0415563577 Commer

Commercial Law20102011This edition updated by Jonathan Fitchen

Seventh edition published 2010 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business

This edition published in the Taylor & Francis e-Library, 2010. To purchase your own copy of this or any of Taylor & Francis or Routledges collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk. 2006, 2008, 2010 Routledge Previous editions published by Cavendish Publishing Limited First edition 1997 Second edition 1999 Third edition 2002 Fourth edition 2004 All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Control Number: 2009912266

ISBN 0-203-85801-8 Master e-book ISBN

ISBN10: 0415563577 (pbk) ISBN13: 9780415563574 (pbk) ISBN10: 0203858018 (eBook) ISBN13: 9780203858011 (eBook)

Contents

Table of Cases Table of Statutes Table of Statutory Instruments Table of European Legislation How to use this book 1 2 3 4 5 6 7 8 9 10 11 12 13 Denition of contract of sale of goods Passing of property and risk Retention of title clauses Void and frustrated sale of goods contracts Seller is not the owner Implied contract terms as to title under the Sale of Goods Act 1979 Misrepresentation Express and implied terms Exemption and limitation clauses Delivery and payment in sale of goods Sellers remedies Buyers remedies Agency

v xi xvii xix xxi 1 5 15 31 37 49 55 63 87 105 111 119 127 iii

CONTENTS

14 15 16 17 18 19 20 21

International sales Consumer credit categories of agreement Consumer credit triangular transactions Consumer credit trading control Consumer credit documentation and cancellation Agency and connected lender liability Consumer credit rights of the parties Putting it into practice . . .

139 147 157 163 169 179 187 199

iv

Table of Cases

Aluminium Industrie Vaasen v Romalpa Aluminium Ltd [1976] 1 WLR 676 Andrews v Hopkinson [1956] 3 All ER 422 Armour v Thyssen [1990] 3 All ER 481 Armstrong v Jackson [1917] 2 KB 822 Ashington Piggeries v Hill [1971] 1 All ER 847 Barber v NWS Bank [1996] 1 All ER 906 Barrow Lane and Ballard v Phillips [1921] 1 KB 574 Bartlett v Sidney Marcus [1965] 2 All ER 753 Beale v Taylor [1967] 1 WLR 1193 Bence Graphics International Ltd v Fasson UK [1998] QB 87 Bentinck v Cromwell Engineering [1971] 1 QB 324 Bond Worth Ltd Re [1980] Ch 228 Borden (UK) Ltd v Scottish Timber Products Ltd [1981] Ch 25 Bowmakers v Barnett Instruments [1945] KB 65 Branwhite v Worcester Works Finance [1969] 1 AC 552 Bunge Corporation v Tradax [1981] 2 All ER 513 Butterworth v Kingsway Motors [1954] 1 WLR 1286 Car and Universal Finance v Caldwell [1965] 1 QB 31 Central Newbury Car Auctions v Unity Finance [1957] 1 QB 371 Charge Card Services Ltd, Re [1988] 3 All ER 702 Clegg v Olle Andersson [2003] 1 All ER 721 Clough Mill v Martin [1985] 1 WLR 111

20 158 21 135 67 51 32, 33 70 203 123, 124 192, 193 2324 26 191, 192 160 140 51 41 39 112 81 21, 24 v

TABLE OF CASES

Colley v Overseas Exporters [1921] 3 KB 302 141 Compaq Computers Ltd v Abercorn Group Ltd [1991] 28 BCC 484 Computer 2000 Distribution Ltd v ICM Computer Solutions 108 Plc [2004] The Times 17 / 11/ 2004 Couturier v Hastie (1856) 5 HL Cas 673 32 Cundy v Lindsay (1878) 3 App Cas 459 42 Demby Hamilton Ltd v Barden [1949] 1 All ER 435 Dimond v Lovell [2000] 2 All ER 897 Director General of Fair Trading v First National Bank [2002] 1 All ER 97 Donoghue v Stephenson [1932] AC 562 Egan v Motor Services (Bath) Ltd [2008] 1 All ER 1156 Fairfax Gerrard Holdings Ltd v Capital Bank PLC [2007] EWCA Civ Federspiel v Twigg [1957] 1 Lloyds Rep 240 Feldaroll Foundry Plc v Hermes Leasing [2004] EWCA Civ 747 Fiat Auto Financial Services v Connelly [2007] S.L.T. (Sh Ct) 111 Forthright Finance Ltd v Ingate [1997] 4 All ER 99 Freeman and Lockyer v Buckhurst Park Properties [1964] 2 QB 480 Frost v Aylesbury Dairy [1905] 1 KB 608 GE Capital Bank Ltd v Rushton [2006] 3 All ER 865 George Mitchell v Finney Lock Seeds [1983] 2 AC 803 Gill and Dufus v Berger [1984] AC 382 Goldcorp Exchange, Re [1995] AC 74 Grifths v Peter Conway [1939] 1 All ER 685 Hall and Pims Arbitration, Re (1928) 30 Ll L Rep 159 Harlingdon Enterprises v Christopher Hull Fine Art [1991] 1 QB 564 vi 11 172, 173 99 84 71 16 8 96 83 160 130, 131 73 46 97 142 10 73 122 67

TABLE OF CASES

Healey v Howlett [1917] 1 KB 337 Hedley Byrne v Heller [1964] AC 465 Helby v Matthews [1895] AC 471 Hely-Hutchinson v Brayhead [1968] 1 QB 549 Hendy Lennox v Grahame Puttick [1984] 1 WLR 485 Highway Foods International, Re [1995] BCLC 209 Hong Kong Fir Shipping Co v Kawasaki Kisen Kaisha [1962] 2 QB 26 Howell v Coupland (1876) 1 QBD 258 J & H Ritchie Ltd v Lloyd Ltd [2007] 1 WLR 670 Jones v Gallagher [2004] EWCA 10 Keighley, Maxsted and Co v Durant [1901] AC 240 Kursell v Timber Operators [1927] 1 KB 298 Kwei Tek Chao v British Traders and Shippers Ltd [1954] 2 QB 459 Lambert v Lewis [1981] 2 Lloyds Rep 17 Lazenby Garages v Wright [1976] 1 WLR 459 Leaf v International Picture Galleries [1950] 2 KB 86 Lee v Butler [1893] 2 QB 318 Lewis v Averay [1971] 3 All ER 907 Lombard North Central v Butterworth [1987] QB 527 Lonsdale v Howard & Hallam Ltd [2007] 4 All ER 1 Mash and Murrell v Joseph Emmanual [1961] 1 WLR 862 May and Butcher v R [1934] 2 KB 17 McEntire v Crossley Bros [1895] AC 457 Microbeads v Vinhurst Road Markings [1975] 1 WLR 218 Modelboard Ltd v Outer Box Ltd [1993] BCLC 623. Moorcock, The (1889) 14 PD 64 National Mutual General Insurance Association v Jones [1990] 1 AC 24 Newtons of Wembley v Williams [1965] 1 QB 560 Niblett v Confectioners Materials [1921] 3 KB 387

