Atiyah: Sale of Goods

The Sale of Goods 11th ed Patrick S. Atiyah , John N. Adams , Hector MacQueen

ISBN13: 9780582894082
Published: April 2005
Publisher: Pearson Higher Education
£47.95

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Note: Cases linked in the text on the right are either to BAILII reports (where available) or the Wikipedia reference.

Contract Text

Contents

1. Introduction

2. The Contract of Sale

3. Terms of the contract

4. Exclusion Clauses

5. Title and Passing of Property

6. Retention of Title

7. Nemo Dat

8. Performance of the Contract

9. Remedies of the Seller

10. Remedies of the Buyer

11. Articles on Sale of Goods and Contract issues

12. Drafting Sale Contracts and specimen sale contract

 

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Recent Case Law

Cases on Sale of Goods and Contract 2009 - 2000

 

Statutes

Sale of Goods Act 1979

The Sale and Supply of Goods to Consumers Regulations 2002

Unfair Contract terms Act 1977

Factors Act 1889

Part III Hire Purchase Act 1964: ss.27 - 29.

Companion Volume

The Law of Contract


 


 

 

 
 
 
 

 




5. Title and Passing of Property

5.1 The Seller's Title

(a) Section 12 Sale of Goods Act 1979

There is an implied condition that the seller has the right to sell the goods.

S.12 Sale of Goods Act 1979

(1) In a contract of sale, other than one to which subsection (3) below applies, there is an implied [ F1 term ] on the part of the seller that in the case of a sale he has a right to sell the goods, and in the case of an agreement to sell he will have such a right at the time when the property is to pass.

As regards England and Wales and Northern Ireland, the term implied by subsection (1) above is a condition and the terms implied by subsections (2), (4) and (5) above are warranties. ]

Please not that the section states that the seller must have the right to sell the goods. he does not have to be the owner of the goods. He could be an agent acting for the seller, authorised to sell on the seller's behalf.

“Right to sell” is wider than ownership.

Niblett v Confectioner's Materials Co Ltd [1921] 3 KB 387
The seller did not own the trademark for the goods he purorted to deliver and because the trade mark owner could have obtained an injunction to restrain sale, the seller did not have the right to sell the good.

Rowland v Divall [1923] 2 KB 500
The seller sold a car to B1 who sold it on to B2. S did not own the goods. B2 rejected the car to B1 who then sued S. It was held “that the buyer had received no part of that which he contracted to receive namely ownership and possession (de jure) and that being so there had been a total failure of consideration”. The doctrine of acceptance (ss.11(4) was not applicable) and B1 was able to reject, get his money back and sue for damages.

s.12 makes clear in the case of a contract of sale, where the property passes at the time of the contract the seller must have the right to sell at that time. In an agreement to sell the seller must have the right to sell at the time the property is to pass. (See: ss16-19 and 20 Infra)

Atiyah: the particular problem of s.12 and s.11(4)

"One final problem arising out of Rowland v Divall concerns the relationship between the condition implied by s.12(1) and s.11(4). This latter clause....states that when the buyer has accepted the goods he is no longer entitled to reject them for a breach of condition but is relegated to a claim for damages. In Rwoland v Divall, it was contended that this clause precluded the buyer from recovering hsi full price, and was compeelled to sue for damages, but the court rejected this argument apparently on the ground that there can be no sale at all where the seller has no right to sell the goods. This involves saying that 11(4) has no application to breaches of s.12(1) and Atkin LJ went to the length of saying precisely that. It is, however, difficult to find any warrant for this view in the Act itself."

Footnote 34: Moroever, it has been said that if the buyer is aware of the seller's lack of title there can be an acceptance within s.11(4) - see Devlin J in Kwei Tek Chao v British Traders and Shippers [1954], where he also points out that the contract in Rowland v Divall was voidable not void.

Atiyah 11th Edition 119

 

Cannot exclude s.12
The implied condition as to title can never be excluded, s.6 Unfair Contract Terms Act 1977.

(b) Remedies of the buyer

This is dealt with in detail in Chapter 10.

Right to reject (subject to the doctrine of acceptance ss34,35)

Recovery of the purchase price

Damages for non-delivery

Damages for breach of warranty

Damages for special loss

(c) Feeding of title

Butterworth v Kingsway Motors Ltd [1954] 1 WLR 1286
It is possible for a seller to have no right to sell at the time but subsequently he obtains title. In this event the title feeds down to his purchaser. This would, in effect, amount to the retrospective curing of a breach and opinion is not entirely clear whether this line of reasoning can be sustained.

If restrospective curing of breach is permitted, there lies the possibility that all breaches could be cured retrospectively - against the will of the victim of breach? The Butterworth case raises interesting issues.

