2014 ZAB Q8

Advise Romeo, who manufactures cars, concerning the following situations.

(i) Romeo contracts for the purchase of 500 tons of steel, which is part of the stock
(unascertained/ bulk) owned by Ayrton Ltd and held in its warehouse. Before delivery
Ayrton Ltd becomes insolvent
(ii) Romeo contracts for the purchase of 1,000 tons of steel from Stelyton Ltd, which, at
the time of the contract, was part of a cargo of 5,000 tons on board the ship, The
Enterprise. Subsequently, deliveries of 4,000 tons are made to other purchasers
(ascertainment by exhaustion) , but before delivery can be made to Romeo the ship
sinks with the loss of the cargo. Stelyton Ltd is insolvent
(iii) Romeo contracts for the purchase of machinery at a factory (deliverable state?)
owned by Factyron Ltd. Immediately after the sale has been agreed the factory burns
down destroying the machinery

Introduction
- R may to know in each circumstances whether property and risk in goods has passed to him
in each scenario
- If property in goods has not passed to him before the seller becomes insolvent, R will only
become an unsecured creditor
- If the property in goods has passed to him, meaning risk has also passed to him (s.20(1)), R
will bear any loss arising from the goods
- It is presumed that both R and A were dealing as trader therefore SOGA 1979 will apply
- Even if R is a consumer, s.4 of the CRA invokes s.16-20B of the SOGA to determine whether
property has passes in consumer sale

Contract for the 500T of steel

- R may want to argue that property in the 500T of steel has been passed to him before A
become insolvent to avoid become merely an unsecured creditor
- Firstly, we have to determine the nature of the goods
- The fact tells us that the 500T of steel is part of the stock owed by A, therefore according to
PS Atiyah, where the goods are unidentified out of a specific or identified bulk, it will be
regarded as unascertained goods.
- Therefore, following the general rule in s.16, property in the 500T of steel cannot passed to
R because they are not ascertained.
- R may want to know whether he can argue that property in 500T of steel has passed to him
by subsequent ascertainment?
- OTF: the fact did not mention that R took delivery of the steel like the buyer in Hayman v
Mclintock, all the 500T of steel are still being stored in the seller warehouse upon
insolvency, therefore no ascertainment by act of appropriation.
- Further, the fact also did not mention that exhaustion has taken place, the quantity of the
steel has not been reduced to such an amount which matches R’s order nor R is the sole
remaining buyer waiting for delivery as in Wait & James v Midland bank or The Elafi,
therefore the 500T of steel has not been ascertained by exhaustion.
- Prima facie, no property in the 500T of steel can pass to R as it remains in unascertained
state.
 - R may want to rely on the exception to the general rule under s.16 SOGA to argue that
property in goods has nevertheless passed to him despite goods being in unascertained
state.
- Following Re Staplyton Fletcher, if A has separated R’s 500T of steel from the general stock
and has put it in a separate warehouse, property will be regarded as having passed to the R.
However, Re Staplyton cannot be applied here because the fact do not mention seller
separating the 500T steel from general stock and that the 500T is still stored in the seller
warehouse, the present case is more similar to Re London Wine and property in goods
cannot pass to R under this way.
- Alternatively, R may rely on s.18 rule 5 to argue that property in 500T of steel has passed to
him despite being unascertained state.
- However, for s.18 rule 5 to operate, R must show that the 500T of steel has been
unconditionally appropriated into the contract. Following Carlos Federspiel v Charles Twigg
and Healy v Howlett and Son, simply earmarking the goods will not be sufficient because the
seller still can change their mind and use the goods for other performance, the seller must
labels the goods with the buyer’s detail and the labelled goods must be put on a carrier
moving in the buyer’s direction, essentially, there must be an irreversible and irrevocable
act.
- OTF: even if A has earmarked the 500T of steel with R’s detail however the facts tell us that
the goods are being stored in the warehouse and has not been put on carrier, therefore
there is no unconditional appropriation here, s.18 rule 5 will not be applicable.
- As a matter of last resort. R is advised to rely on the exception under s.20A SOGA. R is
advised that is least preferrable exception because even if R can successful in raising s.20A, R
can only obtain an undivided share in the goods rather than property in goods, R will be
regarded as a mere owner in common of the bulk and will have to share ownership with
other shareholder.
- First, s.20A (1)(a) can be satisfied because the 500T of steel are identifiable from the
contract and however it is unclear whether R has paid the price of the steel either in full or
part of it (s.20A(1)(b)
- It also has to be considered that whether the 500T of steel form part of a bulk under the
s.61(1). Applying w.61(1), the 500T of steel can be regarded as bulk because they are all
stored in a defined area that is the warehouse and it can be interchangeable with the same
tonnage of steel as the fact mention that they are part of stock of A.
- R is however advise that because the fact did not mention that R making any payment
towards the purchase of steel, hence R will not be able to rely on the exception under s.20A.
- Property in the 500T of steel has not bee passed to R and R becomes a mere unsecured
creditor

