Mason Hayes Solicitors

Peaches Williams wins Mason Hayes essay prize 2021

Essay question: 

K9 Refineries Ltd (which has just gone into liquidation) regularly supplied petrol to Acme Motors Ltd, Best Garages Ltd and Crazy Cars plc which are all based in Poppleton. K9’s practice was that, as soon as petrol was ordered by either Acme Motors, Best Garages or Crazy Cars, they would transfer the requisite amount of petrol to a tank labelled “Poppleton Customers” on its premises and send a delivery order entitling the respective customer to take delivery. No other fuel, apart from that ordered by Acme Motors, Best Garages and Crazy Cars was ever placed in the tank marked “Poppleton Customers”. On 29 January 2021, Acme Motors ordered 2,500 litres, Best Garages ordered 5,000 litres and Crazy Cars ordered 2,500 litres of petrol. 10,000 litres of petrol were duly pumped into the (empty) customer tank and delivery orders were provided to each buyer. Acme Motors paid for all of its petrol in advance, Best Garages paid a 10% deposit and Crazy Cars did not pay anything. On 7 February 2021 Best Garages and Crazy Cars separately endorsed their delivery orders to Supa-Saver Supermarkets who paid cash for them. On 10 February 2021, a valve malfunctioned without anyone’s fault and 2000 litres leaked away. On 12 February 2021, Acme Motors presented its delivery order and took delivery of 2,500 litres of petrol. On 16 February 2021, Supa-Saver Supermarkets presented their delivery orders and were displeased to find only 5,500 litres of petrol left. Advise all the parties on their respective rights. 

Peaches Williams essay:

To advise the parties on their respective rights and available remedies, this problem question will consider the issues surrounding the passing of property and risk. 

First, it is imperative to establish what statutory regime best applies to the facts of the scenario. Here, as the parties in question all operate as companies dealing with the purchase and sale of large volumes of petrol, this prima facie suggests that the transactions are occurring in the course of business, making the Sale of Goods Act 1979 (SGA-1979) most applicable. However, it is important to note that due to s4(2) of the Consumer Rights Act 2015 incorporating ss 16-20B SGA-1979, on the facts, this distinction is immaterial. 

Classification of the goods

The first issue pertains to the classification of the petrol. This is a crucial pre-requisite for establishing when the property will pass, the associated risks and the remedies available. If the fuel supplied is ‘identified and agreed upon’ as stated under s61 SGA-1979, then it will be classified as a specific good. However, the petrol ordered has been put into a tank labelled ‘Poppleton Customers’ making individual identification unlikely. Therefore, the petrol would be unidentifiable suggesting that the contracts are one of unascertained goods, specifically unascertained goods that form part of a bulk. There is a lack of information given in the scenario on whether any of the parties have invoked their right under s17 SGA-1979 to state the intention on when the property shall pass. Therefore, considering the goods’ classification as unascertained, the general rule encapsulated in s16 SGA-1979 that property cannot pass in unascertained goods until the goods are unascertained will apply. Per Atkin LJ in Re Wait a good will become ascertained by being “identified in accordance with the agreement after the time a contract of sale is made” (630). For the petrol, this would involve separating the goods from the entire bulk. 

Acme Motors

As the classification of the goods has been established, it must now be considered whether the property in the petrol has passed to Acme Motors. The position Acme Motors mirrors that of the customers in Re Staplyton Fletcher where the customers paid for wine that was moved into the general stock area, much like the tank but was never marked as belonging to the individual customers. It was held that the wine was sufficiently ascertained to allow the customers to become tenants in common. This principle now holds statutory footing as the Sale of Goods (Amendment) Act 1995 introduced a statutory tenancy in common (s20A SGA-1979) whereby in a contract for goods forming part of an undivided bulk, the owner may become an owner in common. For this exception to apply, there must be a specified quantity of unascertained goods forming part of a bulk identified in the contract (s20A(1)(a) SGA-1979 and the buyer must have paid the price for some or all of the goods (s20A(1)(b) SGA). 

On the facts, the specified quantity of petrol attributable to Acme Motors can be seen in the 2,500 litres from the tank of 10,000 litres that Acme Motors later collected. This is likely to be sufficient to satisfy the first limb of s20(1)(a) SGA-1979. Additionally, as Acme Motors have paid in full, this will satisfy s20A(1)(b) SGA-1979. Therefore, on the basis that s20A SGA-1979 applies, Acme Motors will be advised that they are entitled to the 2,500 litres of petrol as they are the owners in common. Under this provision, the property would have passed as soon as Acme Motors paid the price for the petrol, and so the risk of the goods is transferred to them from K9 Refineries. By 20(B) SGA-1979, the rule of ‘first come, first served’ will apply to the transaction as although the bulk is subject to partial interests, Acme Motors are entitled to take their full share as they have acted in accordance with the statute. 

