(1) Before the contract.
If one person purports to make with another a contract of sale relating to specific goods which unknown to the parties have ceased to exist at the time of the contract, the contract is void on the ground of mutual mistake.
Couturier v. Hastie, 1852, 5 H.L.C. 673, 23 R.C. 204.
The rule is confined to specific goods, that is, which, as defined by the Sale of Goods Act (Ont. s. 2; U.K. s. 62), are " identified and agreed upon at the time the contract of sale is made."
The Sale of Goods Act (Ont. s. 8; U. K. s. 6) provides:
8. 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 the contract is made, the contract is void.
"Perish" is not defined in the statute, but it is apprehended that the goods would have "perished," not only if they were physically destroyed, but also if they had ceased to exist in a commercial sense, that is if their merchantable character, as such, had been lost, as dates contaminated with sewage, and therefore unsaleable as dates (Asfar v. Blundell,  1 Q.B. 123: insurance), or cement which had lost, through moisture, its properties as such (Duthie v. Hilton, 1868, L.R. 4 C.P- 138: freight) ; or a ship which is a mere congeries of timber (per Parke B. in Barr v. Gibson, 1838, 3 M. & W. 400), or has ceased to be capable of carrying a cargo (per A. L. Smith M.R. in Nickoll v. Ashton,  2 K.B. 126 at p. 133.
Benjamin, Sale, 5th ed., 1906, p. 140; see also Chalmers,
Sale of Goods, 7th ed., 1910, p. 28.
In the United States it is provided by the Uniform Sales Act as follows:
7. - (1) Where the parties purport to sell specific goods, and the goods without the knowledge of the seller have wholly perished at the time when the agreement is made, the agreement is void.
(2) Where the parties purport to sell specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale
(a) as avoided, or
(b) as transferring the property in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the full agreed price if the sale was indivisible or to pay the agreed price for the goods in which the property passes if the sale was divisible.
(2) After the contract.
If the specific goods which are the subject matter of the contract perish or become deteriorated after the making of the contract, the effect of the destruction or deterioration of the goods is a question of the operation or performance of the contract.
The general rule is that the goods are at the risk of whichever of the parties is the owner of the goods - res perit domino - but the parties may vary the rule by the terms of the contract and the rule is subject to modification if the loss is caused by the fault of either party.
Martineau v. Kitching, 1872, L.R. 7 Q.B. 436; Inglis v. Richardson, 1913, 29 O.L.R. 229, 14 D.L.R. 137. The Sale of Goods Act (Ont. s. 22; U.K. s. 20) provides:
22. Unless otherwise agreed, the goods remain at the seller's risk until the property therein 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, provided:
(a) That where delivery has been delayed through the fault of either the buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault.
(b) That nothing in this section shall affect the duties or liabilities of either seller or buyer as a bailee of the goods of the other party.
"Fault" is defined by the statute (Ont. s. 2; U. K. s. 62) as meaning "wrongful act or default." The question when the property in goods passes from the seller to the buyer is discussed in chapter 3.
It follows from the general rule above stated that where there is a contract to sell specific goods, and subsequently without any fault on either part, the goods perish after the property has passed to the buyer, the buyer, in the absence of an agreement to the contrary, must bear the loss and is liable on the contract notwithstanding that the goods have perished.
The result is different if the goods perish before the property passes to the buyer, and the Sale of Goods Act (Ont. s. 9; U. K. s. 7) provides:
9. 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 thereby voided.
In the United States the Uniform Sales Act (s. 8) makes special provision, not only for the case of the goods wholly perishing, but also for the case of part of the goods perishing or the whole or a material part of the goods so deteriorating in quality as to be substantially changed in character. Cf.,s. 7 of the same statute, quoted above.
Special provision is also made by the Sale of Goods Act (Ont. s. 32; U. K. s. 32) for the case of the seller's failure to make such contract with the carrier on behalf of the buyer as may be reasonable. The buyer must, unless otherwise agreed, take any risk of deterioration in the goods necessarily incident transit (Ont. s. 33; U. K. s. 33). For the text of these sections, see chapter 6, .65.