9 59 43 129 27 44 65 33 82 82 133 6, 7 142, 143

73 115 57 16 41 109, 189 137 75 109 17 52 27 75 44 44 52 vii

TABLE OF CASES

Ofce of Fair Trading v Lloyds TSB Bank Plc [2007] UKHL 48 Olley v Marlborough Court [1949] 1 KB 532 Panchaud Freres v Etablissement General Grain [1970] 1 Lloyds Rep 53 Panorama Developments v Fidelis Furnishing Fabrics [1971] 2 QB 711 Peachdart, Re [1983] 3 All ER 204 Pearson v Rose and Young [1951] 1 KB 275 Phillips v Brooks [1919] 2 KB 243 Photo Production v Securicor Transport [1980] AC 827 Priest v Last [1903] 2 KB 148 R and B Customs Brokers v United Dominions Trust [1988] 1 WLR 321 Rickards v Oppenheim [1950] 1 KB 616 Rogers v Parish [1987] QB 933 Rowland v Divall [1923] 2 KB 500 Royscot Trust v Rogerson [1991] 3 All ER 294 Said v Butt [1920] 3 KB 497 Sainsbury v Street [1972] 1 WLR 834 Shine v General Guarantee [1988] 1 All ER 911 Slater v Finning [1996] 3 All ER 398 Smith New Court Securities v Scrimgeour Vickers (Asset Management) [1996] 4 All ER 769 Stadium Finance v Robbins [1962] 2 QB 664 Stevenson v Rogers [1999] QB 1028

182 89 142 130 26 40 41 89 72 95, 96 106 70 50 58 135 33, 34 70 73, 74 58, 59 40 68, 95, 96, 201, 203 28 73 58 115 89

Tatung (UK) Ltd v Galtex Telesure Ltd [1989] BCC 325 Teheran-Europe v ST Belton [1968] 2 QB 545 Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 Thompson v Robinson [1955] Ch 177 Thornton v Shoe Lane Parking [1971] 2 QB 163 viii

TABLE OF CASES

United Dominions Trust v Taylor [1980] SLT 28 Wadham Stringer v Meaney [1981] 1 WLR 39 Wait, Re [1927] 1 Ch 606 Watteau v Fenwick [1893] 1 QB 346 Wertheim v Chicoutimi Pulp [1911] AC 301 Wiehe v Dennis Bros [1913] 29 TLR 250 Wilson v First County Trust Ltd [2004] 1 AC 816 Workman Clerk v Lloyd Brazileno [1908] 1 KB 968

184 196, 197 8 131 123 12 173 113, 114

ix

Table of Statutes

Companies Act 2006 s 860 Consumer Credit Act 1974

s8 s 8(1) s 9(1) s 11 s 12 s 15 s 17 s 19 s 25(2) s 33 s 34 s 39 s 39A s 40 s 46 s 48 s 49 s 49(1) s 50 s 51 s 56

24, 25 43, 45, 100, 132, 148, 150, 155, 167, 170, 171, 174, 176, 181, 188 149 149 149 153 153 150 153 154 43 193 193 165 165 165 167 165 167 165 167 167 132, 160, 176, 179, 180 xi

TABLE OF STATUTES

s 58 ss 6061 s 61 s 61(2) s 62 ss 62, 63 s 65 s 67 s 68 ss 6973 s 69(7) s 74 s 75 s 83 s 84 s 86 s 87 s 90 s 91 s 93 s 94 s 99 s 105 s 113 s 127 s 129 s 133 s 135 ss 140A140D s 140A s 140B s 140B(3) s 140D s 148 s 149 s 189

175 171 171 175 172 171 172 175 176 176 176 170 182 193 193 188 188, 189 191 191, 192 188 188 195 174 174 172, 174 188, 191 196 196 188, 193 187, 194 194 195 195 165 165 174

xii

TABLE OF STATUTES

Consumer Credit Act 2006 s2 s 23 ss 2654 ss 62, 64 Consumer Protection Act 1987 Pt I Pt III Contracts (Rights of Third Parties) Act 1999 Enterprise Act 2002 Pt 8 Factors Act 1889 s 1(1) s2 s 2(1) s9 Hire Purchase Act 1964 Pt III Hire Purchase Act 1965 Late Payment of Commercial Debts (Interest) Act 1998 Misrepresentation Act 1967 s 2(1) s 2(2) s3 Sale and Supply of Goods Act 1994 Sale of Goods Act 1979 Pt 5A s2 s6 s7

148 150 164 164 164 84, 100 84 100 90 195 195

39 40 38 43 47, 51 38, 45, 51 193, 197 114

5859, 61 5758, 61 59, 93 70, 75, 76, 81 2, 3, 4, 64, 75, 76, 95, 101, 202 124 2, 201, 202 3234 3234 xiii

TABLE OF STATUTES

s8 ss 1215 s 12 s 12(3) ss 1315 s 13 s 14 s 14(2) s 14(2D) s 14(2E) s 14(3) s 15 s 15A s 16 s 17 s 18 s 19 s 20(1) s 20(2) s 20(3) ss 20A20B s 20A s 20A(3) s 20B s 23 s 24 s 25 s 25(2) s 26 s 28 s 29 s 30 s 35 s 38xiv

109 75, 85, 96 3, 49, 50, 51, 52, 91, 94 52 76, 91, 94 63, 6566, 67, 74 68, 95, 96 3, 4, 63, 68, 69, 71, 83, 202 70 70 63, 7173 63, 74 66, 76 8, 9 8 5, 6, 8 16, 17, 19, 25, 26, 29 12 11 12 5, 9, 10 5, 9, 10 12 9, 10, 11 38, 41, 57 38, 42 38, 43 43 39 107 108 107 76, 81, 83 112

TABLE OF STATUTES

ss 3943 s 44 s 48 s 48F s 49 s 50 s 52 s 53 s 53(3) Supply of Goods and Services Act 1982 ss 25A ss 611 ss 1216 Supply of Goods (Implied Terms) Act 1973 ss 811A Unfair Contract Terms Act 1977 s 2(1) s 2(2) s3 s6 s8 s 11 s 12 ss 1215 ss 1315 Sch 2

115 116 116 124 16, 108, 111, 112 111, 114 119, 120 123 124 125, 201, 202 2, 3 2, 4 2 3, 85, 125 2 52, 59, 76, 90, 9195, 98, 124 91, 93 93 92, 93 92 93 97 92, 96 92 92 97

xv

Table of Statutory Instruments

Commercial Agents (Council Directive) Regulations 1993, SI 1993/3053 Consumer Credit (Advertisements) Regulations 2004, SI 2004/1484 Consumer Credit (Agreements) Regulations 1983, SI 1983/1553 Consumer Protection (Cancellation of Contracts Concluded away from Business Premises) Regulations 1987, SI 1987/2117 Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/2083

137 167 171 176

90, 98

xvii

Table of European Legislation

Conventions European Convention on the Protection of Human Rights and Fundamental Freedoms Directives European Directive 93/13 Unfair Commercial Practices Directive 2005/2998 100 173

xix

How to use this book

Welcome to this new edition of Routledge Commercial Law Lawcards. In response to student feedback, weve added some new features to these new editions to give you all the support and preparation you need in order to face your law exams with condence. Inside this book you will nd: s NEW tables of cases and statutes for ease of reference

xxi

HOW TO USE THIS BOOK

s Revision Checklists Weve summarised the key topics you will need to know for your law exams and broken them down into a handy revision checklist. Check them out at the beginning of each chapter, then after you have the chapter down, revisit the checklist and tick each topic off as you gain knowledge and condence.

xxii


s Key Cases Weve identied the key cases that are most likely to come up in exams. To help you to ensure that you can cite cases with ease, weve included a brief account of the case and judgment for a quick aide-memoire.

s Companion Website At the end of each chapter you will be prompted to visit the Routledge Lawcards companion website where you can test your understanding online with specially prepared multiple-choice questions, as well as revise the key terms with our online glossary.

