Statutes: s20 and s7(frustration)

Post-contractual loss of goods: This means what happens when you have entered into a
contract, and for some reasons, those goods that you have contracted for that where in
existence when the contract was made ends up being destroyed or severely damaged. The
question to answer is who bears the risk?
Risk and Frustration:
Meaning of risk: any kind of accidental loss or damage of the goods are borne by the parties
when the goods are his risk
Frustration: can occur when goods are destroyed or severely damaged.
*There is a relationship between the doctrines of risk and frustration.
Legal problems arising out of loss of goods after the contract: if you have a contract and
goods are destroyed or damaged, you need to ask two big questions:
1. Who bears the risk?: This is asking who bears the risk of loss. That is linked to if this
contract is frustrated.
2. Does it(that risk of loss) depend on the passage of property?: Sometimes, the question
who bears the risk totally depends on when the property is passed.
Frustration of an executory contract: When we talk about risk and frustration of
commercial contracts, we are referring to frustration occurring to contracts that have not
yet been executed. An executory contract is an agreement to sell. The rights and liabilities of
each side have not been concluded. The property has not passed. Parties are not under any
liability (payment and delivery) to each other. This is important because if the rights and
obligations have been decided, we would have a mechanism for allocation risks. If we do
have a mechanism for allocating risk, it is unlikely that we are going to have a situation
where frustration occurs, and the risk hasn’t been allocated to one of the parties. What the
law says is that if property has passed, risk has passed. If that is the case, we cant start
talking about frustration. Therefore, we are not talking about an executed contract which is
sales when everything has been concluded.
Possibilities:
Goods perish while they are at the Sellers risk, B is not liable for the price.
- But the Seller may still be liable for non-delivery if the B can prove his loss.
- Seller may be exempted but only due to the doctrine of frustration.
Goods perish while they are at the B’s risk, B is liable for the price.
- But B may also be liable for damages if the S can prove non-acceptance of goods
caused him loss (such as storage charges or loss of profits).
- B may be discharged from the liability for non-acceptance by the doctrine of
frustration.
When the buyer is in possession of the property, doesn’t that mean that the contract is
executed?
Transfer of Risk:
Under the sales of goods act, risk is attached to property and not to delivery. The transfer of
risk is different in the consumer sale than in a commercial sale. The key provision for
commercial sale is S. 20(1) – Unless otherwise agreed, risk passes with property.
This means:
- S’s risk until the property passes to B.
- B’s risk whether or not the delivery has been made.
You need an express term in the contract to say when risk will pass, that will be the
governing provision. But in the absence of an express contract, the rule is Res perit domino
(he who has the property bears the risk).
Exceptions: There are all sorts of exceptions in the rule in s20(1)
1. The rule may be displaced by a contrary agreement: In other words, by an express
contractual term. This is where retention of title clauses work. The reason is because
the parties expressly put a term into their contract of sale separating property and risk.
If you do not it that in your retention of title clause, it is going to go badly wrong.
Therefore, 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.
2. The risk may be with one party, but may shift as a result of fault by the other: S.20(2)
3. 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
4. If B deals as a consumer risk does not pass until he is in physical possession of the
goods (s.29 CRA 2015): This means when you have got a consumer sale, risk does not
pass with property but with physical possession of the goods.
5. S. 20 does not apply to risk of loss where the goods are held in co-ownership (s. 20A)
6. S. 20 does not distinguish specific/ascertained goods from unascertained/quasi specific
goods. The distinction affects the passage of property.
7. Sometimes under CIF (Cost-Insurance-Freight) and FOB (Free on Board) contracts,
transfer of risk is separated from the transfer of property.
- 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): In retention of
title clause you need to make sure your risk passes before your property.
- Quasi specific goods – goods supplied from a larger and identified bulk
Stern v Vickers: The buyer contracted buy a 120,000 gallons of white spirit. He contracted to
buy out of an undivided bulk of 200,000 gallons. The seller handed over to the buyer, a
delivery warrant for immediate possession of the 120,000 gallons that he had purchased.
The buyer accepted the delivery warrant but decided to leave the white spirit in this bulk
container and not remove for a little while. What happened was that before the 120,000
gallons where separated, the whole content of this bulk storage tank deteriorated. The issue
was that since they haven’t picked it up and property doesn’t look like it has passed, so do
property and risk pass together under s20. Is that what has happened here. The court of
appeal said no, that is not what had happened. They said that the parties where haven
taken to have intended that the risk would pass to the buyer when the buyer accepted the
delivery warranty. It doesn’t matter if property had passed or not. It was clear that this
delivery warrant showed the buyer accepted the risk of anything happening to these goods.
This means that when risk passes before property, firstly, It depends on the express
intention of the parties like in this case with the handing over of the delivery warrant but
secondly it also puts the buyer in a difficult situation if risk materialises. This is because they
don’t have control of the goods.
Risk passes before the property in a sale of unascertained goods
What happens when risk remains with the seller when property has passed:
Head v Tattersall: Horse sold with an incorrect description. The K had a clause requiring the
B to return at a certain time if it did not have correct description. Otherwise he was to be
responsible for all faults if he did not bring back by the deadline. Horse injured and taken
back to the Seller.
Held: B (Head) was entitled to take back the horse and claim the whole monies paid back.
This was because of the express provision that allowed the buyer to take the horse back if it
