125 |
4â Passage of risk |
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themselves and will not affect the rights of any buyer under his contract. Thus, |
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for example, if a buyer has contracted to buy and has paid for 5,000 tons of |
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grain out of an identified bulk sailing on a named ship departing Hamburg on |
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a given day, the seller remains contractually obliged to deliver that quantity, |
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such that if less that 5,000 tons is delivered because, for example, the bulk is |
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insufficient to satisfy all the contracts, the buyer will have a right to contractual |
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damages. |
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Q6 Analyse how the provisions of sections 20A and 20B of the Sale of Goods |
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Act 1979 have strengthened the position of the buyer of undivided shares in a |
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bulk. |
4â Passage of risk
Discussion of contractual remedies necessarily raises the issue of risk, for the party who has the risk in the goods must bear the loss if they are lost or damaged, which may well involve the payment of contractual damages to an injured party. It is important to distinguish here between risk and frustration, for risk involves one party having to bear the loss with the accompanying possibility that they might also have to pay contractual damages to the other party to the contract if they have suffered loss. By contrast, when a contract for the sale of specific goods has been frustrated by the perishing of the goods, without fault of either buyer or seller, before risk passes to the buyer, then the contract is rendered void.38 As a general rule of thumb, however, risk passes with property, hence knowing when the property will pass is important, particularly in these uncertain financial times. In practice, this comes down to who should insure the goods so as to ensure that if the goods are lost or damaged or one party becomes insolvent, an insurance claim can be made to recover the loss. But, of course, it is not that straight-forward.
Section 20(1) provides that, unless agreed otherwise, the goods remain at the risk of the seller until the property is transferred to the buyer but when the property transfers to the buyer so does the risk, irrespective of whether or not delivery has been made. There are notable exceptions to this, however, as buyers, and in some circumstances sellers, might be forgiven for expecting that risk will attach to physical possession of the goods rather than legal ownership of them. Buyers purchasing specific goods and to whom title will pass by section 18 rule 1, but who have not yet taken delivery of those goods, would not expect that the risk in the goods has passed to them while the goods are still in the hands of the seller. Section 20(1) specifically allows the parties to agree that risk will pass at a time other than the passage of property and gives priority to their wishes. Thus, it is perfectly acceptable for the parties to agree that risk will pass with possession. A prime example would be reservation of title
38 Ibid. s.7.
126 The passage of title, delivery and payment
clauses (discussed above) where the seller retains ownership of the goods pending the payment of the price but the risk in the goods passes to the buyer along with possession of the goods. This idea has been extended to include a situation where the buyer had a right to immediate possession even though actual possession had not passed, and can be illustrated by the difficult and exceptional case of Sterns Ltd v. Vickers Ltd,39 in which the risk in a consignment of white spirit was held to have passed to the buyer. He had contracted to buy 120,000 gallons of white spirit out of an undivided bulk of 200,000 gallons. He had been supplied with a delivery note giving him a right to immediate possession but had decided to leave the spirit where it was. It deteriorated before delivery and the Court of Appeal held that the risk had passed to the buyer despite the fact that, as unascertained goods which had not been appropriated, property in the goods had not passed. Under the provisions of section 20A, the buyer in that situation would now be a co-owner if he has paid for the goods, and as an owner with a right to immediate possession, risk would pass to the buyer unless the parties had agreed to the contrary.
Given the norm of property and risk being tied together, it is equally possible for possession to pass to the buyer while risk remains with the seller, as might happen where the goods are being purchased on a sale or return basis. Section 18 rule 4 provides that the property will only pass when the buyer signifies his acceptance to the seller, or does an act adopting the transaction, or the specified return period or a reasonable period has expired, so, unless there is a contrary agreement, the goods are at the risk of the seller despite the obvious fact that possession will have passed to the buyer. It follows that if the goods are lost or damaged during that period, without any fault attributable to the buyer,40 the seller must bear the loss.
While section 20(1) makes the sweeping generalisation that risk passes with property, the section does go on to provide some exceptions to that tenet. Thus, where delivery of the goods has been delayed through the fault of either buyer or seller, that party must bear the risk as regards any loss that would not have occurred but for that fault.41 Further, section 20(3) reinforces the point that the section does not affect the normal duties and responsibilities of either seller or buyer when acting as a bailee or custodian of the goods for the other party.
Arguably, the most significant exception to the normal rule that risk passes with property is that contained in section 20(4),42 which, once again, reinforces the distinction between consumer buyers and non-consumer buyers. It stipulates that subsections (1)–(3) of section 20 do not apply when the buyer deals as a consumer. In that situation, the goods will remain at the risk of the seller
39â [1923] 1 KB 78.
40The buyer would, of course, be liable for any damage to the goods caused by his negligence because of his duty as a contractual bailee to take care of the goods while they are in his possession.
41Sale of Goods Act 1979, s.20(2); see Demby Hamilton & Co. Ltd v. Barden [1949] 1 All ER 435.
42Inserted by Sale and Supply of Goods to Consumers Regulations 2002 (SI 2002/3045).