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s Exam Practice Once youve acquired the basic knowledge, youll want to put it to the test. The Routledge Questions and Answers provides examples of the kinds of questions that you will face in your exams, together with suggested answer plans and a fully-worked model answer. Weve included one example free at the end of this book to help you put your technique and understanding into practice.

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1Denition of contract of sale of goodsDene a contract of sale of goods What legislation governs contracts for the sale of goods? What legislation governs contracts for the supply of goods? What if the contract features both a supply of goods and the supply of a service at the same time? What legislation governs contracts of hire?

s s s s s

DEFINITION OF CONTRACT OF SALE OF GOODS

English law provides different legislative regimes for different forms of commercial contracts. Only contracts of sale of goods are governed by the Sale of Goods Act 1979. According to s 2: A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price . . . The basic notion is that a contract of sale of goods is a means of transferring property (meaning ownership) from one person to another. There are other means of doing this. Clearly, making someone a gift or leaving someone a bequest by will are alternatives. There are also other types of contract which may involve transferring ownership and/or possession of goods. The reason that these other types of contract are not contracts of sale of goods is that one or more ingredients of the above denition is missing. These contracts are, therefore, not governed by the Sale of Goods Act 1979, but by other legal provisions. In practice it is important to know which type of contract you have as this determines which legal rules apply to its performance. If you make a mistake in classifying the contract you will probably apply the wrong legislative rules and lose the case. CONTRACTS WHICH ARE NOT GOVERNED BY THE SALE OF GOODS ACT 1979Type Barter or exchange Services and work and materials contracts Hire purchase Why not sale? No money consideration Substance of contract, not the passing of property in goods No commitment by hirer to accept transfer of property in goods No provision for transfer of property in goods Land is not within the denition of goods Other relevant legislation Sections 25A of the Supply of Goods and Services Act 1982 Sections 25A and 1216 of the Supply of Goods and Services Act 1982 Sections 811A of the Supply of Goods (Implied Terms) Act 1973; Consumer Credit Act 1974 Sections 611 of the Supply of Goods and Services Act 1982 See Modern Land Law, 6th edn, 2008, by Martin Dixon

Hire Sale of land

2


EXAMPLES THE SALE OF GOODS ACT 1979 DOES NOT APPLY IN ANY OF THE CASES BELOW. 1 Jack agrees with Bill to swap his hammer for Bills wrench. A little later Bill is told by Cedric that the hammer was not Jacks at all and that it belongs to Cedric. Bill cannot argue that Jack is in breach of the implied term contained in s 12 of the Sale of Goods Act 1979 because the transaction was not a sale of goods contract under that Act (no money changed hands). Look at ss 25A of the Supply of Goods and Services Act 1982 instead. 2 Kelly sells a tted kitchen to Oscar. The agreement is that Kelly will supply and t this kitchen by the 20th of May. By the 20th of June Oscar has not seen Kelly nor the kitchen. There is clearly a breach of contract here but is the Sale of Goods Act 1979 applicable? No. Although there is a sale here, there is also an agreement to t the kitchen. This sort of arrangement is called a Work and Materials contract and does NOT fall under the Sale of Goods Act 1979 but rather under the Supply of Goods and Services Act 1982. Part 1 of the 1982 Act contains implied terms which are similar to those found in the 1979 Act. Part 2 of the 1982 Act contains terms concerning, amongst other things, the level of care and skill which the tter should attain, the length of time which the contract should take and the price of that contract if not otherwise xed. 3 Alice agrees to rent a piano for two years from Beinways. During the next two years she will pay 200 per month to Beinways. At the end of that period she has an option but not an obligation to make one more payment of 200 and to then own the piano outright. After one month the piano develops a fault. Can we use s 14(2) of the Sale of Goods Act 1979 to reject the piano? No. This is not a sale of goods contract because there is no obligation on Alice to make the nal payment and to buy the piano. This is actually a hire-purchase contract. In such a contract the hirer is only obliged to hire the goods for a period of time. At the end of that period of time he or she has an option to make one last payment to buy the goods. Such hire-purchase contracts are subject to the rules contained in the Supply of Goods (Implied Terms) Act 1973. 4 Alice agrees to hire a piano for one year from Beinways. During the year she will pay 200 per month to Beinways. At the end of that period she must 3


return the piano. After one month the piano develops a fault. Can we use s 14(2) of the Sale of Goods Act 1979 to reject the piano? No. This is not a sale of goods contract because there is no obligation on Beinways to transfer the property in the goods to Alice. Nor is this a hire-purchase contract as Alice has no option to nally buy the piano. This is a simple hire contract and subject to the rules contained ss 611 of the Supply of Goods and Services Act 1982. 5 Zoe buys Enochs house for 150,000. After a week a huge crack appears in the house and it emerges that Enoch caused this by incompetently extending the cellar. Can Zoe use any of the provisions of the Sale of Goods Act 1979 to reject the property? No. Land is not technically classed as a good within the 1979 Act. Zoe must rely upon her contract of purchase, land law and the law of negligence.

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Denition of contract of sale of goods why not visit the companion website and take the Multiple Choice Question test. Check your understanding of the terms and vocabulary used in this chapter with the ashcard glossary.

4

2Passing of property and riskWhat is a specic good? What is an unascertained good? When will the rules in s 18 of the Sale of Goods Act 1979 apply? What is necessary for s 20AB to apply? When will risk in the goods pass?

s s s s s

PASSING OF PROPERTY AND RISK

CLASSIFICATION OF THE CONTRACTAny contract for the sale of goods will concern one of three types of goods.

SPECIFIC GOODS These are goods identied and agreed upon at the time the contract is made (s 61). Thus, the goods are specic goods only if it is possible, at the time the contract is made, to identify the particular goods which are being sold (Kursell v Timber Operators [1927]). Property in specic goods passes when the parties intended it to. Failing a clear indication (either by words or conduct) by the parties as to when they intend property to pass, the following rules (from s 18) will be applied by the court to decide who owns the property.

6

CLASSIFICATION OF THE CONTRACT

Section 18, rule number 1

Applicable circumstances Unconditional contract for sale of goods in deliverable state Seller is bound to do something to the goods to put them into deliverable state Sale of goods in a deliverable state and the seller is bound to weigh, measure, test or do something else in order to ascertain the price Goods are delivered on approval or sale or return or other similar terms

Time when property passes On the making of the contract When the thing is done and the buyer has notice that it has been done When the thing is done and the buyer has notice that it has been done

2

3

4

When buyer signies approval or acceptance or otherwise adopts the transaction or retains the goods beyond the xed time for their return or, if there was no xed time, beyond a reasonable time

KURSELL v TIMBER OPERATORS [1927] Basic facts The contract sold mature timber to be cut from a Latvian forest over fteen years. Shortly afterwards the Latvian Government nationalised the forest, making performance of the contract impossible. Seller argued that property passed to Buyer when the contract was signed. The court did not agree: the timber was not specic goods thus no property could pass to the buyer, the contract was frustrated and the price could not be claimed. Relevance The timber was not specic or ascertained until it was a) selected and b) cut: property could not pass when the contract was signed.

