 37.
(1848) 2 Exch. 1, 7.
- 84 -
The d e l i v e r y t o t h e c a r r i e r amounts t o an u n c o n d i t i o n a l a p p r o p r i a t i o n o f the
goods so as t o t r a n s f e r property t o the buyer i n accordance
w i t h Rule 5 o f
s e c t i o n IS Sale o f Goods Act 1979. As a r e s u l t , r i s k would normally
then a t t a c h t o the buyer.
I f , however, the buyer e l e c t s t o d e c l i n e t o
t r e a t t h e d e l i v e r y t o t h e c a r r i e r as a d e l i v e r y t o h i m s e l f , i t may be
t h a t property w i l l n o t be considered
t o have passed upon d e l i v e r y t o t h e
c a r r i e r and, as a r e s u l t , the s e l l e r w i l l s t i l l have general r i s k i n
r e l a t i o n t o the goods.
The buyer who has thus been r e l i e v e d o f property
and r i s k i n r e l a t i o n t o the goods w i l l not be l i a b l e t o the s e l l e r f o r t h e
p r i c e and, moreover, upon any subsequent f a i l u r e t o d e l i v e r he would be
able t o maintain an a c t i o n f o r damages f o r n o n - d e l i v e r y .
Section 32(2)
can, however, only operate t o so r e l i e v e t h e buyer o f r i s k where property
and r i s k have not passed p r i o r t o t h e d e l i v e r y t o t h e c a r r i e r .
and r i s k have passed t o the buyer p r i o r t o the c a r r i e r being
I f property
given
possession o f the goods (as a r e s u l t o f express agreement between t h e parties,
or because o f t h e o p e r a t i o n o f the r u l e s o f s e c t i o n 18 Sale o f Goods Act
1979) t h e f a c t t h a t t h e buyer has the r i s k w i l l n o t be r e l a t e d t o t h e
d e l i v e r y t o the c a r r i e r and the deemed d e l i v e r y t o t h e buyer.
circumstances,
I f , i n such
the buyer, r e l y i n g upon s e c t i o n 3 2 ( 2 ) , e l e c t s t o t r e a t t h e
goods as not having been d e l i v e r e d t o him, t h i s s e c t i o n w i l l only r e s u l t
i n there having been no d e l i v e r y t o the buyer, i t w i l l not a l t e r t h e
f a c t t h a t the goods have been l o s t w h i l s t a t h i s r i s k .
Following h i s
e l e c t i o n , the buyer w i l l f i n d t h a t he has no remedy against t h e s e l l e r
and, having received property i n the goods, he w i l l n o t , presumably, be
able t o c l a i m a t o t a l f a i l u r e o f c o n s i d e r a t i o n .
Moreover, the s e l l e r ,
having t r a n s f e r r e d property and r i s k , w i l l be able t o maintain an a c t i o n
against the buyer f o r the c o n t r a c t p r i c e .
The r i g h t given t o the buyer, by s e c t i o n 3 2 ( 2 ) , t o : e l e c t t o d e c l i n e
- 85 -
t o t r e a t a d e l i v e r y t o a c a r r i e r as a d e l i v e r y t o h i m s e l f , w i l l n o t , i n
any circumstances, r e s u l t i n an apportionment of r i s k between s e l l e r and
buyer.
I t may, i f property has not passed t o the buyer p r i o r t o the
d e l i v e r y t o the c a r r i e r , r e s u l t i n r i s k r e - v e s t i n g i n the s e l l e r .
In
a l l other circumstances i t u / i l l have no e f f e c t on the a l l o c a t i o n of r i s k
which w i l l remain, i n i t s e n t i r e t y , w i t h the buyer.
I t i s , however,
possible t h a t the a l t e r n a t i v e remedy provided by s e c t i o n 32(2) may
result
i n an apportionment of r i s k .
The a l t e r n a t i v e remedy, of damages, i s framed i n a p o s i t i v e manner,
the sub-section p r o v i d i n g t h a t the buyer "may hold the s e l l e r responsible
i n damages".
I f r i s k i s on the buyer he w i l l , presumably, be able t o
counterclaim against the s e l l e r u/hen sued f o r the p r i c e .
There i s ,
however, some doubt as t o the extent of the buyer's r i g h t s i n these
circumstances, f o r i t i s u n c e r t a i n whether the buyer can sue only i n
r e l a t i o n t o loss which r e s u l t s from the unreasonable c o n t r a c t o f
or whether he can sue f o r any l o s s .
carriage
Benjamin"*"^ argues t h a t w h i l s t the
only duty imposed upon the s e l l e r i s one of ensuring t h a t the c o n t r a c t w i t h
the c a r r i e r i s a reasonable one, " i t would seem t h a t , i f the s e l l e r i s i n
breach of t h i s duty, the buyer would be e n t i t l e d t o decline t o t r e a t the
d e l i v e r y t o the c a r r i e r as a d e l i v e r y t o himself notwithstanding t h a t the
loss or damage might have occurred without such breach".
Benjamin contrasts
t h i s s i t u a t i o n w i t h t h a t provided f o r by s e c t i o n 20(2) which, i t w i l l be
r e c a l l e d , r e l a t e s only t o loss which might not have occurred but f o r the
buyer's d e f a u l t .
Whilst Benjamin mentions only the f i r s t of the remedies
provided f o r by s e c t i o n 3 2 ( 2 ) , presumably the same argument would suggest
t h a t the buyer can also e l e c t t o sue f o r damages i n respect of loss which
might have occurred without a breach of the s e l l e r ' s o b l i g a t i o n t o
Sale of Goods (1974) para. 594.
- 86 -
negotiate a reasonable c o n t r a c t .
C e r t a i n l y Atiyah notes 108 t h a t " i t
109
appears t h a t the buyer's remedies
f o r the damage t o or loss o f the
goods operate whether or not the loss or damage was the consequence of the
s e l l e r ' s f a i l u r e t o make a reasonable c o n t r a c t w i t h the c a r r i e r " .
In
s h o r t , given t h a t the s e l l e r has not e f f e c t e d a reasonable c o n t r a c t of
c a r r i a g e , i t i s possible t h a t i f r i s k has passed t o the buyer, i t w i l l
re-vest i n the s e l l e r i n r e l a t i o n t o any loss which may occur during
transit.
What, however, i s the mischief of the sub-section?
There i s
a u t h o r i t y f o r the p r o p o s i t i o n t h a t the purpose of ensuring t h a t the
s e l l e r makes a reasonable c o n t r a c t w i t h the c a r r i e r i s t o ensure t h a t the
buyer w i l l , i n the event of l o s s , have an indemnity against the c a r r i e r .
In Clarke v. H u t c h i n s ^ ^ Lord Ellenborough a s s e r t e d ' ^ t h a t "he ( t h e
s e l l e r ) had an implied a u t h o r i t y , and i t was h i s duty t o do whatever
was
necessary t o secure the r e s p o n s i b i l i t y of the c a r r i e r s f o r the safe
d e l i v e r y of the goods, and t o put them i n t o such a course of conveyance as
t h a t i n case of a loss the defendant might have an indemnity against the
112
carriers".
S i m i l a r l y , i n Thomas Young and Sons L t d . v. Hobson and Partners
Tucker J. was of the opinion t h a t "...... the question was whether a
proper c o n t r a c t was made on t h e i r (the buyer's) behalf by which the
defendants could have recovered from the railway f o r the damage which i n
f a c t occurred".'''^
the
I t would appear, then, t h a t one important aspect of
sub-section i s the encouragement i t gives t o s e l l e r s t o e f f e c t contracts
of carriage which w i l l provide an indemnity t o the buyers.
1 0 8
T h e Sale of Goods ( 5 t h e d i t i o n ) page 223.
109
i.e.
both of them.
1 1 0
( 1 8 1 1 ) 14 East 475.
H I 4hIC
at page 476.
1 1 2
( 1 9 4 9 ) 65 T.L.R. 365.
113
-tec n
pages 366,7.
I t may w e l l be,
- 87 -
how/ever, t h a t i n c e r t a i n circumstances i t i s , because o f c o s t , not comm e r c i a l l y p r a c t i c a b l e t o negotiate a c o n t r a c t which provides f o r such an
indemnity i n respect o f each and every p o t e n t i a l cause o f l o s s .
I n such
circumstances i t would, presumably, be recognised t h a t a c o n t r a c t of
c a r r i a g e was not unreasonable merely because i t d i d not provide f o r a
complete indemnity. Would a s e l l e r be l i a b l e i f he has not e f f e c t e d a
reasonable c o n t r a c t o f c a r r i a g e , but the loss t h a t has a c t u a l l y occurred
i s such t h a t , i n a l l p r o b a b i l i t y , i t would not have been covered by a
reasonable c o n t r a c t o f c a r r i a g e .
Bearing i n mind t h a t the buyer has t h e
r i s k , i s i t not l i k e l y t h a t a c o u r t would not f i n d the s e l l e r l i a b l e i n
such a s i t u a t i o n ?
I f so, there i s here, yet again, p r o v i s i o n f o r
apportionment o f r i s k .
Given t h a t a s e l l e r has not e f f e c t e d a reasonable
c o n t r a c t of c a r r i a g e , he must bear the r i s k o f loss which would have been
covered by such a c o n t r a c t .
The buyer, nevertheless, would r e t a i n r i s k
i n r e l a t i o n t o loss which, commercial p r a c t i c e i n d i c a t e s , would not have
been covered by such a c o n t r a c t .
Risk and T r a n s i t (3)
The t h i r d sub-section t o s e c t i o n 32 provides t h a t :
"Unless otherwise agreed, where goods are sent by the s e l l e r t o
the buyer by a route i n v o l v i n g sea t r a n s i t , under circumstances
i n which i t i s usual t o i n s u r e , the s e l l e r must.give such n o t i c e
t o the buyer as may enable him t o insure them during t h e i r sea
t r a n s i t , and, i f the s e l l e r f a i l s t o do so, the goods s h a l l be
deemed t o be a t h i s r i s k during such sea t r a n s i t " .
This sub-section would not appear t o provide f o r any apportionment of r i s k ,
r a t h e r i t provides t h a t where r i s k has passed t o the buyer i t w i l l , i n the
circumstances envisaged i n the sub-section, re-vest completely i n the
s e l l e r f o r the d u r a t i o n o f the voyage.
" r i s k " borne by the s e l l e r ?
What, however, i s the nature o f the
Normally, the f a c t t h a t t h e s e l l e r has the
r i s k means simply t h a t he cannot recover from the buyer should the goods
- 88 -
perish.
Being r e l i e v e d o f h i s o b l i g a t i o n t o pay f o r the goods may,
however, be l i t t l e comfort t o the buyer, who may have secured a bargain
i n h i s dealing^ w i t h the s e l l e r , or may have bought the goods on a r i s i n g
market.
to
Had the buyer been given n o t i c e s u f f i c i e n t t o have allowed him
have insured the goods, he would, presumably, have insured them f o r
t h e i r market value and would, as a r e s u l t , nave received a f u l l indemnity
upon t h e i r p e r i s h i n g .
Does the r e - v e s t i n g o f r i s k , i n accordance w i t h
s e c t i o n 3 2 ( 3 ) , r e s u l t i n an o b l i g a t i o n on the p a r t o f the s e l l e r t o pay
to
the buyer h i s a c t u a l l o s s .
Must he, i n f a c t , not only abandon h i s claim
114
to
the p r i c e , but also pay compensation t o the buyer?
Surely n o t ,
for
the concept o f r i s k attaches t o the goods themselves r a t h e r than t o
the
bargain which has been made i n r e l a t i o n t o them.
The buyer would,
presumably, being r e l i e v e d of h i s o b l i g a t i o n t o pay the p r i c e , recover
his
at
compensation by way o f an a c t i o n f o r damages f o r non-delivery.
t h i s stage, however, t h a t the s i t u a t i o n becomes unclear.
I t is
The s e l l e r
w i l l only be l i a b l e f o r non-delivery i f h i s c o n t r a c t w i t h the buyer survives the perishing o f the goods.
I f , however, the p e r i s h i n g o f the
goods f r u s t r a t e s the c o n t r a c t he w i l l be f r e e o f such l i a b i l i t y .
the
Where
goods are s p e c i f i c , the c o n t r a c t can be f r u s t r a t e d by v i r t u e o f
s e c t i o n 7 Sale o f Goods Act 1979, which provides t h a t :
"Where there i s an agreement t o s e l l s p e c i f i c goods, and
subsequently the goods, without any f a u l t on t h e p a r t o f the
s e l l e r or buyer, perish before the r i s k passes t o the buyer,
the agreement i s thereby avoided".
Several problems a r i s e , i n these circumstances, i n r e l a t i o n t o the prov i s i o n s o f t h i s s e c t i o n , not the l e a s t of which i s t h a t which r e s u l t s
There i s j u d i c i a l expression of doubt on t h i s p o i n t . I n Wimble Sons
and Co. v. Rosenberg and Sons /~1913 7 3 K.B. 757 Hamilton L.J. asserts
that:
" I f the s e l l e r f a i l s t o f u l f i l t h i s o b l i g a t i o n , then, i n a d d i t i o n
to or s u b s t i t u t i o n f o r ( I know not which) any provable damages
for the breach, he loses both the goods and the p r i c e i n case
the goods are l o s t a t sea".
- 89 -
from the r e - v e s t i n g of r i s k i n the s e l l e r .
Normally a c o n t r a c t can
f r u s t r a t e d i f the s e l l e r has r i s k , as he has i n the s e c t i o n
situation.
Section 7 expressly
be
32(3)
provides, however, t h a t the c o n t r a c t
may
only be f r u s t r a t e d "before the r i s k passes t o the buyer" and, i n the
s e c t i o n 32(3) s i t u a t i o n , i t w i l l have passed t o the buyer, though i t w i l l
subsequently be taken t o re-vest i n the s e l l e r .
Should the Court decide
t h a t the important f a c t o r i s the f a c t t h a t the s e l l e r does have the
r i s k , r a t h e r than the f a c t t h a t i t has p r e v i o u s l y , and t e m p o r a r i l y , passed
t o the buyer, i t may
y e t experience f u r t h e r d i f f i c u l t i e s i n applying
s e c t i o n 7 i n these circumstances.
C e r t a i n l y the c o n t r a c t
could, as
required by the s e c t i o n , be an "agreement t o s e l l " r a t h e r than a s a l e ,
for r i s k may
have passed t o the buyer ahead of property.
A more t a x i n g
problem, however, whould be t o determine, i n such circumstances,
whether the goods have perished
seller?
"without any f a u l t " on the p a r t of the
" F a u l t " , as has previously been i n d i c a t e d , includes
"any
wrongful act or d e f a u l t " and, q u i t e c l e a r l y , the s e l l e r has, i n the
s e c t i o n 32(3) s i t u a t i o n , "defaulted" i n r e l a t i o n t o h i s o b l i g a t i o n t o
give notice t o the buyer s u f f i c i e n t t o enable him t o insure the goods.
I t i s not, however, c l e a r whether the reference
to " f a u l t " i n section 7
incorporates i n t o t h a t s e c t i o n a f a u l t notion i n r e l a t i o n t o causation
whether i t has a wider meaning.
The f a i l u r e of the s e l l e r t o give notice
w i l l not cause the goods t o perish and, i f the reference
to causation, the s e l l e r w i l l not be at f a u l t .
to " f a u l t " relate
An element of f a u l t
attaches t o the s e l l e r ' s performance of his c o n t r a c t u a l o b l i g a t i o n s ,
however, and should the reference
s e c t i o n 7 w i l l not
or
t o " f a u l t " be given a wide meaning,
apply.
I f s e c t i o n 7 can be applied i n the s e c t i o n 32(3) s i t u a t i o n , the
s e l l e r and buyer w i l l each share an aspect of r i s k .
The s e l l e r , having
- 90 -
the r i s k , may lose h i s r i g h t t o sue f o r the" p r i c e , w h i l s t the buyer,
because of the l i k e l i h o o d of the c o n t r a c t being f r u s t r a t e d , may lose
h i s r i g h t t o sue f o r non-delivery and, as a r e s u l t , t h a t p a r t of the
value of the goods which exceeds the c o n t r a c t p r i c e .
I t i s submitted
however, t h a t s e c t i o n 7 should not apply i n t h i s s i t u a t i o n , f o r the
f a c t t h a t the s e l l e r i s "deemed" t o have the r i s k , as a r e s u l t of
s e c t i o n 32(3) should not obscure the f a c t t h a t r i s k has, i n r e a l i t y ,
passed t o the buyer.
Section 7 c o u l d , i n any event, only apply where
property had not passed t o the buyer.
Further, where the goods are
purely generic there w i l l be no question of f r u s t r a t i o n .
therefore,
Generally,
s e c t i o n 32(3) w i l l not r e s u l t i n any apportionment o f r i s k
I t w i l l , however, n o t i o n a l l y re-vest r i s k i n the s e l l e r .
- 91 -
PART THREE
FRUSTRATION OF THE CONTRACT
- 92 -
The p e r i s h i n g o f goods which form the s u b j e c t matter o f a c o n t r a c t
of s a l e w i l l n o t , o f i t s e l f , discharge the c o n t r a c t :
a man i s n o t discharged from h i s o b l i g a t i o n o f f u l f i l l i n g h i s c o n t r a c t because he i s able t o say t h a t he
c o u l d n o t f u l f i l i t . This i s one o f the main reasons f o r
h i s paying damages, t h a t he c o u l d not f u l f i l it" A
The c o n t r a c t w i l l be discharged only where the p e r i s h i n g of the goods
r e s u l t s i n a f r u s t r a t i o n o f the c o n t r a c t ; and t h a t w i l l occur where the
p e r i s h i n g o f the goods r e s u l t s i n :
a)
the a p p l i c a t i o n o f the r u l e contained i n s e c t i o n 7 Sale o f
Goods Act 1979; or
b)
the a p p l i c a t i o n o f common law p r i n c i p l e s which recognise
t h a t the c o n t r a c t i s f r u s t r a t e d .
per Rowlatt J. Sargant and Sons v. Paterson and Co. (1923) 129 L.T.
471, 473.
