Passing of Risk and Frustration PDF

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Passing of Risk and Frustration lecture notes...

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Commercial Law: Passing of Risk and frustration What do we mean by ‘risk’? • • • •

Passing of ‘risk’? Risk= risk of theft, loss or damage to the goods NOT risk of non-payment or of the goods not conforming to the contract; Different rules apply depending on whether the buyer is a consumer.

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PASSING OF RISK IN NON-CONSUMER TRANSACTIONS

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General rule laid down in s.20(1) SGA 1979:

Pignataro v Gilroy [1919] 1 KB 459 (KB) Contract for the sale of 140 unascertained bags of rice. Seller sent the buyer a delivery note that 125 bags were available for collection at one address and 15 bags at another. Buyer failed to collect the 15 bags for almost a month during which time they were stolen. Had the risk passed to the buyer or did it remain with the seller? (When) had property in the goods passed to the buyer? HELD: property had passed to the buyer before the goods were stolen under s.18 Rule 5. Thus, risk also passed at that time and buyer had to bear the loss.

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‘Unless otherwise agreed’

Sterns Ltd v Vickers Ltd [1923] 1 KB 78 (CA) Buyer contracted to buy 120,000 gallons of white spirit out of an undivided bulk of 200,000 gallons. Sellers gave buyers a delivery note giving the buyer the right to immediate possession, but buyer chose to leave the spirit in the tanks. Before the buyer’s 120,000 gallons had been separated from the bulk, the contents of the tank deteriorated. HELD: The risk had passed to the buyer when they accepted the delivery note even though property had not passed. An agreement that the passing of property and passing of risk will not occur simultaneously can be inferred from the circumstances.

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‘Unless otherwise agreed’

Healy v. Howlett & Sons [1917] 1 KB 337 (KB) Healy contracted to sell 20 boxes of mackerel by rail to Howlett. Healy dispatched 190 boxes by rail; none were marked for specific customers. Healy’s invoice sent after

dispatch stated ‘at sole risk of purchaser after putting fish on rail.’ Delivery was delayed so the fish had deteriorated in quality- who should bear the risk? HELD: although the invoice appears to be an agreement about when risk should pass, the invoice was sent AFTER the contract was made. Since property had not passed, under s20(1) SGA the risk remained with the seller.

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Rule in s.20(1) also subject to the qualifications in s.20(2) and s.20(3):

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S.20(2) in practice:

Denby Hamilton & Co Ltd v Barden [1949] 1 All ER 435 (KB) DH contracted with B to prepare 30 tonnes of apple juice for weekly delivery to third parties. B paid for and took delivery of some juice, but failed to provide delivery information for the remaining juice. Juice went off and DH claimed the outstanding price. HELD: the risk would ordinarily have been with DH as seller but as the delays were B’s fault, he had to bear the loss under s.20(2).

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Practice Question

Greenacres, a local firm of estate agents, decides to refurbish its reception area and contracts with Office Style Ltd to supply: • 2 sofas and a matching coffee table chosen from Office Style’s existing stock by Greenacre’s senior partner when the order is placed; • A wool carpet, a new roll of which has to be ordered from the manufacturer; • A set of display units which Office Style already has in stock, but which need adapting to hold the leaflets for houses for sale in the local area.

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Practice Question (continued)

The night before the refurbishment is due to take place, Office Style’s warehouse containing all the items for the Greenacre’s reception area, is completely destroyed by fire.

Advise Greenacres. Would your answer be different if Greenacres had refused delivery as they had important clients visiting that day, so the goods had been returned to the warehouse? ! Think about whether property and risk have passed to the buyer or remain with the seller !

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Practice Question- Answer

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Assuming no mention in contract about passing of property and risk then SGA rules will apply; Sofas and coffee table= These are specific goods so ownership passes under s.18 Rule 1 when the contract is made provided the goods are in a deliverable state. If the carpet is part of a larger roll of carpet, the goods are unascertained and property will only pass to the buyer under s.18 rule 5 (1) when goods of the right description and in a deliverable state are unconditionally appropriated to the contract by the seller.