7


PURELY GENERIC UNASCERTAINED GOODS These are goods which are not within the denition of specic goods and which are not sold as an identied quantity out of a specic bulk. No property can pass in them until they have become ascertained, ie identied. Thus the buyer may have paid the price for the unascertained goods but have no property in those goods. If the seller becomes insolvent before the goods are ascertained, the buyer will be an unsecured creditor, have no claim on the goods, and be likely to recover little or none of his payment (Re Wait [1927]). Once the goods have become ascertained, property passes when the parties intend it to pass (s 17). Failing either a clear expression by the parties as to when they intend property to pass, or other evidence of such an intention, the following default rules (from s 18) will be applied by the court. These sections form a hierarchy. Section 16 must be considered rst, then s 17, then (assuming there to be no evidence of the intention of the parties) s 18.

Section 18, rule number 5(1)

Requirements for property to pass 1 Goods of the contract description and in a deliverable state are unconditionally appropriated to the contract by one party; and 2 the other party assents, expressly or impliedly, to that appropriation either before or after it is made

5(2)

1 In pursuance of the contract, the seller, without reserving the right of disposal, delivers the goods to the buyer or to a carrier for the purpose of transmission to the buyer; and 2 the buyer assents, expressly or impliedly, to that appropriation either before or after it is made

Unconditional appropriation of the goods is said to occur when one party, usually the seller, does more than merely set aside the goods intended for use to full the contract, but attaches the goods irrevocably to the contract (Federspiel v Twigg [1957]). Handing them over (without reserving a right of disposal) to an independent carrier to transport them to the buyer is thus usually a very clear unconditional appropriation (s 18, r 5(2)). It will not be an unconditional appropriation, however, if the goods destined for the buyer remain unascertained, for example, if some of the goods handed over to the 8

CLASSIFICATION OF THE CONTRACT

carrier are to be delivered to one buyer and some to another, leaving it to the carrier to decide which are to be delivered to which buyer (Healey v Howlett [1917]).

HEALEY v HOWLETT [1917] Basic facts Seller loaded 190 boxes of sh onto a railway carriage. Buyer was to have 20 of these boxes. There was no separation of the 20 boxes from the 190 boxes. The sh went off. Had the property and risk passed from the seller to the buyer? The court held that as the 20 boxes were not separated or otherwise distinguished from the other 170 boxes no property or risk had passed from the seller to the buyer. Relevance Despite being handed to a carrier, the failure to separate the goods caused them to remain unascertained.

SPECIFIED QUANTITY OUT OF IDENTIFIED BULK A buyer cannot become the owner of any particular goods to be taken from a bulk until the particular goods have become ascertained: until ascertained the goods are purely generic and s 16 will not allow property in such goods to pass (see above). As this legal position was out of step with commercial expectations, particularly in relation to sales of commodities such as oil, Parliament inserted two new sections into the Sale of Goods Act 1979, s 20A and s 20B. These sections do not change the requirement that property must be ascertained before it can pass, but do offer a purchaser who has paid for a specic unit quantity of otherwise unascertained goods some protection against the consequences of the seller becoming insolvent before the property is ascertained. Under s 20A it is possible for the buyer to obtain a share in the ownership of the bulk. He or she becomes, along with the owner and any other qualifying buyers, a tenant in common of an undivided share of the bulk. This occurs only if the purchase is from a bulk source, is expressed in units of quantity (thus a fraction of the bulk such as one half will not do), and only when the buyer pays the price, or part of it. The buyers share is such share as 9


the quantity of goods paid for and due to the buyer out of the bulk bears to the quantity of goods in the bulk at that time. Of course, if the bulk becomes reduced to (or to less than) the quantity of goods the buyer contracted to buy, then, unless some other buyer also has an interest in the bulk, the whole of the bulk will belong to the buyer. It will be ascertained and appropriated by exhaustion independently of s 20A and s 20B. In that case, the buyer will cease to have merely an undivided share in the bulk but will now be complete owner of the now identied remainder of the bulk (s 18, r 5(3)). It should not be assumed that s 20A and s 20B have solved the problem of the insolvency of the paid seller before the property has passed to the buyer. There are still many cases to which the rules in s 20A and B cannot be applied (Re Goldcorp Exchange Ltd [1995]).

RE GOLDCORP EXCHANGE LTD [1995] Basic facts The Company offered a chance to invest in gold bullion which it would hold. In return it would issue a certicate stating how much gold was owned by the customer: it would supply this gold, if specically required, within seven days. The Company became insolvent. Investors tried to claim gold they had paid for. The court held that only those who had required the company to supply gold could successfully claim ownership. Others had only a right to sue the insolvent company for breach of contract. Relevance Property in unascertained goods cannot pass.

WORKED EXAMPLES OF s 20A AND B Suppose that buyer A has agreed to buy 600 of the 1,000 widgets stored in a particular warehouse at an agreed price of 2 per widget. The following table of examples indicates the extent of buyer As proprietary interest in the goods.

10

PASSING OF RISK

Example Amount Quantity of number paid by widgets buyer A paid for by buyer A 1 2 3 4 5 600 1,200 1,200 1,200 1,200 300 600 600 600 600

Quantity of widgets sold by the seller (of the 1,000 bulk) and delivered to other buyers 0 0 200 400 600

Extent of buyer As interest in the bulk 30% 60% 75% 100% 100%

Note that, in example 3, the bulk has been reduced by 200 widgets so that buyer A has an interest amounting to 600 out of 800, that is, 75%. Similarly, in example 4, the bulk has been reduced to 600 so that buyer A has an interest amounting to 600 out of 600, that is, 100%. Assuming that there is no other buyer to whom goods are due out of the bulk, then, as soon as the bulk was reduced to 600, buyer A became the outright owner of the whole of the bulk. Example 5 deals with a situation where, before delivery of any of the goods to buyer A, the seller has sold and delivered 600 widgets (that is, 200 more than there should have been) to another buyer or buyers. This has reduced the bulk to 400 widgets. Clearly, buyer A is now the complete owner of 100% of that reduced bulk. None of the goods which have been sold and delivered to the other buyers can be claimed, since, provided each was bona de and unaware of buyer As interest in the bulk, they will have obtained good title because buyer A is deemed to consent to a delivery of goods to another co-owner (s 20B). Buyer A does, however, have a claim against the seller for breach of contract, because the seller cannot now comply with the contract by which he undertook to supply buyer A with 600 widgets out of that specied stock. For the buyers rights when the wrong quantity is delivered, see p 107.

PASSING OF RISK(a) Where delivery of the goods is delayed through the fault of either party, then any loss of the goods or damage to them, which might not have occurred but for such fault, falls on the party at fault (s 20(2)) (Demby Hamilton Ltd v Barden [1949]). 11


(b) Where either of the parties is negligent as a bailee of the goods, then any loss occasioned by that negligence falls upon that party (s 20(3)) (Wiehe v Dennis Bros [1913]). (c) The parties may agree upon when the risk passes from the seller to the buyer (s 20(1)). (d) Unless otherwise agreed, risk passes to the buyer when property in the goods passes to the buyer (s 20(1)), except that different rules apply in the situation where the buyer has an undivided share in an identied bulk. But where the buyer deals as a consumer, the goods remain at the sellers risk until they are delivered to the consumer. PASSING OF RISK UNDIVIDED SHARE OF BULK Unless one of rules (a)(c) above applies, the position is as follows. First, if the buyer has not paid any of the price, the buyer has no property rights in the bulk and risk remains with the seller. If the buyer has paid some or all of the price, the buyer will have an undivided share in the bulk. In that situation, any accidental loss or damage is regarded as falling rst on the share of the bulk which had been retained by the seller (s 20A(3)). Suppose the bulk consists of 1,000 widgets and suppose that the seller has agreed to sell, out of that bulk, 200 to X and 300 to Y. Suppose also that X and Y have each paid the agreed price in full and neither has taken delivery. The following table illustrates the outcome of different scenarios.Example number 1 2 Number of widgets destroyed/damaged/lost 500 600 Incident Some of bulk are stolen Some of bulk are stolen Outcome Seller bears all the loss Seller bears loss of 500, X bears loss of 40 and Y bears loss of 60 Seller bears half the loss. X bears one-fth and Y bears threetenths of the loss

3

1,000

Accidental re. No widgets burnt. All equally damaged by smoke

12

PASSING OF RISK

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Passing of property and risk why not visit the companion website and take the Multiple Choice Question test. Check your understanding of the terms and vocabulary used in this chapter with the ashcard glossary.