- 93 -
SECTION A:
FRUSTRATION BY SECTION 7 SALE OF GOODS ACT 1979
Section 7 o f the 1979 Act provides t h a t :
"Where there i s an agreement t o s e l l s p e c i f i c goods and subsequently the goods, without any f a u l t on t h e p a r t o f the
s e l l e r or buyer, perish before t h e r i s k passes t o the buyer,
the agreement i s thereby avoided."
Must the Goods be Specific?
I t w i l l be seen t h a t t h i s s e c t i o n appears t o r e l a t e only t o
s p e c i f i c goods, which goods are defined i n s e c t i o n 61(1) o f the Act as
being "... i d e n t i f i e d and agreed upon a t the time a c o n t r a c t o f sale i s
made".
S i r Mackenzie Chalmers, however, was o f the opinion t h a t s e c t i o n 7
applied whether the goods had been i d e n t i f i e d a t the time o f c o n t r a c t or
2
not o r , indeed, whether i n existence
a t the time o f c o n t r a c t or n o t .
Chalmers r e l i e d upon d i c t a by M e l l i s h J. i n Howell v. Coupland
3
relating
to a c o n t r a c t f o r the supply o f 200 tons o f potatoes t o be grown on a
p a r t i c u l a r farm. M e l l i s h J. asserted t h a t :
"This i s not l i k e the case o f a c o n t r a c t t o d e l i v e r so many goods
of a p a r t i c u l a r k i n d , where no s p e c i f i c goods are t o be s o l d .
Here there was an agreement t o s e l l and buy 200 tons o f a crop
t o be grown on s p e c i f i c land, so t h a t i t i s an agreement t o s e l l
what w i l l be, and may be c a l l e d s p e c i f i c t h i n g s ; t h e r e f o r e
n e i t h e r party i s l i a b l e i f the performance becomes impossible."
The d e f i n i t i o n contained
such a conclusion.
i n s e c t i o n 61(1) i s , o f course, i n c o n s i s t e n t w i t h
Goods which have not been i d e n t i f i e d or agreed upon
at the moment of c o n t r a c t cannot, under the d e f i n i t i o n , be s p e c i f i c goods.
However, i t may not f o l l o w from t h i s t h a t s e c t i o n 7 cannot apply t o such
goods.
Chalmers "Sale o f Goods Act 1893" (16th ed) page 74.
3
( 1 8 7 6 ) 1 Q.B.D. 258, 262.
- 94 -
Consider, f o r example, an analogous s i t u a t i o n , i n v o l v i n g s e c t i o n 52
of the Act.
That s e c t i o n provides:
" I n any a c t i o n f o r breach of c o n t r a c t t o d e l i v e r s p e c i f i c or
ascertained goods the c o u r t may, i f i t t h i n k s f i t , on the
p l a i n t i f f ' s a p p l i c a t i o n ... d i r e c t t h a t the c o n t r a c t s h a l l
be performed s p e c i f i c a l l y
The express reference t o " s p e c i f i c or ascertained goods" i n s e c t i o n 52
would appear t o i n d i c a t e t h a t the s e c t i o n does not extend t o c o n t r a c t s
f o r unascertained goods.
I n Sky Petroleum v. V.I.P. Petroleum
Ltd.,
4
however, the High Court s p e c i f i c a l l y enforced a c o n t r a c t f o r the sale o f
unascertained goods i n circumstances
i n which damages would, i n t h e
opinion o f the Court, have been inadequate.
(The c o n t r a c t was f o r t h e
supply o f p e t r o l t o a f i l l i n g s t a t i o n , and the breach occurred d u r i n g the
1973 p e t r o l c r i s i s . )
I n doing so Goulding J. recognised t h e d i f f i c u l t y
presented by the words o f the s e c t i o n but asserted t h a t t h e Court should
not be confined by those words but should look r a t h e r t o the ' r a t i o behind
the
r u l e " ^ o r , i n other words, t o the mischief.
The r a t i o behind the r u l e
contained i n s e c t i o n 52 was, t o Goulding J., the p r i n c i p l e t h a t s p e c i f i c
performance o f a c o n t r a c t f o r the sale o f goods should never be awarded
where damages would be an adequate remedy.
I n v i r t u a l l y a l l cases
damages would adequately compensate a purchaser f o r the non-delivery o f
unascertained goods, f o r , w i t h the damages,
he could re-enter the market
and purchase the goods he r e q u i r e s . Where, however, there was no a v a i l able market (as was the case f o r p e t r o l i n 1973) the goods, though
unascertained, acquired a uniqueness which made them s i n g u l a r l y important.
Having such importance, the unascertained goods f e l l w i t h i n the r a t i o
underpinning the words o f s e c t i o n 52 and the s e c t i o n could be applied t o
4
/"1974_7 1 A l l E.R. 954.
''at page 956.
- 95 -
the c o n t r a c t f o r t h e i r s a l e .
I t would, presumably, be possible t o extend
t h i s approach t o s e c t i o n 7 Sale o f Goods Act and f i n d t h a t goods other
than s p e c i f i c goods could be embraced by t h a t s e c t i o n .
The draftsman,
u/e may assume, r e f e r r e d t o s p e c i f i c goods only on the basis t h a t the
d e s t r u c t i o n of unascertained
goods should not be taken t o f r u s t r a t e a
c o n t r a c t f o r t h e i r s a l e , as f u r t h e r supplies o f such goods would be a v a i l
able t o the s e l l e r . s o as t o enable him t o perform h i s c o n t r a c t u a l undertaking.
I f the goods were ascertained a t the time of d e s t r u c t i o n
property would, i n a l l p r o b a b i l i t y , have passed t o the buyer and i t was
m a n i f e s t l y not t h e draftsman's i n t e n t i o n t o f r u s t r a t e a c o n t r a c t i n
which property had passed.^
I f t h i s i s so, and the reference t o s p e c i f i c
goods i s merely an attempt t o exclude the p e r i s h i n g of ascertained goods
or unascertained
unascertained
goods which can be replaced
( i . e . purely
generic
goods), i t would be open t o a Court t o include w i t h i n the
" r a t i o " o f s e c t i o n 7 the d e s t r u c t i o n o f unascertained goods from a
s p e c i f i c source.
Whether a c o u r t would be prepared t o do so i s , o f course, another
question.
P r i o r t o 1943, i t would have mattered l i t t l e whether such a
c o n t r a c t was f r u s t r a t e d by s e c t i o n 7 or by normal p r i n c i p l e s o f common
law.
The passing of the Law Reform ( F r u s t r a t e d Contracts) Act 1943 has,
however, changed t h i s , f o r the provisions of t h a t Act do not apply t o
contracts f r u s t r a t e d by s e c t i o n 7.
As a r e s u l t , i t i s a matter of some
doubt t h a t a court would s t r i v e t o b r i n g w i t h i n s e c t i o n 7 a s i t u a t i o n
which would otherwise a t t r a c t the p r o v i s i o n s of the 1943 Act.
Property and Risk must not have passed
Section 7 w i l l not apply t o contracts i n which property has
the s e c t i o n only applies where there i s "an agreement t o s e l l " .
passed
- 96 -
for
the draftsman expressly r e f e r s only t o an "agreement t o s e l l " .
Nor
w i l l i t apply t o a c o n t r a c t i n which the r i s k o f l o s s has passed t o the
buyer.
Various commentators^ conclude from t h i s t h a t the p e r i s h i n g of the
goods cannot f r u s t r a t e an executed c o n t r a c t f o r the s a l e o f those goods.
Surely, however, the only l e g i t i m a t e conclusion t h a t can be drawn from
the wording of s e c t i o n 7 i s t h a t there can be no f r u s t r a t i o n under
s e c t i o n 7 o f a c o n t r a c t i n which p r o p e r t y , or r i s k , or both p r o p e r t y
r i s k , has passed t o the, buyer.
and
Whether there can be a common law
f r u s t r a t i o n o f such c o n t r a c t s w i l l be discussed
elsewhere.
For the
moment, however, i t i s s u f f i c i e n t t o e s t a b l i s h t h a t f o r s e c t i o n 7 t o
apply n e i t h e r property nor r i s k must be w i t h the buyer.
There i s a l s o a u t h o r i t y f o r the p r o p o s i t i o n t h a t an agreement w i l l
not be avoided by s e c t i o n 7 where the p a r t i e s have determined t h a t r i s k
g
s h a l l l i e w i t h the s e l l e r .
I n Logan v. I_e Mesurier,
Committee of the P r i v y Council considered
goods were destroyed
The Court held t h a t r i s k had not passed t o the buyer
and, r i s k being w i t h the s e l l e r , i t was
purchaser.
a s i t u a t i o n i n which s p e c i f i c
p r i o r t o t h e i r measurement and consequent d e t e r -
m i n a t i o n o f the p r i c e .
The s e l l e r was,
the J u d i c i a l
:he who
should bear the l o s s .
a c c o r d i n g l y , ordered t o r e t u r n the p r i c e paid by the
This p a r t of the
judgment i s unexceptional and i s not incon-
s i s t e n t w i t h the o p e r a t i o n o f the r u l e contained i n s e c t i o n 7.
was,
however, also ordered t o pay damages f o r n o n - d e l i v e r y .
The
seller
The basis of
the award of damages i s not explained i n Lord Brougham's judgement"^ and i s
d i f f i c u l t t o determine.
I t i s argued i n Benjamin's "Sale o f Goods''"^
see, f o r example, Fridman "Sale of Goods" page
^see Section E of t h i s Part.
9
( 1 8 4 7 ) 13 E.R.
1 0
n
628.
s e t out at 13 E.R.
art.
426.
634.
243.
- 97 -
t h a t the case i n d i c a t e s the Court's w i l l i n g n e s s t o f i n d t h a t the p a r t i e s
had agreed t h a t the goods were t o be a t the s e l l e r ' s r i s k u n t i l property
had been t r a n s f e r r e d t o the buyer and t h a t such agreement r e s u l t e d i n a
s i t u a t i o n i n which the " f r u s t r a t i n g event" d i d not avoid the c o n t r a c t .
I f c o r r e c t , t h i s would mean t h a t section 7 w i l l not avoid a c o n t r a c t
where t h e p a r t i e s have agreed t h a t r i s k s h a l l l i e w i t h the s e l l e r u n t i l
property i s t r a n s f e r r e d t o the buyer.
This p r o p o s i t i o n appears, however, t o ignore the f a c t t h a t goods
are always a t the s e l l e r ' s r i s k p r i o r t o the buyer a c q u i r i n g r i s k and
t h a t , normally, r i s k i s t r a n s f e r r e d t o t h e buyer a t the same time as
property.
I n any event, the f a c t t h a t the goods are a t the s e l l e r ' s r i s k
w i l l not impose an o b l i g a t i o n upon him t o pay damages f o r non-delivery,
but w i l l merely determine t h a t he w i l l not be able t o secure recompense from
the buyer f o r h i s loss i n the event o f the goods p e r i s h i n g .
A court would
need t o ;be s a t i s f i e d t h a t the p a r t i e s intended the s e l l e r t o bear the
r i s k o f a f r u s t r a t i n g event o c c u r r i n g , r a t h e r than mere r i s k o f
d e s t r u c t i o n o f the goods, i f i t was t o be i n a p o s i t i o n t o impose upon the
s e l l e r l i a b i l i t y i n damages f o r non-delivery.
Moreover, i t may be t h a t t h e
award o f damages i n Logan v. Le Mesurier d i d not depend upon the presumed
i n t e n t i o n o f the p a r t i e s as t o r i s k .
There had been, i n t h a t case, a breach
of c o n t r a c t p r i o r t o the " f r u s t r a t i n g event", f o r the goods had not been
d e l i v e r e d a t the agreed place o f d e l i v e r y upon the agreed day. The subsequent f r u s t r a t i n g event would n o t , r e t r o s p e c t i v e l y , erase t h i s breach
and damages would have been a v a i l a b l e t o the buyer as compensation f o r t h i s
e a r l i e r breach rather than f o r the non-delivery r e s u l t i n g from the
perishing o f the goods.
I f so, i t would appear t h a t any express or implied
agreement between the p a r t i e s t h a t the s e l l e r s h a l l bear the r i s k o f
d e s t r u c t i o n o f the goods w i l l c e r t a i n l y have the e f f e c t o f ensuring t h a t
- 98 -
the buyer does not bear t h i s r i s k , but w i l l not be taken t o i n t e r f e r e w i t h
the operation o f s e c t i o n 7.
Fault
A f u r t h e r requirement o f s e c t i o n 7 i s t h a t the goods must perish
without any f a u l t on the p a r t o f s e l l e r or buyer.
Obviously there can
be no f r u s t r a t i o n where e i t h e r party i s a t f a u l t and, as a r e s u l t o f t h a t
f a u l t , the goods p e r i s h .
Thus, there w i l l be no f r u s t r a t i o n where e i t h e r
s e l l e r or buyer has d e f a u l t e d i n the making ( o r t a k i n g ) o f d e l i v e r y .
As a
r e s u l t , i f the s e l l e r has been a t f a u l t i n not e f f e c t i n g d e l i v e r y t o the
buyer the goods w i l l , because o f s e c t i o n 20(2) Sale o f Goods Act 1979, be
at t h e r i s k o f the s e l l e r who must bear the loss of the goods and,
s e c t i o n 7 o f the Act not applying because o f h i s f a u l t , the s e l l e r w i l l
also be l i a b l e t o the buyer f o r damages f o r non-delivery.
Where the
buyer has, as a r e s u l t o f f a u l t , not taken d e l i v e r y o f t h e goods he w i l l ,
s i m i l a r l y , bear the r i s k o f loss and w i l l be l i a b l e i n damages f o r nonacceptance.
What, however, i f f a u l t i s not causative o f the loss?
Consider, f o r
example, a s i t u a t i o n i n which a s e l l e r has agreed t o s e l l s p e c i f i c goods
which are not merchantable or which deviate from t h e i r c o n t r a c t d e s c r i p t i o n .
W i l l t h e s e l l e r ' s f a u l t take the c o n t r a c t outside the provisions o f
s e c t i o n 7 so t h a t there w i l l be no f r u s t r a t i o n o f the c o n t r a c t should the
goods perish p r i o r t o the passing o f property and r i s k ?
Perhaps i t can
be argued t h a t i n the above s i t u a t i o n the s e l l e r does not break h i s c o n t r a c t ,
I t may be t h a t the s e l l e r i s e n t i t l e d t o the "replacement value"-of h i s
goods by v i r t u e o f the buyer having the r i s k o f loss and t h a t recovery
of p r o f i t depends upon the a v a i l a b i l i t y of the a c t i o n f o r damages.
(See Part Two)
- 99 -
and, thus, i s not a t f a u l t , u n t i l d e l i v e r y i s e f f e c t e d .
then, there may be
Until delivery,
no f a u l t on the p a r t o f the s e l l e r , the contingent
l i a b i l i t y , which would have developed i n t o a c t u a l l i a b i l i t y but f o r
d e l i v e r y being prevented by the goods p e r i s h i n g , being i r r e l e v a n t .
A more s u b t l e form of non-causative f a u l t may, however, prove more
taxing.
I t may be t h a t the f a u l t of the s e l l e r r e l a t e s t o the precautions
he should have taken t o ensure the s a f e t y of the goods.
He may not have
taken the steps t h a t a reasonable businessman would have taken t o have
prevented t h e i r p e r i s h i n g .
I t may be, however, t h a t had he taken such
steps, these normal precautions would n o t , i n the event, have been
s u f f i c i e n t t o have prevented the goods p e r i s h i n g as a r e s u l t o f some
enormous and unpredictable i n t e r v e n t i o n by the forces o f nature.
W i l l the
c o n t r a c t be f r u s t r a t e d as a r e s u l t o f t h i s unforeseen and non-preventable
n a t u r a l i n t e r v e n t i o n , or w i l l the s e l l e r ' s f a u l t preclude the a p p l i c a t i o n
of s e c t i o n 7?
Section 20(2) of the Act which r e f e r s t o "... any loss which
might not have occurred but f o r such f a u l t " c l e a r l y r e q u i r e s f a u l t t o have
been a l i k e l y cause of the l o s s ; the causative nature o f the f a u l t i s n o t ,
however, expressly r e f e r r e d t o i n s e c t i o n 7 and, indeed, by t h i s omission
may be taken t o have been excluded.
Would, then, the s e l l e r ' s f a u l t i n
the above s i t u a t i o n render him l i a b l e i n damages f o r non-delivery even
though he would not have been i n a p o s i t i o n t o d e l i v e r had he not been a t
fault?
Exclusion of s e c t i o n 7
I t i s possible t h a t the operation of s e c t i o n 7 cannot be prevented
by contrary agreement. Section 55(1) Sale of Goods Act provides:
Section 14(2) r e f e r s t o the goods supplied under the c o n t r a c t being
merchantable, w h i l s t s e c t i o n 13 provides t h a t the goods s h a l l ( a t the time
of d e l i v e r y ! ) correspond w i t h t h e i r d e s c r i p t i o n .
- 100 -
"Where a r i g h t , duty or l i a b i l i t y would a r i s e under a c o n t r a c t
of sale of goods by i m p l i c a t i o n of law, i t may (subject t o the
Unfair Contract Terms Act 1977) be negatived or v a r i e d by
express agreement, or by the course of d e a l i n g between the
p a r t i e s , or by such usage as binds both p a r t i e s t o the c o n t r a c t . "
This sub-section r e f e r s t o " r i g h t s , d u t i e s or l i a b i l i t i e s " which a r i s e by
i m p l i c a t i o n of law.
I t may be argued t h a t s e c t i o n 7 does not create
r i g h t s , d u t i e s or l i a b i l i t i e s , but r a t h e r , by i t s o p e r a t i o n , negatives
them.
for
I f so, s e c t i o n 55(1) w i l l not apply t o s e c t i o n 7.
Further support
the view t h a t s e c t i o n 7 may not be excluded by agreement i s t o be found
i n the wording of the s e c t i o n and of other sections w i t h i n the Act.
Sections such as sections 20 and 33 expressly provide t h a t they operate
"unless otherwise agreed".
A perusal of Part IV of the Act i n d i c a t e s t h a t
these words are a "golden formula" used by the draftsman t o s i g n a l h i s
i n t e n t i o n t h a t the p a r t i e s are free t o vary h i s s t a t u t o r y terms i n t h e i r
contracts.
