Sale of Goods/Consumer Protection Question
Brief 187810
Sale of Goods/Consumer Protection question
To:Mr Supervisor
From: Richard Ross
Re: Graham Marshall – The Pine Tree
I met with Mr Marshall of The Pine Tree on 28th February 2006.
Mr Marshall explained that he was being pursued for a claim by The Wine Imporium in respect of 3 items that he had ordered on 2nd February 2006.
Mr Marshall ordered the following items:
A bottle of vintage port, priced at ?1,500
2 dozen bottles of Eldorado sherry at ?800
5 litres of Shangri-La wine at ?900
The Wine was to be purchased for Mr Marshall’s business, which is a restaurant.
It was agreed that the port and sherry would be delivered on 8th February; but the goods were destroyed in a fire at the Imporium’s premises, and the goods were therefore not delivered. Despite this, the Imporium have issued an invoice dated 10th February 2006, and are seeking payment of ?3,200. He is now being pressed for payment and has received a letter from solicitors acting for the Emporium (a copy is attached to this report).
Mr Marshall also purchased 5 dozen wine glasses, again for his restaurant at a cost of ?60. These items collected by Mr Marshall.
My view of the legal position is as follows:
There is a distinction between ownership and possession. Clearly, at the time of the fire, the Emporium were still in possession of the goods, but who owned them at that time is a different and more complex question.
The transfer of ownership has important legal consequences. It is of significance when considering who is liable when goods are damaged. The general rule is that risk of loss normally passes from seller to buyer at the same time as property legally passes. Therefore, if property has passed to Mr Marshall as at 7th February 2006, he will bear the loss, and have to meet the Emporium’s claim.
The Sale of Goods Act 1979 (“SOGA”) contains detailed rules governing various aspects of transfer. The time when property is transferred is dealt with by Ss 16-19.
Section 20(1) SOGA deals with risk and provides that:
“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 therein is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not.”
If Mr Marshall dealt as a consumer, this position would be varied by the Sale and Supply of Goods to Consumers Regulations 2002 (“The Regulations”).
S4 of the Regulations amends S20 SOGA. It provides that after subsection (3) there is inserted-
“In a case where the buyer deals as consumer …, subsections (1) to (3) above must be ignored and the goods remain at the seller’s risk until they are delivered to the consumer.”.
A “consumer” is defined in the Regulations as “any natural person who, in the contracts covered by these Regulations, is acting for purposes which are outside his trade, business or profession”
Mr Marshall was however buying the wine for his restaurant, and therefore will not fall within the definition of consumer. In that case, the general rule in S20(1) SOGA will apply.
The relevant question is therefore whether as at 7th February the goods had transferred to Mr Marshall. The basic rule is that property passes when the parties intend it to pass. This is reflected in S17 SOGA. However, this is subject to the overriding provision of S18 SOGA which provides separate rules for unascertained goods.
Therefore, whether goods have transferred will depend on whether the goods are specific, or unascertained goods.
Are the goods specific goods?
Specific goods are defined at S16 SOGA as “goods identified and agreed on at the time a contract of sale is made”. Goods can only be classified as “specific” if it is possible to identify the precise subject matter of the sale at the time when the contract is made. Any goods purchased as a self service purchase (as most consumer items in supermarkets are) will be for specific goods.
Unascertained goods are not defined by the SOGA, but will comprise of goods that are not specific. This will cover any generic goods, or goods that form part of a larger consignment, or come from a source which is specified in the contract.
The Shangri-La was to be taken from a case in the cellar of the Emporium, and therefore this is clearly unascertained, since it comes from part of a larger consignment.
The Eldorado sherry is specified by description, but it is a purely generic description, and again will be for unascertained goods. It is different to the example above of self service purchases, since the specific bottles had not been selected by Mr Marshall.
The situation with regard to the vintage port is more complex. Mr Smith of the Emporium told our client at the time of the sale that he thought that this bottle was the last remaining bottle. If that is indeed the case, then the purchase was for a specific bottle of port. It is my view that this is a contract for a specific item.
Specified goods
S17 SOGA reflects the common law rule that property in specified goods, such as the port, passes when the parties intend it to pass. This means that if there is a clause in the contract, such as a retention of title clause, property passes under the terms of that clause. It is also possible that this may be implied from the parties’ conduct, trade practice or custom, or any other relevant circumstances.