West (H.W.) Ltd v McBlain [1950] N.I. 144

Settlement with True Owner

S.5(1) Torts Interference with Goods Act 1977

(d) Exclusion Clauses

See: Chapter 4 . Exclusion Clauses

Cannot exclude title

s.6 Unfair Contract Terms Act 1977

But see Sale of Goods Act Section 12(3)


5.2 Transfer of property as between seller and buyer

This is an important concept and is tied in with risk. prima facie risk passes with the property or ownership in the goods.

Atiyah points out that a number of consequences flow from the mere passing of property:

1. If the property in the goods has passed to the buyer he will generally have a good title to them if the seller becomes insolvent while the goods remain in the seller's possession.

2. If the goods are delievered subject to a reservation of title or property (Romalpa) clause by the seller, the seller may have a good title to the goods should the buyer become insolvent (See Retention of title - Infra)

3. The right to sue a third party for damages to, or loss of, the goods may depend on who has the property

4. The risk prima facie passes when the property passes

5. Generally speaking, the seller can only sue for the price if the property has passed.

(a) S.16 Goods must be ascertained

"Where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained."

Unascertained Goods

(a) Purely generic goods - eg. 100 tons of coal

(b) Goods yet to be grown or manufactured - eg. I'll buy 200 tons from the crop when grown

(c) The unidentified part of a specified bulk - eg. I'll buy 200 tons oats from your London stocks.

A contract to sell unascertained goods is an agreement to sell.

Badische Anilin Fabrik v Hickson [1906] AC 419 per Lord Loreburn.

(b) Property passes when the parties intend it to pass

S.17(1)

"Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such times as the parties to the contract intend it to be transferred."

Re Wait [1927] 1 Ch 606 per Atkin LJ - "Ascertained probably means identified in accordance with the agreement after the time a contract of sale is made."

Specific goods

"goods identified and agreed on at the time a contract of sale is made."

Dennant v Skinner [1948] 2 All ER 29;

Reid v Macbeth & Gray [1904] AC 223

S.17(2)

"For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.

Atiyah observes (6th Ed. @ 182) "Moreover, it appears that even if the parties do express such an intention it will have no effect if the property has already passed in accordance with the rules laid down in s.18.

It is important to note that often in general sale contracts the parties do not make any provision as to when property will pass - so the rules in s. 18 r1-5 are important.

See: Dennant v Skinner & Collom [1948] per Hallett J.

(c) Rules for ascertaining intention

S.18 SOGA 79

"Unless a different intention appears, the following are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer -

S.18 r.1

Unconditional Contracts (Specific Goods)

"Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, be postponed."

s.18r1 only applies where the goods are in a deliverable state - a state where the buyer would be bound to accept delivery of them. Goods can be of unsatisfactory quality and still be deliverable. The key to deliverable state is - does the buyer have to do anything further to the goods?

It is, of course, not possible to reserve title after the contract has been concluded where the goods are in a deliverable state because the property will have passed under s.18r1 at the time of the contract. Dennant v Skinner & Collom [1948] 2 KB 164.

Re Anchor Line (Henderson Bros) Ltd [1936]
Contract terms showed intention as to property.

Lambert v G & C Finance Corpn. (1963) 107 Sol Jo. 66
Retaining car log book showed an intention that contract was conditional and that property would not pass until the car had been paid for.

Retaining possession of the goods after the contract will not of itself stop property passing at the time of the contract under s.18r1.

Philip Head v Showfronts Ltd [1970] 1 Lloyds Rep 140
Goods not in a deliverable state. Carpeting was sold to the defendants but the sellers had to fit the carpet. Carpet was delivered to the defendant but was stolen before it could be lai. The risk did not pass because the carpet was not in a 'deliverable state' until laid - although the rather suprious reason of the goods being heavy was part of the rationale.

Re Bond Worth (1979) 3 All ER 919

S.18 r.2

Goods not in a deliverable state (Specific Goods)

"Where there is a contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them into a deliverable state, the property does not pass until the thing is done and the buyer has notice that it has been done. "

s.7 SOGA 79 Frustration applies.

S.18 r.3

Seller bound to weigh etc. goods to ascertain price

"Where there is a contract for the sale of goods in a deliverable state , but the seller is bound to weigh, measure, test, or do some other act or thing with reference to the goods for the purpose of ascertaining the price , the property does not pass until the act or thing is done, and the buyer has notice that it has been done."

Rule 3 only applies to acts to be done by the seller

Nanka Bruce v Commonwealth Trust Ltd [1926] AC 77

S.7 SOGA 79 Frustration applies.

S.18 r.4 (a)(b)

Sale on Approval/Sale or return contracts

"When goods are delivered to the buyer on approval or on sale or return or other similar terms the property in the goods passes to the buyer -

(a) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction.

(b) If he does not signify his approval or acceptance to the seller but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of that time, and, if no time has been fixed, on the expiration of a reasonable time.

Any action by the buyer inconsistent with his free power to return the goods is an act adopting the transaction.