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3Retention of title clausesWhat problems face an unpaid seller on the insolvency of the buyer? What is the effect of a valid retention of title clause on the passing of title? What are the main types of retention of title clause? What is the consequence of creating a charge over property? What are the most frequent arguments raised against retention of title clauses?

s s s s s

RETENTION OF TITLE CLAUSES

RETENTION OF TITLE CLAUSES Although it is of the essence in every sale of goods contract that the seller transfers the property in goods to the buyer, it is possible to agree to postpone this event until a future date. Section 19 of the Sale of Goods Act 1979 allows the seller to, . . . reserve the right of disposal of the goods until certain conditions are fullled; and in such a case, notwithstanding the delivery of the goods to the buyer, . . ., the property in the goods does not pass to the buyer until the conditions imposed by the seller are fullled. The traditional use of this provision was to prevent the buyer from selling on the goods which might have been bought on instalment terms to another person before the seller had been paid in full. Thus in Lee v Butler [1893] 2 QB 318 the purchaser was obliged to make all of the instalment payments due upon the furniture which she had bought from the seller before it became her property. Only then was she entitled to sell to another as owner. The modern use of the retention of title clause is not though generally aimed at the particular evil of the buyer selling the goods on before he has paid for them. Such selling on of the goods by the buyer is often expected by the seller. It is common in the manufacturing industry for the payment of the price by the buyer to be postponed until sometime after the sellers delivery of the goods: a postponement of one to two months is typical. The buyer will often need this period to make the supplied goods into something which it can then sell at a prot before paying the sellers bill. The Court of Appeal has ruled that there is nothing necessarily inconsistent between sale of goods subject to a retention of title clause and an express or implied right for the buyer to sell those goods on (see Fairfax Gerrard Holdings Ltd v Capital Bank PLC [2007]). When we consider this sort of transaction we can see that the buyer is actually getting goods sold on such terms on-credit from the seller. The price which will eventually be paid by the buyer reects the fact of this credit (signicant discounts are often available in practice to the buyer who can and will make an immediate payment in full, such a buyer gets the title to the goods at once). As long as the original seller receives its money within this credit period all is well. If however the money is not paid, the original seller is likely to be in a very difcult position which must now briey be explained. An unpaid seller may theoretically claim the money which it is owed as a debt under s 49 of the Sale of Goods Act 1979 (see Chapter 11), however, if the reason that the buyer has not paid is that it can not do so because it is 16


insolvent, such a claim is often pointless. A company is described as insolvent when it is unable to pay its bills as they fall due: to put this simply, an insolvent company is one which does not have enough readily accessible money to function on a day-to-day basis. There is rarely a point in suing such a company for money because the lack of money is the reason it is insolvent in the rst place. For the original seller there is though probably worse to come. The goods which it supplied on credit to the insolvent buyer are likely to be sold off by the liquidator or insolvency practitioner to raise money to pay off the debts which the insolvent company already owed to other creditors. This seems monstrous: would it not be more reasonable to allow the unpaid seller to pre-empt this selling off by allowing it to recover the goods from the now insolvent buyer? The basic idea behind the retention of title clause is succinctly contained in this question. There are different forms of retention of title clauses but the basic idea which is common to all is that the unpaid seller should, in accordance with s 19 of the Sale of Goods Act 1979, be allowed to recover unpaid goods concerning which the title has not yet passed to the buyer. If such a recovery is possible it takes priority over the entire insolvency as the title to the goods in question has never passed to the buyer: the goods thus still belong to the seller and can not lawfully be used to pay off the buyers debts. An example of this can be found in the case of McEntire v Crossley Bros [1895] AC 457 where an identied gas engine was held to be outside the insolvency of those who had rented it from its owners. THE PROBLEM Whilst the basic idea of the retention of title clause outlined above is simple to grasp and initially may seem a fair and just response to what would otherwise be the unfortunate predicament of the unpaid seller, there are problems with the example offered above and with the simple response it suggests. Our example consisted of only one unpaid transaction and two parties. In the real world, insolvent companies may have entered into many transactions with many persons incurring many debts. Such debts may take the form of other unpaid contracts with other suppliers, money borrowed by different types of commercial loans (eg charges and mortgages), and money owed to employees. Once we factor these other parties into the equation it becomes much harder to see that it is fair or simple to let just one unpaid seller (ahead of 17


all others) take back goods which it chose to supply to the buyer on terms of credit which it now wishes it had never extended. It may be useful to note here that the seller or lender does have it in its power to check the credit-rating of the would-be buyer company by looking at various ofcial records including the Register of Company Charges (which lists the existing loans that that company has taken out). Few sellers or lenders will resist this possibility as it helps them to decide how much they can charge for their goods or loans.

THE LEGISLATIVE SOLUTION The problem of insolvency is always that there is not enough money to pay everyone: it thus becomes necessary to decide who gets paid, in what order, and how much each should receive. Company Law and Insolvency Law have attempted to mitigate this problem by putting in place a statutory order in which the different classes of persons owed money by an insolvent company must be paid. This mandatory order works by organising the creditors into classes and then paying off one class at a time. We start with the rst class and pay all money owed to it entirely. Once this is done, the persons in class two are eligible for payment. This process continues until either all the available money owed by the company has been distributed or, which is much more common, the available money runs out. If there is not enough money to pay all that is owed to those who fall into a given class, what is available is shared out amongst those in that class. Those who are lower down the list of creditors are thus most likely to receive either a (small) percentage of what they were owed, or nothing at all. (See Schedule 6 of the Insolvency Act 1986 for details of the statutory order.)

