Supply, Offtake, and Consent Risks

• Author: Robert J. Spjut
• Pages: 247-275

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Supply, Oftake, and

ConsentRisks

SUPPLY, OFFTAKE, AND CONSENT HAZARDS

Supply Hazards

Supply is defined as “the amount of goods produced or available at a

given price.”1 A supplier is “[a] person engaged, directly or indirectly,

in making product available to consumers.”2 Where supply refers to a

stock of goods, supplier refers to a person who furnishes such goods

to consumers. Goods, services, and other items of value are furnished

by firms to other firms long before they reach consumers’ hands. A

person obtaining such an item from another engages in a transaction.

A person who obtains an item from another to fulfill a commitment to

a third person engages in two transactions, one with its supplier and a

second with the third party. In a supply or supply chain transaction, for

purposes of this text, an obligor in one transaction is expected by its

performance in that transaction to complete or to enable or help its

obligee to complete a task in a second transaction. That task may be

performance by an obligor of its obligation in the second transaction.

It may be satisfaction of conditions that will eectuate a commitment

1 B’ L D 1439 (10th ed. 2014).

2 Id.

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to perform in the second transaction, enabling the obligee in the first

transaction to realize the benefits of both transactions.

The following are examples of such supply relationships:

● Alamance Board of Education v. Bobby Murray Chevrolet, Inc.3: A car

dealer successfully bid to supply school bus chassis to a number

of school boards. It expected to obtain the chassis from General

Motors (GM) under its contract, which stated that orders did not

bind GM until they were accepted; and they were accepted when

GM “released” the order for production. The supply of the chassis

in the transaction between GM and the dealer, the first transaction,

would have enabled the dealer to perform its obligation to the

school boards in the second transaction. The case is further

discussed in this chapter.4

● State Fuel Co. v. Gulf Oil Corp.5: During the war, kerosene shipped

to the northeast United States had to be contained in barrels and

carried in box cars because tankers and tank cars were in short

supply. Unloading barrels increased the distributors’ delivery

costs. The federal government established a program to reimburse

kerosene distributors for such costs, subject to a maximum

amount. The supplier would credit the distributor for its excess

unloading costs and apply for the reimbursement. A government-

owned corporation would review the application and, if satisfied,

reimburse the seller for such excess unloading costs. It could

have such costs audited. Although the supply chain for the sale

of kerosene was that seller and distributor were supplier and

supplied, respectively, the supply chain was reversed for purposes of

collecting the subsidy: the distributor supplied documentation to

the supplier, and the supplier provided that documentation to the

government corporation. The supplier did not have a commitment

to the government corporation to supply proper documentation.

The supplier had to satisfy conditions to obligate the government

corporation to pay the subsidy. That reimbursement would yield

the benefit of the regulatory relationship with the government

corporation and one of the benefits of the contract with the

3 121 N.C. App. 222, 465 S.E.2d 306 (N.C. App. 1996).

4 See text accompanying notes 12–14.

5 179 F.2d 390 (1st Cir. 1950).

Third-Party and Uncontrollable Event Risks

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