Kirkham v Attenborough [1897] 1 QB 201

Weiner v Gill [1906] 2 KB 574

Genn v Winkel (1911) 28 TLR 483

Weiner v Harris [1910] 1 KB 285; s.2 Factors Act 1889

Poole v Smith's Car Sales (Balham) Ltd [1962] 2 All ER 482

S.18 r.5 (1)(2)

Passing of property in unascertained goods

(1) "Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer, or by the buyer with the assent of the seller, the property in the goods thereupon passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made."

(2) "Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and he does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract."

This sub-rule must be read subject to s.16 SOGA 1979

Re Blyth Shipbuilding [1926] Ch 494

Carlos Federspiel v Twigg & Co [1957] 1 Lloyd's Rep 240 at 255-256

Laurie & Morewood v John Dudin & Sons [1926] 1 KB 223

Healey v Howlett & Sons [1917] 1 KB 337 (Fish)

Ward v Bignall [1967] 2 All ER 449

Wait v Baker (1848) 2 Exch. 1

Wait & James v Midland Bank (1926) 31 Comm Cas 172

per Roche J

Karlshamns Oljefabriker v Eastport Navigation Corpn. [1982] 1 All ER 208 per Mustill J

5.3 Risk and Frustration

Two consequences flow from the passing of property.

(1) The seller may bring an action for the price under s.49(1) if the buyer wrongfully refuses to pay for the goods.

(2) Risk, generally, passes with the property.

5.4 The definition of risk

5.4.1 'Risk'

Risk in this context means the risk of deterioration in the goods which includes damage to goods caused by third parties and accidental damage.

5.4.2 Allocation of the risk : The issue

Risk with the buyer

If the risk falls on the buyer he must take the risk of damage or loss, take delivery of the goods and pay for them. If the property in the goods has passed (as will most often be the case if the risk has passed), the seller will be able to bring an action against the buyer for the price under s.49(1) if the buyer fails to pay for the goods.

Risk with the seller

If the risk is with the seller he will be unable to deliver the goods as ordered, he will be liable in damages for non-delivery under s.51 unless he is able to make substitute performance.

Clearly, the person on risk is responsible for insuring the goods.

5.4.3 Supervening frustration

Where, after the contract but before the risk passes the goods are damaged or destroyed it may be possible to plead that it is impossible to perform the contract and that the doctrine of frustration supervenes to relieve the parties of their obligations.

This will be dealt with in detail below.

5.5 Transfer of risk

5.5.1 Section 20 (1) SOGA 1979

Risk passes with the property

Risk falls on the owner - " Res perit domino "

(1) "Unless otherwise agreed, the goods remain at the seller's risk until the property in them is transferred to the buyer, but when the property in them is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not."

While risk often passes with the property the two can be separated and risk may pass before or after the property. (Infra)

In general terms, however, the risk will pass with the property.

5.5.2 Practical difficulty

It might have been thought that risk should fall on the person in possession of the goods.

We have seen that the property can pass before delivery of the goods to the buyer and therefore, often, the buyer will be on risk before the goods are in his possession.

The risk is often thrown onto a person who may not be insured against loss because he did not realise the precise time at which he would be on risk.

In the case of passing of property under s.18 r.2, 3 the buyer will at least realise that he is risk for no property can pass until the goods are put into a deliverable state (s.18 r.2) or the price has been ascertained (s.18 r.3) AND the buyer has notice of it.

There is no requirement for giving notice that property has passed to the buyer in s.18 r.5.

Of course, the parties are free by contract to determine when property and risk pass : see s.17, 19 and the retention of title cases.

5.6 Allocation of risk by contract

Section 20 applies only where no contrary intention is expressed in the contract.

5.6.1 Express provision

Retention of title cases

The risk is invariably expressed to have passed to the buyer despite the fact that title and ownership are retained in retention of title cases

(See : ss.17, 19 and the 'Romalpa' cases)

Hire purchase and conditional sales

In Hire purchase and conditional sales where title is retained by the owner until the goods are paid for the risk is always passed to the debtor or hirer at the beginning of the contract along with an obligation often to insure the goods.

5.6.2 Implication of a contrary intention

Sterns v Vickers Ltd [1923] 1 KB 78

The seller sold 120,000 of 200,000 gallons of spirit owned by him to the buyer. The spirit was in a storage tank under the control of a third party, a bailee. The buyer was given a delivery order which was to be handed to the third party. The buyer gave the delivery order to T. The buyer delayed and did not collect the spirit for several months by which time the spirit had deteriorated.

No property in the goods could pass to the buyer until the spirit had been drawn off from the bulk. (s.16 - no property may be pass unless and until the goods are ascertained) and therefore it must seem that the risk, which passes with the property, must be with the seller.

The Court of Appeal found that the risk passed to the buyer when the buyer handed the delivery order to T. T had attorned - acknowledged that he now held on behalf of B. T held the spirit on behalf of S and B after receiving the delivery order in proportion to their interest 80,000/120,000.