did not fit the correct description. If that clause was not there, the buyer would not have
been able to take back the horse that was even injured.
‘Even though property had passed, it was clear that there was a right of rejection in the
contract, so the risk remained with the seller.
This case shows that the parties are entitled to negotiate whatever terms they like as
regards passage of risks.
What happens when risk passes after the property? (exception 6): What sometimes
happens is that the seller agrees to dispatch specific goods at his own risk to the buyer. So
what happens is that he tells the buyer that “I know you won’t want to take the risk of these
goods now so I will dispatch them at my risk and once you receive the goods, you can take
the risk.” There have been discussions about what is the extent of the risk that the seller is
taking on when he allows it. The state of the law is such under s33 that the Seller is liable
for any deterioration/destruction in those goods that is not necessarily incidental to the
course of transit. In other words, anything out of the ordinary that might happen to those
goods.
Mash & Murrell v Joseph Emmanuel: This case deals with the Shipment of potatoes. The
issue was that there are at the sellers risk when he dispatches them to the buyer. But if you
have got goods that might spoil, how long do the goods have to remain in good condition
before the risk passes to the party who has contracted for them. Here the court said that if
you have perishable goods like potatoes, they should at least remain satisfactory quality
form the time of shipment, throughout normal transit, to their destination and for a
reasonable time they are after for disposal for the goods. In other words, in that situation
when the seller says he is taking on the risks, he is taking on the risk of the goods
deteriorating all the way through the transit and for a period of time afterwards to allow
the buyer to dispose of those goods. It is not just the transit journey it is also for a
reasonable period of time afterwards to allow those goods to be sold on.
Therefore, the 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.
Big question is whether the seller has continuously warranted the condition of the goods?
Has he said this goods will remain in good condition throughout.
- 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.
- 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.
Who should insure the goods against risk?
You cannot insure property that is not yours. The person who has property and title of the
goods can insure those goods and not the party who has physical possession of the goods.
Due to insurance, this is why it is much fairer for the party who has the property in the
goods to bear the risk than the party who just as physical possession of the goods.
What about s.20(2)
If there is fault on one of the parties about delivery, then risk automatically passes to the
party who is at fault.
Demby Hamilton v Barden: 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.
Frustration:
Common law definition
 Frustration means that if you enter into a contract and something bizarre happens which
neither of the parties have foreseen which makes performance of that contract either
totally impossible or it makes the whole contract very different to the one signed up to in
the first place.
Statutory definition: s7
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.
The main difference between the common law definition and statutory definition is that
there must be a supervening event. Under s7 the goods must perish for s7 to apply but you
do not need that In common law. They must be specific goods and they have got to perish
before the property passes.
With frustration, the contract is avoided.
Barrow Lane v Phillips: If the K is inseverable 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.
H R & S Sainsbury v Street: pg 374 commercial law textbook. Where only part of the goods
perish, the seller may be obliged to offer the remaining goods to the buyer. Just because a
part of your contract is frustrated does not mean you can just decide to not do anything.
Frustration cannot apply to an executed contract.
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.
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.
S. 7 has three possible constructions: There are three possible ways you can construct the
wording of s7
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 contract 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.
However, what if the Goods are to be appropriated from a specific bulk or source?:
What if you have a contract for a 100 tons of potatoes but it is from a specific farm? They
are not specific goods but they are not entirely generic goods either. They fall somewhere in
the middle because you cannot just go to the market and get the another 100 tons of
potatoes from somewhere else.
Howell v Coupland: https://www.casebriefs.com/blog/law/contracts/contracts-keyed-to-
scott/mistake-and-excuse/howell-v-coupland/
The court said that you can’t just go to the market to get it. They said that Coupland was not
liable to Howell for non-delivery, because unforeseen circumstances made further delivery
impossible. Because of that this contract was frustrated to the extent that Howell could not
expect that any more than what was produced will be delivered. In other words, the court
implied the term in the contract that each party will be free from contractual obligations if
the goods where to perish.
Because the potatoes had to be grown on a specific piece of land, the contract had been
frustrated. It would not have been the case if the potatoes could have been produced from
anywhere.
Appleby v Myers: Appleby v Myers: https://www.lawteacher.net/cases/appleby-v-
myers.php
Contract for the erection of machinery. Payment was to be made on completion. When the
work was nearly finished but fire broke out and the premises and the machinery were
destroyed by fire. It was agreed that the contract was frustrated.
Question: whether compensation could be recovered for the work done?
Held: No. Obligation to pay only arose on completion of the contract. You don’t get anything
here for money because the work had to be completed. It is possible that this kind of
contract is frustrated.
K’s for unascertained goods may be frustrated for reasons other than perishing
However, it is difficult to convince the court that the event which has occurred has
destroyed the basis of the contract. In other words, frustration is hard to prove. This is
because the supervening event has to be completely different to anything the parties could
