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Writer's pictureWaboga David

“Does Risk always passes with property in the goods? Consequences on duties and remedies available.

“Does Risk always passes with property in the goods, and if so what are the consequences on the duties of and the remedies available to the parties to the contract”





The general rule of the law on sale of goods is that the ‘risk‘ prima-facie follows ownership. That is to say that; if goods are lost or damaged by some accident or otherwise, then, subject to certain exceptions, whosoever is the owner of the goods at the time of loss or damage, shall bear the loss. In other words, it is the owner of the goods at the time of loss who suffers the risk of loss and not the person who is merely in possession of the goods.


Similarly, when parties enter into a contract they realize that circumstances may change and that one of them may want to breach the contract. The remedy available against a breaching party will, of course, influence each party’s decision whether to breach. The remedy will also affect each party s investment in "reliance “expenditures made in anticipation of performance (e.g., building a warehouse to store the goods to be delivered). The remedy for breach will, as well allocate the risks among the parties due to changed circumstances. This effect, which has not been examined as systematically


Section 27 of the Sale of Goods Act, states that Risk prima facie passes with property meaning, the goods are the owner’s risk if the property in them has not been transferred to the buyer. But if the property has been transferred to the buyer then the goods are buyer’s risk. This provision is applicable if no specific provision has been signed by the parties to the contract in their contract regarding this. This rule is applicable irrespective of the fact that delivery has been made or not.


How does Risk transfer to the property in goods.

The presumption is that risk is always associated with ownership and not with mere possession of the property. To decide whether the risk has been passed or not, we first need to find whether the property in goods i.e. the ownership has passed or not.

The passing of risk means the transfer of the liability for damage or loss of the property from the seller of the immovable property to the buyer. The risk in the property prima facie passes with the property, but if the parties to the contract agree to pass the risk on the property at some other level of transaction, then that is also possible, depending upon the terms of their contract. It is also possible that that the title, risk, and possession of the property pass independent of each other from the seller to the buyer in a sale’s transaction.


If there is an express agreement that one party is to bear the risk even though he has no property (as, e.g. there always is in contracts of sale subject to reservation of title clauses), effect must be given to the agreement. In the absence of such an express contract, it has been said that ‘the rule res perit domino is generally an unbending rule of law arising from the very nature of property’


While this is no doubt largely true in a situation where property remains with one person throughout, it is not necessarily true of the situation where property is being transferred from one party to another. In this situation, there is nothing unusual about separating the transfer of risk from the transfer of property and this commonly happens where goods are shipped under a c.i.f. or an f.o.b. contract.


There are two exceptional cases, which have established by the concept of passing risk with property; in one of which the risk passes before the property and, in the other, the risk passes after the property. The best example of the former exception is Sterns Ltd v Vickers Ltd. The facts being that; the defendants in this case sold to the plaintiffs 120,000 gallons of spirit, which was part of a total quantity of 200,000 gallons in a storage tank belonging to a third party. The plaintiffs obtained a delivery order which the third party accepted, but the plaintiffs decided to leave the spirit in the tank for the time being for their own convenience. The spirit deteriorated in quality between the time of sale and the time when the plaintiffs eventually took delivery of the 120,000 gallons. Despite the fact that the property clearly had not passed because the goods sold had not been ascertained in the technical sense, and therefore there had been no appropriation, the Court of Appeal held that the risk had passed to the buyers.


It is worth noting that although the decision in Sterns Ltd v Vickers Ltd appears to have been approved by the House of Lords and must therefore be accepted as correct on its particular facts, the case raises many problems which are closely related to the difficulties arising with regard to the passing of property.


In Atiyah and Adams’ Sale of Goods, he observes that, ‘the facts of Sterns Ltd v Vickers Ltd illustrate a situation where, for all practical purposes, the goods ‘belong’ to the buyers and so it seems desirable that they should be treated as being at the buyers’ risk, as the court there held. But of course the problems which prevented the law from treating the property as passing can also affect the question of risk. Suppose, for example, that the spirit had been stored in two separate tanks each containing 100,000 gallons and that the contents of one tank only had deteriorated, would the buyer have been compelled to take all the deteriorated spirit, or would he have been able to claim all the spirit from the other tank? Or should the good and bad spirit be divided between the parties in proportion to their respective interests? This latter solution appeared to be the logical conclusion from Sterns Ltd v Vickers Ltd, since it gives effect to the holding that the risk is on the buyer and, at the same time, it offers a fair solution to the problem.

