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Determining Liability for Loss in Theft

  • 05 Pages
  • Published On: 08-11-2023

The issue is whether Arnold has to bear the loss of theft of 1000 units. The issue relates to ‘property’ in goods and the answer to the issue would be based on whether property is passed to Arnold or remains in Machine Co. The law for the same is Sale of Goods Act 1979 (SGA 1979) and Standard Form Contract is also applicable in the case. The term property in goods refers to the ownership in the goods and is used to signify the party that owns the goods and therefore bears risk for the loss of goods.As per clause 6(a) of the Standard Form Contract, the property in the goods is to remain with the seller until the buyer has made payment in full for the goods. Thus, as per this, the property of the goods is in Machine Co. and not Arnold. However, as per Clause 7 of the Standard Form Contract of the Machine Co., the risk passes to the buyer as on the date of the contract or the date of the manufacture. These clauses are to be read with Section 17 of the Sale of Goods Act 1979 (SGA 1979), which provides that the property passes when intended to pass; in this context, the intention of the parties will be ascertained from the terms of the contract between the parties. Section 20(1) of the SGA 1979 provides that risk passes with the property. Thus, to summarise this, SGA 1979 provides that risk passes with property and property passes when intended to pass. This makes the provisions of the Standard Form Contract relevant to understanding who shall bear the loss for the 1000 units stolen. The Standard Form Contract notes all the contractual terms that are relevant as between the parties. The SGA 1979, Section 2(1), provides that a sale of goods contract is one in which the seller agrees to transfer the property in goods for a money consideration.

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In the current situation, Arnold placed an order for 5000 units to be shipped by road to his Leeds warehouse. In the journey to Leeds, 1000 units were stolen while the vehicle was parked at a motorway service station. As the SGA 1969 leaves it to the parties to decide amongst themselves when the property in the goods shall pass to the buyer from the seller, the Standard Form Contract provides the answer to the current issue. Clause 6(a) clearly provides that the property in the goods remains “with the seller until the seller has received payment in full for the goods and all other sums owing to the seller on whatever grounds.” This is reinforced by Clause 6(c), which demands that the buyer stores the goods of the seller (as long as the property in goods remains with the seller), separately and the seller has right to repossession. As SGA 1969 provides that risk only passes with the property (Section 20(1)), and the property is not yet passed because Arnold has not made full payment to Machine Co. for the goods, the property in the goods remain with Machine Co.

The issue is whether Arnold can reject the goods and sue for breach of contract. The applicable law in this case in contained in SGA 1979. As there is a Standard Form Contract, that is also applicable in this situation. SGA 1979, Section 13 provides that a contract of sale of goods contains an implied condition that if the sale contract goods should correspond to the description in the contract, if there is a sale of goods by description. In this particular situation, there is a need for the goods to comply with a technical specification; in the case of the 4000 units supplied to Arnold, the tools are shorter by a margin of 3% as compared to what was specified. However, it is also noted that the tools are capable of getting the job done as is required in the industry. The Standard Form Contract is also applicable, as Clause 2(b) provides that where goods are substantially different from the description in the contract, the buyer can reject the goods and reclaim the price paid for them. Such rejection has to be communicated by the buyer within 14 days of delivery through a written note of or he is deemed to have accepted it

  1. Michael Bridge, The Sale of Goods (Oxford University Press 2014).
  2. Mitsui & Co. Ltd v. Flota Mercante Crancolumbiana SA [1989] 1 All ER 951 (CA).
  3. Moore & Co. V Landauer [1921] 2 KB 519.
  4. (Clause 5(b)). The question however is whether the tools differ substantially from the description because Machine Co. can argue that 3 percent difference is not a substantial difference and also that the tools can get the job done for which they are bought. The case of Brewer v Mann can be referred to here. In this case, the sale of a 1930 Bentley Speed Six complied with the description even though it contained a 1927 reconstructed standard 6.5 engine. In the event that the Standard Form Contract in clause 2 is also noting that there is no intention to be bound by a rejection if there is a unsubstantial difference in the description of the goods sold. Therefore, Arnold may not be able to reject the goods as the difference is only 3 percent.

