WEEK 7

Wednesday 21st November 2018

Post-Contractual Loss of Goods and Other
Forms of Subsequent Impossibility

Essential Reading

 Twigg-Flesner, Canavan and MacQueen, Atiyah and Adams’ Sale of Goods, pp.
77-85 (if not read for last week’s lecture)
 Clarke, Hooley et al, Commercial Law Text, Cases, and Materials, pp. 372-380
 McKendrick, Goode on Commercial Law, pp. 283-285

Risk and Frustration

 Accidental loss or damage to goods are borne by the party when the goods
are his risk.
 Frustration may occur when goods are:
 Destroyed
 Severely damaged.
 There is a relationship between the doctrines of risk and frustration.
 Legal problems arising out of loss of goods after the contract.
 Who bears the risk?
 Does it depend on the passage of property?

- Frustration of an executory contract.

 PROPERTY HAS NOT YET PASSED. If risk has been allocated from one
party to another, you are not going to have frustration.
- Largely talking about agreements to sell.
 Possibilities of frustration:
 Goods perish while they are at S’s risk, B is not liable for price
- According to section 20(1), risk is linked to property, not to delivery in sales not
involving the CRA 2015. Unless, the parties have express agreement that
something else will be the position with regards to the property.
- Exceptions:
 - The rule may be displaced by a contrary agreement (unless otherwise
agreed).
- Where there is Retention of Title (S retains title until the payment is made by
B), the B bears the risk even though the B has no property.
- The risk may be with one party, but may shift as a result of fault by the
other: S.20(2)
- Where the S is authorised to send the goods (delivery to an independent
carrier), there are special rules for risks of transit (risk passes to the B): ss.
32(2)(3) and 33
- If B deals as a consumer risk does not pass until he is in physical possession
of the goods (s.29 CRA 2015). (consumer rights different from sale of goods!)
- S. 20 does not apply to risk of loss where the goods are held in co-ownership
(s. 20A – amendment section in 2005 which deals with co-ownership and
risk)
- S. 20 does not distinguish specific/ascertained goods from
unascertained/quasi specific goods. The distinction affects the passage of
property.

Transfer of Risk
 Sometimes under CIF (Cost-Insurance-Freight) and FOB (Free on Board)
contracts, transfer of risk is separated from the transfer of property.
 These contracts separate risk and property. There will be specific
provisions that deal with specific circumstances.
 CIF - throughout the transit S bears the risk, while property in the goods
has passed to the B. Insurance against risk is paid by the S.
 FOB - B assumes risk when the goods pass the rail of the ship.
 What happens when the risk passes before the property? (exception 6)
 Quasi specific goods – goods supplied from a larger and identified bulk
 Stern v Vickers (Court of Appeal)
 120 gallons out of 200,000 of undivided bulk. Once the 120 gallons
separated from the tank, the rest deteriorated. Property had not
passed to the B because the goods sold had not been ascertained.
 Risk passed to the buyer when the buyer took the delivery warrant.
Regardless of the property bulk has passed.
  Held (CA): risk had passed to the B. Special case where risk has
passed but property has not.

 Sale of an unidentified part of a specific whole – risk passes before the property
in a sale of unascertained goods
 When goods are not owned or possessed by the S risk cannot pass. The B has
contracted to pay the price whether the goods are delivered or not.
 Risk may remain with the S after the property has passed.

Contrary case: where property passed and risk hasn’t

 Head v Tattersall
 On a proper construction of the contract risk was held to be with the S
even though property had passed to the B.
 Under the SGA the same case could have been decided similarly (BUT s.
18 Rule 4(b) – the property does not pass until the expiry of the fixed
time.)
 However, the principle: The risk always remains with the S when the B
has a right of rejection.

