Perished goods & Frustration of contract
Terms in this set (11)
Ss.6 and 7 of the SGA 1979
Section 6 deals with events before the contract is made while section 7 deals with the events after the contract has been made. Another way of looking at this is to consider s.6 under the category of "impossibility" or "mistake" and s.7 under the category of "frustration". The key difference between these sections being that where a contract is impossible to perform at the time it was made, it might be void for mistake whereas if the contract subsequently becomes impossible to perform, illegal or radically different from that which was intended, then it might be deemed frustrated.
Both apply only in cases of specific goods.
Just as goods that have never existed cannot perish, a contract for the sale of future goods that do not materialize will not be avoided by s.7 (as this section only covers specific goods). However, such a contract may be frustrated at common law (Howell v Coupland)
Pre-Contract destruction of the subject matter -- S.6
Where there is a contract for the sale of specific goods (not unascertained goods or goods that form part of a bulk), but the goods perished before the contract w/o the seller's knowledge, the contract is void (s.6).
NB: S.6 only applies to goods that have perished. It will not apply where the goods never existed. Therefore, if X agrees to sell Y specific goods which both of them believe to exist but which in fact did not, then the contract is void at common law, NOT s.6.
Asfar v Blundell / Perish goods
Goods have perished if they become significantly altered so that, for commercial purposes, they can no longer be said to be the same goods that were contracted to.
• They do not actually have to be destroyed.
(Dates were impregnated with river water and sewage when the barge on which they were carried sank. The dates were covered by insurance only if they had perished. Insurers argued that despite the contamination they were still dates and could still be used to distill alcohol. Held, even though they still existed and were recovered from the river, goods have perished if they have ceased to exist in a commercial sense.")
Barrow Lane & Ballard v Phillips / Pre Contract destruction of PART of the goods
Where there is a sale of specific goods and part of the goods perished before the date of the sale, the whole contract is avoided by s.6 if the sale was not severable.
The subject matter may have perished if part only has been lost.
(seller contracted to sell a specif 'lot' of 700 bags of nuts lying in his wharf. Unknown to either of party 109 of the bags were stolen before the contract was concluded. Contract held void under s.6. This case turned on its facts. The contract was for the entire and indivisible lot. Had the contract been severable (ie, for the sale of separate lots with each lot being invoiced and paid for separately) then presumably the contract would have been void only as to those lots which were not complete at the time of contract.)
*NB: This not a case where the goods did not exists at the time of contract
Where there is an agreement to sell specific goods and subsequently the goods perish before the risk passes to the buyer, and without any fault on the part of the parties, the agreement is avoided.
Sainsbury Ltd v Street
Where only part of the goods have perished then the seller might be required to make the remaining (unperished) goods available to the buyer although the buyer will not be under any obligation to accept them.
Where a buyer contracts with a seller to purchase a specific portion of a crop, and performance becomes impossible owing to a failure of the crop w/o any default on the part of the seller, then the seller is not liable to the buyer in damages although he is obliged to deliver the actual amount that has been harvested.
It is more useful to the buyer to point to an implied term to resolve his case since this allows for the possibility of requiring the seller to deliver, rather than using the doctrine of frustration where if the contract were frustrated, the obligation of the seller to deliver anything will be removed.
It is reasonable to expect that such performance as is possible should be carried out by the seller if the subject of sale suffers only some deterioration.
(Seller contracted with B before harvest to sell his entire crop of barley (about 270 tons) but due to bad weather the crop yielded far less (140 tons) than the estimate the contract was based. S then sold a majority of his crop to another buyer, and sold the rest to B at a higher price than agreed upon. However, an implied condition of the contract that if a lower tonnage of crop was produced through no fault of S, S will not pay damages, as agriculture involves significant risk. B sued for breach of contract. Issue: Does the crop shortfall absolve Street of his contractual obligation to deliver? Held: It was an implied condition of the contract that if a lower tonnage of crop was produced through no fault of the S, he should not pay damages. It is unreasonable, however, to conclude the implication that if the seller could not deliver the whole obligation he should not deliver any of it (ending the contract). The stipulated tonnage was an upper limit; it cannot be implied as a lower limit to release the seller from his obligation. It seems reasonable to assume that the parties are likely to have agreed that on the facts that arose in that case the buyer should have the option of accepting the reduced quantity of barley that was, in fact, harvested.
Section 6 might seem to resemble the doctrine of common mistake in the general law of contract, but goods that have never existed cannot be said to have perished.
On the other hand, where the goods are part of a larger bulk and the bulk has perished, then, while s.6 does not apply, the doctrine of common mistake (where both parties contracted on the assumption that the bulk existed) or frustration (where the bulk perished and neither party was responsible for the loss or had assumed the risk of it occurring) might apply under the general principles of contract law.
Blackburn Bobbin v Allen / Unascertained goods perishing
Sections 6-7 do not apply to contracts for the sale of unascertained goods; if unascertained goods are sold by description (eg, '500 tons of wheat'), the seller cannot seek to excuse non-delivery by showing that goods of that description are not available at the time of delivery. The effect of the perishing of unascertained goods is governed by the common law.
An unqualified contract for the sale of unascertained goods will not be dissolved by the operation of the doctrine of frustration.
(Seller agreed to supply the buyer w/ Finnish timber. Unknown to the buyer, the seller held no stocks but customarily shipped orders directly from Finland. War broke out and the seller's supplies were cut off. Held, this event did not frustrate the contract. The method of supply was irrelevant to the contract, as all that the buyer knew was that the seller held stocks of Finnish timber, or obtained it indirectly from some other country. The element in the contract which the supervening event destroys must be something which both the parties must have regarded as basic. Thus, having contracted in unqualified terms, the seller took the risk of being able to obtain the goods needed to perform his contract, and must pay damages in the event of being unable to deliver.)
McRae v Commonwealth Disposals Commission
Where one party under the contract for the sale of goods agree to take the risk should the goods perish, s.6 will not apply.
(The defendants sold an oil tanker described as lying on Jourmand Reef off Papua. The plaintiffs incurred considerable expenditure in sending a salvage expedition to look for the tanker. There was in fact no oil tanker, nor any place known as Jourmand Reef. The plaintiffs brought an action for breach of contract. Held: the defendants had contracted to sell a ship and, as a term of the contract, 'warranted that they had a ship to sell'. They were held liable to pay damages for breach of this term. Section 6 did not apply because the tanker had not perished, it never existed. Courturier v Hastie was distinguished because there the parties had both shared the assumption the corn existed, but here CDC had actually promised the tanker existed and therefore had assumed the risk that it did not.)
Clause in contracts that essentially frees both parties from liability when an extraordinary event or circumstance beyond their control, such as a war, strike, riot, crime, or an event described by the legal term act of God, prevents one or both parties from fulfilling their obligations. In practice, most force majeure clauses do not excuse a party's non-performance entirely, but only suspends it for the duration of the force majeure.
The courts are reluctant to invoke this doctrine and, in particular, have shown a disinclination to do so in sale contracts involving unascertained goods. Moreover, the doctrine of frustration will not apply where one party has agreed to run the risk of a particular loss or is responsible for that loss occurring.