There i s no such wording i n s e c t i o n 7 which may,
by
i m p l i c a t i o n , i n d i c a t e t h a t the s e c t i o n must apply i n any s i t u a t i o n i n which
i t s p r o v i s i o n s have been s a t i s f i e d .
= 101 -
SECTION B;
CONSEQUENCES OF A CONTRACT BEING FRUSTRATED BY SECTION 7
Where the several requirements of s e c t i o n 7 Sale of Goods Act
have been f u l f i l l e d the s e c t i o n provides t h a t "...
thereby avoided".
1979
the agreement i s
I t would appear from t h i s wording t h a t the agreement
a u t o m a t i c a l l y ceases t o e x i s t upon the goods p e r i s h i n g .
I t does not,
14
however, cease t o have e x i s t e d ; i n the Fibrosa case,
r e f e r r i n g t o the s e c t i o n 7 s i t u a t i o n , pointed t o "...
made and continuing i n existence
t h a t the c o n t r a c t "...
Lord P o r t e r ,
a contract v a l i d l y
u n t i l the goods p e r i s h " ' ^ and
asserted
i s not void ab i n i t i o , but f u r t h e r performance i s
excused a f t e r the d e s t r u c t i o n has taken p l a c e " . ^
I t would appear, then,
t h a t where a c o n t r a c t i s f r u s t r a t e d by operation of s e c t i o n 7:
1)
both p a r t i e s are released from a l l o b l i g a t i o n s which had- not
accrued a t the time of the p e r i s h i n g of the goods;
2)
any o b l i g a t i o n which had accrued before t h i s time must be
performed;
3)
any o b l i g a t i o n which had accrued and which had been performed
remains
undisturbed.
I n short,- the r i g h t s and o b l i g a t i o n s of the p a r t i e s are determined as a t the
time the goods p e r i s h .
Contracts) Act 1943
that:
The provisions of the Law
Reform ( F r u s t r a t e d
do not apply, f o r s e c t i o n 2(5) of t h a t Act provides
"This Act s h a l l not apply
...
(c)
1979
.... applies ..."
...
t o any c o n t r a c t t o which s e c t i o n seven of the Sale of Goods Act
The consequences of f r u s t r a t i o n are,
those of the unamended provisions of the common law.
w i l l now
accordingly,
These consequences
be considered i n d e t a i l .
14 Fibrosa Spolka Akcjna v. F a i r b a i r n Lawson Combe Barbour L t d . /~1943 7
A.'
15 at page 83.
- 102 -
Discharge o f both p a r t i e s i n r e l a t i o n t o O b l i g a t i o n s which have not
Accrued
Benjamin's "Sale o f Goods" s t a t e s unequivocally t h a t ....
"The
e f f e c t of the o p e r a t i o n o f s e c t i o n 7 i s t h a t the agreement i s avoided.
Both p a r t i e s are released from a l l o b l i g a t i o n s which have not yet
accrued a t the time a t which the goods p e r i s h " . " ^
On the wording o f the
s e c t i o n t h i s i s the only c o n c l u s i o n t h a t can reasonably be drawn.
G l a n v i l l e Williams a s s e r t s , " ^ however, t h a t the wording of the s t a t u t e
r e s u l t s from the draftsman's mistaken i n t e r p r e t a t i o n o f the r a t i o of
18
Taylor v. Caldwell.-
He maintains t h a t , i n the s e c t i o n 7 s i t u a t i o n , the
s e l l e r should be t r e a t e d as being discharged from h i s o b l i g a t i o n s by
v i r t u e o f the i m p o s s i b i l i t y o f performance
the
subsequent t o the p e r i s h i n g of
goods which form the s u b j e c t matter o f the c o n t r a c t .
The
buyer,
however, should be t r e a t e d as being discharged not by reason o f imposs i b i l i t y o f performance,
f o r he may
perform h i s o b l i g a t i o n under t h e
c o n t r a c t ( i . e . payment o f the p r i c e ) , but r a t h e r by f a i l u r e o f c o n s i d e r a t i o n
by reason o f the s e l l e r ' s i n a b i l i t y t o perform.
approach l a t e r .
More w i l l be said o f t h i s
Where, however, s e c t i o n 7 a p p l i e s t o a c o n t r a c t f o r the s a l e
of goods i t would appear c l e a r from the wording a c t u a l l y used by the
draftsman, whether r e s u l t i n g from a mistake or n o t , t h a t both p a r t i e s are
discharged by reason of the c o n t r a c t being avoided.
I t w i l l be r e c a l l e d from Part One,
t h a t goods may be taken t o have
perished where, i n r e a l i t y , some considerable p o r t i o n of the goods remain
19
i n e x i s t e n c e . I n Barrow Lane L t d . v. P h i l l i p P h i l l i p s and Company L t d . ,
16
a r t . 428. page 202.
17 The Law Reform ( F r u s t r a t e d Contracts) Act 1943" page 82.
18
19
(1863) 3 B. and S.
/"1929 7 1 K.B.
826.
574.
- 103 -
for
example, a consignment o f 700 bags o f nuts was taken t a have
perished as a r e s u l t o f 109 o f the bags having been s t o l e n .
Ina
s i t u a t i o n i n which goods are deemed t o have p e r i s h e d i n t h i s way and i n
which s e c t i o n 7 a p p l i e s , w i l l the buyer be able t o i n s i s t t h a t the goods
which have not a c t u a l l y perished should be d e l i v e r e d ? I t i s submitted
20
t h a t he can n o t .
I n Sainsbury L t d . v. S t r e e t
Flackenna J . d i s t i n g u i s h e d
two, s i m i l a r , s i t u a t i o n s :
a)
t h e Howell v . Coupland s i t u a t i o n , i n which there i s an agree-
ment t o buy goods s u b j e c t t o a c o n d i t i o n precedent t h a t s u f f i c i e n t
goods be grown or acquired by t h e s e l l e r ( o r t o a c o n d i t i o n subsequent which w i l l determine the c o n t r a c t i f s u f f i c i e n t goods are
not
b)
available);
t h e s i t u a t i o n i n which s e c t i o n 7 Sale o f Goods Act a p p l i e s .
In t h e former s i t u a t i o n , he was able t o a s s e r t t h a t the e x i s t e n c e o f a
c o n d i t i o n r e l i e v i n g t h e s e l l e r o f h i s o b l i g a t i o n t o make complete
d e l i v e r y need not excuse him from d e l i v e r i n g the s m a l l e r , a v a i l a b l e ,
q u a n t i t y should t h e buyer be w i l l i n g t o accept i t .
the
Having d i s t i n g u i s h e d
two s i t u a t i o n s , and having addressed h i m s e l f t o the former (and f o r
him, r e l e v a n t ) s i t u a t i o n , he d i d n o t comment on t h e l a t t e r .
ment does, however, demonstrate t h a t the Howell v. Coupland
His j u d g situation
and the s e c t i o n 7 s i t u a t i o n are d i s t i n c t and t h a t j u d i c i a l comments made
i n r e l a t i o n t o the former cannot
the
be taken t o apply t o t h e l a t t e r .
In
l a t t e r s i t u a t i o n , the words o f the s t a t u t e are c l e a r and unambiguous.
S i m i l a r l y c l e a r wording i n s e c t i o n 6 o f t h e Sale o f Goods Act has caused
the
e d i t o r s o f Benjamin's
"Sale o f Goods" t o q u e s t i o n the suggestion
t h a t a buyer can i n s i s t upon a reduced d e l i v e r y i n a s e c t i o n 6 s i t u a t i o n :
2 0
/"1972 7 3 A l l E.R, 1127.
- 104 -
" I t has been suggested t h a t the buyer may always i f he wishes
waive h i s r i g h t t o f u l l and complete d e l i v e r y and i n s i s t on
having the remainder i f he i s w i l l i n g t o pay the f u l l c o n t r a c t
p r i c e , or perhaps i n a proper case, the appropriate p a r t of a
d i v i s i b l e p r i c e . I t i s d i f f i c u l t t o see how t h i s can be_
21
reconciled w i t h the s t a t u t o r y r u l e t h a t the c o n t r a c t i s v o i d " .
Equally, i t i s submitted,
i t i s d i f f i c u l t t o see how a buyer's c l a i m t o
e n t i t l e m e n t t o d e l i v e r y can survive an avoidance of a c o n t r a c t by
s e c t i o n 7.
By c o n t r a s t , i t may be noted t h a t s e c t i o n 7(2) American
Uniform Sales Act provides t h a t i f the goods have perished
i n part or
have wholly or i n a m a t e r i a l part so d e t e r i o r a t e d i n q u a l i t y as t o be
s u b s t a n t i a l l y changed i n character, the buyer can, a t h i s o p t i o n , t r e a t
the sale as avoided or as t r a n s f e r r i n g property i n e x i s t i n g goods ( i n which
case he must pay the whole p r i c e i f the c o n t r a c t was
indivisible).
Performance o f Obligations which have Accrued
Notwithstanding
the operation of s e c t i o n 7, the p a r t i e s are bound
to perform o b l i g a t i o n s which had accrued p r i o r t o the moment a t which the
goods perished.
S i m i l a r l y any performance o f such o b l i g a t i o n s which had
taken place a t the time of p e r i s h i n g w i l l remain undisturbed.
I n Chandler
22
v. Webster
C o l l i n s M.R. asserted t h a t :
"... where, from causes outside the v o l i t i o n o f the p a r t i e s ,
something which was the basis o f , or e s s e n t i a l t o the f u l f i l m e n t o f ,
the c o n t r a c t has become impossible, so t h a t , from the time when the
f a c t o f t h a t i m p o s s i b i l i t y has been ascertained, the c o n t r a c t can
no f u r t h e r be performed by e i t h e r p a r t y , i t remains a p e r f e c t l y
good c o n t r a c t up t o t h a t p o i n t and everything previously done i n
pursuance of i t must be t r e a t e d as r i g h t l y done".
23
Thus, t o borrow an example provided by Lord A t k i n i n the Fibrosa case,
i f "A agrees t o s e l l a horse t o B f o r £50, d e l i v e r y t o be made i n a month
21
art.
2 2
119, page 75.
23 /"1904 7 1 K.B. 493 at 499,
at page 50,
- 105 -
the p r i c e t o be paid f o r t h w i t h , but the property not t o pass t i l l
d e l i v e r y , and B t o pay A each u/eek an agreed sum f o r keep o f the horse
during the month", then, i f the horse dies i n a f o r t n i g h t , D i s bound
to pay the sum due f o r the f o r t n i g h t .
The purchaser may, however, b r i n g an a c t i o n f o r recovery of any
p a r i o f the p r i c e paid ( t h e f u l l £50 i n the above example) where there
has been a t o t a l f a i l u r e o f c o n s i d e r a t i o n .
for
The a c t i o n i s q u a s i - c o n t r a c t u a l
money had and. received:
"The claim f o r money had and received i s not ... a c l a i m f o r
f u r t h e r performance o f the c o n t r a c t . I t i s a claim outside the
c o n t r a c t . I f t h e p a r t i e s are l e f t where they a r e , one feature o f
the p o s i t i o n i s t h a t the one who has received the prepayment i s
l e f t i n possession o f a sum o f money which belongs t o the
other. The f r u s t r a t i o n does not change the property i n the
money, nor i s the c o n t r a c t wiped out a l t o g e t h e r , but only t h e
f u t u r e performance".24
Compensation f o r Expenses Incurred
As the p r o v i s i o n s o f the 1943 Act do not apply t o c o n t r a c t s avoided
by s e c t i o n 7 o f the 1979 A c t , there i s no p r o v i s i o n by which the s e l l e r
can recover a share o f expenses i n c u r r e d p r i o r t o f r u s t r a t i o n .
Moreover, because o f the d e c i s i o n i n the Fibrosa case he w i l l have t o
refund, i n f u l l , any p a r t o f the purchase p r i c e which has been paid over
(assuming t h a t there has been a f a i l u r e o f c o n s i d e r a t i o n ) and w i l l ,
thus, not be permitted t o r e t a i n any p o r t i o n o f t h a t sum t o compensate
him f o r expenses i n c u r r e d .
Payment f o r Goods Delivered
25
I f a c o n t r a c t o f sale i s non-severable, the r u l e i n Cutter v. Powell
would lead one t o conclude t h a t there can be no payment f o r goods d e l i v e r e d
per Lord Wright, the Fibrosa page 7 1 .
(1795) 6 T.R. 320.
- 106 -
i n part-performance o f a c o n t r a c t , p r i o r t o t h e p e r i s h i n g o f the
remainder o f the goods contracted f o r .
26
Atiyah a s s e r t s ,
however, t h a t i t may be possible t o imply a
c o n t r a c t under which the purchaser i s o b l i g e d t o pay f o r the goods he
has r e c e i v e d .
This i m p l i e d c o n t r a c t would, he suggests, a r i s e from the
purchaser's r e f u s a l t o r e t u r n t o the s e l l e r t h e goods d e l i v e r e d t o him.
27
There i s some j u d i c i a l support f o r t h i s view; i n Pattinson v. Luckley,
Bramwell B. i n d i c a t e d t h a t ... " I n t h e case o f goods s o l d and d e l i v e r e d ,
i t i s easy t o shew a c o n t r a c t from t h e r e t e n t i o n o f the goods
Whether or not there would be s i m i l a r support i n a s i t u a t i o n i n which a
c o n t r a c t has a c t u a l l y been made, b u t t h e s e l l e r urges t h e c o u r t t o imply
another, t o a s s i s t him i n h i s c l a i m f o r part-payment, i s , o f course, f a r
from c e r t a i n .
I t would seem, however, t h a t a c o u r t might be more w i l l i n g
t o imply a c o n t r a c t where goods have been d e l i v e r e d than i n other circumstances i n which there has been part-performance (say, f o r example, p a r t completion of a b u i l d i n g ) . The reason f o r t h i s i s the o p t i o n t h a t the
28
purchaser o f goods has t o r e t u r n a p a r t - d e l i v e r y t o the s e l l e r
and
thereby r e f r a i n from t a k i n g the b e n e f i t o f the s e l l e r ' s a c t i o n ; " i t i s
only where t h e circumstances are such as t o give t h a t o p t i o n t h a t there i s
29
any evidence on which t o ground the i n f e r e n c e o f a new c o n t r a c t " .
""The Sale of Goods" ( 4 t h ed) page 173.
27
( 1 8 7 5 ) L.R. 10 Ex. 330.
2 8
I n B.P. E x p l o r a t i o n v. Hunt (No. 2) /"1979_7 1 W.L.R. 783, however,
Goff L.J. asserted ( a t page 806) t h a t " u n l i k e money, services can never
be r e s t o r e d , nor u s u a l l y can goods, since they are l i k e l y t o have been
consumed or disposed o f , or t o have depreciated i n value".
2 9
p e r C o l l i n s L.J., Sumpter v. Hedges /"1898 7 1 Q.B. 676.
- 107 -
There may be, however, no need t o r e f e r t o
quasi-contractual
p r i n c i p l e s where, p r i o r t o goods p e r i s h i n g , the s e l l e r has made a p a r t delivery.
Section 30(1)
Sale of Goods Act 1979 provides:
"Where the s e l l e r d e l i v e r s t o the buyer a q u a n t i t y of goods
less than he contracted t o s e l l , the buyer may r e j e c t them,
but i f the buyer accepts the goods so d e l i v e r e d he must pay f o r
them a t the c o n t r a c t
rate".
The wording of the sub-section would seem t o cover the s i t u a t i o n
presently envisaged.
Professor Atiyah s u g g e s t s ^ t h a t s e c t i o n 30(1)
has no a p p l i c a t i o n i n such a s i t u a t i o n "... because i t postulates circumstances i n which the d e l i v e r y o f only p a r t o f the goods i s a breach of
c o n t r a c t , and i n which the buyer may r e j e c t t h a t p a r t a t once'.
case put here / " i . e .
The
the s i t u a t i o n i n which there has been a p a r t -
d e l i v e r y p r i o r t o f r u s t r a t i o n 7 i s one i n which the d e l i v e r y o f p a r t o f
the goods i s not a breach of c o n t r a c t and the buyer cannot therefore
them when d e l i v e r e d " .
argument.
reject
I t may be t h a t a c o u r t would be persuaded by t h i s
I t should be noted, however, t h a t the sub-section only imposes
upon the buyer an o b l i g a t i o n t o pay f o r the p a r t - d e l i v e r y where he
"accepts" the goods and, by v i r t u e of s e c t i o n 35 of the A c t , mere r e t e n t i o n
of the goods would not, by i t s e l f , c o n s t i t u t e an acceptance u n t i l a
"reasonable time" had elapsed.
Presumably, where there has been a p a r t -
d e l i v e r y p r i o r t o f r u s t r a t i o n , a court would not consider a reasonable
time t o have elapsed u n t i l such time as the goods had been r e t a i n e d by
the purchaser i n f u l l knowledge t h a t the remainder of the goods contracted
3
for had perished and would not be delivered. '''
I f section 30(1) does
apply i n t h i s s i t u a t i o n , i t should be noted t h a t the buyer w i l l not be
l i a b l e t o pay merely a reasonable price f o r the goods d e l i v e r e d , he w i l l
be l i a b l e t o pay a t the contract
30
rate.
"The Sale of Goods" (4th ed) page 173.
^ I t i s , admittedly, also possible t h a t the buyer could r e - s e l l the goods
d e l i v e r e d , thereby accepting them, and render himself l i a b l e t o pay f o r
those goods w h i l s t unaware t h a t l a t e r d e l i v e r i e s were not t o f o l l o w .
- 108 -
SECTION C:
FRUSTRATION AT COMMON LAW
Section 7 Sale o f Goods Act 1979 applies only t o the p e r i s h i n g of
s p e c i f i c goods.
A s e l l e r i n possession o f unascertained goods which
perish w i l l normally f i n d a c o u r t unsympathetic t o any claim t h a t a c o n t r a c t
of sale should, as a r e s u l t , be f r u s t r a t e d :
"... a bare and u n q u a l i f i e d c o n t r a c t f o r the sale of unascertained
goods w i l l not (unless most s p e c i a l f a c t s compel an opposite
i m p l i c a t i o n ) be dissolved by the operation of the p r i n c i p l e of
K r e l l v. Henry even though there has been so grave and unforeseen
a change i n circumstances as t o render i t impossible f o r the
vendor t o f u l f i l h i s bargain".32
In most circumstances, o f course, the p e r i s h i n g o f the s e l l e r ' s stock o f
unascertained goods w i l l not prevent him from d i s c h a r g i n g h i s c o n t r a c t u a l
o b l i g a t i o n s , f o r he w i l l be f r e e t o secure replacements f o r the goods
t h a t have perished.