 What happens when risk passes after the property? (exception 6)

 S agrees to dispatch specific goods at his own risk to the B.
 S is liable for deterioration/destruction not necessarily incidental to the
course of transit: s.33
 If you’ve got deterioration outside of the ordinary, then the seller is
responsible. If the deterioration is because of the course of transit, it will
not be held as the seller’s fault. But anything above that can be. (held in
s33)
 S is not liable for risk of deterioration incidental to the course of transit
because defective condition of the goods at the commencement of the
transit is not covered.
 Mash & Murrell v Joseph Emmanuel
 Held: implied condition that the goods are of merchantable quality
involves a continuing obligation as to the condition of the goods for
a reasonable time after shipment in a CIF contract.
  Section 33 requires that the perishable goods will be in a
satisfactory condition to allow them to be disposed of at the other
end.
 Question is whether the seller has continuously warranted the condition of the
goods? (we have to look at what the seller says)
a. Yes – S remains liable for the deterioration in their condition.
 For this reason when there is a CIF contract the S insures the goods against
risks.
b. No – risk has passed to the B.

What happens when the goods are accidentally destroyed?

 If the goods are accidentally destroyed after the property has passed the B has
the risk. B must pay the price even though the S cannot deliver the goods.
 If B buys the goods, they are left overnight in the S’s warehouse and the goods
are destroyed does B have to pay? In today’s commercial life, the goods will be
insured and if B pays, the S would be considered as a constructive trustee of the
proceeds of the insurance policy for the B.
 These rules are watered down by insurance.

 Who should insure the goods against risk?

 It should not be the party with physical possession.
 Should be the person with title. You bear the risk.
 What about s. 20(2)?
 Demby Hamilton v Barden
 Apple juice case.
 Buyer liable as the B was delayed in taking delivery.
 Buyer is liable for those risks which might not have occurred but
for such fault.

1. Frustration

Tsakiroglou v Noblee Thorl Gmbh [1962] AC 93

SGA 1979, s.7 – statutory definition

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

- But S is also not liable for non-delivery.

- As the K is avoided both parties are discharged from their obligations.
- S. 7 only applies to the contract of sale of specific goods in which neither the
property nor the risk has passed.
 If the risk has passed, one party or another bear the loss. CANNOT HAVE
FRUSTRATION!
 In the sale of specific goods both the property and risk pass at once.
- Prima facie application: conditional sale of specific goods under s. 18 rules 2 and
3.
 Specific goods which the S must put into a deliverable state
 Goods to be weighed, measured or tested by the S to find the price.

[Compare and contrast this section with s.6 SGA which we covered in the last
lecture]

 Barrow Lane v Phillips

 If the K is unseverable it is frustrated by the perishing of part of the goods,
but if it is severable it is frustrated only as to the part which has perished.
There will still be some part of the contract that provides rights and
obligations.
 H R & S Sainsbury v Street
 Where only part of the goods perish, the seller may be obliged to offer the
remaining goods to the buyer. Again, shows how we’re not very happy to
apply frustration to a whole contract. Courts try and minimize what parts
of the contract the frustration deals with.
 If the risk has passed the subsequent destruction of goods cannot frustrate the
contract. Hugely important!
 Specific goods
 Frustration cannot apply to an executed contract.
 “Agreement to sell” i.e. where property has not passed. Can a contract be
frustrated where property has passed?
 Re Shipton Anderson and Harrison Bros.
If the Property and Risk have both already passed there can be no frustration.
 If the property has passed the object of the K cannot be defeated by supervening
events.
 If the risk has passed before the property the goods may have perished but the
B’s obligation to pay the price means that the risk was on the B. Thus, again there
is no frustration.
 Varley v Whipp [1900] 1 QB 513

 S. 7 has three possible constructions:

1. Implied condition that if the goods perish the K will be discharged and
neither party will be liable.
2. S may promise that the goods will not perish and if they do the S will bear the
loss of goods and be liable for damages for non-delivery.
3. B may promise to bear the consequences of the goods perishing, and if they
do B has to pay the price and is liable for damages.

- Can a K for unascertained goods be frustrated?

 It depends on the type of goods:
 Agreement to sell purely generic goods cannot be frustrated by destruction
because a whole species cannot perish.
 A particular stock of goods may perish but the B is not concerned whether
S had a particular stock in mind. The S will still be liable to deliver and may
pay damages for non-delivery.
- Howell v Coupland
 K for the sale of 200 tons of Regent potatoes on a particular piece of land.
Only 80 tons produced due to disease.
 H took delivery of the 80 tons and sued for damages for the failure to
deliver the balance.
  If you have goods that have not materialized, then the courts are more
likely to find that part of it has frustrated. If there is no perishment, the
courts will not likely find that it has been frustrated.