have envisaged. It is quite hard to prove that commercial parties haven’t given thought to
certain types of risk. Also courts don’t always like saying contracts have been frustrated
because usually one of the parties ends up suffering. Somebody ends up having spent
money on the contract or ends up losing out on a subsequent contracts. So the court really
doesn’t want to say that all the rights and obligations fall away.
Therefore , there are very sceptical about the doctrine of frustration. This is seen in a few
cases:
Blackburn Bobbin v Allen: https://www.lawteacher.net/cases/blackburn-bobbin-v-
allen.phpn
This case concerned the delivery of finished timber. It became difficult to get finished timber
due to the outbreak of the first world war, the court said that the contract was not
frustrated. Having contracted in unqualified terms, the seller took the risk of being able to
obtain or not obtain the goods and form his contract, In other words, if you the seller had
any doubts you weren’t going to be able to get your hands on the goods, then you shouldn’t
have contracted in unqualified terms you should have actually put an express term in the
contract making it clear that if you couldn’t get the goods, what the consequence of that
situation will be.
CTI Group v Transclear: The court rejected a claim for frustration. Numerous authorities
showed that the fact that a supplier chose not to make goods available for shipment, thus
rendering performance by the seller impossible, was not of itself sufficient to frustrate a
contract for sale. In other words, just because your supplier does not supply you with goods,
you cannot rely on that to show that your contract is frustrated. The Seller could have
sought to obtain similar goods elsewhere.
Tsakiroglou v Noble Thorl: https://www.lawteacher.net/cases/tsakiroglou-and-co-v-noblee-
thorl.php
The defendant agreed to ship some Sudanese peanuts during November or December 1956
to Hamburg for a certain price. On 2nd of Nov the Suez canal was closed to shipping. The
defendant could still have transported the peanuts within the contractually agreed time but
this would mean going via the Cape of Good Hope which would have taken four times as
long and increased the cost of transport considerably. The defendant did not carry the
goods and argued that the contract had been frustrated.
Held: The contract was not frustrated. It was still possible to perform the contract without
any damage to the peanuts. The fact that it was more difficult or costly to perform is not
sufficient to amount to frustration.
BUT:
Re Badische: A contract for supply of unascertained goods which both parties knew could
only be obtained from Germany. Once the war broke out it was quite difficult to get supply
from Germany. My Justice Russel implied into the contract a term to the effect that the pre-
war commercial condition that prevailed between England and Germany will continue. The
sellers were therefore excused from performance of the contract on the grounds of
frustration by the outbreak of war. This is an Unusual and rare case!
Academics have said that these reasoning cannot be supported at all no matter how just it
was. However unfortunate the condition might have been, the rule that frustration does not
apply to generic goods should have applied because generic goods cant perish.
What to take away from all these cases is that it is very difficult to make out the case for
common law frustration. If you don’t have specific goods and you cant rely on s7 it is going
to be very hard to say that any type of commercial contract has been frustrated.
Force majeure clauses: A "force majeure" clause (French for "superior force") is a contract
provision that relieves the parties from performing their contractual obligations when
certain circumstances beyond their control arise, making performance inadvisable,
commercially impracticable, illegal, or impossible. It could be government restrictions,
strikes, acts of terrorism acts of God(natural disasters) 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.
They are not covered by the SGA and there is no implied force majeure clause doctrine. The
clause can only apply if they are expressly set out by the parties in the contract. The clause
sets out the rights and liabilities of the parties if any of these express events occur. They also
set out consequences of these express events occurring. In other words, they put the risk of
one of these event occurred on one of the parties. The difference between the force
majeure clause and frustration is that for frustration, if the goods perishes, the rights and
obligations of the parties fall apart. Whereas with the force majeure clause, it is up to the
parties to decide what will happen if that events occurs. So the consequences of the clause
applying are completely up to the parties. They don’t operate by operation of law the way
frustration does.
Effects of Frustration:
Law Reform (Frustrated Contracts) Act 1943: It can get a bit muddled as to when the 1943
act applies and when it does not. The easiest route is that if you have frustration under s7,
then the consequence of s7 frustrating the contract means that you rely on the common law
remedies for frustration. So only one statute applies. If however s7 doesn’t apply to
frustrate your contract and you rely on common law frustration to frustrate your contract,
the effect is the result of the 1943 act. That is where you find your remedy. Either an act of
parliament applies to frustrate the contract or it gives you the remedy. You cannot have s7
applying and the 1943 applying. It is one or the other.
Therefore: S7 applies = common law remedy, S7 doesn’t apply= common law rules= law
reform act 1943.
S. 2(5)(c) excludes:
- Any Contract within s. 7 of the SGA does not apply to it
- Any K … where the K is frustrated by reason of the fact that the goods have perished.
(?!?!)
The second point is not clear. There are 3 interpretations:
1. K for sale of specific goods in which the property and the risk have both passed to
the B. Act does not apply.
Why? After the risk and property passed to B, the K cannot be frustrated.
 2. K for the sale of specific goods, in which the property has not yet passed, but the risk
has passed. Act does not apply.
Why? The risk is with the B, so why frustrate the K?
3. The property has passed but the goods are still at the S’s risk. Act does not apply. S
has to bear the risk and loss.
If it is a s7 case, you need to go to the common law for your remedy:
1. Both parties discharged from all obligations not yet accrued before the destruction of
the goods.
2. If the price or any part of it has been paid, it can only be recovered in common law if
there is a total failure of consideration.

