Walyama Emmanuel

120-387
QN
With the use of statutory provisions and decided cases, discuss how risk and frustration affect a
contract of sales.
RISK

In Uganda, the law governing risk in sales of goods transactions is primarily detailed in the Sale of Goods
Act (Cap 82), which is modeled closely after the English Sale of Goods Act of 1893. Understanding the
rules concerning the transfer of risk is crucial for parties involved in sales contracts, as these rules determine
who bears the cost of loss or damage to goods at any point in the transaction.

The general rule is that prima-facie the risk passes with the property unless otherwise agreed; the goods
remain at the seller’s risk 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.
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 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 property1

1
Hansen v Craig & Rose (1895)
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 passed after the property.
1. Sterns Ltd v Vickers Ltd.2
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.

2. Head v. Tattersall3

In this case, the plaintiff bought a horse from the defendant who warranted that it had been hunted with the
Bicester hounds. The contract provided that the horse might be returned by a certain day if it appeared that
it had not in fact been hunted with the Bicester hounds. The horse had in fact not been hunted with the
hounds and the plaintiff chose to return it before the agreed date. On the face of it, the plaintiff was clearly
entitled to do this, but before the horse had been returned it had been injured while in the plaintiff’s
possession, although without any fault on his part. The court held that the plaintiff was entitled to return the
horse. Cleas by B expressly stated that property had passed to the plaintiff and then reverted in the
defendant. The same conclusion is implicit in the other two judgments.

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 & Co4 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.
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 SA5 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

2
Sterns Ltd v Vickers Ltd (1923) 1 KB 78
3
Head v. Tattersall (1870) LR 7 EX 7

4
Multanmal Champalal v C P Shah & Co 1970 My 106
5
Mitsui & Co Ltd and Another v Flota Mercante Grancolombiana SA [1988] 1 WLR 1145
against the ship owner for damage to the goods. In an objection by the ship owner 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 ship owner.

The exceptions to this 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. And in Demby
Hamilton & Co. Ltd. v. Barden6 ,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

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 Howell v
Coupland7 the following were seen

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) 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 obliges should carefully consider the scope of force majeure provisions
because:

6
Demby Hamilton & Co. Ltd. v. Barden [1949] 1 All ER 435
7 Howell v Coupland (1876) 1 QBD 258
 • Obligors risk breach if an event not designated as a force majeure event prevents obliges
risk forfeiting a claim of bleach if an obligatory fails to perform its contractual obligation due to an
event that the parties designated as a force majeure events
• Maybe other equitable remedies specifies performance and damages performance to contractual
obligation.

On the other side the doctrine of frustration is part of the general law of contract. In principle, there can be
no doubt that this doctrine applies to contracts for the sale of goods like any other contract. The doctrine of
frustration discharges both parties from their contractual obligations where following the formation of the
contract, performance of the contractual obligations become either: Impossible or radically different.

Section 8 of the sale of goods Act contains a provision which deals expressly with frustration. This
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. The
doctrine of frustration allows for is a remedy in case of a change of circumstances. This does seem
contradictory to the law of contract and the contractual freedom the law allows. The doctrine of frustration
is very important and it is deeply rooted in fairness and allows a party to be excused from performing an
obligation in a contract it at the conclusion of the contract, an inhibition beyond the foreseeable control of
the party happens to render the performance of the contract impossible

Section 8 of the sale of goods Act contains a provision which deals expressly with frustration. This 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 section
is clearly a very incomplete statement of the doctrine of frustration as applied to contracts of sale. It deals
only with specific goods and it deals only with goods which perish, whereas frustration may involve many
other events than the destruction of the goods.

Lord Diplock8 stated that; frustration discharges both parties from their contractual obligations where
following the formation of the contract, performance of the contractual obligations become either:
impossible or radically different.

However, it might be that after the contract was made a government introduced wholly new export or import
licensing system which was unforeseen. There might be plausible arguments in such a case that the contract
was frustrated. It is also possible to argue that a contract for the sale of unascertained goods is frustrated,
but of course such goods cannot usually perish (except for the special case of sale of part of a bulk as

8 Pioneer Shipping Ltd v BTP Ltd [1982] AC 724 at 752

discussed below). In practice, the courts, although admitting the possibility that sales of unascertained goods
can be frustrated, have been very slow in fact to hold them frustrated.

The test for frustration is based on three main elements when assessing whether frustration applies to a
contract as discussed below;

Has the contract allocated the risk of the particular event occurring?

Frustration can only operate where the parties have not themselves allocated the risk of loss between
themselves in the contract. In other words, where a party has agreed to bear the risk/ loss of some sort.
There is no requirement that the allocation of risk has to be exact or definite, just that there is at least some
mechanism for dealing with particular changes in circumstances.

Has there been a radical change in obligations?

There are a variety of ways in which the obligations under a contract can change and these include;

1) Non-occurrence of an event.

Under this category, frustration occurs when an event fails where one of the parties has assumed I'll occur.
The operation of frustration in such circumstances is best understood with reference to two of the most
famous cases on frustration, known as the 'coronation cases(Krell v Henry9) The defendant formed a
contract with the claimant to hire a flat out on the exact date of king Edward vii's coronation service which
was due to pass through the street. The contract had no express reference to the coronation or the purpose
the flat was hired for. The contract was only hired for the daytime, and would not be available overnight.
King Edward fell Ill and the coronation procession was cancelled. The claimant attempted to claim the hire
price from the defendant but they refused to pay on the grounds that the contract was frustrated due to the
cancellation of the coronation. It was held that both parties were aware that the coronation procession was
the foundation of the contract, and the room ad been hired only to view the procession, therefore the contract
was frustrated for the non-occurrence of the event. The important factor of the case was that the claimant
had advertised the hire of their room specifically for the viewing of the coronation. There was no other
value to the room, as it could not be stayed in overnight, it was solely for the viewing of the coronation
procession

In the above case, there was a joint assumption by the parties that the event would go ahead, it was not just
one of the parties making the assumption, which is one of the key requirements of frustration

9 [1903] KB 740
 2) Increased expense.