EXAMPLE THE PROBLEM OF INSOLVENT COMPANIES AND UNPAID SUPPLIERS. Atrox Ltd agrees to sell Tinte Ltd ten tonnes of widgets for which Tinte Ltd agrees to pay a price of 55,000 on the terms that it will receive the widgets immediately but not pay for them until six weeks after the date of delivery. The widgets are delivered. Tinte Ltd plans to make the widgets into wodgets and to sell them for a handsome prot from which it will pay Atrox Ltd. Five weeks later Tinte Ltd, which has not yet made the widgets into wodgets or paid 18


Atrox Ltd, is declared insolvent. The liquidator must sell everything which belongs to Tinte Ltd to raise the money to pay off Tinte Ltds debts. It is usual for such a sale to include all goods previously supplied to the insolvent company which are still in its possession (eg the unpaid-for widgets supplied by Atrox Ltd). The liquidator MUST follow the statutory order of re-payment with the proceeds he has been able to raise. This order, in simplied form, is as follows: 1 costs of insolvency (winding up Tint Ltd) including liquidators fees 2 money owed to preferential creditors 3 money owed under oating charges 4 money owed to ordinary unsecured trade creditors including Atrox Ltd and probably many others 5 money owed via deferred debts 6 money owed to the shareholders of the company Unless there is enough money left to entirely pay back all of the money owed by Tinte Ltd to classes 1, 2 and 3 above, Atrox Ltd in the fourth class will receive nothing. Even if there is money enough to repay the rst three classes, unless there is also enough to entirely repay the fourth class too, Atrox Ltd will only recover a percentage of the money which it is owed for the widgets. It is also important to note that the process of sorting out the insolvency can easily take a year. Thus even if all goes unusually well and there is enough money for Atrox Ltd to recover all of its 50,000, it may take a year to actually receive money which it expected six weeks after making the delivery. Of course, Atrox Ltd would like to avoid, or at least minimise, the difculties above by recovering the widgets which are still with Tinte Ltd before they can be sold to pay the other creditors. The problem is that the statutory order is not variable. The only practical hope is to show that because of s 19 and a valid retention of title clause incorporated into the contract between Atrox Ltd and Tinte Ltd the title to the widgets has yet to pass to Tinte Ltd and is still with Atrox Ltd. Section 19 of the Sale of Goods Act 1979, amongst other things, was successfully argued to produce such a result in a very important case which revolutionised commercial practice concerning retention of title clauses. 19


ALUMINIUM INDUSTRIE VASSEN v ROMALPA ALUMINIUM LTD [1976] Basic facts AIV (a Dutch company) supplied foil to Romalpa subject to a Dutch retention of title clause in the Dutch drafted contract which covered foil supplied and goods later made from this foil. Romalpa became insolvent shortly after selling some foil to a third party. The proceeds of this sub-sale were received by the Receiver. AIV claimed return of remaining supplied foil and the proceeds of the sub-sale. The court agreed with AIV on both claims. Relevance Romalpa greatly encouraged the use of retention of title clauses by sellers. Subsequently there has been much litigation concerning the effectiveness or otherwise of such clauses (which often fail).

After the Romalpa case the retention of title clause seemed to offer the unsecured commercial seller a rough-and-ready form of what may loosely be referred to as a security against the danger of the buyers insolvency. Sellers, unsurprisingly, rushed to include such clauses in their contracts. English, rather than Dutch, lawyers were asked to draft such clauses and came up with various different versions of what had been successful in Romalpa.

DIFFERENT TYPES OF RETENTION OF TITLE CLAUSE There are many types of retention of title clause. It is unnecessary to list all such clauses. The main types of such clauses are outlined below. It should be remembered that in practice the clause may actually fall into more than one of the basic types of retention of title clause listed below. s Simple clause: retaining title for the seller only in relation to the unaltered goods supplied under that contract. s An all liabilities clause alternatively known as an all monies clause: retaining title for the seller in relation to all unaltered goods supplied under more than one contract. 20


s A substitute products clause: attempting to allow the unpaid seller to claim against the products made from the goods it had supplied. s A proceeds of sale clause: attempting to allow the unpaid seller to recover from the proceeds of any sale-on by the buyer. The case law broadly indicates that the rst two types of retention of title clause are by far the most likely to succeed and that the last two are almost certain to fail. The all liabilities clause allows the seller to retain title to goods supplied under more than one contract. It is useful if the seller is to supply the goods under a number of separate contracts (Armour v Thyssen [1990]). In this case the House of Lords approved the use of an all liabilities clause to retain the sellers title under a contract despite the buyer having paid in full under that contract because the buyer had not yet paid in full for an earlier contract. SIMPLE RETENTION OF TITLE CLAUSE EXAMPLES The following examples illustrate the operation of a valid simple retention of title clause in relation to goods which have been supplied by the seller and not sold or used up by the buyer in a manufacturing process or in any other way. The examples all assume that the clause is not an all liabilities clause and that the buyer has agreed to pay 10,000 for the goods. They assume that, on the buyers insolvency and liquidation or bankruptcy, the seller is entitled to the goods unless the price has already been paid in full. They are based on the approach set out in Clough Mill v Martin [1985]. In example 1, the seller would not be entitled to retake the goods, since property will have passed to the buyer on the buyer paying the price in full. The other examples illustrate the following principles: (a) Out of the proceeds of resale by the seller, the seller must reimburse the buyer the amount of any part payment already made. (b) Before making that reimbursement, the seller is entitled to deduct any loss he has made on the resale. (c) Subject to (a) above, the seller is entitled to keep any prot made on the resale, because he resells as owner. (d) If any part payment and the proceeds of resale are together less than the original purchase price agreed by the buyer, the buyer is liable to the seller 21


Example Amount of number price paid by buyer 1 2 3 4 5 6 7 8 9 10,000 0 0 1,000 0 2,000 1,000 3,000 2,000

Value of goods as realised on resale by seller 0 10,000 8,000 8,000 12,000 12,000 12,000 12,000 9,000

Amount (if any) of refund due to buyer 0 0 0 0 0 2,000 1,000 3,000 1,000

Amount (if any) of price still to be paid by buyer 0 0 2,000 1,000 0 0 0 0 0

for the shortfall (in example 4, 1,000) though the seller will be an unsecured creditor as to this shortfall. THE OTHER CREDITORS FIGHT BACK AFTER ROMALPA Whilst the unpaid sellers were happy with the new usefulness of retention of title clauses after Romalpa, other secured creditors were much less happy and waited for a chance to ght back. With the increase in insolvencies following the recession of the early 1980s further litigation was not long in coming. The retention of title clause was usually attacked on one or more of four general grounds. (a) The clause was not incorporated in the contract. (b) The clause created a charge which is void unless formally registered. (c) The goods supplied can not be returned because they have been irreversibly incorporated into other goods or land. (d) The monies received by the insolvent company were already the property of another.

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We will consider each argument, and some of the case law it has generated, in turn. (a) The clause was not incorporated in the contract Whilst we may be reasonably sure that some sort of a retention of title clause will be present in the sellers standard terms and conditions, it is not necessarily the case that these terms are the ones which will govern the contract. If the circumstances of the negotiation of the contract suggest a Battle-of-theForms in which buyer and seller each try to make the deal on their own terms (and not on the terms of the other) it may be that if the buyers terms are those which govern the contract, the sellers retention of title clause is irrelevant as it was never incorporated into the contract. (b) The clause created a charge which is void unless formally registered Technically speaking the Romalpa, or retention of title clause, is not a security interest according to English commercial law. Romalpa clauses are not usually registered, nor do they seek to give the commercial seller the form of security which a commercial lender or mortgagee would expect from such a transaction. A commercial lender, such as a bank, would expect to continue to own property rights in the goods supplied after payment, but the seller who inserts a retention of title clause usually only tries to prevent the title passing to the buyer before payment of the purchase price. This seemingly small distinction is actually very important in practice and has proven dangerous for sellers who have tried to rely upon a retention of title clause after the Romalpa case. Remember that the seller is unlikely to draft the contract personally and has probably bought it from a lawyer who may know little of the sellers business. The next two cases illustrate the difculty posed to the effectiveness of a retention of title clause by the unintentional creation of an unregistered charge.