Where, however, the s e l l e r has contracted t o d e l i v e r unascertained
goods from a s p e c i f i c source, the p o s i t i o n may w e l l be d i f f e r e n t ; f o r ,
should the s p e c i f i c source p e r i s h , i t w i l l be impossible t o d e l i v e r
goods which correspond t o the c o n t r a c t d e s c r i p t i o n .
There are no
reported cases i n which the courts have recognised f r u s t r a t i o n of a
c o n t r a c t of t h i s type, but there are statements of p r i n c i p l e which are
33
wide enough t o embrace the s i t u a t i o n .
I n r e Badische Co., Bayer Co. e t c . ,
for example, Russell J. asserted t h a t "... I can see no reason why, given
the
necessary circumstances t o e x i s t , the d o c t r i n e / " o f f r u s t r a t i o n 7
should not apply equally t o unascertained goods.
I t i s , of course,
obvious from the nature of the c o n t r a c t t h a t the necessary circumstances
32
per McCardie J., Blackburn Bobbin Company v. T.W. A l l e n and Sons
/"1918_7 1 K.B. 540, 550.
/"1921 7 2 Ch. 331, 382.
3 3
- 109 -
can only very r a t e l y a r i s e i n the case o f unascertained goods.
they may a r i s e appears t o me undoubted
That
One o f the circumstances
i n which Russell J. a n t i c i p a t e d the p o s s i b i l i t y o f f r u s t r a t i o n was
where the goods had, i n h i s words, "almost a s p e c i f i c
touch".It
seems l i k e l y , then, t h a t there i s a t l e a s t one s i t u a t i o n i n which there
w i l l be a common law f r u s t r a t i o n o f a c o n t r a c t o f sale r e s u l t i n g from
the
p e r i s h i n g of goods; t h a t i n which the goods are unascertained, but
to be drawn from a s p e c i f i c b u l k .
G l a n v i l l e Williams suggests another
t h a t i n which the goods
which have perished were, a t the time o f c o n t r a c t , unascertained, b u t ,
p r i o r t o t h e i r p e r i s h i n g , have become ascertained.
I f , he maintains, r i s k
has not passed t o the buyer a t the time o f the goods p e r i s h i n g (as a
r e s u l t , perhaps, of express agreement between the p a r t i e s ) , then the
s e l l e r w i l l be discharged from h i s o b l i g a t i o n t o d e l i v e r by the r u l e i n
Taylor v. Caldwell and the buyer w i l l be discharged from h i s o b l i g a t i o n
to pay the p r i c e because o f a f a i l u r e o f c o n s i d e r a t i o n . I t may be
possible t o deny the l i k e l i h o o d o f t h i s outcome i n such a s i t u a t i o n by
reference t o the f a c t t h a t i t i s i n c o n s i s t e n t w i t h the common law approach
t o unascertained goods.
Ascertained goods are, i n e f f e c t , goods which
are so designated when a c o n t r a c t f o r the sale o f unascertained goods has
been performed t o some extent ( i . e . a t l e a s t as f a r as i s necessary t o
enable the goods t o be i d e n t i f i e d ) .
The c o n t r a c t i s s t i l l , i n essence,
one f o r unascertained goods and the uniqueness o f the goods r e s u l t s more
from the operation o f l e g a l r u l e s designed t o b r i n g i n t o operation concepts of property and r i s k than from any f e e l i n g expressed
by the p a r t i e s .
at page 383.
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943" page 89.
- 110 -
For the buyer, and indeed f o r the s e l l e r , the goods w i l l be replaceable.
However, there i s no doubt t h a t ascertained goods have "almost a
s p e c i f i c touch" and t h e i r uniqueness t o the buyer i s suggested i n
s e c t i o n 52 o f the 1979 Act which permits s p e c i f i c performance o f a cont r a c t t o d e l i v e r goods which are s p e c i f i c o r , s i g n i f i c a n t l y ,
ascertained.
I t i s possible t h a t the " q u a s i - s p e c i f i c " nature o f these goods would r e s u l t
i n f r u s t r a t i o n o f the c o n t r a c t should, they p e r i s h .
I f so, i t seems c l e a r
t h a t such goods are not s p e c i f i c w i t h i n the meaning o f s e c t i o n 61(1)
and t h a t s e c t i o n 7 Sale o f Goods Act could not apply.
Any f r u s t r a t i o n o f
the c o n t r a c t would, t h e r e f o r e , have t o be a t common law.
A t h i r d s i t u a t i o n i n which there may be f r u s t r a t i o n a t common law i s
3
the Howell v. Coupland ^ s i t u a t i o n .
I n t h a t case there was an agreement
to purchase 200 tons o f regent potatoes grown on a s p e c i f i c parcel o f
land belonging t o the s e l l e r .
S u f f i c i e n t o f t h i s land was sown t o produce
the required crops, b u t , because o f potato b l i g h t , the crop f a i l e d .
The
s e l l e r u/as, a t f i r s t instance and on appeal, r e l i e v e d o f his o b l i g a t i o n s .
At f i r s t instance
37
Blackburn J. asserted
38
that:
"The p r i n c i p l e o f Taylor v. Caldwell which was followed i n
Appleby v. Myers i n the Exchequer Chamber, a t a l l events,
decides t h a t where there i s a c o n t r a c t w i t h respect t o a
p a r t i c u l a r t h i n g , and t h a t t h i n g cannot be d e l i v e r e d owing t o
a p e r i s h i n g without any d e f a u l t i n the s e l l e r , the d e l i v e r y i s
excused. Of course, i f the p e r i s h i n g were owing t o any d e f a u l t
of the s e l l e r , t h a t would be q u i t e another t h i n g . But here
the crop f a i l e d e n t i r e l y owing t o the b l i g h t , which no s k i l l ,
care or d i l i g e n c e of. the defendant could prevent ... But the
c o n t r a c t was f o r 200 tons of a p a r t i c u l a r crop i n p a r t i c u l a r
f i e l d s , and t h e r e f o r e there was an implied term i n the c o n t r a c t
t h a t each party should be free i f the crop perished. The
property and r i s k had c l e a r l y not been t r a n s f e r r e d under the
terms o f the c o n t r a c t , so t h a t the consequence o f the f a i l u r e
of the crop i s , t h a t the bargain i s o f f so f a r as the 120 tons
are concerned".
36
( 1 8 7 6 ) 1 Q.B.D. 258.
37
( 1 8 7 4 ) L.R. 9 Q.B. 462.
3
• ^pages 465-66.
- Ill
-
The goods i n question were not such as t o be s p e c i f i c w i t h i n the
meaning of section 61(1) of the 1979 Act.
I n t h i s kind of s i t u a t i o n ,
t h e r e f o r e , section 7 of the Act w i l l not apply. How, then, would a
39
court proceed i n such a s i t u a t i o n ?
I n Sainsbury v. S t r e e t ,
Mackenna J.
c i t e s w i t h approval the conclusion of A t k i n L.J. i n Re W a i t e d
0
"The case of Howell v, Coupland would now he covered by section 5(2)
of the Code o r , as i s suggested by the learned authors of the
l a s t two e d i t i o n s of 'Benjamin on Sale', by section 61(2) of the
Code".
There would, thus, appear t o be two p o s s i b i l i t i e s :
1)
A court would f i n d t h a t the contract was c o n d i t i o n a l , w i t h i n
section 5 ( 2 ) , and t h a t e i t h e r i t had not come i n t o operation
because of n o n - f u l f i l m e n t
of a c o n d i t i o n precedent or had been
discharged by c o n d i t i o n subsequent ( i . e . by agreement).
2)
Howell v. Coupland may be taken as a u t h o r i t y f o r the p r i n c i p l e
t h a t such a c o n t r a c t i s discharged by the r u l e i n Taylor v.
Caldwell.
I f so, t h i s common law p r i n c i p l e i s preserved by
section 62(2) of the 1979 Act (formerly section 61(2) of the
1893 A c t ) .
I f the second of the above a l t e r n a t i v e s i s adhered t o , i t would, perhaps,
be as w e l l t o note t h a t G l a n v i l l e Williams would, no doubt, point t o the
f a c t t h a t the s e l l e r would be discharged under the p r i n c i p l e of Taylor v.
Caldwell and t h a t the buyer would be discharged because of f a i l u r e of consideration.
Nevertheless, these terms would, today, both be regarded as
f a l l i n g w i t h i n the generic term " f r u s t r a t i o n " and Howell v. Coupland
would provide a t h i r d s i t u a t i o n i n which there i s a p o s s i b i l i t y of discharge
by f r u s t r a t i o n , a t common law, of a contract
which have subsequently perished.
3 9
/"1972_7 1 W.L.R. 834, 837.
4 0
/" 1927
7
1 Ch. 606, 631.
f o r the sale of goods
- 112 -
SECTION D:
CONSEQUENCES OF A CONTRACT BEING DISCHARGED BY COMMON LAW
Section 2 ( 5 ) ( c ) Law Reform ( F r u s t r a t e d Contracts) Act 1943 provides
only t h a t the provisions o f t h a t Act do not apply t o c o n t r a c t s f o r t h e
sale o f s p e c i f i c goods which p e r i s h , s e c t i o n 2 ( 5 ) ( c ) does not r e f e r t o
contracts f o r the sale o f non-specific goods.
Thus, t h e provisions o f
the 1943 Act w i l l apply t o any c o n t r a c t f o r the sale o f unascertained or
ascertained goods which i s f r u s t r a t e d by reason o f the p e r i s h i n g o f those
goods.
The consequences o f such a c o n t r a c t being f r u s t r a t e d are now s e t
out i n d e t a i l .
Discharge of Both Parties
F r u s t r a t i o n o f a c o n t r a c t f o r the s a l e o f unascertained
or ascertained
goods w i l l r e l i e v e the s e l l e r of h i s o b l i g a t i o n t o d e l i v e r and the buyer
of h i s o b l i g a t i o n t o pay the p r i c e .
This r e s u l t s from common law, n o t
from the provisions o f the 1943 Act, f o r the Act applies only t o c o n t r a c t s
which have been discharged i n t h i s way; the mutual discharge o f the
p a r t i e s i s , i n e f f e c t , a c o n d i t i o n precedent t o the operation o f t h e Act,
s e c t i o n 1(1) o f which provides
that:
"Where a c o n t r a c t governed by English law has become impossible o f
performance or been otherwise f r u s t r a t e d and the p a r t i e s t h e r e t o
have f o r t h a t reason been discharged from the f u r t h e r performance
of the c o n t r a c t , the f o l l o w i n g p r o v i s i o n s of t h i s s e c t i o n s h a l l
... have e f f e c t i n r e l a t i o n t h e r e t o " .
The Act c l e a r l y applies only t o c o n t r a c t s which have:
a)
become impossible t o perform; or
b)
been "otherwise
frustrated".
41
G l a n v i l l e Williams asserts
t h a t where goods perish subsequent t o an
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943" page 22.
- 113 -
agreement f o r t h e i r sale i t i s only the s e l l e r who can plead imposs i b i l i t y o f performance
for
( r e l y i n g upon the p r i n c i p l e i n Taylor v. C a l d w e l l ) ,
there i s nothing t o prevent the buyer from paying the p r i c e .
The
purchaser i s r e l i e v e d of h i s o b l i g a t i o n because of the f a c t t h a t he has
received
nothing from the s e l l e r and there i s a f a i l u r e o f con-
s i d e r a t i o n r e s u l t i n g from the i m p o s s i b i l i t y o f performance.
Glanville
Williams p o i n t s , however, t o the modern usage of the term " f r u s t r a t i o n "
to embrace discharge f o r f a i l u r e o f c o n s i d e r a t i o n as w e l l as discharge
r e s u l t i n g from i m p o s s i b i l i t y o f performance.
The buyer's
obligations
have, t h e r e f o r e , i n the terms used by the Act, been "otherwise
f r u s t r a t e d " and the Act w i l l apply t o the c o n t r a c t which has been d i s charged.
When a s e l l e r i s discharged by the p r i n c i p l e i n Taylor v. Caldwell,
from h i s o b l i g a t i o n t o d e l i v e r i n accordance w i t h h i s c o n t r a c t u a l undert a k i n g , the problem o f a p a r t - p e r i s h i n g a r i s e s , as i t does i n r e l a t i o n t o
s e c t i o n 7 Sale o f Goods Act 1979.
I t has been noted t h a t s e c t i o n 7
expressly avoids the c o n t r a c t and thus appears t o end any c l a i m the
buyer has t o enforce d e l i v e r y o f any p a r t o f the c o n t r a c t goods which
remains unscathed.
I s the outcome the same where the s e l l e r i s released
from h i s o b l i g a t i o n by the p r i n c i p l e i n Taylor v. Caldwell rather than by
42
s e c t i o n 7 of the 1979 Act?
I n Howell v. Coupland,
the s e l l e r , who had
undertaken t o d e l i v e r 200 tons o f potatoes, d e l i v e r e d t o the buyer 80 tons
which survived potato b l i g h t ; what i f he had not done so? Quinn J., who
declared himself t o be applying the p r i n c i p l e i n Taylor v. Caldwell, c i t e d
43
44
w i t h approval
a statement i n "Sheppard's Touchstone":
42
L.R. 9 Q.B. 462.
43
at pages 466-7.
44
at page 382.
- 114 -
"And when the c o n d i t i o n of an o b l i g a t i o n i s t o do one s i n g l e
t h i n g , which afterwards, before the time when i t i s t o be
done, doth become impossible t o be done i n a l l or i n p a r t ,
the o b l i g a t i o n i s wholly discharged; and yet i f i t i s possible
t o be done i n any p a r t , i t s h a l l be performed as near t o the
c o n d i t i o n as may be".
Equally, Blackburn J., who also expressly applied the p r i n c i p l e i n
45
Taylor v. Caldwell determined
t h a t "... the consequences of the
failure
of the crop, i s t h a t the bargain i s o f f so f a r as the 120 tons are concerned".
So, f o r him t o o , the s e l l e r was only discharged from h i s
o b l i g a t i o n t o d e l i v e r t h a t part o f the c o n t r a c t goods which had a c t u a l l y
perished.
I t may be, t h e r e f o r e , t h a t where a s e l l e r agrees t o s e l l unascertained
goods from a s p e c i f i c b u l k , the consequences of a p a r t - p e r i s h i n g of the
goods w i l l d i f f e r from those where there has been a p a r t - p e r i s h i n g of
s p e c i f i c goods.
I f , f o r example, a s e l l e r agrees t o s e l l t o a buyer 100
cases of goods from h i s stock of 1,000, the d e s t r u c t i o n of 950 cases i n
the stock would
n o t , i t appears, release him from h i s r e s i d u a l
o b l i g a t i o n t o d e l i v e r the remaining 50 cases.
I f , however, t h a t same
s e l l e r had agreed t o s e l l t o the buyer a l l of the cases i n h i s s t o c k ,
then a d e s t r u c t i o n of 950 cases would seem t o r e s u l t i n the c o n t r a c t
being avoided and, w i t h i t , the o b l i g a t i o n t o d e l i v e r any of the goods.
Financial
Adjustments
Where the 1943 Act a p p l i e s , the Court has power t o order the
following:
a)
recovery by the purchaser of money paid p r i o r t o f r u s t r a t i o n ;
b)
r e t e n t i o n by the s e l l e r of money paid i n advance t o compensate
for expenses i n c u r r e d ;
at page 466.
- 115 -
c)
recovery by the s e l l e r o f payment f o r goods d e l i v e r e d p r i o r
to frustration.
a)
Recovery of money paid p r i o r _ t o f r u s t r a t i o n
Where s e c t i o n 7 Sale o f Goods Act 1979 a p p l i e s , the purchaser i s only
able t o recover a pre-payment where there has been a t o t a l f a i l u r e o f
consideration.
Thus, the d e l i v e r y t o the purchaser, p r i o r t o f r u s t r a t i o n ,
of any p a r t o f the goods contracted
advance payment.
f o r w i l l preclude t h e recover o f any
Where the 1943 Act a p p l i e s , however, s e c t i o n 1(2)
provides t h a t :
" A l l sums paid or payable t o any party i n pursuance o f the
c o n t r a c t before the time when t h e p a r t i e s were so discharged
... s h a l l , i n the case o f sums so paid, be recoverable from
him as money received by him f o r the use o f the party by whom
the sums were paid, and, i n t h e case o f sums so payable, cease
t o be payable".
C l e a r l y , the wording o f the sub-section
permits recovery o f a pre-
payment even though the f a i l u r e of c o n s i d e r a t i o n i s only p a r t i a l .
Indeed,
the r u l e s r e l a t i n g t o f a i l u r e o f c o n s i d e r a t i o n are not r e l e v a n t , f o r the
sub-section
received
i n d i c a t e s t h a t the pre-payment i s t o be regarded as "money
... f o r the use o f the ( b u y e r ) " r a t h e r than, as might, perhaps,
have been expected, money paid on a c o n s i d e r a t i o n t h a t has f a i l e d .
I t i s possible t o argue t h a t a pre-payment may be i n d i c a t i v e
o f an
i n t e n t i o n by the p a r t i e s t o s h i f t the r i s k o f loss from s e l l e r t o buyer
to
the extent of the pre-payment, the s e l l e r r e t a i n i n g the r i s k i n
r e l a t i o n t o loss not covered by the pre-payment.
the 1943 Act would negative
I f so, s e c t i o n 2(3) of
the provisions o f s e c t i o n 1 ( 2 ) .
Section 2(3)
provides t h a t :
"Where any c o n t r a c t t o which t h i s Act applies contains any p r o v i s i o n
which, upon the true c o n s t r u c t i o n o f the c o n t r a c t , i s intended t o
have e f f e c t i n the event of circumstances a r i s i n g which operate, or
would but f o r the said p r o v i s i o n operate, t o f r u s t r a t e the c o n t r a c t ,
- 116 -
or i s intended t o have e f f e c t whether such circumstances a r i s e
or not, the c o u r t s h a l l give e f f e c t t o the said p r o v i s i o n and
s h a l l only give e f f e c t t o / " s e c t i o n 1 7 t o such e x t e n t , - i f any, as
appears t o the Court t o be~consistent~with the said p r o v i s i o n " .