Risk therefore passed before the property in this case on the basis of implied intention.

The House of Lords approved the principle established in Comptoir D'Achat et de Vente du Boerenbond Belge SA v Luis de Ridder Limitada [1949] AC 293 "The Julia"

Lord Porter in "The Julia" expressed the view:

" It is difficult to see how a parcel is at the buyer's risk when he has neither property nor possession except in such cases as Inglis v Stock and Sterns v Vickers where the buyer had an interest in an undivided part of bulk parcel on board a ship or elsewhere, obtained by attornment of the bailee to him."

Professor Atiyah in his text "The Sale of Goods" has asked - what if the spirit had been contained not in one 200,000 gallon container but in two 100,000 gallon containers. ?

Healey v Howlett & Sons [1917] 1 KB 337

The seller had 190 boxes of fish to his own order on a train having previously agreed to sell 20 boxes to the buyer. The fish deteriorated before the seller instructed the railway company to take 20 boxes for the buyer's contract. The risk was still with the seller, the property not having passed.

In Sterns v Vickers the seller had given the buyer the means of obtaining delivery, the buyer chose to delay, and in those circumstances the buyer must take on the risk.

 

5.7 Risk where delivery is delayed

5.7.1 Section 20(2) SOGA 1979

(2) "But where delivery has been delayed through the fault of either buyer or seller the goods are at the risk of the party at fault as regards any loss which might not have occurred but for such fault.

Denby Hamilton & Co Ltd v Barden [1949] 1 All ER 435

The buyer was late in taking delivery of apple juice. The property had not passed because the seller had not appropriated the juice to the buyer's contract which could not be done until the buyer gave notice of customers delivery details to the seller.

The buyer delayed in giving these instructions. The juice had gone off by the time the juice was collected. S.20(2) applied. Buyer liable - risk passed. Buyer to bear loss 'Res Perit Domino' applied despite the property not having passed.

Sellers J, while leaving aside the question on whom falls the burden of proving that delay caused/did not cause the loss did assert that the innocent party has to behave reasonably and avoid the loss if possible, raising the difficulty that if such innocent person does not behave reasonably in averting the loss that the causal link will be broken between the original default and the loss.

5.8 Duties as bailee or custodier

5.8.1 Section 20(3) SOGA 1979

(3) Nothing in this section affects the duties or liabilities of either seller or buyer as bailee or custodier of the goods of the other party."

Where property and risk has passed to the buyer but the seller remains in possession of the goods, for example in circumstances where the seller is to deliver the goods to the buyer, the seller is under a duty qua bailee.

The converse would be true where goods are supplied under a retention of title clause. The buyer would be under the duty of a bailee - even where the risk has passed to him

5.8.2 The duties of a bailee

The bailee, subject to strict compliance with the terms of the bailment, is liable only to take reasonable care of the goods - a duty founded in negligence.

The bailee will be strictly liable for any damage to the goods if he fails to comply with the terms of the bailment.

The bailee bears the burden of proving that he did take reasonable care.

The principles of vicarious liability apply.

5.8.3 The seller as an involuntary bailee where the buyer delays

The buyer may delay leaving the seller in possession of the goods beyond the agreed or contemplated period.

In these circumstances the seller is entitled to charge storage under s.37 SOGA 1979 and it has been asserted that this right maintains the bailor/bailee relationship.

The correct view would seem to be that if the seller does continue in possession beyond the agreed or contemplated period and charges for the service under s.37 that he will continue in possession as a bailee.

But if the seller does not wish to remain in possession beyond the agreed or contemplated period then, it is submitted, he is not obliged to do so and becomes an involuntary bailee, liable only to desist from wilfully damaging the goods.

5.8.4 Rights of the bailor when the bailee breaches his duty

Where the bailee fails to take reasonable care of the goods the remedy must lie in damages.

Where the seller is under a duty to deliver goods to the buyer in circumstances where property and risk have already passed to the buyer any subsequent damage to the goods must (subject to s.20(2) above s.33 below) be at the buyer's risk and any loss due to the seller's negligence must be compensateable in damages and would not allow the buyer to reject the goods.

 

5.9 Risk where goods delivered at distant place

This is a very important practical topic.

Property and risk may in certain cases pass only on delivery to the buyer. In these cases s.32 will apply.

Goods in transit could be damages or deteriorate and it will be important to determine who bears the risk of this loss or damage.

The rules below must be read subject to overriding contractual provision.

5.9.1 Section 32 (1) SOGA 1979

"(1) Where in pursuance of a contract of sale, the seller is authorised or required to send the goods to the buyer, delivery of the goods to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is prima facie deemed to be a delivery of the goods to the buyer."

If s.32 applies, in the absence of any contrary contractual provision, the carrier is the buyer's agent and the goods are at the buyer's risk while in transit.

Only a prima facie rule

This is only a prima facie rule and a contrary intention expressed in the contract will override it.

The key is to determine precisely the delivery point.