The exceptional nature of this case was emphasised by the House of Lords in Comptoir d’Achat et de Vente SA v Luis de Ridder Limitada (The Julia), where Lord Porter said: ‘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 Ltd v Vickers Ltd where the purchaser had an interest in an undivided part of a bulk parcel on board a ship, or elsewhere, obtained by attornment of the bailee to him


Whereas Lord Normand observed: ‘In those cases in which it has been held that the risk without the property has passed to the buyer it has been because the buyer rather than the seller was seen to have an immediate and practical interest in the goods, as for instance when he has an immediate right under the storekeeper’s delivery warrant to the delivery of a portion of an undivided bulk in store, or an immediate right under several contracts with different persons to the whole of a bulk not yet appropriated to the several contracts.


It can be seen, therefore, that the acceptance of the delivery warrant in Sterns Ltd v Vickers Ltd was regarded as the crucial factor in the case, since it was this which gave the buyer an immediate right to possession. This may serve to distinguish the decision in Healy v Howlett & Sons, which is otherwise very similar on its facts to Sterns Ltd v Vickers Ltd. Here, court held that the risk in 20 boxes of fish, which were dispatched to the buyer as part of a total of 190 boxes, none of which had been earmarked for him, was still on the seller. The court pointed out the difficulties which would have arisen if only some of the boxes had deteriorated or perished.


Risk with sales transactions

Another concept to observe in a sale’s transaction where delivery of the goods is delayed due to the fault of either party the risk of loss and damage, which may occur due to that fault, is upon the faulting party. Parties can also agree upon different points of time for transfer of risk and property. in Multanmal Champalal v C P Shah & Co held that it is permissible for the contracting parties to enter into an agreement that although property does not pass, the risk passes and they may fix the point of time when it so passes. Section 25 of the Sales of Goods and Supplies of Services Act gives right to the seller to keep the goods at his disposal until the fulfillment of a certain condition. In case the seller reserves such right of disposal of goods, the risk passes to the buyer at the time when property would have passed if there had been no reservation of right of disposal of goods.


In other words, when the option of reservation of right is exercised, the property does not pass and it remains at the disposal of the seller until the fulfillment of condition precedent but the risk travels to the buyer earlier. A Free On Board (FOB) contract is a good example where risk and property pass at the time of shipment but if the seller reserves the right of disposal of goods till the payment of full price the risk passes at the time of shipment but the property passes when the full price is paid. If the buyer pays the full price before the goods are shipped then the risk and property pass together at the time of shipment.


Similarly in a Cost, Insurance and Freight (CIF) contract there is a general presumption that the property passes with the delivery and acceptance of goods while the risk passes at the time of shipment of goods. It means that in a CIF contract risk may pass before the property. As seen in an English case of Mitsui & Co Ltd and Another v Flota Mercante Grancolombiana SA, whose facts are; cartons of prawns were shipped upon 80 percent payment of price by the buyers. The contract contained FOB terms according to which the risk and property pass at the time of shipment. Seller reserved the right of disposal of goods till the payment of remaining 20 percent purchase price as a result of which property did not pass with the shipment. At the time of discharge, prawns were found to be damaged. Buyers brought a legal action against the shipowner for damage to the goods. In an objection by the shipowner it was contended that the buyers did not have the title to sue as the ownership of goods had not passed to them at the time of damage of goods. The Appeal court held that where goods were damaged on board, only the person owning the goods at the time of damage could sue the shipowner. Since, there was no evidence of fulfillment of condition precedent i.e., payment of remaining 20 percent price; therefore, the property was found to have not passed to the buyers. Hence, the claim of the buyers admitted at the trial level was reversed by the Appeal court.

Thus, the risk and property can pass separately from seller to the buyer and the cases where the risk passes before the property the buyer becomes liable for loss and damage of the goods even before he becomes owner. In opposite, if the delivery of goods is delayed due to the fault of the seller or parties otherwise agree the transfer of risk subsequent to transfer of property, seller remains liable for loss and damage of the goods even after he has lost the ownership.