RE BOND WORTH LTD [1980] Ch 228 Basic facts Fibres were supplied to the buyers to be spun, dyed and woven into carpets. The contract contained a retention of title clause in which the seller was said to retain . . . equitable and benecial title . . . in the bres and the carpets into which they were made. The buyer23


became insolvent. Slade J found that the retention of title clause meant that the buyer had agreed to give the seller a commercial interest in the bres and carpets which it (the buyer) owned and that this interest required registration by the seller as a charge if it was to be binding. As it had not been registered it was void against the liquidator and other creditors. The retention of title clause failed to promote the seller from the position of an unsecured creditor of an insolvent company. Relevance If it is to be effective, a retention of title clause should not be drafted to cause a registerable charge under s 860 of the Companies Act 2006 to arise. If a seller is determined to assert continuing property rights in the goods supplied, those rights MUST be registered under s 860 of the Companies Act 2006. If not so registered they are void against the liquidator and other creditors.

The following case in the Court of Appeal conrmed the dangers of the unrecognised unregistered charge but the narrowness of the claim in this case which was limited to goods supplied and still in the buyers custody avoided the difculty.

CLOUGH MILL LTD v MARTIN [1985] Basic facts Clough Mill sold yarn which the buyer was to make into cloth. The sellers contract contained a retention of title clause which stated that until the seller was paid, or the cloth was sold on, it retained the ownership of the yarn. Later the clause stated that if the cloth was sold on, the sellers rights were transferred to an interest in that property. The buyer became insolvent without having fully paid the seller. The seller claimed the return of all the unused yarn which was in the buyers possession at the time of the insolvency. The argument that a charge had been created by the retention of title clause was considered plausible by the Court of Appeal but only in relation to the interests which the seller might claim in the cloth that24


had been sold on. No such claim was made. The seller only claimed the unused yarn which was still in the buyers possession. The Court of Appeal decided that the part of the clause which dealt with this issue did NOT create a registerable charge and so was a valid example of a s 19 retention of title clause. Relevance As well as conrming the perils of creating an unregistered charge, this case saw the Court of Appeal, obiter, consider the practical operation of retention of title clauses. (See the simple retention of title clause examples above.)

Why do sellers not routinely register such charges? One reason is that the seller may not realise that its retention of title clause has created a registerable charge. The registration requirement applies whether or not you realise that your retention of title clause has created a registerable charge. Other reasons for sellers not routinely registering retention of title clauses are that the registration process takes time, costs money, and the protection it offers is often useless to the commercial seller (as opposed to the commercial lender). Should a seller register a charge, that charge only takes priority over creditors who register after you have done so and unregistered creditors. It has no effect upon creditors who registered their charges before you registered yours. Nor will it affect superior secured creditors. In other words, even if you register your retention of title clause so as to prevent it from being held to be void for breach of s 860 of the Companies Act 2006, the registration only gets you a place in the queue of creditors. It does not let you go straight to the head of that queue as did the High Court and Court of Appeal with the Dutch seller in the Romalpa case. (c) The goods supplied can not be returned because they have been irreversibly incorporated into other goods or land If the seller has supplied goods which are to be permanently xed to land, once those goods are so xed the retention of title clause fails. If the seller has supplied goods which are to be made into something else it may be impossible to successfully argue that the title to those goods was intended to stay with the seller as a consequence of s 19 of the Sale of Goods Act 1979. 25


Even if such an argument succeeds, there are further problems with maintaining a continued interest in goods which have been subject to manufacturing processes which change the essential identity of the goods to the point at which they are no longer identiable as the product which the seller supplied to the buyer. This issue was considered by the Court of Appeal in the next case.

BORDEN (UK) LTD v SCOTTISH TIMBER PRODUCTS LTD [1981] Ch 25 Basic facts The seller supplied resin to the buyer on the understanding that within two days of delivery the buyer would irreversibly combine the resin with woodchips and other chemicals to make chipboard. The sellers contract contained a retention of title clause. After making the chipboard the buyer became insolvent (without paying). The seller argued it owned both an interest in the chipboard which had been manufactured and in the proceeds of earlier sales of the chipboard. The Court of Appeal decided that as the manufacturing process irreversibly destroyed the identity of the goods, they ceased to exist at the point of combination: thus the sellers ownership of the said resin also ceased to exist. The retention of title clause failed as it could not be shown that title had not been intended to immediately pass to the buyer. Relevance If the buyers manufacturing process means that the goods can no longer be identied afterwards then title can not be retained by the seller.

It appears that even if the goods in question merely undergo preliminary processing work by the buyer it is likely that the courts will hold that the identity of the goods is lost and that attempts by the seller to retain title under s 19 of the Sale of Goods Act 1979 will fail. Thus in Re Peachdart [1983] leather which was to be used to make handbags was supplied subject to a retention of title clause. Vinelott J held that the buyers act of cutting the leather into the shapes required to assemble the handbags caused the leather to cease to be identiable as the property of the seller: thus the sellers attempt 26


to retain title failed. An attempt to retain title in relation to sheets of cardboard which were then made into cardboard boxes also failed, Modelboard Ltd v Outer Box Ltd [1993] BCLC 623. If however the goods supplied are still identiable and can be removed from whatever processes the buyer has applied, they may be recovered. This took place in the case of Hendy Lennox (Industrial Engines) Ltd v Grahame Puttick Ltd [1984]; where the retention of title clause worked.

HENDY LENNOX v GRAHAME PUTTICK [1984] Basic facts Diesel engines were supplied, subject to a Romalpa clause, then tted to generators. Each engine had a serial number. When the buyer became insolvent the seller sought to recover one engine. The Receiver argued that the process of tting the engine to the generator passed property to the buyer. The court disagreed and allowed the seller to recover the still identiable engine despite the fact that some hours of work would be required to disconnect it. Relevance If the property remains identiable and is not irredeemably changed by the manufacturing process a Romalpa clause may be viable.

(d) The monies received by the insolvent company were already the property of another It was at one time quite common to draft a retention of title clause to cover not only the goods supplied, but also to cover any proceeds arising from the buyers onward sale of those goods. In the Romalpa case the seller had successfully claimed to be entitled to the proceeds of the buyers sale-on of the sellers foil. However, this result was dependent upon very unusual circumstances and has not occurred again. In Romalpa the sale-on was of unmixed foil, had the foil been processed before sale, so as to lose its identity, this claim would have failed. The payment for the sale-on was received by the liquidator and paid into a specially opened bank account. In practice it would be more usual for the proceeds to be received by the soon to be insolvent company and for that 27