In a f.o.b. contract while the buyer will bear the risk once the goods are shipped the goods will be at the seller's risk until the goods are shipped. ( Pyrene v Scindia )

If the contract requires the seller to deliver the goods to a specific place the delivery will only be effected when the seller delivers to that place even if he has employed a carrier to deliver the goods to that place for him. The seller will, in the case where risk passes on delivery, bear the risk until the goods are so delivered.

In cases where s.32 applies the seller must arrange a carriage contract "reasonable having regard to the nature of the goods and the circumstances of the case."

5.9.2 Section 33 SOGA 1979

"Where the seller of goods agreed to deliver them at his own risk at a place other than that where they are when sold, the buyer must nevertheless (unless otherwise agreed) take any risk of deterioration in the goods necessarily incident to the course of transit."

This is not likely to cause much difficulty in practice given the efficiency of modern transport and refrigeration.

5.9.3 Goods which cannot withstand the rigours of transport

Even where ss.32 and 33 apply goods which cannot withstand the rigours of ordinary transport are likely to be held to be unmerchantable.

Mash and Murrell Ltd v Joseph Emmanuel Ltd (1871) LR 7 Exch 7

5.10 Perishing of goods

Goods may perish in two circumstances - before the contract (s.6) and after the contract but before the risk passes (s.7)

Please note that s.6 and s.7 apply only to 'specific goods'.

 

5.11 The meaning of 'Perish'

5.11.1 The pragmatic approach

Asfar v Blundell [1896] 1 QB 123

Dates carried on a ship were contaminated when the ship sunk on the Thames. The dates were covered by insurance only if the dates had perished. Insurers argued that the dates despite the contamination were still dates and could still be used to distil alcohol.

The argument did not commend itself to the court who took a pragmatic approach.

"Goods have perished if they have ceased to exist in a commercial sense."

per Ld. Esher MR

The decision in Horn v Minister of Food [1948] 2 All ER 1036 where Morris J held that potatoes which had rotted before delivery and thereby were unfit for human consumption had not perished because they could still be described as potatoes has been criticised by Atiyah ( Sale of Goods . 8th Edition @ p.82).

Perishing includes stolen goods

Goods which are stolen will be considered to have perished - despite the problem that goods which have been stolen may be recovered at some later date. The key is to examine the time fixed for performance of the contract. have the goods 'perished' at that time ?

Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1 KB 574 (Infra)

5.11.2 Part perishing

Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1 KB 574

The Seller sold 700 bags of nuts. 109 bags had been stolen before the contract. The whole contract was void under s.6 (considered below).

5.12 Perishing of goods before the contract

There is no implied warranty at common law that goods exist. There may, however, be implied a warranty that the goods exist or the seller may be held to have expressly warranted the existence of the goods.

5.12.1 Absence of the subject matter of the contract

The absence of the subject matter of the contract does not necessarily deprive the contract of any effect. It is a matter of construction in each case to determine what the parties have in fact agreed.

If we assume that both parties proceeded under the common assumption that the goods existed at the time of the contract; and, if it is proved that they did not so exist, it is clear that their agreement is a nullity and both parties will be excused performance either under s.6 SOGA 1979 or at common law under the principle of 'Res extincta'.

5.12.2 Section 6 SOGA 79 which provides :

"Where there is a contract for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void. "

The 'Res Extincta' - Coutourier v Hastie (1856) 5 HL Cas 673 ;

On the meaning of 'perish' see : Asfar v Blundell [1896] 1 QB 123 per Lord Esher MR "Ceasing to exist in a commercial sense".)

Where the Res extincta applies

The contract is void. The mutual assent of the parties has been nullified by the common mistake, neither party is bound by the contract and the buyer will be able to recover the purchase price paid in advance under a consideration which has wholly failed.

Barrow Lane & Ballard Ltd v Phillip Phillips & Co Ltd [1929] 1 KB 574

The Seller sold 700 bags of nuts. 109 bags had been stolen before the contract. The whole contract was void under s.6

5.12.3 Cases outside s.6 SOGA 1979

We have seen that under s.6 even where only a part of the goods have perished that the whole contract is void.

In cases outside the statutory provisions the courts have taken a different approach.

HR & S Sainsbury v Street [1972] 1 WLR 834

In circumstances where only a part of the expected crop materialised there was implied a duty under the contract to tender the remaining part and the seller should not be liable for short delivery.

Analysis and critique

If this approach were to be adopted for s.6 and s.7 cases on part perishing the result would be as follows :

• the seller would not be liable for non-delivery of the contract quantity

• the seller would be required to tender the remaining goods

• the Buyer may reject for short delivery.

The difficulty with this approach is a failure of reciprocity. Surely seller and buyer should be under reciprocal duties to deliver and accept and pay for the contract quantity - not the short delivery occasioned by the circumstances of a perishing of goods before or after the contract ?

Professor Atiyah considers this point fully in his text - The Sale of Goods, 8th Edition.