The courts have tended to rule that an increased expense for one party can never frustrate a contract. The
leading case in this area is Davis Contractors Ltd v Fareham Urban District Council

The courts justification for not allowing an increased expense to frustrate a contract is that where one party
enters a contract under the assumption they can make a profit, just because the assumption is incorrect
doesn't mean the contract can be frustrated. The other party have not made this assumption his also relates
to the idea that the courts will not protect an individual from ad bargain. In Tsakiroglou & Co. Ltd v
Noblee Thork Gmb it was suggested that an increased expense, no matter how onerous, could never
frustrate a contract

3) Destruction of subject matter.

Similar to the non-occurrence of an event, a contract may be formed with a particular subject to matter in
mind. This section covers what will happen where the subject matter is destroyed. In Taylor v Caldwell a
concert hall was hired out and subsequently destroyed in fire. Generally speaking, where the subject matter
of a contract has been destroyed due to no fault of either party, the contract will be frustrated. In so doing,
the destroyed thing must be the actual subject matter of the contract

4) Illegality.

Refers to where the parties form a contract, and subsequently, before or during performance, the contract
becomes illegal to perform. The general rule is that this will frustrate the contract if the effect on the contract
is serious enough.

5) Outbreak of war.

The outbreak of war can cause various contractual issues. A good example is the case of Tsakiroglou &
co.ltd v Noblee Thorl GmbH where the outbreak of war between Britain and Egypt resulted into the
blockage of the Suez Canal thus resulting in many breached international trade and shipping contracts.
Therefore, it was held that the contract was not frustrated due to the Suez Canal blockages.

6) Alteration of the manner of performance or impossibility by one party.

Where an event results in a change in obligations or impossibility for one party, there will not be frustration
of the contract. In Blackburn Bobbin Co. Ltd v Allen (TW) & sons Ltd in this case, there was an
agreement to sell some Finnish timber to a purchase. Due to outbreak of war, the seller could no longer
obtain the timber from their supplier in Finland. The contract was not frustrated, as this concerned with
where the seller got the timber from
 7) Delay or interruption.

There might be a delay or interruption that is impossible to avoid. Therefore, in order for a delay to frustrate
a contract, the delay must be so abnormal, in its cause, it's effects, it's expected duration, so that falls outside
what the parties could reasonably contemplate at the time of contracting. In the authority of “The Sea
Angell”, three factors were laid down in deciding whether a contract may be frustrated for delay. These
factors are; how did the delay arise? Was the delay foreseeable and How does the contract distribute the
risk in other similar circumstances?

If one party is at fault for the frustrating event, it is less likely that the contract will be frustrated. In Maritime
National Fish Ltd v Ocean Trawlers Ltd it was held that the defendant was at fault for the impossibility.
They had been given a license which they could have allocated to the plaintiff's boat, but opted not to,
therefore being at fault and they were unable to claim for frustration of the contract.

The doctrine of frustration has remained a controversy and has caused the following legal effects;

Cricklewood Property & Investment Trust Ltd v Leighton's Investment Trust Ltd, it was stated that
frustration will not merely suspend the parties' obligations under the contract

When a contract is frustrated, it will automatically be discharged without the need for one of the parties to
elect to terminate the contract. In Hirji Mulji v Cheong Yue Steamship Co Ltd, it was held that the effect
of frustration is that it brings the contract to an immediate end, whether or not the parties wish this to be the
result. In other words, it is void, not voidable

However, it is important to keep in mind that the contract will only be terminated from the point of
frustration. This means that the rights, duties, and liabilities that accrued prior to the point of frustration
remain on foot and enforceable. Generally, any payments already made at the point of frustration cannot be
recovered. In addition, any payments that have accrued and are due at the date of frustration will also largely
remain payable. For instance, where the money is paid in advance, the advance payments could be
recovered if there was a total failure of consideration by the other party. As a result of the financial
implications of frustrations under common law, the Law Reform (Frustrated Contracts) Act was formed.
The above section thus prevents advance payments from automatically being forfeited in the event of
frustration.

Contracts may sometimes include specific clauses that prevent particular provisions of the contract from
remaining in effect in circumstances where certain specified occurrences take place. Some clauses even go
so far as Tor stipulate that the contract is to be terminated in the event that particular situations occur. The
existence of such clauses for example, Force Majeure clause, stabilization clause, choice of jurisdiction
clause can sometimes assist in establishing that a contract has been frustrated.

In conclusion, The statutory provisions related to risk in a contract of sale often depend on the jurisdiction
and the terms of the particular contract. By default, the risk of loss typically passes from the seller to the
buyer at a specific moment. This moment is usually determined by factors such as delivery or the time the
goods are identified to the contract. Statutory provisions may also address cases of breach of contract where
risk is affected as well Frustration occurs when an unforeseen event makes it impossible to fulfill the
contract's obligations, rendering the contract impossible to perform. Statutory provisions on frustration
often provide guidelines on how to handle such situations, including the allocation of losses and
responsibilities between the parties. It may allow for the contract to be terminated or modified under certain
circumstances beyond the parties' control.

Bibliography

Case law.