Chandler v Webster: https://en.wikipedia.org/wiki/Chandler_v_Webster

Fibrosa v Fairbain:
https://en.wikipedia.org/wiki/Fibrosa_Spolka_Akcyjna_v_Fairbairn_Lawson_Combe_
Barbour_Ltd
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.
Held: B can recover payments and S cannot set-off any of their expenses from that
payment. You can’t set off expenses under common law.

Today it would be subject to the 1943 Act.

For example, if the goods are accidentally destroyed after S has done some work on
them, under s. 18 R. 2 the property and risk do not pass until the work is completed
and the B has notice. S. 7 would apply and 1943 Act would not apply.
The common law rule enables the B to recover the whole amount which has been
paid and the S is not entitled to retain any part of it.

Payment made under a K which is subsequently frustrated cannot be recovered if

there is only a partial failure of consideration.
For example, B agrees to buy a specific parcel of 100 tons of wheat located in a
warehouse the price for which is to be paid in advance. The goods are the property
of the S until delivery (instalments of 10 tons each). 1 instalment is delivered and the
rest is destroyed. Risk is with S until the property has passed. S. 7 applies.
Destruction of the undelivered part avoids the K. 1943 Act does not apply.

1943 Act: If you are relying on common law frustration, because you don’t have specific
goods or they have not perished(s7) then you are going to look at the 1943 act for your
remedy. 1943 Act applies to all K’s for the sale of unascertained goods and to K’s for the sale
of specific goods which are frustrated by some event other than the perishing of the goods.
Three main changes to the common law made by the 1943 Act:
 1. S. 1(2) a person may recover any payments made under a contract which has since
been frustrated even though there has been a partial failure of consideration: Under
the 1943, You don’t need a total failure of consideration like in common law remedy,
Partial is sufficient for the 1943 act to apply.
2. S. 1(2) enables the S to retain part or all of a sum which would otherwise be
recoverable as if there has been a total failure of consideration.
3. Special exception to the entire contracts rule: s. 1(3)

Conclusion:
What is covered by s7, If it is not covered by s7 is it covered by the common law frustration,
and if either one occurs what is the remedy. If s7 case you find the remedy in common law.
If it is a common law frustration case you find a remedy in the 1943 act.