There is no express provision, and no relevant trade practice. A term may however be implied if, eg, payment is deferred – this may imply that property passes on payment. Payment in this case was not due on delivery, and therefore it is possible to argue that in the case of the vintage port, if it is indeed for specific goods, there was an implied agreement that the property; and risk; did not pass until delivery. (confirmed in Dobson v General Accident co Ltd[1]
Diplock LJ indicated in R V Ward Ltd v Bignall[2] that the courts will be very ready to infer an intention that property will not pass until delivery; thereby ousting the statutory rule.
If this argument fails, the point will be governed by S18 SOGA. This sets out five rules, which govern the situation. The first three relate to specific goods, and the first is the basic rule.
The first rule states:-
“where there is an unconditional contract for the sale of specific goods in a deliverable state, the property 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.”
“Unconditional” means that there is no term in the contract postponing transfer until one of the parties performs a specified act.[3]
In Underwood v Burgh Castle Brick and Cement Syndicate[4] it was held that an engine which was cemented to the sellers floor at the time the contract was made was not in a deliverable state until it was dismantled and ready for transport.
There is nothing however in Mr Marshall’s case to render the contract conditional, and therefore the contract is unconditional.
Therefore, if the port is specified, with no express or implied condition, then risk passed to Mr Marshall on 2nd February 2006. It is however my view that, because payment is delayed, a court would infer a term that property (and risk) did not pass.
(The remaining three rules are not relevant to Mr Marshall’s case, and only apply to goods not in a deliverable state at time of contract; or where the seller needs to do something to ascertain the price (eg weigh the goods) or where goods are bought on approval.)
I would also comment that the statutory rule will only apply if the damage was accidental. S20(3) SOGA provides that “nothing in this section shall affect the duties and liabilities of either seller or buyer as a bailee of the goods for the other party”.
There is however no evidence to suggest that the fire was not accidental.
Unspecified goods
In the case of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.[5]
Rule 5 of S18 SOGA will therefore apply to unascertained goods. This applies where no contrary intention appears, as in this case. The rule states:
“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, te property in the goods then 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.Whether in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee…for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.”
This means that the goods remain unascertained, and risk remains with the seller until the goods are:
in a deliverable condition, and
unconditionally appropriated (ie irrevocably earmarked),
Pearson J stated in Carlos Federspiel & Co SA v Twigg (Charles) Ltd[6] that to be unconditionally appropriated, “the parties must have had, or be reasonably supposed to have had an intention to attach the contract irrevocably to those goods so that those goods and no others are the subject of the sale and become the property of the buyer”.
In that case, bicycles were packed up and labelled, and shipping arrangements had been made by the seller. The goods had also be paid for by the buyer, when the seller went bankrupt. It was held that at the time the seller went bankrupt, the goods had not been appropriated, and the buyer had no title. This is because the seller could have changed his mind before he handed the goods over to the shipper.
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In Hendy Lennox v Graham Puttick[7] it was held that appropriation took place once the sellers had assembled the generators and the buyers received invoices and delivery notes indicating the serial numbers.
Therefore, the seller must perform an act which puts the goods out of his control, so that he cannot use them to perform another contract.
We do not know whether the goods had been selected ready to be delivered to Mr Marshall. However, there is no evidence to support the fact that the goods have been irrevocably attached to the contract; certainly there is no consent to such an attachment by Mr Marshall. (In order to pass property, the appropriation must be made with the express or implied consent of each party).
Goods purchased from a bulk source may however become ascertained by exhaustion. This will be relevant to the Shangri La wine, which was to be purchased from a cask in the cellar of the Emporium. If that cask only had 5 litres left in that case, that wine would have been unconditionally appropriated to the contract.[8] This is however unlikely.
I therefore conclude that as at 7th February 2006, the goods had not been appropriated to the contract, and therefore at the time of the fire, the goods remained unascertained. Risk in the unascertained goods remains with the Emporium.
(I would mention for completeness that The Sale of Goods (Amendment) Act 1995 creates an exception to the rule relating to goods where the bulk is identified in contracts; but only applies where the buyer has paid for some or all of the goods. Its aim was to protect buyers who have paid for goods, and the seller subsequently becomes insolvent. It will not be relevant here).
Overview
It is my view that in all probability, the vintage port will be a specified item. Since payment is delayed until after delivery, I believe that risk will have not have passed at 7th February 2006.