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Practice Question- Answer

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Display units are specific goods – ownership (and risk) passes under s.18 rule 2 when the adaptations have been completed and Greenacres has been informed. If Greenacres had delayed delivery, then under s.20(2), they may be held to be at fault and to therefore bear the loss of all the goods. • Passing of risk in consumer transactions

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S.29 Consumer Rights Act 2015: the goods remain at the trader’s risk until (s.29(2)(a)) they come into the physical possession of the consumer or (s.29(2)(b)) they come into the physical possession of the person identified by the consumer to take possession of the goods. If the goods are delivered to a carrier commissioned by the consumer to deliver the goods, then the goods are at the consumer’s risk once handed over to the carrier.

Practice Question

Barry decides to update the furniture in his lounge and contracts with Office Style Ltd to supply: • 2 sofas and a matching coffee table chosen from Office Style’s existing stock by Barry when the order is placed; • A wool carpet, a new roll of which has to be ordered from the manufacturer; • A set of display units which Office Style already has in stock, but which need adapting to hold Barry’s personal set of encyclopaedias.

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Practice Question (continued)

The night before the refurbishment is due to take place, Office Style’s warehouse containing all the items for Barry’s lounge, is completely destroyed by fire. Advise Barry. ANSWER: Under s.29 Consumer Rights Act 2015, the risk remains with Office Style Ltd as the goods have not passed into Barry’s possession (or the possession of another person/ courier engaged by Barry). •

Retention of title clauses: s.19 SGA 1979

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Retention of Title Clauses Simple reservation clause= simply stipulates that property will not pass until the buyer has paid for the goods; • Clough Mill Ltd v Martin [1985] 1 WLR 111 (CA) CM entered into four contracts for the sale of yarn with the buyer, a fabric manufacturing company. Each of the contracts was subject to a retention of title clause which stated that ownership of the yarn should remain with CM until it had received payment in full for all yarn supplied. When the defendant was appointed as receiver for the buyer, they refused to allow CM to claim any unused yarn. HELD: CM entitled to reclaim the unused yarn. No registerable charge arises in a simple reservation of title clause. •

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Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd [1976] 1 WLR 676 (CA) AIV sold foil to RA, a clause in the contract provided that 1. ownership of the foil would not pass until the foil was paid for; 2. if the foil became mixed with other items during manufacturing, AIV would become owner of the finished product until paid in full; 3. foil from AIV should be stored separately; 4. RA could sell the finished product, but AIV still entitled to proceeds from the sale. RA became insolvent. C/A HELD: AIV entitled to recover the unmixed foil and the proceeds of resale of some unmixed foil.

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Mixed goods

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Re Peachdart Ltd [1984] Ch 131 (Ch)

Freudenberg (F) sold leather to Peachdart (P) for the manufacture of handbags. Contract contained a retention of title clause that ownership of the leather and any mixed goods using this leather would remain with F until full payment had been received. P went into liquidation owing money to F. HELD: F could reserve title in the leather but NOT in the handbags as mixed goods.

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Mixed goods (continued)

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Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984] 1 WLR 485 (QB) HL sold a diesel engine to GP who used it to manufacture a diesel generating set. HL had reserved title in the engine until it had been paid for. When GP went into receivership without paying for the engine, HL sought to reclaim the engine. HELD: the engine could be reclaimed as it remained an engine identifiable by a serial number and could be disconnected relatively easily.

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Creating a registrable charge?

• Re Bond Worth Ltd [1980] 1 Ch 228 (Ch) BW purchased fibre from the seller to make into carpets. The contract included a retention of title clause which provided that the sellers were to retain ‘equitable and beneficial ownership’ of the yarn, and in the proceeds of sale of goods made with the yarn. BW then went into receivership owing seller large sum of money. HELD: The clause created a floating equitable charge which should have been registered. The charge was thus void for nonregistration.

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BUT there are dangers of incorporating a retention of title clause….

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Sellers may be denied a claim for the price under s.49 if they use a retention of title clause; Entire transaction could even be classified as falling outside of ‘a contract of sale of goods’ under s.2 SGA!

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FG Wilson (Engineering) Ltd v John Holt & Co (Liverpool) Ltd [2013] EWCA Civ 1232 PST Energy 7 Shipping LLC v OW Bunker Malta Ltd (‘The Res Cogitans’) [2016] UKSC 23

Frustration

S.7 SGA:

Asfar & Co. Ltd v Blundell [1896] 1 QB 123 Shipment of dates sunk and was contaminated with sewage. Insurance underwriters argued that the dates had not ‘perished’ as they still looked like dates. HELD: dates had ‘perished’ as they were worthless in a commercial sense....