However, a pre-payment may i n d i c a t e ntohing o f the kind.
I t may, f o r
example, be a payment secured as a safeguard against the p o s s i b i l i t y o f
the purchaser becoming i n s o l v e n t or d e f a u l t i n g i n payment.
I t seems
l i k e l y , t h e r e f o r e , t h a t a court w i l l not, i n the words of Lord P o r t e r , ^
"speculate as t o the object f o r which the advance was obtained" and w i l l
only accept t h a t a pre-payrnent represents
an assumption o f r i s k where
the c l e a r e s t language i s used by t h e p a r t i e s .
b)
Retention by t h e s e l l e r o f money paid i n advance t o compensate f o r
expenses incurred
The proviso t o s e c t i o n 1(2) o f the 1943 Act s t i p u l a t e s t h a t :
".... i f the party t o whom the sums were so paid or payable incurred
expenses before the time o f discharge i n , or f o r t h e purpose o f ,
the performance o f the c o n t r a c t , the Court may, i f i t considers i t
j u s t t o do so having regard t o a l l the circumstances o f the case,
allow him t o r e t a i n or, as the case may be, recover the whole or
any p a r t o f the sums so paid or payable, not being an amount i n
excess of the expenses so i n c u r r e d " .
I t i s c l e a r t h a t the sub-section
gives the Court a d i s c r e t i o n t o make an
order r e l a t i n g t o expenses; there i s no duty upon the Court and no
corresponding r i g h t vested i n the s e l l e r .
The Court only has t h i s d i s -
c r e t i o n , however, where:
a)
a payment i n advance has been made t o the purchaser p r i o r t o
the p e r i s h i n g o f the goods, or where such a payment was
payable
at t h a t time; and
b)
the expenses have been incurred p r i o r t o f r u s t r a t i o n and i n ,
or f o r the purpose o f , the performance o f the c o n t r a c t .
Fibrosa case /"1943 7 A.C. 32, 78.
- 117 -
The requirement t h a t there be a payment i n advance has been
c r i t i c i s e d as perpetuating " i n a d i f f e r e n t form the o l d vice of
Chandler v. Webster, namely, t h a t the incidence o f loss depends on the
47
accident o f payment i n advance";
though i t i s possible t o argue t h a t a
prudent s e l l e r w i l l make p r o v i s i o n f o r h i s contingent loss by r e q u i r i n g
advance payment from the purchaser so as t o enable the Court t o
exercise i t s d i s c r e t i o n i n h i s favour i n the event o f h i s having
incurred expenses p r i o r t o the p e r i s h i n g of the goods and the
f r u s t r a t i o n of h i s c o n t r a c t .
Whatever the merits o f the r u l e , however,
i t i s c l e a r t h a t , g e n e r a l l y , there can be no recovery by the s e l l e r o f an
apportionment o f h i s expenditure; there may only be a r e t e n t i o n o f
moneys paid over i n advance.
Recovery i s only possible where an
advance payment had f a l l e n due p r i o r t o f r u s t r a t i o n and had not been
made.
There i s no power t o apportion expenditure which has taken place
subsequent t o the f r u s t r a t i n g event and the power t o make such an
apportionment i n r e l a t i o n t o expenditure which preceeds t h e time o f
discharge e x i s t s only i f the expenditure was i n c u r r e d " i n , or f o r the purpose o f , the performance of the c o n t r a c t " .
This phrase suggests t h a t
expenses can be awarded t o the s e l l e r where he has i n c u r r e d those
expenses:
a)
" i n • • o performance o f the c o n t r a c t " ; or
b)
" f o r the purpose o f the performance o f the c o n t r a c t " .
Some expenditure w i l l c l e a r l y be incurred " i n performance o f the
c o n t r a c t " and, as such, may be awarded t o the s e l l e r .
Thus, t h e
packaging of goods which, under the terms o f the c o n t r a c t , are t o be
'The Law o f R e s t i t u t i o n " , Goff and Jones ( 1 s t ed) page 333.
- 118 -
d e l i v e r e d i n packaged form w i l l be an act i n performance o f the
c o n t r a c t and any expenditure involved w i l l have been so i n c u r r e d . What,
however, i s meant by the words, " f o r the purpose of the performance of
48
the
contract"?
of these words.
G l a n v i l l e Williams suggests
two possible i n t e r p r e t a t i o n s
The "narrower" i n t e r p r e t a t i o n would embrace only
expenditure which r e l a t e s t o a c o n t r a c t which has been made but which i s
not d i r e c t l y r e l a t e d t o an act of performance.
Thus, the purchase of
packaging m a t e r i a l would, i n the above example, not be expenditure
i n v o l v e d ' i n performance"
o f the c o n t r a c t , f o r i t i s merely an act pre-
paratory t o performance,
but c l e a r l y the expenditure has been incurred
" f o r the purpose o f the performance of the c o n t r a c t " . The
"wider"
i n t e r p r e t a t i o n suggested by G l a n v i l l e Williams would also embrace
expenditure i n c u r r e d i n a n t i c i p a t i o n of the c o n t r a c t being made; such
expenditure not being expenditure involved " i n performance" of a
c o n t r a c t , f o r , at t h a t stage, there i s no c o n t r a c t t o perform.
49
G l a n v i l l e Williams suggests
t h a t the narrower of these two i n t e r -
p r e t a t i o n s i s p r e f e r a b l e , but Gough and J o n e s , w h i l s t accepting t h a t t h e
words "exclude expenditure i n c u r r e d i n mere s p e c u l a t i o n on f u t u r e
c o n t r a c t s " assert t h a t the proviso "would include expenditure incurred
before the c o n t r a c t i s entered i n t o on the reasonable assumption t h a t i t
w i l l be made". They provide the f o l l o w i n g example:
"A and B enter i n t o serious n e g o t i a t i o n s which, i n the l i g h t
of past experience, A assumes w i l l very l i k e l y r e s u l t i n a
c o n t r a c t . I n a n t i c i p a t i o n of such c o n t r a c t , A incurs
expenditure f o r the purpose of i t s performance.
The c o n t r a c t
i s duly made, but i s subsequently f r u s t r a t e d " .
48
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943", page 43.
49
at page 44.
50
"The Law of R e s t i t u t i o n " (2nd ed) page 567.
- 119 -
I n such a s i t u a t i o n , they conclude, A should be able t o secure h i s
expenses.
This, of course, could only be the p o s i t i o n i f an advance
payment had been negotiated and such payment had e i t h e r been made
before f r u s t r a t i o n or was due a t t h a t time.
Section 1(4) provides t h a t :
" I n e s t i m a t i n g f o r the purposes o f the foregoing p r o v i s i o n s
of t h i s s e c t i o n , the amount o f any expenses incurred by any
party t o the c o n t r a c t , the c o u r t may ... include such sum as
appears t o be reasonable i n respect o f overhead expenses and
i n respect of any work or services performed personally by the
said p a r t y " .
The term "overhead expenses" i s not defined i n the Act and G l a n v i l l e
Williams t u r n s ' ^ t o "Webster's D i c t i o n a r y " f o r a d e f i n i t i o n o f
"Overhead Costs" which are s t a t e d t o be "... t h e general expenses of a
business, as d i s t i n c t from those caused by p a r t i c u l a r pieces of t r a f f i c ;
i n d i r e c t or u n d i s t r i b u t e d c o s t s " .
This d e f i n i t i o n appears t o r e l a t e
"overhead c o s t s " t o " f i x e d " , r a t h e r than " v a r i a b l e " costs and, i f so,
i t i s d i f f i c u l t t o see why a s e l l e r should be compensated f o r a f i x e d
expenditure which could not have been avoided i r r e s p e c t i v e o f the
existence or non-existence o f the c o n t r a c t which has been f r u s t r a t e d .
The d i s c r e t i o n afforded t o the Court i s t h a t i t may award a sum
which does not exceed the whole o f the money paid ( o r payable) i n
advance.
Having exercised i t s d i s c r e t i o n t o award expenses, the Court
has a f u r t h e r d i s c r e t i o n as t o the amount t o award w i t h i n t h i s
maximum.
How should t h i s d i s c r e t i o n be exercised?
The Law Revision
52
Committee recommended
t h a t "... the payer should be e n t i t l e d t o the
repayment o f a l l moneys he has paid t o the payee, less the amount of any
loss d i r e c t l y incurred by the payee f o r the purpose o f performing the
contract".
51
52
There i s , i n t h i s recommendation, no notion of apportionment
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943" page 55.
Cmmd 6009 of 1939.
- 120 -
and i t c l e a r l y envisages t h a t the s e l l e r should have f u l l recompense f o r
his expenditure, i f such i s possible out of the sum paid (or payable)
i n advance.
The r a t i o n a l e f o r t h i s view i s t h a t " i t i s reasonable t o
assume t h a t i n s t i p u l a t i n g f o r pre-payment the payee intended to p r o t e c t
himself against loss under the c o n t r a c t " . "
3
This view i s supported
by the
words used by L u r u Chancellor Simon when i n t r o d u c i n g the B i l l t o the
1943
Act i n the House o f Lords:
" I f , f o r example, there has been £1,000 paid i n advance or i f the
c o n t r a c t t h a t has been made confers the r i g h t t o pre-payment, and
i f he /"the s e l l e r J can show t h a t he has already spent £800 i n
p a r t i a l performance, he i s not r e q u i r e d t o r e t u r n the £1,000, but
only the balance of £200".54
The r a t i o n a l e f o r t h i s view i s suspect, f o r the o b j e c t o f the advance
may
very w e l l not have been r e l a t e d t o loss a r i s i n g under the c o n t r a c t .
"The
object of the advance may
be t o put the payee i n funds t o continue
the c o n t r a c t , or t o p r o t e c t him from loss flowing,from the payer's breach
55
or insolvency."
I t i s d i f f i c u l t t o disagree w i t h G l a n v i l l e Williams'
suggestion^ that
i n the normal case the j u s t course, as
required by the Act, and also the s o c i a l l y d e s i r a b l e course, would be t o
order the r e t e n t i o n or repayment of h a l f the loss i n c u r r e d ... not the
whole of i t " .
I t may,
f i n a l l y , be noted t h a t s e c t i o n 1(2) of the 1943 Act does
not expressly override the r u l i n g i n the Fibrosa case t h a t where there
has been a t o t a l f a i l u r e of c o n s i d e r a t i o n , there may be recovery i n f u l l ,
without any deduction t o compensate the s e l l e r f o r h i s expenditure.
It
i s , suggests G l a n v i l l e W i l l i a m s , ^ possible t o argue t h a t the proviso
33
Cmmd 6009 1939,
5 4
7.
0 f f i c i a l Report 29 June 1943 c o l 138.
55
"The Law
of R e s t i t u t i o n " Goff and Jones (2nd ed) page 567.
56
"The Law
Reform ( F r u s t r a t e d Contracts) Act 1943", page 36.
57
at page 34.
- 121 -
t o s e c t i o n 1(2) only operates where t h e purchaser needs t o rely-upon
s e c t i o n 1 ( 2 ) , t h a t i s t o say where there has been only a p a r t i a l
of c o n s i d e r a t i o n .
failure
Having r a i s e d t h i s argument " f o r t h e sake o f complete-
ness" G l a n v i l l e Williams r e j e c t s i t .
I t i s submitted
c o r r e c t and t h a t the L e g i s l a t u r e intended,
t h a t t h i s must be
i n t h e 1943 Act, t o d e a l ,
w i t h i n the l i m i t s o f t h e Act, w i t h a l l s i t u a t i o n s i n which t h e r e had been
a pre-payment, whether or not t h e f r u s t r a t i o n o f t h e c o n t r a c t r e s u l t e d i n
only a p a r t i a l f a i l u r e o f c o n s i d e r a t i o n .
c)
Recovery by t h e s e l l e r o f payment f o r goods d e l i v e r e d p r i o r t o
frustration
Section 1(3) o f the 1943 Act provides t h a t :
"Where any p a r t y t o t h e c o n t r a c t has, by reason o f anything done by any
other p a r t y t h e r e t o , i n , or f o r t h e purpose o f , t h e performance
of t h e c o n t r a c t , obtained a valuable b e n e f i t ( o t h e r than a payment
o f money t o which the l a s t f o r e g o i n g sub-section a p p l i e s ) before
the time o f discharge, there s h a l l be recoverable from him by
the s a i d other p a r t y such sum ( i f any), n o t exceeding t h e value o f
the s a i d b e n e f i t t o the p a r t y o b t a i n i n g i t as the c o u r t considers
j u s t , having regard t o a l l t h e circumstances o f the case and,
in particular (a) t h e amount o f any expenses i n c u r r e d before t h e time o f d i s charge by the b e n e f i t t e d p a r t y i n , or. f o r t h e purpose o f , t h e
performance o f the c o n t r a c t , i n c l u d i n g any sums paid or payable by
him t o any other party i n pursuance o f the c o n t r a c t and.retained
or recoverable by t h a t p a r t y under t h e l a s t f o r e g o i n g subs e c t i o n , and
(b) t h e e f f e c t , i n r e l a t i o n t o t h e s a i d b e n e f i t , o f t h e c i r cumstances g i v i n g r i s e t o t h e f r u s t r a t i o n o f t h e c o n t r a c t " .
Where, t h e r e f o r e , the s e l l e r has conferred a "valuable b e n e f i t " upon
the purchaser p r i o r t o f r u s t r a t i o n he i s e n t i t l e d t o a sum not exceeding
the value o f t h a t b e n e f i t .
I n most cases, a s e l l e r who has d e l i v e r e d
goods p r i o r t o discharge o f the c o n t r a c t w i l l c l e a r l y have c o n f e r r e d a
b e n e f i t upon h i s purchaser and w i l l , as a r e s u l t , be e n t i t l e d t o recom58
pense.
The wording o f the sub-section
i s such as t o i n d i c a t e t h a t
One s i t u a t i o n i n which there i s questionable b e n e f i t accruing t o the
purchaser as a r e s u l t o f a p a r t - d e l i v e r y , i s t h a t i n which d e s t r u c t i o n o f
the goods which have n o t been d e l i v e r e d renders unusable those which have.
- 122 -
there i s a r i g h t t o payment, but a d i s c r e t i o n as t o the amount of such
payment.
The Court may
not award a sum which exceeds "the value of the
said b e n e f i t t o the party o b t a i n i n g i t " , but t h a t would appear t o be the
only l i m i t on i t s d i s c r e t i o n as t o quantum.
Three possible bases f o r
assessment of the sum t o be awarded have been suggested:
a)
t h a t the sum should be a rateable p a r t of the c o n t r a c t p r i c e *
b)
t h a t the a c t u a l value of the goods t o the buyer a t the time of
f r u s t r a t i o n should be awarded;
c)
t h a t a reasonable p r i c e should be p a i d .
The wording of the sub-section, which appears t o envisage a s i t u a t i o n i n
which less than the value conferred may be awarded, would seem t o
preclude any suggestion t h a t the sum should always be c a l c u l a t e d i n accordance w i t h (b) a b o v e . I t i s suggested
i n Benjamin's "Sale of Goods''^
t h a t " i n c o n t r a c t s of sale of goods, the value of the b e n e f i t should
prima f a c i e be assessed as a r a t e a b l e p a r t o f the c o n t r a c t p r i c e " .
There
would seem t o be no f i r m basis f o r t h i s conclusion and no reason why the
Court should not, at i t s d i s c r e t i o n , award a reasonable p r i c e .
The
d e c i s i o n , a t f i r s t instance, i n B.P. E x p l o r a t i o n Co. v. Hunt (No.
supports t h i s view.
2)^
Goff J. asserted, i n t h a t case, t h a t :
" F i r s t i t has t o be shown t h a t the defendant has, by reason of
something done by the p l a i n t i f f i n , or f o r the purpose o f ,
the performance of the c o n t r a c t , obtained a valuable b e n e f i t
(other than payment of money) before the time of discharge.
That b e n e f i t has t o be i d e n t i f i e d and valued and such value forms
the upper l i m i t of the award. Secondly, the c o u r t may award
t o the p l a i n t i f f such sum, not greater than the value of such
b e n e f i t , as i t considers j u s t having regard t o a l l the circumstances of the case62
„. the basic measure of
recovery i n r e s t i t u t i o n i s the reasonable value of the p l a i n t i f f ' s
59
Though G l a n v i l l e Williams does suggest ("The Law Reform ( F r u s t r a t e d
Contracts) Act 1943" page 47) t h a t the sub-section appears t o be based
upon quasi-contract which normally "depends upon unjust enrichment, t h a t
i s upon b e n e f i t conferred upon the defendant, not detriment i n c u r r e d by
the p l a i n t i f f " .
at page 211.
6 1
62
/"1979_7 1 W.L.R. 783.
at page 801.
- 123 -
performance - i n a case o f s e r v i c e s , a quantum meruit or.
reasonable remuneration, and i n a case o f goods, a quantum
valebat or reasonable price".63
I t should, however, be noted t h a t Goff J . accepted^"* t h a t "the c o n t r a c t
c o n s i d e r a t i o n i s always r e l e v a n t as p r o v i d i n g some evidence o f what w i l l
be a reasonable sum t o be awarded i n respect o f the p l a i n t i f f ' s work".
I f the Court i s prepared t o sever t h e c o n t r a c t , t h e provisions o f
s e c t i o n 2(4) o f the Act w i l l apply.
The sub-section
provides
that:
"Where i t appears t o the Court t h a t a p a r t o f any c o n t r a c t t o
which t h i s Act applies can properly be severed from the
remainder o f t h e c o n t r a c t , being a p a r t wholly performed before
the time o f discharge, or so performed except f o r the payment
i n respect o f t h a t p a r t o f t h e c o n t r a c t o f sums which are or can
be ascertained under the c o n t r a c t , t h e Court s h a l l t r e a t t h a t
p a r t o f the c o n t r a c t as i f i t were a separate c o n t r a c t and had
not been f r u s t r a t e d and s h a l l t r e a t the foregoing s e c t i o n o f
t h i s Act as only a p p l i c a b l e t o t h e remainder o f t h a t c o n t r a c t " .