5.12.4 Contracts about non-existent goods

It is possible for there to be a good contract about a non-existent subject matter. For this construction to succeed it will be necessary to show, on the true construction of the contract, that the risk of the goods not existing was thrown on only one of the parties

While there is no implied condition at common law that goods exist, the seller can be taken to have warranted that the goods existed at the time of the contract.

McRae v Commonwealth Disposals Commission (1950) 84 CLR 377

In such a case the seller will be liable for breach of warranty and liable for failure to deliver under s.28 SGA 1979. The buyer will be able to bring an action under s.51(2) SGA 1979 (See above) The buyer will be able to recover the purchase price under a consideration which has wholly failed. (Supra).

5.12.5 The 'Spes'

A final possibility is that the buyer may have assumed the risk of the goods existing.

In such cases the buyer is taking a chance ( 'Spes' ) and will be liable under the contract if it is found that the goods did not exist.

In such a case the buyer would be under a duty to pay (s.28 SGA 79) and be liable in damages for non-payment (s.50(1) SGA 79) if he refused to pay. The buyer will not be able to recover his purchase price under this construction.

5.13 Goods perish after the contract is made

5.13.1 Perishing of specific goods

Section 7 SOGA 1979

"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 thereby avoided."

The section applies only to specific goods and will operate therefore in cases where the property passes under s.18 rr.2 and 3.

5.13.2 The consequences of frustration

S.7 SOGA 1979 cases

The Law Reform (Frustrated Contracts) Act 1943 is not applicable.

1. Both parties discharged from contractual obligation.

2. Where the price, or part thereof, has been paid it can be recovered on a total failure of consideration

3. On a total failure of consideration the seller cannot deduct anything for expenses incurred before frustrating event occurred.

4. Payments made under a contract cannot be recovered if there is only a partial failure of consideration.

5. If price not paid but [S] has delivered some goods cannot sue for price.

Cutter v Powell (1795)

5.13.3 Unascertained Goods

Doubtful if frustration will ever be successful - 'genus numquam perit'. cf. the perishing of the entire bulk.

Appleby v Myers (1867) et al.

But see Sainsbury v Street (Supra)

For frustration other than that arising under s.7 SOGA 79

The Law Reform (Frustrated Contracts) Act 1943

1. Can recover payments even on partial failure of consideration. (s.1(2) LR(FC)A 43)

2. Payee can retain part or all of sum otherwise recoverable if he has incurred expenses in or for the performance of the contract. (s.1(2) LR(FC)A 43)

3. Buyer can be compelled to pay for any goods received. (s.1(3) LR(FC)A 43 - Cutter v Powell overruled for frustration at common law (not under s.7 cases above)

See BP Exploration Co (Libya) Ltd v Hunt [1979] 1 WLR 783 per Robert Goff J

5.14 Demonstration Question 1

 

Question

Boris, a fruit and vegetable wholesaler, bought from Vegan Ltd the whole of a consignment of 20 tons of Spanish tomatoes. Under the agreement Vegan was to telex instructions to Ronaclave Ltd at whose plant they were stored, for release to Boris. A day after the sale, Vegan duly telexed Ronaclave. Before Ronaclave could contact Boris, however, the tomatoes were badly damaged as a result of the carelessness of Ronaclave's employees. As a result they were of no use for Boris's customers in the restaurant trade, although still usable for canning, soup and sauces. Vegan refused Boris's demand for compensation and/or a refund of the price paid at the time of the agreement on the basis that the damage was at his risk. There is a suspicion that the consignment was, in fact, of Italian tomatoes.

Advise Boris of his rights and remedies, if any, against Vegan Ltd.

 

Analysis

This is a contract for the sale of specific goods made between Vegan (The seller) and Boris (The Buyer) where the goods are held by Ronaclave Ltd (a third party) for release upon seller's instructions to the buyer raising issues of the passing of property, risk, and supervening frustration.

1. Passing of property

1.1. There is no evidence to indicate that the parties provided for the passing of property and risk in the goods (s.17) and the issue will therefore have to be settled by the rules based on the presumed intention of the parties in s.18.

1.2 Under the terms of the contract sellers were liable to telex release instructions to Ronaclave. The goods were not in a deliverable state and until this had been done and the buyer had notice of it the property and risk remained with the seller. (s.18 r.2, s.20 Sale of Goods Act 1979, the risk prima facie passing with the property).

2. The damage to the goods

2.1 After the contract but before the risk passed to the buyer the goods were badly damaged by the carelessness of Ronaclave's employees. On the assumption that sellers cannot be held liable for the actions of employees of an independent third party ( Aliter : no claim for frustration under s.7 could be sustained) and the damage is sufficient to amount to a perishing of the goods (Infra), the damage to the goods will frustrate the contract under s.7.