Contract for the purchase of 1000T of steel

- Here the 1000T of steel lost in transit
- R is advised to insist that property in goods has remained with S. This is because if property
in 1000T of steel has not been passed to R, risk still lies with the seller as per s.20(1), the
seller will be solely responsible to bear the losses for the cargo.
- The nature of the 1000T is unascertained goods because the fact mention that they are part
of a cargo of 5000T, hence unidentified part of a special bulk according to PS Atiyah.
 - Prima facie, property in the 1000T cannot be passed to R
- R is however advised that there are possibility that the 1000T of steel may become
ascertained by exhaustion.
- OTF: the ship made delivery of 4000T to other purchaser and leaving the 1000T of steel
pending delivery to R, therefore the bulk has been reduced to the exact amount of steel
that R has contracted for. Following Wait and James v Midland Bank and the Elafi, the
property in the 1000T of steel is capable of passing to R due to exhaustion and risk too can
be passed to R under s.20(1).
- Here because 1000T has been ascertained by exhaustion before the ship sank, therefore R
will bear the loss of cargo.

Contract for the purchase of machinery

- Here the machine was destroyed in a fire
- Therefore R is advised to argue that property in machinery remains with F, therefore risk still
lies with the F as per s.20(1) and R will not be bound by the losses for destruction
- However, here there a 2 possibility of the nature of goods
- if the machinery is the only machinery in the F’s factory, and is identified and agreed upon
when contract of sale is made, the machinery will amount to specific goods under s.61(1)
and the contract the contract will be the sale for specific goods.
- However, if the machinery is part of the stock owed by F in his factory, then it will be
regarded as unascertained goods because it is unable to be identified and agreed upon at
the time of contract.

if the machinery is regarded as specific goods

- F will argue that property in the machinery will pass when the parties intended it to pass
following s.17(1)
- The facts are silent as to the terms of contract, conduct of parties and there is no
surrounding circumstances which indicate that property in the machinery should pass to R
(s.17(2))
- F will be relying on s.18 rule 1 and argue that property in the machinery has been passed to
R at the time of contract, regardless of their intention. And therefore since the property in
goods has passed to R, risk lies with R to bear to the loss of destruction (s.20(1))
- However, F may not be able to rely on the s.18 rule 1 although a contract has been
concluded between the parties and the contract was one unconditional and for the sale of
specific good. It can be argued that the machinery is not in deliverable state.
- For example in Underwood Ltd v Burge Castle Brick & Cement, where the contract was for a
large piece of machinery attached to ground, it was held that the goods are not in
deliverable state.
- Similarly in Philiips head & Son v Showfront, where the carpet was not in deliverable state
because it was a heavy bundle and difficult move.
- Assuming if the machinery R contracted to buy fall under the above mentioned situation,
then s.18 rule 1 will not be appliable here.
- S.18 rule 2 added that even if F has put the goods in deliverable state, F has a duty to inform
R that it has been done, otherwise no property in machinery will pass to R. On the fact, no
mention of any notice given by F.
 - Therefore, property in goods will not pass to R either under s.18 rule 1 and rule 2, the risk
remains with the F and F will be solely responsible for the loss incurred upon destruction.

If the machinery is regarded as unascertained goods.

- R is advised to raise general rule that property in goods cannot pass until and unless goods
become ascertained (s.16)
- F cannot rely on s.18 rule 1 because it requires the goods to be in deliverable state, the
reason same as above.
- Further, nothing OTF suggested that the machinery has been unconditional appropriated
inro the contract such as F earmarked the machinery and put on carrier (Carlos Federspiel)
- Possibility of s.20A unless F can show that the machinery form part of a bulk under s.61(1)
- The bulk must be identifiable from the contract s.20A (1)(a)
- However, the fact did not mention that R made any payment s.20A(1)(b)
- If not satisfied, then F can’t argue that F & R are owners in common & no issue of sharing of
losses arises