I f the c o n t r a c t i s s e v e r a b l e , ^ the s e l l e r w i l l be able t o claim h i s
c o n t r a c t u a l remuneration f o r the goods d e l i v e r e d , r a t h e r than a sum a t the
d i s c r e t i o n o f the Court under s e c t i o n 1(3) and t h i s remuneration w i l l
not be l i m i t e d by reference t o t h e value o f the b e n e f i t conferred upon
the buyer.
The p o s s i b i l i t y o f s e c t i o n 30(1) applying where there has,
p r i o r t o f r u s t r a t i o n , been a p a r t d e l i v e r y has been discussed e a r l i e r . ^
I f the sub-section
why
i s a p p l i c a b l e there would seem t o be no good reason
i t s operation should be a f f e c t e d Jay s e c t i o n 1(3) o f the 1943 Act
which would then, i n e f f e c t , be r e s t r i c t e d t o c o n t r a c t s other than those
i n v o l v i n g the sale o f goods.
at page B05.
64
G l a n v i l l e Williams suggests ("The Law Reform ( F r u s t r a t e d Contracts)
Act 1943", pages 64 and 68) t h a t a c o n t r a c t o f sale w i l l be severable
i f , f o r example, i t c o n s i s t s o f an agglomeration o f e n t i r e p a r t s , f o r each
of which a separate c o n s i d e r a t i o n has been s p e c i f i e d ; or i f i t was one i n
which the c o n s i d e r a t i o n appeared t o be e n t i r e but was, i n f a c t , the r e s u l t
of an express or implied agreement f o r payment on a pro r a t a basis.
See Section B of t h i s Part.
- 124 -
Prorating
A s e l l e r may f i n d t h a t he has several contracts
unascertained goods from a s p e c i f i c bulk.
t o deliver
What would be the p o s i t i o n
i f , as a r e s u l t o f the perishing of part o f t h a t bulk, he can perform
some, but not a l l , o f h i s contracts?
The American Uniform Commercial Code"
provides"' t h a t i n such
circumstances the s e l l e r "... must a l l o c a t e production and d e l i v e r i e s
among h i s customers
Would an English c o u r t adopt a s i m i l a r approach?
There i s some a u t h o r i t y f o r t h e p r o p o s i t i o n t h a t a court would have sympathy
68
f o r t h i s view. I n Tennants (Lancashire) L t d . v. C.S. Wilson and Co. L t d . ,
69
Lord Finlay L.C. asserted
that:
"Probably i t would be held i n such a case t h a t the d e l i v e r i e s would
f a l l t o be made i n the order o f p r i o r i t y as they f a l l due and t h a t ,
i n the event o f d e l i v e r y being due under several contracts a t
the same time, the amount which i t was possible t o be divided
among them pro r a t a ....".
The
o b l i g a t i o n t o d e l i v e r the remaining goods a t the time f i x e d f o r
d e l i v e r y would, Lord Finlay L.C. concluded, be discharged.
I t should,
however, be noted t h a t the House o f Lords was, i n t h i s case, considering
the a f f e c t o f an express term dealing w i t h unforeseen contingencies,
which term provided t h a t there should be no l i a b i l i t y i f i t became imposs i b l e t o make d e l i v e r y a t the appointed time.
The a t t i t u d e o f the House
i n r e l a t i o n t o the p o s i t i o n t h a t would obtain i n the s i t u a t i o n presently
considered r e s u l t e d from t h e i r i n t e r p r e t a t i o n o f the expressed and implied
i n t e n t i o n of the p a r t i e s rather than from any general p r i n c i p l e s of law.
I t seems l i k e l y t h a t , i n the absence of express p r o v i s i o n i n h i s
various c o n t r a c t s , the s e l l e r would be obliged t o discharge as many
66
1 9 6 2 O f f i c i a l Text w i t h Comments.
6 7
s e c t i o n 2-615b
6 8
69
/"1917_7 A.C. 495.
at page 508.
- 125 -
c o n t r a c t s as possible and render himself l i a b l e i n damages f o r breach
of a l l o t h e r s . ^
I n Hong Guan and Co. L t d . v. R. Jumabhoy and Sons L t d .
the respondents contracted t o s e l l t o the appellants f i f t y tons o f
cloves "subject t o force majeure and shipment".
The s e l l e r s
procured
shipment of s u f f i c i e n t cloves t o perform t h i s c o n t r a c t , but i n s u f f i c i e n t i n relation to a l l their contracts.
They elected t o use the
cloves i n performance of t h e i r other c o n t r a c t s and were held l i a b l e t o
the buyers.
The case d i d not t u r n on f r u s t r a t i o n but on the c o n d i t i o n
precedent t h a t the goods be shipped.
Nevertheless,
the opinion o f the
Court t h a t the c o n d i t i o n precedent had been s a t i s f i e d because s u f f i c i e n t
goods f o r the p a r t i c u l a r
c o n t r a c t i n question had been shipped would, no
doubt, b e ' r e f l e c t e d i n a s i m i l a r view t h a t there can be no f r u s t r a t i o n
where s u f f i c i e n t goods remain t o perform the p a r t i c u l a r
question.
This a t t i t u d e
Borth-Y-Gest:
contract i n
i s s t a t e d q u i t e b a l d l y by Lord Morris o f
72
"Their Lordships are c l e a r l y of the opinion t h a t the
respondents -cannot be allowed t o excuse t h e i r non-performance
by reference t o t h e i r other commitments, or t o seek t o give
other commitments p r i o r i t y over the a p p e l l a n t s ' c l a i m " .
on the basis t h a t the " f r u s t r a t i n g event" has been s e l f - i n d u c e d ,
Maratime National Fish L t d . v. Ocean Trawlers L t d . /~1935 7 A.C. 524.
/"196Q 7 A.C. 684.
at page 708.
- 126 -
SECTION E:
CAN THERE BE A COMMON LAW FRUSTRATION OP A CONTRACT FOR THE SALE OF
SPECIFIC GOODS WHICH HAVE PERISHED?
What i f s e c t i o n 7 Sale o f Goods Act does not apply because
property or r i s k has passed t o the buyer?
Does the s e l l e r r e t a i n h i s
o b l i g a t i o n t o d e l i v e r the goods he has promised t o d e l i v e r ?
Where
s e c t i o n 7 applies the c o n t r a c t i s avoided and, as a r e s u l t , the buyer
cannot maintain an a c t i o n f o r non-delivery.
I s i t possible t o assert
t h a t the converse i s also t r u e ; t h a t where s e c t i o n 7 does n o t apply the
c o n t r a c t i s not avoided and the s e l l e r r e t a i n s h i s c o n t r a c t u a l
obligations?
I t would not, perhaps, seem unreasonable t o suppose t h a t where
Parliament has made p r o v i s i o n f o r the avoidance o f a c o n t r a c t f o r the
sale o f s p e c i f i c goods only where the goods perish before property or
r i s k passes t o the buyer, i t was not the i n t e n t i o n o f the L e g i s l a t u r e
t h a t the c o n t r a c t should be avoided i f e i t h e r has passed a t the time of t h e
p e r i s h i n g o f the goods.
I f the c o n t r a c t i s not avoided the o b l i g a t i o n
t o d e l i v e r remains, as do the buyer's o b l i g a t i o n s t o accept and pay f o r
the goods, and, i n the absence o f any other means o f t e r m i n a t i n g t h e
c o n t r a c t u a l o b l i g a t i o n s , i t would f o l l o w t h a t :
1)
the buyer must pay f o r the goods,
and
2)
the s e l l e r must d e l i v e r them.
Presumably, as the buyer has the r i s k o f loss or d e t e r i o r a t i o n i n the
goods he can only i n s i s t upon the s e l l e r d e l i v e r i n g the perished goods.
As we have s e e n , ^ however, goods may be considered t o have "perished"
see Part One.
- 127 -
f o r t h e purposes of the c o n t r a c t where they s t i l l p h y s i c a l l y e x i s t i n
some recognisable form and r e t a i n some, perhaps considerable, :
74
commercial value.
I n Asfar v. B l u n d e l l ,
f o r example, the consignment
of dates which was taken t o have perished was u l t i m a t e l y s o l d , f o r the
purposes o f d i s t i l l a t i o n i n t o s p i r i t , a t a p r i c e o f £2,400 (a not inconsiderable
sum i n the nineteenth c e n t u r y ) .
I f i n cases
such as t h i s , t h e
s e l l e r r e t a i n s h i s o b l i g a t i o n t o d e l i v e r the goods, the buyer can i n s i s t
upon d e l i v e r y and, should the s e l l e r d e f a u l t , s e t - o f f damages f o r nond e l i v e r y against any claim made by the s e l l e r f o r the p r i c e .
Conversely,
i f the o b l i g a t i o n s under t h e c o n t r a c t survive the p e r i s h i n g o f the goods
and the 'remains:*' of the perished goods have no value, the s e l l e r can,
presumably, i n s i s t t h a t the buyer accepts d e l i v e r y o f t h e goods and, by
so doing, r e l i e v e the s e l l e r o f the expense o f disposing o f the same.
Any
d e f a u l t i n t a k i n g d e l i v e r y would, i t would seem, give r i s e t o an
7
a c t i o n under section 37 "* o f the 1979 Act by which t h e s e l l e r could recover
the expense of disposing o f the c o n t r a c t goods.
7
I t has, since Taylor v. C a l d w e l l ^ been assumed t h a t t h e s e l l e r ' s
o b l i g a t i o n t o d e l i v e r does not survive t h e perishing o f the s p e c i f i c
goods which form the subject-matter o f the c o n t r a c t .
I n t h a t case
7 7
Blackburn J. a s s e r t e d t h a t :
"Where a c o n t r a c t o f sale i s made amounting t o a bargain and
s a l e , t r a n s f e r r i n g presently the property i n s p e c i f i c c h a t t e l s ,
which are t o be d e l i v e r e d by the vendor a t a f u t u r e day;
t h e r e , i f the c h a t t e l s , without the f a u l t of the vendor, perish
i n the i n t e r v a l , the purchaser must pay the p r i c e and the vendor
i s excused from performing h i s contract t o d e l i v e r which has
become impossible."
H
/ 1896_7 1 Q.B. 123.
73
"When the s e l l e r i s ready and w i l l i n g t o d e l i v e r the goods, and requests
the buyer t o take d e l i v e r y , and the buyer does not w i t h i n a reasonable
time a f t e r such request take d e l i v e r y o f the goods, he i s l i a b l e t o the
s e l l e r f o r any loss occasioned by h i s neglect or r e f u s a l t o take d e l i v e r y ,
and also f o r a reasonable charge f o r the care and custody o f the goods."
76
7 7
( 1 8 6 3 ) 3 B &S, 824.
a t page 837.
- 128 -
The conceptual basis o f t h i s a s s e r t i o n i s not apparent and, w h i l s t
Blackburn J. c i t e s as a u t h o r i t y Ruqq v. M i n e t t ,
that
78
he does concede
79
" i t seems i n t h a t case r a t h e r t o have been taken f o r granted
than decided t h a t the d e s t r u c t i o n o f the t h i n g s o l d before d e l i v e r y
excused the vendor from f u l f i l l i n g h i s c o n t r a c t t o d e l i v e r on payment".
Moreover, T a y l o r v . Caldwell pre-dates t h e 1893 Act and cannot i n f l u e n c e
the i n t e r p r e t a t i o n o f the c l e a r meaning o f s e c t i o n s o f t h a t Act or i t s
replacement.
I t i s , i n s e c t i o n 28 o f the A c t , provided t h a t
"Unless
otherwise agreed, d e l i v e r y o f the goods and payment o f the p r i c e are conc u r r e n t c o n d i t i o n s , t h a t i s t o say, the s e l l e r must be ready and w i l l i n g
t o g i v e possession
o f the goods t o the buyer i n exchange foe t h e p r i c e
No doubt the c o u r t s would be prepared t o assume t h a t , the r i s k
being on the buyer, the s e l l e r i s r e l i e v e d o f ~ t h i s o b l i g a t i o n where t h e
goods have, i n the f u l l e s t sense o f the word, p e r i s h e d .
Indeed, we have
80
noted p r e v i o u s l y
t h a t Sealey a s s e r t s t h a t t h i s i s the very meaning o f
the n o t i o n o f r i s k ; i t i s a negative concept which a c t s , q u i t e s i m p l y ,
so as t o excuse the s e l l e r from the need t o d e l i v e r and thus s a t i s f y the
normal c o n d i t i o n precedent
t o an a c t i o n f o r the p r i c e .
Would a c o u r t ,
however, be w i l l i n g t o depart from the c l e a r wording o f s e c t i o n 28 where
the goods, w h i l s t deemed t o have perished f o r the purposes o f the cont r a c t , are s t i l l i n existence and are capable o f being s o l d at a p r i c e ?
Presumably they could do so only on the basis t h a t s e c t i o n 28 r e q u i r e s
d e l i v e r y of "the goods" and t h a t these goods, the goods i d e n t i f i e d i n
the c o n t r a c t , are no longer i n e x i s t e n c e .
Such an i n t e r p r e t a t i o n would,
of course, permit the s e l l e r t o p r o f i t from the f r u s t r a t i n g event.
He
may maintain an a c t i o n against the buyer f o r the p r i c e and, i n a d d i t i o n ,
s e l l the "remains" of the goods i n the r e l e v a n t market.
7 8
1 1 East 210.
7 9
a t page 837.
80
see Part Two.
- 129 -
The d i f f i c u l t i e s o u t l i n e d above would disappear i f the c o n t r a c t u a l
o b l i g a t i o n s of s e l l e r and buyer were t o terminate as a r e s u l t o f
frustration.
C l e a r l y there can be no avoidance o f the o b l i g a t i o n s by
v i r t u e of s e c t i o n 7 o f the 1979 Act where property or r i s k has passed.
Any f r u s t r a t i o n o f the c o n t r a c t u a l o b l i g a t i o n s i n such contracts must,
t h e r e f o r e , a r i s e a t common law.
The i n t e n t i o n o f Parliament?
There i s , i n the 1943 Act, an i n d i c a t i o n t h a t Parliament accepted
the p o s s i b i l i t y of f r u s t r a t i o n where property or r i s k i n s p e c i f i c goods
has passed t o the buyer a t the time o f p e r i s h i n g .
Section 2 ( 5 ) ( c ) o f
the Act, as amended, provides t h a t the Act s h a l l not apply t o :
a)
"any c o n t r a c t t o which s e c t i o n seven o f the Sale o f Goods
Act 1979 (which avoids c o n t r a c t s f o r the sale o f s p e c i f i c goods
which perish before the r i s k passes t o the buyer) a p p l i e s " ; or
b)
" t o any other c o n t r a c t f o r the s a l e , or f o r the sale and
d e l i v e r y , o f s p e c i f i c goods, where t h e c o n t r a c t i s f r u s t r a t e d by
reason of the f a c t t h a t the goods have
perished".
I t would appear from (b) above t h a t the L e g i s l a t u r e contemplated t h e
p o s s i b i l i t y o f a c o n t r a c t f o r the sale o f s p e c i f i c goods being
f r u s t r a t e d , as a r e s u l t o f the p e r i s h i n g o f the goods, other than by
81
v i r t u e of s e c t i o n 7.
What i s not apparent i s whether Parliament con-
templated the p o s s i b i l i t y o f a common law f r u s t r a t i o n of a c o n t r a c t f o r
the sale o f s p e c i f i c goods where:
a)
property (but not r i s k ) has passed t o the buyer; or
though some academic w r i t e r s deny any such inference and assert e i t h e r
t h a t the p r o v i s i o n i s as i t i s simply as a r e s u l t o f clumsy draftmanship
or t h a t the p r o v i s i o n was i n s e r t e d "ex abundanti cautela", f o r the avoidance of doubt. See, f o r example, Benjamin "Sale o f Goods" a r t . 443,
" C h i t t y on Contracts" a r t . 4431, Cheshire and F i f o o t "Law o f Contract"
(9th ed.) page 565.
- 130 -
b)
where r i s k has passed t o the buyer (perhaps w i t h property,
perhaps w i t h o u t ) ; or
c)
i n e i t h e r case.
A consideration of the requirements of s e c t i o n 7 reveals t h a t a
c o n t r a c t w i l l be avoided under t h a t s e c t i o n i f :
1)
the s e l l e r and buyer enter i n t o an "agreement t o s e l l
1 1
( i . e . an executory agreement i n which property does not pass
at the time of c o n t r a c t ) ; and
2)
the goods which form the subject matter of the c o n t r a c t are
s p e c i f i c ; and
3)
the goods subsequently p e r i s h ; and
4)
the p e r i s h i n g of the goods i s not a t t r i b u t a b l e t o the f a u l t of
e i t h e r p a r t y ; and
5)
a t the time of p e r i s h i n g , r i s k has not passed t o the buyer.
Of these f i v e v a r i a b l e s , those o u t l i n e d i n (2) and (3) above are
common t o a s e c t i o n 7 f r u s t r a t i o n and t o whatever other form o f
f r u s t r a t i o n may have been contemplated by Parliament when i t enacted
s e c t i o n 2 ( 5 ) ( c ) of the 1943 Act. The remaining v a r i a b l e s a r e , t h e r e f o r e ,
the key t o t h a t other s i t u a t i o n , i f one e x i s t s , i n which a c o n t r a c t f o r the
sale o f s p e c i f i c goods may be f r u s t r a t e d by reason o f t h e i r p e r i s h i n g . I t
i s surely inconceivable
t h a t a c o n t r a c t w i l l be f r u s t r a t e d where the
i m p o s s i b i l i t y r e s u l t s from the f a u l t of one o f the c o n t r a c t i n g p a r t i e s ,
which r e s t r i c t s the present c o n s i d e r a t i o n t o the v a r i a b l e s o u t l i n e d i n
(1) and (5) above.
I f we i n v e r t v a r i a b l e ( 1 ) , i n our attempt, t o i d e n t i f y the s i t u a t i o n
i n which there may be f r u s t r a t i o n other than under s e c t i o n 7, we must
contemplate a s i t u a t i o n i n which the c o n t r a c t i n g p a r t i e s have entered
i n t o a s a l e , r a t h e r than an agreement t o s e l l .
