When does risk pass from the seller to the buyer?

• when does risk pass from the seller to the buyer?

  • three possible situations

    • contracts involving carriage

    • contracts for goods sold whilst in transit

    • contracts not involving carriage

• contracts involving carriage, specific goods

  • if the contract specifies the event, time or place when risk is to pass, then risk passes according to the contract term

  • if no such term is within the contract, risk passes when the goods are put into the hands of the carrier, or first carrier if more than one is involved

• contracts for goods sold whilst in transit

  • when goods have been put in the hands of a carrier, for example, to deliver to a distribution centre, and those goods are sold whilst in transit, risk passes to the buyer at the time the contract is entered into

  • exceptionally, if the seller knew at the time of the contract that the goods were damaged or had been lost, the seller remains liable

• contracts not involving carriage

  • risk passes from the time the goods are put at the disposal of the buyer and the buyer is aware of that fact

  • finally, when goods do not conform to required standards, and this is not discovered until after risk has passed, the seller is liable for breach of obligations concerning non-conformity

  • risk does not pass until the goods are clearly identified to the contract

  • after risk has passed, accidental loss or damage does not release the buyer from paying the price unless it was caused by the seller

  • risk passing does not prevent the buyer relying on a fundamental breach by the seller

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1 Preservation of goods

• both parties have a duty to preserve the goods (ptg)

• so, whoever has possession must ptg even though ownership has passed to the other

• if a buyer refuses to accept delivery, the seller still has an obligation to ptg

• when a buyer is obliged to pay for goods on delivery, but then fails to do so, the seller must then ptg, but need not deliver

• when a buyer intends to reject the goods, but neither the seller nor agent is available to accept this rejection, the buyer is obliged to ptg

• this latter point applies unless it would be unreasonably expensive or inconvenient

• the party who is preserving the goods can recover reasonable expenses from the other party …

• ... and may even store them in the premises of a third party (at reasonable expense)

• if the goods are perishable, it is available for the one in possession to sell them at the best available price before they become worthless

• where preservation is unreasonably expensive, the goods may also be sold; reasonable expenses may be recovered and the proceeds accounted for

2 Impediment

• if a party fails to perform their obligations under a contract, the normal position is that the other party may avoid the contract and claim damages

• an Art 79 impediment may exempt a party from damages while it continues, but does not prevent other remedies; notice must be given promptly

• the impediment should be such that it was not reasonably foreseeable at the time the contract was entered into

• once the impeding event ceases to prevent performance, the contract should go ahead as planned

• if a third party’s failure to perform is the cause of contract failure, the breaching party is exempt from liability only if they can prove that both themselves and the third party would be exempt because of circumstances beyond their control

• if failure to perform is because of an impediment, the impeded party must give notice to the other party within a reasonable time after first knowing of the impediment