Exceptions to that are simply,

There are two exceptions to the general law that the risk passes with the transfer of property in the goods. These are:


1. If the delivery has been delayed due to the fault of either party, then the liability of damage will lie on the party at fault. If the seller has failed to deliver the goods as agreed by the parties and the goods are damaged or lost due to that, then the seller will bear the cost. If the buyer has failed to take delivery of goods despite many reminders by the seller, then the buyer will bear the cost as stated in Section 27 (4) of the Sale of Goods And Supplies of Services Act.


As also seen in the case of Demby Hamilton & Co. Ltd. v. Barden, the sellers agreed to supply 30 tons of apple juice by samples. The seller crushed 30 tons of apples at once to ensure that they are according to the samples and filled them in the casks. After some installments had been delivered, the buyer refused to take further deliveries. The apple juice became putrid. It was held that the property in the goods was still with the sellers, but the loss had to be borne by the buyer.


2. Irrespective of the fact that the property in the goods has been transferred or not, the possessor of the good has same rights and duties as Bailee of the goods. If the damage to the property occurs due to the negligence of the possessor of the goods, as a Bailee, he will be liable to bear the damage or loss of the goods as seen in Section 27 (5 and 6) of the Sale of Goods And Supplies of Services Act.


It can be easier to understand it with the help of the following illustration;


“X, a seller of the goods, enters into a contract of sale of goods with Y, the buyer, who visits X’s office to check the goods. Both the parties to the contract agree that transfer of ownership will take place with the execution of the contract, restricting X’s right to sell those goods to someone else. They both agree X will bring the goods in the deliverable state in 2 days and after two days, Y’s agent will collect the goods from X. Both the parties agree that X will take care of Y’s goods for 5 days after the contract has been executed (if not collected) and not beyond the period of 5 days. Hence, the agent of Y must turn up within the stipulated time for collection of the goods. The contract regarding payment was that Y’s bank would transfer the amount to X’s account within 3 days of execution of the contract.”


This type of contract is perfectly valid for the Sale of Goods Act, In this type of contract, each transaction takes place according to the will of the parties. In this case, the property in the goods or ownership is transferred at the same time when the contract is concluded, while the possession of the goods passes at a later stage. If the contract had been silent about the transfer of risk, then it would have passed with the conclusion of the contract.


But in the instant case, it has been decided by the parties that the risk will transfer after five days of execution of contract if not collected by the parties.

Now, as per the contract signed between the parties, if the goods are lost or damaged within those five days after the conclusion of the contract, then the seller will bear the cost. But if the goods are damaged after five days and the buyer did not collect the goods, then the buyer will bear the loss. Also, if the goods were lost after the 5th day (if not collected) but due to the negligence of the seller, then the seller will bear the cost of damage or loss. In case the buyer’s agent collects those goods before five days, then the risk will transfer with it.


The impact of Frustration on Risk.

The doctrine of risk simply lays down that prima facie if the goods perish before the property passes, the seller must bear the loss and cannot claim the price. Were the doctrine of frustration merely an aspect of the rules as to risk, this section would be an absurdity for it would, in effect, be saying that where the risk is on the seller he must bear the risk of the goods perishing


As seen in Couturier v Hastie and Howell v Coupland the following were observed;


1. There may be an implied condition that if the goods perish the contract will be discharged and neither party will be liable, that is, the contract may be frustrated.


2. The seller may contract that the goods will not perish, in which case the seller will not only have to bear the loss of the goods; that is, will be unable to claim the price, but he may also be liable for damages for non-delivery.


3. The buyer may contract that he will take the consequences of the goods perishing, in which case he will have to pay the price whatever happens to the goods, and he may also be liable for damages


Remedies available.

The major remedy for both parties is normally one provided under force Majeure, that allows a contracting party to mitigate its risk of breach due to events or circumstances it did not cause and could not have anticipated. Both obligors and obligees should carefully consider the scope of force majeure provisions because:


a. Obligors risk breach if an event not designated as a force majeure event prevents performance of contractual obligations.


b. Obligees risk forfeiting a claim of breach if an obligor fails to perform its contractual obligations due to an event that the parties designated as a force majeure event.


Maybe other equitable remedies specific performance and damages.





By Waboga David.

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