I s i t possible t o con-
- 131 -
template
frustration i n this situation?
Some academics
would argue
t h a t a c o n t r a c t of sale cannot be f r u s t r a t e d where property has passed
because i t has, by v i r t u e of the passing of property, been executed.
Advocates of t h i s view r e l y upon the d e f i n i t i o n of a sale of goods con83
t r a c t , set out i n s e c t i o n 2(1) of the Act,
which i d e n t i f i e s the
s a l i e n t feature of the c o n t r a c t as the o b l i g a t i o n t o t r a n s f e r property
t o the buyer.
Support f o r t h i s approach might also appear t o be con84
tained i n the decision o f the Court of Appeal i n Rowland v. D i v a l l
t h a t there was a complete f a i l u r e of c o n s i d e r a t i o n when a purchaser
received possession, but not ownership, of goods from a s e l l e r who had no
t i t l e t o them.
The d e c i s i o n , i n so f a r as i t i n d i c a t e d t h a t the buyer's
possession of goods d i d not prevent him from having s u f f e r e d a t o t a l
f a i l u r e of c o n s i d e r a t i o n , suggests t h a t , i n a c o n t r a c t of s a l e , t r a n s f e r
of property i s a l l t h a t i s of concern t o the buyer.
85
r e j e c t e d by others
This approach i s
and, indeed i s d i f f i c u l t t o r e c o n c i l e w i t h the
express provisions of the Act.
Section 27, which appears under a
heading "Performance of the c o n t r a c t " , i n d i c a t e s , uncompromisingly,
t h a t " i t i s the duty of the s e l l e r t o d e l i v e r the goods
ance w i t h the terms of the c o n t r a c t of s a l e " .
i n accord-
Surely a c o n t r a c t of sale
can be f r u s t r a t e d , whoever has the property i n the goods, so long as t h i s
o b l i g a t i o n has not been performed.
There i s , i n r e a l i t y , nothing i n the
decision i n Rowland v. D i v a l l t o suggest t h a t t h i s i s not so.
The Court
of Appeal ignored the possession enjoyed by the purchaser simply because
See, f o r example, A t i y a h , "The Sale of Goods" ( 4 t h ed.) page 167,
Greig "Sale of Goods" page 220.
8
5
' "A c o n t r a c t of sale of goods i s a c o n t r a c t whereby the s e l l e r t r a n s f e r s
or agrees t o t r a n s f e r the property i n goods t o the buyer f o r a money
c o n s i d e r a t i o n , c a l l e d the p r i c e " .
8 4
85
/"1923 7 2 K.B.
500.
See Macleod, "Sale and Hire Purchase" page 257.
- 132 -
he had not, a t any time, enjoyed a " r i g h t t o possession".
86
This
cannot be a u t h o r i t y f o r the p r o p o s i t i o n t h a t a c o n t r a c t o f sale may be
f u l l y executed a t a stage p r i o r t o d e l i v e r y being e f f e c t e d .
I t would
appear t o be f a r from outrageous t o suggest t h a t there can be f r u s t r a t i o n
of a c o n t r a c t f o r the sale o f s p e c i f i c goods even though property i n
the goods has passed t o the buyer p r i o r t o t h e i r p e r i s h i n g .
Indeed, Pro-
87
fessor G l a n v i l l e Williams i d e n t i f i e s
the s i t u a t i o n i n which p r o p e r t y ,
but not r i s k , has passed t o the buyer p r i o r t o the s p e c i f i c goods
p e r i s h i n g as a casus omissus i n s e c t i o n 7 o f the 1893 Act.
This, then,
may be the s i t u a t i o n contemplated by Parliament i n s e c t i o n 2 ( 5 ) ( c ) o f
the 1943 Act.
Let us not, however, f o r g e t the remaining v a r i a b l e i n s e c t i o n 7.
I f s e c t i o n 7 applies only where r i s k has not passed, i t may be t h a t
Parliament contemplated the a l t e r n a t i v e s i t u a t i o n i n which there can be
f r u s t r a t i o n as being t h a t i n which r i s k has passed t o the buyer p r i o r t o
the p e r i s h i n g o f the goods.
Such a p o s s i b i l i t y i s almost u n i v e r s a l l y
88
discounted.
A t i y a h , f o r example, s t a t e s q u i t e b a l d l y t h a t "
there
cannot be f r u s t r a t i o n f o r t h i s would discharge the buyer's o b l i g a t i o n
t o pay the p r i c e or enable him t o recover i t i f already p a i d , and t h i s
would mean t h a t r i s k was on the s e l l e r and not t h e buyer".
I t i s sub-
m i t t e d t h a t t h i s conclusion i s untenable and r e s u l t s from a confusion as
t o the r e l a t i o n s h i p between r i s k and f r u s t r a t i o n .
I f there can be no
f r u s t r a t i o n i n t h i s s i t u a t i o n i t i s not f o r t h i s reason.
Risk r e l a t e s t o
the l i a b i l i t y o f the buyer t o pay the p r i c e (or some other sum) should
8
^ a t page 507.
87
88
"The Law Reform ( F r u s t r a t e d Contracts) Act 1943", page 83.
S e e , f o r example, A t i y a h , "The Sale o f Goods" ( 4 t h ed.) page 167 and
T r e i t a l "Law of Contract" (3rd ed.) page 778. But see also Macleod
"Sale and Hire Purchase" page 257.
- 133 -
the goods perish or d e t e r i o r a t e ; f r u s t r a t i o n determines whether t h e
s e l l e r i s l i a b l e i n damages f o r n o n - d e l i v e r y .
To r e l i e v e t h e s e l l e r o f
h i s o b l i g a t i o n t o d e l i v e r i s n o t t o r e l i e v e t h e buyer o f h i s
obligation
t o pay the p r i c e ( o r some other sum). A f r u s t r a t i n g event w i l l t e r m i n a t e
contractual
o b l i g a t i o n s which have not arisen a t the time o f f r u s t r a t i o n ,
but o b l i g a t i o n s which already e x i s t e d a t t h a t time w i l l remain.
I f there
can be common law f r u s t r a t i o n where r i s k has passed i n r e l a t i o n t o s p e c i f i c
goods, the f r u s t r a t i o n o f the c o n t r a c t w i l l r e l i e v e the s e l l e r o f h i s
o b l i g a t i o n t o d e l i v e r b u t i t w i l l not a f f e c t the p r i n c i p l e o f r i s k .
the time of the p e r i s h i n g
terms o f the c o n t r a c t
At
o f the goods one o f t h e p a r t i e s w i l l , under t h e
or by v i r t u e o f t h e p r o v i s i o n s
Act, have ,the r i s k o f l o s s .
o f the Sale o f Goods
That person w i l l , subsequent t o the c o n t r a c t
being f r u s t r a t e d , r e t a i n t h a t l i a b i l i t y :
" A l l Taylor v. Caldwell says i s
t h a t the p a r t i e s are t o be excused from t h e performance o f the c o n t r a c t
A l l t h a t can be s a i d i s t h a t when the procession was abandoned t h e c o n t r a c t
was o f f , not t h a t anything done under the c o n t r a c t was v o i d .
The l o s s
89
must remain where i t was a t the time o f the abandonment"-.
Goods c o n t r a c t
A Sale o f
may be avoided by v i r t u e o f the f r u s t r a t i n g event, b u t i t
i s not rendered v o i d .
I f the buyer acquired r i s k , by v i r t u e o f s e c t i o n
20 o f the Act, he w i l l r e t a i n t h a t l i a b i l i t y .
The c o n t r a c t may no
longer e x i s t b u t i t does not cease t o have e x i s t e d , and w h i l e i t e x i s t e d
the question o f r i s k was determined.
To f r u s t r a t e the s e l l e r ' s o b l i g a t i o n
t o d e l i v e r w i l l not, t h e n , r e - v e s t r i s k i n him. This conclusion i s
90
91
s t a t e d s u c c i n c t l y i n Chandler v. Webster
where Lord Romer L.J. asserts
t h a t , i n the Taylor v. Caldwell s i t u a t i o n ,
any l e g a l r i g h t p r e v i o u s l y
89
per E a r l Halsbury L.C. C i v i l Service Co-operative Society v. General
Steam Navigation Co. / 1 9 0 3 / 2 K.B. 764.
9 0
/"1904_7 1 K.B. 493.
91
at page 501.
- 134 -
accrued according t o the terms o f the agreement /"or presumably, by
operation of law 7 w i l l not be d i s t u r b e d " .
Atiyah supports h i s a s s e r t i o n t h a t there can be no f r u s t r a t i o n
where r i s k has passed by reference t o the f a c t t h a t i n c . i . f . c o n t r a c t s ,
where the r i s k normally passes before p r o p e r t y , the p e r i s h i n g o f the
qoods between these two events does not f r u s t r a t e the c o n t r a c t . A c . i . f .
c o n t r a c t i s , however, a s p e c i a l c o n t r a c t . I t has been described, by
92
Scrutton J., as "not a sale o f goods, but a sale o f documents r e l a t i n g
93
t o goods"; by Bankes L.J. and Warrington L.J.,
as "a c o n t r a c t f o r the
sale o f goods performed by the d e l i v e r y o f documents"; and, by McCardie
94
J.,
as a c o n t r a c t i n which "the o b l i g a t i o n o f t h e vendor i s t o d e l i v e r
documents r a t h e r than goods, t o t r a n s f e r symbols r a t h e r than"the p h y s i c a l
property represented thereby".
Quite c l e a r l y , such a c o n t r a c t cannot be
f r u s t r a t e d by loss o f the goods, but t h i s i s due t o the f a c t t h a t the
s e l l e r w i l l remain able t o d e l i v e r the documents and not t o t h e f a c t t h a t
the
buyer has the r i s k .
Atiyah also c i t e s as a u t h o r i t y the d e c i s i o n o f
95
Morris J. i n Home v. M i n i s t e r o f Food.
I n t h a t case however, Morris
r
J. decided only t h a t s e c t i o n 7 could not apply where r i s k had passed.
There would seem t o be, t h e r e f o r e , no obvious reason why a c o n t r a c t f o r
the
sale of s p e c i f i c goods should not be f r u s t r a t e d , even though the buyer
has acquired r i s k .
92
A r n h o l d Karberg & Co. v. B l y t h , Green, Jourdain & Co. /~1915 7 2 K.B.
379', ~S'6$",
93,Arnhold Karberg & Co. v. B l y t h , Green, Jourdain & Co. (supra) page 510,
5 IS
94
Manbre Saccharine Co. v. Corn Products Co. (191a) 24 Comm Cas 89, 97.
9 5
/"1948 7 2 A l l E.R. 1036.
- 135 -
E f f e c t of a Common Law F r u s t r a t i o n
I f there can be a f r u s t r a t i o n , other than a s e c t i o n 7 f r u s t r a t i o n ,
of a c o n t r a c t f o r the sale o f s p e c i f i c goods which p e r i s h , there a r e ,
then, three possible s i t u a t i o n s i n which such a f r u s t r a t i o n may be
recognised:
1)
Where property has passed t o the buyer but r i s k has not;
2)
Where r i s k has passed t o t h e buyer but property has n o t ;
3)
Where property and r i s k have both passed t o the buyer.
A common law f r u s t r a t i o n i n (1) above would r e l i e v e the s e l l e r o f h i s
o b l i g a t i o n t o d e l i v e r the goods; and, the r i s k being w i t h the s e l l e r ,
the buyer would not be l i a b l e f o r the p r i c e .
F r u s t r a t i o n i n (2) and
(3) would,, however, occur i n r e l a t i o n t o a c o n t r a c t f o r t h e sale o f goods
which were, a t the time o f f r u s t r a t i o n , a t the buyer's r i s k .
What
e f f e c t would such a f r u s t r a t i o n have i f , as has been argued, the buyer
r e t a i n s the r i s k even though the c o n t r a c t i s a t an end?
Obviously there
would be no question of any o b l i g a t i o n t o make or take d e l i v e r y o f the
goods, f o r these o b l i g a t i o n s would be f r u s t r a t e d .
The s e l l e r would,
however, be able t o sue the buyer as a r e s u l t o f the f a c t t h a t the goods
were, a t the time of f r u s t r a t i o n , a t h i s r i s k .
What, however, would the
s e l l e r be able t o recover?
I n s i t u a t i o n (3) there would appear t o be two p o s s i b i l i t i e s :
a)
I t might be argued t h a t the s e l l e r would be able t o recover
the c o n t r a c t p r i c e from the buyer.
No
o b l i g a t i o n s on the contract
remain f o r , the c o n t r a c t being f r u s t r a t e d , performance o f outstanding
o b l i g a t i o n s i s excused.
The implied term i n the c o n t r a c t t h a t
d e l i v e r y and payment are concurrent would, t h e r e f o r e , not be
relevant and the i n a b i l i t y t o tender d e l i v e r y no bar t o recovery
of the p r i c e .
The s e l l e r i s , q u i t e simply, able t o sue the buyer
- 136 -
because, as a matter of law, he bears the r i s k o f loss which would
otherwise f a l l upon the s e l l e r .
Property having passed t o the
buyer p r i o r t o the perishing o f the goods, the s e l l e r had, p r i o r
t o the f r u s t r a t i n g event, acquired the r i g h t t o sue f o r the p r i c e
i n the event o f d e f a u l t .
Had the goods not perished, t h e r e f o r e ,
he would have delivered the goods and received the price or, i n the
event o f non-acceptance or non-payment by the buyer, have been able
96
t o sue f o r the p r i c e .
I n T a r l i n q v. Bates,
Bayley J. and
Holroyd J. emphasise the c e r t a i n t y o f the s e l l e r ' s contingent
r i g h t , i n these circumstances, by t h e i r a s s e r t i o n t h a t upon property
i n the goods passing t o the purchaser, the vendor acquires a r i g h t
of property
i n the p r i c e .
The buyer, who has the r i s k , i s , t h e r e f o r e ,
l i a b l e t o a s e l l e r who had a contingent r i g h t t o the p r i c e a t the
time o f the f r u s t r a t i n g event.
Subsequent t o the perishing o f t h e
goods, t h e r e f o r e , the buyer must pay t h a t p r i c e .
b)
I t may, however, be possible t o argue t h a t the s e l l e r has no
claim t o the p r i c e .
that
Section 28 Sale o f Goods Act 1979 provides
"unless otherwise agreed, d e l i v e r y of the goods and payment
of the p r i c e are concurrent c o n d i t i o n s " .
U n t i l , therefore,
d e l i v e r y i s tendered there may be no r i g h t t o payment.
I f the
s e l l e r has not e f f e c t e d or tendered d e l i v e r y p r i o r t o t h e
f r u s t r a t i n g event, i t may thus be argued t h a t he had no r i g h t t o sue
f o r the p r i c e a t t h a t time.
The buyer, who has the r i s k , must
bear the s e l l e r ' s l o s s , but the s e l l e r has not l o s t the p r i c e o f the
goods f o r the s e l l e r had never acquired t h a t r i g h t .
Where r i s k i s
w i t h the buyer as a r e s u l t of express agreement between the p a r t i e s
s e c t i o n 28 w i l l , presumably, be i n a p p l i c a b l e , f o r by t h e i r agreement
the p a r t i e s must be taken t o have i n d i c a t e d t h a t the s e c t i o n w i l l
(1827) 108 E.R. 484.
- 137
-
not apply where d e l i v e r y cannot be e f f e c t e d as a r e s u l t of a
perishing of the goods.
by operation of law,
Where, however, r i s k has
passed to the buye
r a t h e r than by express agreement, there
would seem to be no j u s t i f i c a t i o n for circumvention of the
rule
t h a t payment i s due
may
only upon d e l i v e r y .
I f so, the s e l l e r
f i n d t h a t he i s i n the same s i t u a t i o n as a s e l l e r i n s i t u a t i o n
As
in situation
( 3 ) , the s e l l e r i n s i t u a t i o n
(2) has,
prior
(2).
to
f r u s t r a t i o n , acquired a r i g h t against the buyer, the r i g h t t o recover
from him the loss which r e s u l t s
from the goods p e r i s h i n g .
Again,
however, the question a r i s e s as t o the measure of t h a t l o s s .
The
s e l l e r has
is
selling.
certainly
He has,
the goods, the sum
l o s t the replacement cost of the goods he
t o put i t another way,
l o s t the pre-contract value of
for which a prudent businessman who
wished to
carry no part of the r i s k himself would have insured the goods w h i l s t
they formed part of his stocks and
had
not yet been selected or other-
wise i d e n t i f i e d by the purchaser as the goods he wished to buy.
s e l l e r a l s o l o s t his p r o f i t ?
has,
has
the
At the time of the f r u s t r a t i n g event he
i t i s submitted, no r i g h t t o sue
f o r the p r i c e , f o r , as property
not yet passed to the buyer, t h a t r i g h t has
i s , t h e r e f o r e , no o b l i g a t i o n
Has
not yet accrued.
on the purchaser to pay
the contract
There
price.
Action for the Price or an Indemnity i n r e l a t i o n to Actual Loss?
S i t u a t i o n s (2) and
(3) above suggest, perhaps, t h a t where the
i s w i t h the buyer at the time of p e r i s h i n g , the s e l l e r may
able t o sue
For,
the buyer for the p r i c e i f the contract i s not
i n the absence of f r u s t r a t i o n , the contract endures and
attendant r i g h t s and
a r i g h t t o sue
obligations.
The
s e l l e r has,
only be
frustrated.
w i t h i t the
under t h i s c o n t r a c t ,
the buyer for the p r i c e , which r i g h t i s subject to
c o n d i t i o n s precedent.
He must:
risk
two
- 138 -
a)
have t r a n s f e r r e d property t o the buyer,
b)
have made a d e l i v e r y t o the buyer.
and
I f the concept of r i s k acts so as t o dispense w i t h the necessity
for f u l -
f i l m e n t of these conditions (save t h a t he may be required t o d e l i v e r the
perished goods), the s e l l e r w i l l be able t o sue the buyer f o r the price
on the c o n t r a c t .