    Clause 9(b) of the Standard Form Contract provides that the seller is excluded from any liability arising from the negligence or wilful default of itself or its servants or agents and in connection with any breach of the seller's obligations. The clause also excludes all conditions, warranties or other terms. The question is whether this clause can be claimed by Machine Co as absolving it from liability with regard to Arnold’s claim. The clause is in the nature of an exclusion clause. Such clauses are inserted in the contract to exclude or limit the liability of a party to the contract. Exclusion clauses are valid where they comply with the conditions that are necessary to make the exclusion clause enforceable. There are certain conditions that vitiate the exclusion clause, and this will mean that the exclusion clause will not be valid; and enforceable. Exclusion clause is not valid where the clause seeks to restrict the liability of the party with reference to a breach of a term that would destroy the whole contract (doctrine of fundamental breach). The Unfair Contract Terms Act 1977 is also applicable to test the validity of an exclusion clause. Section 3 of this legislation provides that reasonableness test is applicable if negligence leads to damage to property or financial loss; in such case, the exclusion clause will not be upheld. Exclusion clauses will also not be allowed in cases where an unreasonable allocation of risk for one party is made and it is established that there is unequal bargaining power between the parties. However, this point is not applicable in the current situation because the courts do not interfere in commercial contracts. Applying the principles discussed above in the current situation, the provisions of the Standard Form Contract, and in particular, clause 9 (b), can be assessed for its validity and enforceability. The clause provides that the seller shall not be liable for breach of obligations even if due to negligence. According to Section 3 of Unfair Contract Terms Act 1977, reasonableness test is applicable because it relates to loss or damage caused by negligence, which the seller has sought to exclude in the clause 9(b). If Arnold can establish that the difference between the goods supplied and the description is substantial, then he can argue that under the the doctrine of fundamental breach, the exclusion clause is invalid. This can be related to clause 5(a) also which is giving the seller the right to modify the specification of the goods in whole or in part without prior notification to the buyer and demanding that the buyer accept such modified goods in performance of the contract. If the seller does modify the goods without consent of the buyer then it amounts to fundamental breach because it destroys the contract in whole.


  5. Brewer V Mann And Others [2012] EWCA Civ 246.
  6. Michael Bridge, Benjamin’s Sale of Goods (Oxford University Press 2012) 28.
  7. Paul Mitchell, ‘Implied terms as to description and misrepresentation’ in Ewan McKendrick (ed.), The Sale of Goods (Routledge 2020).
  8. Parker v South Eastern Railway Co. [1877] 2 CPD 416.
  9. White v Blackmore [1972] 3 WLR 296.
  10. Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2.
  11. Joseph Chitty, Chitty on Contracts: General principles (Sweet & Maxwell 2012).
  12. John Phillips, ‘Protecting Those in a Disadvantageous Negotiating Position: Unconscionable Bargains as a Unifying Doctrine’ (2010) 45 Wake Forest L. Rev. 837.
  13. The issue relates to the party that is likely liable to bear the loss with regard to the goods damaged in the fire. The law applicable here is that of passing of property and risk in the goods. This is provided under the SGA 1979. At the same time, the Standard Form Contract is applicable here as the parties have agreed to some terms regarding passing of property and risk. SGA 1979, Section 16 provides that in general, property in unascertained goods passes to the buyer upon ascertainment of the goods. Section 17(1) provides that where sale is of specific and ascertained goods, property passes to the buyer only at such time when so intended. The Standard Form Contract becomes applicable at this point to assess the intention of the parties with reference to when the property and risk in the goods is to pass to the buyer.

    Clause 6 of the Standard Form Contract states that “the property in the goods shall remain with the seller until the seller has received payment in full for the goods and all the sums owing to the seller on whatever grounds.” The contract therefore retains the property with the seller until the buyers has paid the full price for the goods, including any other sums like insurance payments. On the other hand, the contract makes a provision in clause 7 that says that from the date of contract or the date of manufacture (the later date is applicable), the goods are at risk of the buyer. Therefore, there is an difference drawn between passing of property and passing of risk, with the risk passing to the buyer even before the property may have passed to the buyer. This is not in keeping with the Section 20(1) of the SGA 1979, which provides that risk passes with the property unless otherwise agreed to by the parties. The words ‘unless otherwise agreed’ signify that the parties may agree for risk to pass to the buyer even where property is not passed to the buyer. Section 20(2) provides that if delivery is delayed through the fault of either buyer or seller, then the goods are at the risk of the party at fault. Therefore, in the case of delay in delivery, risk passes to the party at fault for such delay.

    In this situation, when order is completed by Machine Co., the goods are sent to the loading bay for packing in crates. The goods are then marked with the name of the buyer. This marking of the name of the buyer means that the goods are ascertained, which is one of the two factors necessary for passing of property, the other being intention as to timing of transfer. Appropriation of goods or irrevocably being earmarked under contract is the point where the risk will pass to the buyer. Under clause 7, the buyer has the risk transferred to him in the goods, which becomes applicable when the goods are appropriated. Thus, when the goods are delivered up to the loading bay, the risk has passed to Charles Ltd and they are liable for the loss of goods by fire. However in the case of Beta Plc, as they have paid in advance, the property has passed to them as per clause 6. This means that Machine Co is a bailee in this case and is under a legal duty to take due care of the goods in their possession according to the SGA 1979, Section 20, which provides that when the seller is in possession of the goods after the property has passed to the buyer, he shall bear the liability for buyer’s goods in case of loss. Therefore, for the loss of Beta Plc’s goods, the loss will be borne by Machine Co.