2.2 In Asfar v Blundell [ 1896] 1 QB 123, in a case involving dates which had been contaminated by water and sewage, Lord Esher took a pragmatic approach by asserting that the dates had ceased to exist in a commercial sense. It is noted here that the tomatoes may still be used for canning, soups and sauces. If it was clear as between seller and buyer that these tomatoes would not be used in sauces, soups and for canning, but were destined for use by restaurateurs, the goods have ceased to exist in a commercial sense, they have perished and a case for frustration will succeed.

3. Frustration

3.1 On this basis the contract is frustrated under s.7 Sale of Goods Act 1979. The Law Reform (Frustrated Contracts) Act is not applicable. The contract will be discharged and the price having been paid will be recoverable in full. The seller will not be liable to the buyer in damages for non-delivery under s.51.

4. A suspicion that the consignment were Italian tomatoes

4.1 If it us proved that the tomatoes were of Italian origin the claim of frustration will fail for it may only be pleaded to relieve a party where performance was in accordance with the express and implied terms of the contract.

4.2 In this instance sellers are in breach of the strict duty to supply goods matching the contract description under s.13 Sale of Sale of Goods Act 1979 ( Arcos v Ronaassen [1933] HL) Not having accepted the goods within the doctrine of acceptance in ss.34, 35 and 11(4) to reject the buyers will be able to reject, recover the purchase price in full, a claim in quasi-contract and restitution admitted by s.54, claim damages for non-delivery under s.51 being the difference between the contract and market price and claim compensation for other forseeable loss under s.53.

 

 


5.15 Demonstration Question

 

Question

 

Jock - Bobby - Ellie - Pam

Jock owns 200 sacks of rice stored in a warehouse. He agrees to sell 100 sacks each to Ellie and Pam. The contract with Ellie contains a term stating 'all goods to be examined by the buyer or buyer's agent before being deemed to be accepted'. Jock engages Bobby to carry the goods to Ellie and Pam. Bobby loads the 200 sacks on his lorry and sets out for Ellie's premises. During the journey Bobby finds the roads flooded and has to force a passage through the flood water as a result of which 40 sacks are soaked.

When he arrives at Ellie's premises he unloads 100 sacks, including 20 wetted sacks, under Ellie's supervision. Three weeks later when Ellie finally inspects the contents of the sacks, she discovers that the contents of those wetted by the floods have gone rotten and that the contents of a further 20 sacks have been damaged by rats and are unfit for human consumption.

Bobby takes the remaining goods to Pam's premises. When he arrives he is handed a note sent by Jock. Bobby does not read it immediately as he is in a hurry to unload. Having unloaded he drives home and only then reads the note, which states 'Pam insolvent, do not deliver or part with the goods but return them to me. Jock.'

 

Opinion

Jock (The Seller) has entered two agreements to sell unascertained future goods by description. The first contract with Ellie (The First Buyer) is for 100 sacks of rice. The second contract with Pam (The Second Buyer) is also for 100 sacks of rice. In each case, delivery, is to be made to the buyers through Bobby (The carrier).

It is assumed in each contract that no provision has been made under s.17 SGA 79 (Property passes when the parties it to pass) as to when the property in the goods will pass to the buyers. The goods being unascertained goods - the unidentified part of a specified bulk - the property will pass in accordance with s.18 r.5 on an unconditional appropriation. The unconditional appropriation in this instance, almost certainly, being delivery. (The last act to be performed by the seller. See Pearson J in Carlos Federspiel v Twigg) In this case delivery to the carrier will amount to a delivery to the buyer under s.32(1) SOGA 1979.

While, ordinarily, in contracts where the seller is required to send goods to the buyer, delivery to a carrier (whether named by the buyer or not) for the purpose of transmission to the buyer is deemed to be a delivery of goods to the buyer and the property will pass (s.32(1) SGA 79/s.18 r.5) this rule will not apply in the instant case.

As Ridley J said in Healy v Howlett & Sons - "The essence of the authorities which decide that appropriation of the goods to the contract by delivery to the carrier at the beginning of transit to the buyer may be sufficient to pass the property is that it should be known to whom the goods are appropriated." No property may pass unless and until the goods are ascertained(s.16)

It is not possible in the present series of transactions for ss.32(1) and 18 r.5(2) SGA 79 to apply to pass the property on delivery to the carrier. Since the 200 sacks have not been separated on the lorry, separation will tale place only when the first load of 100 sacks is delivered. This will be the point at which property in the goods will pass - at least in Ellie's case and probably under the principle in The Elafi [1982] in the case of Pam's goods as well. (Ascertainment by exhaustion)

Jock - Ellie

Passing of property

Until there has been a separation of each contract allocation of 100 sacks, no property can pass. (s.16 SGA 79 provides : "..where there is a contract for the sale of unascertained goods no property in the goods is transferred to the buyer unless and until the goods are ascertained." - See : Healy v Howlett & Sons [1917] 1 KB 337 )

In the present case the identity of the particular sacks allocated to the buyers will be uncertain, at the very least, until the carrier has unloaded 100 sacks and delivered them to the first buyer. The significance of this rule is particularly apparent in the case of the contract with the first buyer and it is quite clear from Healy v Howlett & Son that no property can pass in the first 100 sacks until they have been separated by the carrier.