I f , however, the c o n t r a c t i s f r u s t r a t e d , the s e l l e r
w i l l be r e l y i n g upon the f a c t t h a t the buyer has r i s k , r a t h e r than upon
the buyer being under a c o n t r a c t u a l o b l i g a t i o n .
submitted,
I n t h i s event, i t i s
the buyer i s l i a b l e t o compensate the s e l l e r f o r h i s l o s s ,
which loss must be assessed without reference
which no longer e x i s t .
t o the c o n t r a c t u a l r i g h t s
The s e l l e r ' s loss would, i n these circumstances,
be c a l c u l a t e d by reference t o r i g h t s which had vested a t the time of the
f r u s t r a t i n g event.
Much, then, depends upon whether a c o n t r a c t can be f r u s t r a t e d , a t
common law, where r i s k i n the goods r e s t s w i t h the buyer a t the time the
goods are destroyed.
The s t a r t i n g p o i n t f o r a court would, i n a l l
p r o b a b i l i t y , be t h a t there can be no f r u s t r a t i o n i n these circumstances.
Why t h i s should be i s , perhaps, less than obvious.
A Casus Omissus
In any event, there would appear t o be no reason why a c o n t r a c t f o r
the sale of s p e c i f i c goods should not be f r u s t r a t e d where property, but
not r i s k , has passed t o the buyer a t the time of the perishing o f the
goods (the casus omissus i n s e c t i o n 7 noted by Professor G l a n v i l l e
Williams).
I f a c o n t r a c t f o r the sale o f s p e c i f i c goods may be
f r u s t r a t e d i n such circumstances, the s e l l e r ' s o b l i g a t i o n t o d e l i v e r and
the buyer's o b l i g a t i o n t o accept d e l i v e r y w i l l no longer e x i s t and, t o
Section 49 S.G.A. 1979.
- 139 -
t h i s e x t e n t , they w i l l be i n the same p o s i t i o n as i f there had been a
section 7 f r u s t r a t i o n .
Further, as r i s k i s w i t h the s e l l e r he must
bear h i s own loss and no l i a b i l i t y attaches t o the buyer.
Here again,
the p a r t i e s are i n the same p o s i t i o n as they would hold subsequent t o a
f r u s t r a t i o n of the c o n t r a c t by s e c t i o n 7.
The f r u s t r a t i o n w i l l n o t ,
however, be a s e c t i o n 7 f r u s t r a t i o n , i t v / i l l he a common lay/ f r u s t r a t i o n
and, as such, w i l l f a l l uncomfortably
a)
between two sets o f p r o v i s i o n s :
Because the goods which have perished are s p e c i f i c , the pro-
v i s i o n s of the Law Reform ( F r u s t r a t e d Contracts) Act 1943 w i l l
not apply.
The buyer w i l l not, t h e r e f o r e , be able t o r e l y upon the
98
s t a t u t o r y r i g h t t o recover money paid i n advance.
b)
At common law, recovery of money paid i n advance i s only
99
possible where there has been a complete f a i l u r e o f c o n s i d e r a t i o n .
A buyer whose c o n t r a c t has been f r u s t r a t e d by s e c t i o n 7 (and the
consequences of which are determined by common law) w i l l , t h e r e f o r e ,
be able t o recover a deposit or advance payment i n most circumstances
Where property has passed t o the buyer, however, he may be unable t o
e s t a b l i s h a complete f a i l u r e of c o n s i d e r a t i o n and w i l l , thus, f a l l
w i t h i n the mischief which l e d , i n p a r t , t o both the Fibrosa d e c i s i o n
and t o the passing of the 1943 Act.
98see sections 1(2) and 2 ( 5 ) ( c ) Law Reform ( F r u s t r a t e d Contracts) Act 1943
99
—
/
7
Fibrosa Spolka Akcjna v. F a i r b a i r n Lawson Combe Barbour L t d . / 1943_/
A *C o 32 e
- 140
ADDENDUM
- 141 -
Having s e t out, i n the three Parts t o t h i s t h e s i s , the consequences o f a post-contract p e r i s h i n g o f goods which form the s u b j e c t matter o f a c o n t r a c t o f s a l e , i t might now be u s e f u l t o provide a posts c r i p t t o the t h e s i s .
This w i l l not take the form of a summary o f the
t h e s i s , f o r the d i v i s i o n of the t h e s i s i n t o Parts and Sections w i l l ,
h o p e f u l l y , permit the reader t o remind himself o f the main areas o f
discussion w i t h i n the t h e s i s without the assistance
o f a summary. The
addendum t o the t h e s i s w i l l , r a t h e r , attempt t o b r i n g together the
various strands o f one p a r t i c u l a r thread which l i e s concealed w i t h i n
the f a b r i c of the t h e s i s .
I n the main p a r t o f the t h e s i s aspects o f t h e
i n t e r - r e l a t i o n s h i p of the concepts o f r i s k and f r u s t r a t i o n and o f t h e i r
dependence, upon the n o t i o n o f " p e r i s h i n g " have been developed.
The
t o t a l i t y o f such i n t e r - r e l a t i o n s h i p s i n t h i s l i m i t e d context has,
however, remained e l u s i v e .
I t i s , perhaps, appropriate t h a t an attempt
should now be made t o f i x the r e l a t i o n s h i p between the three areas o f
p e r i s h i n g , r i s k and f r u s t r a t i o n which, separately, have provided a
framework f o r each o f the three Parts o f the t h e s i s .
The l i n k between " p e r i s h " and " r i s k "
The word "perished" was introduced i n t o t h e 1893 Act by a draftsman
who elected t o incorporate t h a t term i n t o a s e c t i o n ( s e c t i o n 7) dealing
w i t h f r u s t r a t i o n o f a c o n t r a c t o f s a l e ; the,concept o f r i s k was also
brought i n t o t h a t s e c t i o n .
C l e a r l y , t h e r e f o r e , f o r the purposes of
s e c t i o n 7 Sale o f Goods Act, the concept o f r i s k and the notion of
perishing are each of s i g n i f i c a n c e .
When one attempts t o determine the
r e l a t i o n s h i p between these two areas, however, one i s handicapped by
the f a c t t h a t n e i t h e r "perish" nor " r i s k " i s defined i n the Sale o f Goods
Act.
- 142 -
The a n a l y s i s i n Part Two suggests t h a t i t may w e l l be t h a t the terms
are r e l a t e d t o one another i n such a way t h a t each can only be d e f i n e d by
reference t o the other.
I t was suggested i n Part Two t h a t " r i s k "
might be a term used w i t h i n the Act t o mean the burden t h a t a party t o
the c o n t r a c t bears i n r e l a t i o n t o loss which might a r i s e as a r e s u l t o f
the goods p e r i s h i n g ,
i t was suggested, f o r example, t h a t the term " r i s k "
may have no relevance t o the s i t u a t i o n i n which goods are r e q u i s i t i o n e d .
I f so, the concept o f r i s k i s a p p l i c a b l e only where goods perish and i s ,
as a concept, p a r a s i t i c t o the n o t i o n o f p e r i s h i n g , coming i n t o play only
where goods p e r i s h or are deemed t o have perished and determining t h e
outcome o f such an event.
I t may be, however, t h a t
t h i s conclusion d i s t o r t s the r e l a t i o n s h i p
between r i s k and p e r i s h i n g t o an e x t e n t which completely reverses t h e i r
r e l a t i v e importance.
Throughout Part One o f t h i s t h e s i s i t was apparent
t h a t v i r t u a l l y any event which r e s u l t e d i n goods being unavailable t o
the s e l l e r i n performance o f h i s c o n t r a c t would be accepted as r e s u l t i n g
i n t h e i r having "perished".
Thus, not only i n the obvious case o f
p h y s i c a l d e s t r u c t i o n were goods taken t o have perished, such was also
deemed t o be the case where the goods had been subject t o m a t e r i a l
p h y s i c a l d e t e r i o r a t i o n or t o t h e f t .
Only i n the case o f r e q u i s i t i o n e d
goods were academic w r i t e r s prepared t o refuse t o accept t h a t t h e goods
had "perished" and, even here, they a r r i v e d a t t h i s conclusion when contemplating the a p p l i c a t i o n of r u l e s r e l a t i n g t o f r u s t r a t i o n r a t h e r than
the concept o f r i s k .
Any event l i k e l y t o a c t i v a t e the concept o f r i s k
was i n v a r i a b l y accepted as amounting t o a p e r i s h i n g o f the goods.
Surely, then, i f i t i s possible t o suggest t h a t " r i s k " r e l a t e s only t o
the s i t u a t i o n i n which goods " p e r i s h " , i t i s equally possible t o reverse
the p r o p o s i t i o n and maintain t h a t the term "perished" i s a term wide
- 143 -
enough t o embrace goods which have been s u b j e c t t o any event which
commercial men would expect t o a c t i v a t e the concept of r i s k .
Where
goods are destroyed, where they are s t o l e n or where they are
r e q u i s i t i o n e d , an informed businessman would surely expect t h a t the
r e s u l t a n t loss would f a l l t o the party bearing r i s k .
of
For the purposes
the c o n t r a c t o f sale the goods no longer e x i s t and i t surely does not
s t r a i n c r e d i b i l i t y t o suggest t h a t the term " p e r i s h " may cover a l l of
these s i t u a t i o n s and may thus be a f a i r l y e l a s t i c term covering any event
which r e s u l t s i n an economic loss f o r which the party w i t h r i s k may be
held t o be l i a b l e .
I f t h i s p r o p o s i t i o n can be accepted, then the term
" p e r i s h " i s c l e a r l y p a r a s i t i c t o the term " r i s k " and w i l l be taken t o
apply t o goods subject t o any event which brings t h a t concept i n t o play.
I t w i l l be r e c a l l e d t h a t Sealey suggests t h a t r i s k i s a negative concept
which releases the s e l l e r from the normal pre-conditions t o an a c t i o n f o r
the
p r i c e ( i . e . passing property t o the buyer and e f f e c t i n g d e l i v e r y ) .
I f one accepted t h i s view, i t would be possible t o suggest t h a t goods
w i l l be taken t o perish whenever, through no f a u l t o f the s e l l e r , they cannot
be d e l i v e r e d t o a buyer i n circumstances i n which the s e l l e r w i l l be
released from h i s o b l i g a t i o n t o d e l i v e r the goods and the buyer w i l l be
l i a b l e t o the s e l l e r f o r the p r i c e .
Equally, the goods w i l l be taken t o
have perished where, r i s k being w i t h the s e l l e r , the buyer i s not l i a b l e
to the s e l l e r b u t , i n the opinion of the Court, would have been had r i s k
been t r a n s f e r r e d .
Whatever the true r e l a t i o n s h i p between the terms " p e r i s h " and " r i s k " ,
however, i t i s submitted t h a t they are i n t e r l o c k i n g terms and t h a t one
cannot apply without the other.
I f so, where goods are taken t o have
"perished" then the concept of r i s k w i l l apply; e q u a l l y , where one of the
c o n t r a c t i n g p a r t i e s i s taken t o have l i a b i l i t y f o r the loss of goods which
- 144 -
were, a t the time of l o s s , a t h i s r i s k , then i t f o l l o w s t h a t the goods
must have perished.
I f " r i s k " and " p e r i s h i n g " are inexorably entwined
i t may be t h a t the courts could, i f they were prepared t o approach
commercial s i t u a t i o n s at t h i s conceptual l e v e l , determine d i f f i c u l t
cases by reference t o p r a c t i c a l r a t h e r than "academic" questions.
Consider, for example, the s i t u a t i o n i n which s p e c i f i c goods are ' l o s t '
to the s e l l e r p r i o r t o property and r i s k passing t o the buyer.
Section 7
of the 1979 Act w i l l apply t o the s i t u a t i o n only i f the goods " p e r i s h " .
Conversely, the provisions of the Law Reform ( F r u s t r a t e d Contracts) Act
1943, w i l l apply t o the t r a n s a c t i o n only i f the goods have not perished.
I f a Court attempts t o determine whether the goods have or have not
perished through a debate as t o the meaning of t h a t term i t i s l i k e l y t o
f i n d t h a t debate s t e r i l e .
I t might be more p r a c t i c a l f o r such a c o u r t
to accept the conceptual r e l a t i o n s h i p between " p e r i s h " and " r i s k " and t o
ask i t s e l f a more s t r a i g h t f o r w a r d question:
"Would the Court have
determined t h a t the buyer was l i a b l e i f r i s k had passed t o him?".
If
the
answer t o t h i s question i s "yes", then the Court has determined t h a t
the
event leading t o the 'loss' of the goods i s one which has l e d t o
t h e i r having "perished". Consequent upon t h i s f i n d i n g the Court would
then, presumably, apply s e c t i o n 7 of the Act.
To suggest t h a t such an approach would be v a l i d , i s t o suggest t h a t
i n at l e a s t one s i t u a t i o n i n v o l v i n g the concept of f r u s t r a t i o n , t h a t i n
which s e c t i o n 7 Sale of Goods Act a p p l i e s , one concept, t h a t of
f r u s t r a t i o n , w i l l a s s i s t the s e l l e r where the other, r i s k , does n o t , but
would have done but f o r the f a c t t h a t r i s k remains w i t h the s e l l e r .
an argument i n d i c a t e s t h a t the predominant concept i s r i s k .
Such
Where r i s k
has passed t o the buyer and the Court i s w i l l i n g t o a c t i v a t e t h i s concept,
then the s e l l e r can r e l y upon i t t o recover h i s loss from the buyer.
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Where r i s k has not passed t o the buyer, but the Court would have
a c t i v a t e d the concept t o a s s i s t the s e l l e r had i t passed, then the
c o n t r a c t w i l l be taken t o have been avoided by s e c t i o n 7 and the s e l l e r
w i l l be released from h i s c o n t r a c t u a l o b l i g a t i o n s and r e l i e v e d from any
f u r t h e r economic l o s s .
To extend t h i s approach t o a l l instances o f
f r u s t r a t i o n i n the sale o f goods provides a basis f o r the view t h a t there
can, indeed, be no f r u s t r a t i o n o f a c o n t r a c t where r i s k has passed. I t
sharpens the r e l a t i o n s h i p between " p e r i s h i n g " , " r i s k " and " f r u s t r a t i o n "
i n t o one i n which " p e r i s h i n g " i s the name given t o the process by which
the r u l e s o f r i s k are a c t i v a t e d and " f r u s t r a t i o n " i s the process by
which the s e l l e r ' s c o n t r a c t u a l o b l i g a t i o n s may be negatived when the
concept o f r i s k , considered i n Sealey's terms, does not a s s i s t him.
A wider meaning f o r " r i s k "
Another approach t o the i n t e r - r e l a t i o n s h i p o f the terms " p e r i s h " ,
" r i s k " and " f r u s t r a t i o n " , i s t o give " r i s k " i t s widest possible
meaning and t o accept the a s s e r t i o n made by G l a n v i l l e Williams, noted i n
Part Two, t h a t t h i s term, as used i n s e c t i o n 20, "means a l l r i s k " .
To
assert such i s t o provide one explanation as t o the wording o f s e c t i o n 7
of the 1979 Act.
Adopting t h i s approach i t can be argued t h a t there can
be no f r u s t r a t i o n under s e c t i o n 7 (nor, presumably, a t common law)
where r i s k has passed t o the buyer, as a buyer w i t h r i s k must accept
loss r e s u l t i n g from any unforeseen event, f o r t h a t i s what having r i s k
means.
This approach, which elevates the s i g n i f i c a n c e o f the concept of
r i s k , i n d i c a t e s p a r a d o x i c a l l y , t h a t there i s no s p e c i a l s i g n i f i c a n c e i n
the use of the term " r i s k " i n section 7; the reference t o r i s k would, upon
t h i s i n t e r p r e t a t i o n , merely represent a reminder t h a t there can be no
f r u s t r a t i o n where r i s k i s w i t h the buyer.
I f so, the term "perish" would
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become correspondingly more important, f o r i t would not now e x i s t i n
s e c t i o n 7 merely as an adjunct t o r i s k .
A s e c t i o n 7 f r u s t r a t i o n and w i t h
i t , since 1943, p a r t i c u l a r common law consequences, would apply only
where goods are taken t o " p e r i s h " . There being no s p e c i a l s i g n i f i c a n c e
i n the use o f the term " r i s k " i n s e c t i o n 7, the term would provide no
assistance i n determining the meaning of the term " p e r i s h " and. a Court
would be l e f t w i t h no a l t e r n a t i v e but t o determine, i n each and every
case, whether or not goods may be taken t o have "perished".
A narrower r o l e f o r " r i s k "
Yet a f u r t h e r approach i s t o simply accept the view, without seeking
t o make more o f i t , t h a t the term " r i s k " , as used i n s e c t i o n 20, i s a
term which r e l a t e s t o the l i a b i l i t y r e s u l t i n g from a loss caused by t h e
p e r i s h i n g o f goods.
Following from t h i s acceptance, i t i s then possible
t o p o s t u l a t e t h a t the concept o f r i s k may be o f no relevance whatsoever
i n other instances o f f r u s t r a t i o n .
Thus, f o r example, where goods are
r e q u i s i t i o n e d then, i f such an event i s not accepted as r e s u l t i n g i n
the goods p e r i s h i n g , a c o n t r a c t f o r t h e i r sale w i l l not be avoided by
s e c t i o n 7 of the 1979 Act.
Any f r u s t r a t i o n of the c o n t r a c t must r e s u l t from
common law p r i n c i p l e s and, r i s k being o f relevance only where goods
p e r i s h , the concept o f r i s k w i l l be i r r e l e v a n t .
What can one f u r t h e r conclude from t h i s ?
One could suggest, w i t h
confidence, t h a t the concept of r i s k i s , a t l e a s t , l i m i t e d t o s i t u a t i o n s
i n which goods p e r i s h .
One could even be bolder and suggest t h a t the
concept o f r i s k i s r e l e v a n t only t o the s i t u a t i o n i n which the draftsmen
of the 1893 and 1979 Acts have made i t r e l e v a n t , t h a t i s t o say i n the
section 7 s i t u a t i o n .
This l a t t e r approach would then permit one t o pro-
pose t h a t there i s no reason why the passing o f r i s k should prevent the
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f r u s t r a t i o n of a c o n t r a c t of sale by operation of r u l e s other than those
contained i n s e c t i o n 7.
This i s , of course, the view t h a t was con-
sidered i n Section E of Part Three of the t h e s i s .
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