Held: K was frustrated by the failure of the crop.

Cf. Kursell v Timber Operators Ltd [1927] 1 KB 298

What about unascertained goods?

 K’s for unascertained goods may be frustrated for reasons other than perishing.
 BUT it is difficult to convince the court that the event which has occurred has
destroyed the basis of the contract.
 Blackburn Bobbin v Allen
 Unqualified contract for the sale of unascertained goods will not be
dissolved by the operation of doctrine of frustration.
 CTI Group v Transclear
 No frustration. The S could have sought to obtain similar goods elsewhere.
 Tsakiroglou v Noble Thorl
 Held (HL): Closure of the Suez Canal did not frustrate the CIF K for the
sale of unascertained goods (Sudanese groundnut) to European buyers.
 Re Badische [1921] 2 Ch 331
 A K for supply of unascertained goods which both parties knew could only
be obtained from Germany was frustrated by the outbreak of war.
Unusual and rare case! Implied term that goods were to be obtained from
Germany meant that the contract was frustrated.

 Force majeure clauses – derives from French law.

 A clause in the K to protect parties against liabilities arising from
government restrictions, strikes etc.
 One or both parties can cancel a contract or be excused from either part
or complete performance of the contract if a certain specified event
 beyond the parties’ control occurs. This is not the same as a frustrated
contract because the consequences are different.
 In frustration, all obligations of both parties are excused and contract
will be void. In force majeure clauses, parties can decide what happens.
A bit like anticipatory breach.

Sainsbury v Street [1972] 3 All ER 1127

What about where risk has passed to the buyer?

2. Consequences

Law Reform (Frustrated Contracts) Act 1943 only applies if the contract is frustrated
by common law. It does not apply by operation of s7 of the SGA 1979. Cannot have
section 7 and s 2(5)(c) applying at the same time.

The Act does not apply to:

“any contract to which section 7 of the Sale of Goods Act 1979 applies, or to any
other contract for the sale, or for the sale and delivery, of specific goods, whether the
contract is frustrated by reason of the fact that the goods have perished”. (s.2(5)(c) of
the 1943 Act).

If Law Reform (Frustrated Contracts) Act 1943 does not apply, the consequences will
be determined by the Common Law.

The common law rules of frustration provide:

 Both parties are discharged from all obligations not yet accrued before the
destruction of the goods.
 If the price has been paid it can be recovered if there has been a total
failure of consideration.
  The entire contracts rule applies i.e. it is not possible to compel one party
to pay for a benefit received where the contract was to perform one
indivisible service and there has been no advance payment.

Common Law consequences:

See: Chandler v Webster [1904] AC 32

Fibrosa v Fairbain Lawson [1943] AC 32

o B paid £1000 to S in advance for the manufacture of machinery. The K was frustrated
before the machinery was completed and before any part was delivered. S had incurred
expenses.
o Held: B can recover payments and S cannot set-off any of their expenses from that
payment.

Logan v Le Mesurier (1847) 6 Moo PC 116

Whincup v Hughes (1871) LR 6 CP 78

Tyrie v Fletcher (1777) 2 Cowp. 666

Biggerstaff v Rowatt’s Wharf Ltd [1896] 2 Ch 93

Appleby v Myers (1867) LR 2 CP 651

That’s all if section 7 does apply. If it doesn’t, it would be subject to the 1943 Act;

If the 1943 Act does apply the consequences are determined by the Act: ss. 1(2) and
1(3), namely:

 A person can recover any payments made even though there has only
been a partial failure of consideration (s.1(2)).
  The seller can retain a part or all of a sum which would otherwise be
recoverable either on a total or partial failure of consideration if he has
incurred expenses in or for the purpose of the performance of the contract
(s.1(2)).
 It allows a party to recover payment where the other party has obtained a
valuable benefit under the contract.

Section 7 is a common law remedy.

Gamerco SA v ICM [1995] 1 WLR 1226

BP Exploration v Hunt [1982] 1 All ER 925