    Machine Co. can demand the full payment for the goods from Charles Ltd even though the goods were destroyed in the fire. As per clause 7 of the Standard Form Contract, the risk in the goods had passed to Charles Ltd. Moreover clause 6 (d) allows Machine Co to maintain an action for the price even when the property has not passed to Charles Ltd.

    Beta plc are incorrect because the risk to them have passed already so that the destroying of the part of the consignment does not mean that the 1000 units for which they have paid in advance does not already belong to them. The property in the goods have passed to


  14. Sarah Worthington, ‘Passing of property’ in in Ewan McKendrick (ed.), The Sale of Goods (Routledge 2020) 2-001.
  15. Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd's Rep 240.
  16. them with the payment of the price. The risk has also passed to them when the goods were manufactured. Therefore, they are bound to collect the goods and also not entitled to return of price.

    The issue in whether Charles Ltd. can claim damages from Machine Co. for breach of contract. Charles Ltd. has already agreed to resell tools and expects a profit on the resale. Therefore, they suffer loss. Unliquidated damages can be paid for the abnormal or special loss of the claimant; this means loss not arising as a usual consequence. A party can claim this loss only special circumstances were within the knowledge of the oher party. If there are special circumstances communicated by the claimants to the defendants, they would be entitled to recover special damages. In this case, Machine Co does not seem to be aware that Charlie Ltd. had contracted to sell the tools to another buyer. So special damages cannot be claimed due to supply of half the goods.

    The issue relates to the retail consumers’ right to reject the goods. In this situation, the Consumer Rights Act 2015 is applicable; Standard Form Contract is not applicable but the notice in the retail shop is applicable and this specifies that the buyer will have to accept modified goods as the seller may modify the specification or design of the goods in whole or in part without prior. The notice further provides that the buyer is deemed to have signified acceptance of the goods unless they sent a written notice within 14 days of delivery stating that they reject the goods. Thus, complaints within 14 days of purchase will be treated differently that those after 14 days. Section 9(1) of the Act provides that contract to supply goods contains an implied term that the quality of the goods is satisfactory. Section 9(2) of the Consumer Rights Act 2015 provides that the quality is satisfactory if it meets the standard that a reasonable person would consider it satisfactory and Section 9(3) provides that quality of goods includes state and condition, fitness, appearance and finish, and freedom from minor defects, safety and durability. Thus, if the products are not identical to the advertisements, a slight change in specification will not make the goods absent quality under Section 9. Furthermore, despite the notice displayed in the shop, the Consumer Rights Act 2015 does give a specific right to reject the goods (Sections 20 and 22). This relates to short-term right to reject, which can be exercised within 30 days of purchase and allows full refund within that period. The Machine Co. notice falls short of the statutory period and therefore, this will not apply and consumers will have 30 days to reject the goods. However, for this the consumer will have to satisfactory quality is not made out, none of the customers have the right to reject the goods under the Consumer Rights Act 2005. However, consumers will have to establish that quality is not met with, which is not the case here.

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    Authorities

    Brewer V Mann And Others [2012] EWCA Civ 246.

    Carlos Federspiel & Co SA v Charles Twigg & Co Ltd [1957] 1 Lloyd's Rep 240.

    Mitsui & Co. Ltd v. Flota Mercante Crancolumbiana SA [1989] 1 All ER 951 (CA).

    Moore & Co. V Landauer [1921] 2 KB 519.

    Parker v South Eastern Railway Co. [1877] 2 CPD 416.

    Photo Production Ltd v Securicor Transport Ltd [1980] UKHL 2.

    Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.

    White v Blackmore [1972] 3 WLR 296.

    Books

    Bridge M, Benjamin’s Sale of Goods (Oxford University Press 2012).


  17. Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949] 2 KB 528.

Bridge M, The Sale of Goods (Oxford University Press 2014).

Chitty J, Chitty on Contracts: General principles (Sweet & Maxwell 2012).

Mitchell P, ‘Implied terms as to description and misrepresentation’ in Ewan McKendrick (ed.), The Sale of Goods (Routledge 2020).

Worthington S, ‘Passing of property’ in in Ewan McKendrick (ed.), The Sale of Goods (Routledge 2020) 2-001.

Journals

Phillips J, ‘Protecting Those in a Disadvantageous Negotiating Position: Unconscionable

Bargains as a Unifying Doctrine’ (2010) 45 Wake Forest L. Rev. 837.


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