No property in the goods can pass to Ellie until the goods have been unloaded. The sacks of rice were therefore at the seller's risk at the point of deterioration and he must bear the loss and the consequences of the carrier's action (subject to what is said below) in pressing on through flood waters.

A secondary argument, and one of some complexity, turns on the rule that, in certain cases, it may be the intention of the parties that delivery to a carrier will, in any event, not pass the property, even conditionally. A not altogether convincing argument could be put - by stating that no acceptance shall be deemed until the buyer has actually accepted the goods - that this raises the inference that property should pass only on such acceptance. If this is right, and there is considerable doubt about this, then a fortiori the goods at the material time of damage by flood waters, were at the seller's risk.

Given that the seller was on risk s.33 (where the seller agrees to transport the goods at his own risk) will not be relevant. Even it was held to be applicable it would not avail the seller here for the flood damage could not be described as necessarily incidental to the transport.

Implied contractual obligations

The seller, by delivering 20 sacks out of 100 which have been wetted through immersion in flood waters, will be in breach of his obligation to deliver goods of a merchantable quality. (S.14(2)(6) SGA 1979) The First buyer will, subject to ss.34, 35 and 11(4), be entitled to reject the whole consignment .

Acceptance and the loss of a right to reject.

A further complexity is introduced by the contract provision - "All goods to be examined by the buyer.... before being deemed to be accepted." This provision is clearly not of indeterminate duration and will surely expire at the end of a reasonable period - at which time the buyer will be deemed to have accepted in accordance with ss.34 and 35 and lose her right to reject under s.11(4).

Three weeks appears to be ample time in the present circumstances and the first buyer is likely - having lost her right to reject - to be limited to bringing an action in damages for breach of warranty under s.53 SGA 79 which she can assert in diminution or extinction of the purchase price due.

The rat damaged sacks

The rights in respect of the sacks damaged by rats depends on when the sacks were damaged by rats.

There appears to be (two) alternatives:

If the rat damage occurred after the contract but before the risk passed to Ellie, Ellie will be able to sue in damages on ground of unmerchantability for breach of s.14(2). The right to reject having been lost through the effluxion of time (Supra).

If the rat damage occurred after the risk passed to Ellie, that is during the three weeks they were in Ellie's cellar, Ellie must bear the loss - Res perit domino- and she will have no claim.

Jock will have to seek his remedy against the carrier directly.

Note:

May there in fact be a third alternative in relation to the rat damage - perishing of (unascertained) goods before the contract ?

Jock - Pam

The carrier having delivered 100 sacks of rice to Ellie goes on to deliver the remaining 100 sacks to Pam. The goods, at the point of the unloading of 100 sacks to Ellie, have become ascertained and orthodox analysis would suggest that property in the goods will pass to Pam under s.18 r.5(1) on an unconditional appropriation.

Whether property passes under the orthodox analysis or under the more controversial rule in Karlshamns Oljefabriker v Eastport Navigation Corp. [1982] 1 All ER 208 "The Elafi" need not be determined in the present case. It is clear on the facts that the carrier has delivered the goods to the second buyer; the property in the goods has passed and the sellers rights of stoppage in transitu (ss.44 - 46 SGA 79) are lost. The second buyer will have the same rights in respect of damaged goods as the first buyer since 20 damaged sacks were delivered to her as well. (S.14(2)(6) SGA 79) We are not told whether Pam has made any claim thereunder. If she has not yet done so, it is clear that, through the passage of time, her right to reject will have been lost (ss.34, 35 and 11(4) SGA 79) Pam will be limited to claiming in damages under s.53 by way of counterclaim against the inevitable action for the price (The seller's only remedy in the present circumstances) brought against her by the seller under s.49(1) SGA 79.

Jock will have to seek his remedy against the carrier directly for the loss of the rights of stoppage in transitu.

 

 

 


5.16 Practice question


Question

Smith agreed to sell 20 crates of wine to Basil, delivery to take place at Basil's hotel in Torquay. Smith sent a consignment of 100 identical unmarked crates to his customers in the South-West. When Carter, the carrier, arrived at Basil's hotel, Basil refused to allow him to unload any of the wine because a fire drill was about to take place and Basil would not, therefore, be able to check the order. Carter therefore returned to Basil's hotel later in the day, having delivered 80 crates to Smith's other customers. On the way there, Carter's lorry was badly jolted by a road surface broken up by the severe Winter weather, and many of the bottles were broken. When Basil saw the broken bottles during the unloading he refused to allow Carter to continue the unloading. He has since told Smith that he will not accept or pay for any of the consignment.

Advise Smith.


 

 

 

 




 


 

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