The wine will have been ascertained if it was the last 5 litres in the cask, but this seems unlikely. Therefore, both the sherry and wine were unascertained goods, not unconditionally appropriated to the contract as at 7th February. Under S16 SOGA, no property passes until goods are ascertained, therefore risk again remained with the Emporium.
Frustrated contracts
Where goods perish whilst still at the sellers risk, he is not able to perform the contract – he cannot insist on the buyer accepting other goods without the buyers consent. Common law rules of frustration and mistake may excuse a seller from liability if performance becomes impossible.
Ss 6 and 7 SOGA contains rules that are broadly analogous to the common law rules of frustration. Where they apply, the common law rules are displaced.
S6 SOGA 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 a contract is made, the contract is void.
(S6 is equivalent to the common law rule of mistake)
In Mr Marshall’s case, the contract was made on 2nd February, and the goods destroyed on 7th February. This will therefore not apply.
S7 SOGA provides “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 avoided.”
This is equivalent to the common law rule on frustration, and displaces the impact of the Law Reform (Frustrated Contracts) Act 1943 (the “43 Act”). Therefore, this Act does not apply to the perishing of specific goods, and therefore the contract is not frustrated.
I therefore conclude that, for any specific goods, which on the balance of probability will in this case be the bottle of vintage port, the bottle has been damaged after the contract is concluded, and S7 SOGA will therefore apply.
An item perishes if it has “so changed s to become an unmerchantable thing that no honest seller would sell” (Asfar & Co v Bludnell[9]– a case where dates impregnated with river water and sewage were found to have perished)
The port has clearly perished. Therefore, the contract is avoided, and the Emporium cannot sue for the price.
Unascertained goods
The statutory rules only apply to specific goods that have perished. The wine and sherry do not fall into this category, since they are for unascertained goods.
The sherry is purely generic. This means that other sherry of the same description can be purchased and supplied (assuming they are still available). Therefore the Emporium must source more sherry from another source – or pay damages to Mr Marshall for non-delivery. There is certainly no requirement for Mr Marshall to pay for these goods before they are delivered.
With regard to the wine, the source has been specified in the contract. It is therefore impossible for the Emporium to supply the wine. S7 will not apply, because it is not for the sale of specific goods. The contract will therefore be frustrated under the 43 Act. This means that adjustments for expenses incurred, and benefits received are possible. However, in this case, there does not appear to be any such expenses or benefits.
Therefore, the Emporium must supply the sherry – or face a claim for damages for non-delivery. However, there is no obligation on either party with regard to the port, or the wine.
Wine Glasses
Property in the wine glasses has clearly passed, as has risk. Whether Mr Marshall can reclaim his money will depend on when the glasses were broken.
S14 SOGA contains implied terms about quality and fitness.
If the glasses were broken before Mr Marshall paid and took delivery of them, they were not goods of satisfactory quality[10] and he will be entitled to a refund.
If the glasses were broken at a later date, it will be a question of whether the glasses were broken because they were faulty or whether Mr Marshall mishandled them. If the goods contained an inherent fault, it can be argued that they were not fit for purpose. S 14(2b) SOGA provides that to be of satisfactory quality, goods must be fit for all purposes for which the goods are commonly supplied. It goes on to state that goods should be free from minor defects, be safe and durable.
Therefore, if the goods were not safe and durable (to the extent that glasses should be expected to be) Mr Marshall would be entitled to a refund.
Conclusion
Mr Marshall has no obligation to pay any money to the Emporium at this stage. If the Emporium does deliver the sherry, he will then be obliged to pay the price; but not before.
Indeed, Mr Marshall may have a claim against the Emporium if they fail to deliver replacement sherry to him; and if the wine glasses were indeed defective.
Bibliography
Consumer Law and Practice, fifth edition – Robert Lowe and Geoffrey Woodruff, Sweet & Maxwell 1999
Law Reform (Frustrated Contracts) Act 1943
The Sale of Goods Act 1979
The Sale and Supply of Goods to Consumers Regulations 2002
The Sale of Goods (Amendment) Act 1995
Asfar & Co v Bludnell [1886] 1QB 123
Carlos Federspiel & Co SA v Twigg (Charles) Ltd [1957] 1 Lloyd’s Rep 241
Dobson v General Accident co Ltd [990] 1 QB 274
Hendy Lennox v Graham Puttick [1984] 2 All ER 152
R V Ward Ltd v Bignall [1967] 1 QB 534
Underwood v Burgh Castle Brick and Cement Syndicate [1922] 1 KB 343
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