Best Garages

Next, it must be determined whether the property has passed to Best Garages and the operation of s20A SGA-1979 must be considered. The specified quantity of goods is seen in the 5,000 litres of petrol and the money consideration for some of the goods by way of the 10% deposit would satisfy the two tenets of S20A(1)(a) and (b) SGA-1979. Thus, it is axiomatic that s20A SGA-1979 would operate to allow Best Garages to become a tenant in common and have entitlement in the proportion of the goods paid for. As they have paid for 10% of the 5,000 litres, this will result in them only being tenants in common for this proportion. Resultingly, the title of goods that will pass from K9 Refineries to Best Garages will only be in relation to the 500 litres and Best Garages will be responsible for the risk in those 500 litres alone.

Regarding the remainder of the petrol ordered, s20A SGA-1979 will not be applicable as they have not been paid for. As there is an absence of information about any express terms as to the parties intention, the presumptive rule 5 entrenched within s18 SGA-1979 must be applied. Under the proviso of rule 5, the goods in a deliverable state must be unconditionally appropriated from the other party to the contract for the goods to pass to the buyer. As Pearson J opined in Carlos Federspiel, to constitute appropriation the parties must have had an intention to attach the contract irrevocably to the goods. Despite the decision in Re Stapyton Fletcher to allow the mere setting of goods aside to constitute as unconditional appropriation, the preferred approach of the courts is seen in Carlos Federspiel. Here it was held that despite the goods being set aside, the seller still has scope to change their mind and use the goods to fulfil a new contract and so unconditional appropriation had not occurred. 

On the facts, it is unlikely that K9 Refineries Ltd setting 10,000 litres of petrol aside and into the customer tank will be sufficient to amount to unconditional appropriation. Applying Carlos Federspiel, despite the label on the tank, K9 Refineries Ltd would not be circumvented from using the petrol for another order, rendering it an insufficient attempt at unconditional appropriation. Furthermore, it is unlikely that the petrol would satisfy the statutory definition of ‘deliverable state’ as entrenched within s61(5) SGA-1979. As highlighted in Phillip Head if “things remain to be done” (140) to the goods, this will render it undeliverable. As the 4,500 litres of petrol is still in the tank and has not been separated from the rest of the petrol, using the precedent of Phillip Head, things remain to be done to it and so it will be undeliverable. Resultingly, rule 5 would not apply and so the goods remain unascertainable and property will not pass to Best Garages. The goods, therefore, remain at the risk of K9 Refineries by s20(1) SGA-1979.

Crazy Cars

As Crazy Cars have not made any payment for their order of petrol, s20A SGA-1979 cannot apply and so they will not be classified as tenants in common. Following similar application of rule 5 as above, unconditional appropriation of Crazy Car’s 2,500 litres of petrol will not be possible and the goods in the tank will not amount to being in a deliverable state. Thus, in the absence of these pre-requisites, the goods will remain unascertained and property will not pass to Crazy Cars.

Supa-Saver Supermarket 

The final issue to be considered is whether Supa-Savers are entitled to damages for the 2000 litres of petrol that is missing from their delivery. A similar scenario of the facts appeared in Sterns v Vickers. Here, upon the deterioration of unascertained spirits in bulk, even though there was no agreement between the parties, the court held that the risk has passed between the original seller and the sub-purchaser. This was because the sub-purchaser was given a delivery warrant allowing them to immediately obtain delivery, but they had chosen not to for several months within which time the goods perished. However, this case should be distinguished from the scenario, as Sterns concerned a delivery delay of several months whereas on the facts, it took Supa-Savers, a mere nine days to present their delivery orders and the leakage occurred three days into the endorsement of the contract. Therefore, this would suggest that the onus of risk would still lie within K9 Refineries and any remedies will be brought on their behalf. 

Where the seller delivers a quantity of goods less than he contracted to sell the buyer has the right to reject them (s30(1) SGA-1979). The right to reject is prima facie absolute but is subject to two qualifications. First, the de minimis exception will apply in scenario’s whereby the court will be willing to overlook a commercially insignificant disparity. This principle was illustrated in Shipton v Weil Bros where the court felt that the disparity in goods delivered was too trifling to permit the buyer to reject the goods. Secondly, s30(2A) SGA-1979 provides that subject to any agreement to the contrary, a buyer is not permitted to reject the goods if the shortfall is so slight that it would be unreasonable for him to do so. Applying this to the facts, the disparity between the 7,500 litres of petrol that Supa-Saver Supermarket purchased, and the 5,550 available litres is extremely large and so would not be deemed de minimis. A significant shortfall of this type would undoubtedly be considered as ‘material’ (s30(2D)(a) SGA-1979) and it would not be unreasonable for Supa-Saver Supermarket to reject the whole of the goods under this subheading. Therefore, Super-Saver Supermarket would be advised that they can reject the insufficient quantity delivered and sue for any losses occasioned by K9’s breach (Cobec Brazilian Trading). As they have paid the price in full, they will be permitted to recover the price as paid upon a consideration that has failed. 

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