money to be paid into an overdrawn bank account. It is not possible to follow money into an overdraft as it ceases to exist once it is paid in (assuming the overdraft to be bigger than the sum paid in). Equally unusual was the fact that in Romalpa the liquidator was willing to agree that the foil had been held by the buyer so as to create a duciary relationship which beneted the unpaid seller. Subsequently liquidators and receivers have been unwilling to make such helpful concessions. Even if the unpaid seller can convince the court that such a duty can be found, it may be dangerous to mention it. In Tatung (UK) Ltd v Galtex Telesure Ltd [1989] BCC 325 Phillips J held that such a duciary relationship itself created a charge which should have been registered and was thus void for non-registration. Assuming the seller to successfully overcome the difculties mentioned above, a more fundamental problem awaits if the seller tries to claim that it owns the money received by the buyer for the sale-on of the goods. This claim by the unpaid seller may clash with an earlier claim by a commercial lender which already owns the book-debts, ie all the money which is to be received by the insolvent buyer company. It is quite common for a trading company to sell or factor its book debts to a commercial lender to raise additional money. If this has taken place, this will mean that the proceeds of the sale-on received by the buyer, which the seller claims (pleading its retention of title clause to prove its ownership), may actually already belong to the commercial lender. By trying to argue that it owns the money received by the buyer in such circumstances the unpaid seller collides with the rules concerning the priority of equitable assignments. These rules state that the rst assignment in time will take precedence over any subsequent equitable interest or assignment. Thus in the case of Compaq Computers Ltd v Abercorn Group Ltd [1991] BCC 484 the buyer had already sold its book-debts to a commercial lender and later entered into a contract containing a retention of title clause with the seller: as that retention of title clause was second in time it was ineffective when the seller tried to claim ownership over receipts of money which already belonged to the commercial lender. CONCLUSION As we have seen, the functioning of a retention of title clause is subject to a number of signicant legal obstacles. This is to say nothing of the practical obstacles which may face the unpaid seller (such as how to gain access to the 28


premises of the insolvent buyer which may be in administration without committing trespass and how to remove the goods without committing either criminal damage, theft or burglary) which are outside the scope of this chapter. However, if such a clause is to work, in legal terms, it seems that a simple clause which reects the wording of s 19 of the Sale of Goods Act 1979 is most likely to be effective.

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Retention of title clauses why not visit the companion website and take the Multiple Choice Question test. Check your understanding of the terms and vocabulary used in this chapter with the ashcard glossary.

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4Void and frustrated sale of goods contractsThe distinction between Mistake and Frustration The meaning of perish under the Act Mistake concerning specic goods s 6 Frustration concerning specic goods s 7 The residual role of the common law

s s s s s

VOID AND FRUSTRATED SALE OF GOODS CONTRACTS

The ordinary contract rules relating to mistake and frustration apply to sale of goods contracts. There are, however, specic provisions in ss 6 and 7 of the Sale of Goods Act 1979 about the perishing of specic goods (Couturier v Hastie [1856]).

COUTURIER v HASTIE [1856] Basic facts In February, Couturier shipped grain by sea to London. The grain began to overheat and was sold by the ships captain in Tunis in April. This was unknown to Couturiers London agent, Hastie, who, in May sold the cargo to Callender. When the truth emerged Callender refused to pay. Couturier sued Hastie arguing that under their Agency agreement he was responsible for the debt. The court disagreed. Relevance If, unknown to the parties, there is actually no subject matter because it has perished prior to the contract, there can be no contract. This case inspired s 6.

EVENTS BEFORE THE CONTRACT IS MADE: s 6 MISTAKEIn the case of a contract for the sale of specic goods, if the goods have, unknown to the seller, perished before the contract is made, the contract is void (s 6). This is no more than what the rule would be at common law. Because the contract is concerned with the sale of something which, unknown to the parties, does not exist, it is a contract about nothing. The rule applies equally (unless the contract is severable) even if only some of the goods have perished see Barrow Lane and Ballard v Phillips [1929] where some of the goods had apparently already been stolen before the contract was made. The rule does not apply, however, if the contract was for the sale, not of specic goods (for example, the sellers current stock of 100 tons of hazelnuts), but only of purely generic unascertained goods (for example, 100 tons of hazelnuts). If the contract was for the sale of unascertained goods out of an 32

EVENTS AFTER THE CONTRACT IS MADE

identied bulk, then s 6 would not apply, but the contract would nevertheless be void at common law if the identied bulk had, unknown to the seller, ceased to exist at the time the contract was made.

BARROW LANE AND BALLARD v PHILLIPS [1929] Basic facts Phillips sold a Parcel being 700 bags of nuts to Ballard. Unknown to either party before the contract was made 109 bags from the Parcel had been stolen from the depot. 150 bags were delivered to Ballard by Phillips before the remaining bags were also stolen. Phillips claimed the entire price from Ballard. The court held the contract void under s 6 as the goods had perished and the contract was for a specic Parcel of goods. Relevance Perish, a term undened by the Act, is interpreted broadly. If even part of specic goods perish, s 6 may apply.

EVENTS AFTER THE CONTRACT IS MADE: s 7 FRUSTRATIONIn the case of a contract for the sale of specic goods, where, without the fault of the buyer or the seller, the goods perish after the contract is made and before the risk has passed to the buyer, the contract is avoided (s 7). This mirrors the common law rule that the contract becomes frustrated when, after it is made and through the fault of neither party, it becomes impossible or illegal to perform. Thus, a contract for the sale of unascertained goods from an identied source (for example, 10 tons of wheat to be grown on Blackacre) will be frustrated at common law if, contrary to expectations and through the fault of neither party, Blackacre suffers an unforeseeable blight and produces no crop (Howell v Coupland [1876]). If it produces a smaller crop but still enough to enable the seller to supply the contract quantity, the contract will not be frustrated. If it produces a smaller crop so that the seller can supply some but not all of the contract quantity, the seller should offer the buyer the option of either taking the lesser quantity at the contract rate or of not taking any (Sainsbury v Street [1972]).

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VOID AND FRUSTRATED SALE OF GOODS CONTRACTS

SAINSBURY v STREET [1972] Basic facts The seller agreed to sell 275 tons of barley to be grown on his farm. Only 140 tons were harvested: these were sold to another person. The original buyer sued the seller for non-delivery of the 140 tons. The seller argued that s 7 applied and discharged his original obligations. The court disagreed: s 7 could not apply, the goods were not specic. The seller was held to have breached the contract by not delivering the goods that were produced. Relevance When ss 67 cannot apply, either the common law or the presumed intention of the parties will be decisive.The doctrine of frustration can apply where the contract is for the sale of a specied quantity from an identied bulk, for example, if the identied bulk perishes after the contract is made. If, however, the buyer has paid the price and thus obtained an undivided share in the bulk, then the risk may already have passed to him according to the principles already outlined (see above). In that case, those principles apply and the contract is not frustrated. Even if the buyer has not paid the price, in the case of unascertained goods from an identied bulk, the contract will in any event not be frustrated if the quantity of goods which perish is such that the seller is still able to full the contract from the bulk. The Law Reform (Frustrated Contracts) Act 1943 applies to contracts frustrated at common law but not to contracts avoided by s 7 of the Sale of Goods Act 1979. In the latter case, the buyer is entitled to recover any of the price already paid, provided that they have suffered a total failure of consideration, but they do not have to make any payment for expenses incurred by the seller in performing the contract. In the former case, the buyer is entitled to his money back, irrespective of whether there has been a total failure of consideration, but may be required to compensate the seller for any use the buyer has had of the goods, or for expenses incurred by the seller in performing the contract.

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EVENTS AFTER THE CONTRACT IS MADE

Effect of goods perishing 1 Contract for sale of specic goods 2 Contract for sale of unascertained goods from identied source 3 Contract for sale of purely generic unascertained goods

Goods perish before contract is made Contract may be void by s6 Contract may be void at common law Contract is neither void nor frustrated

Goods perish after contract is made Contract may be avoided by s 7 Contract may be frustrated at common law Contract is neither void nor frustrated

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Void and frustrated sale of goods contracts why not visit the companion website and take the Multiple Choice Question test. Check your understanding of the terms and vocabulary used in this chapter with the ashcard glossary.

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5Seller is not the ownerThe nemo dat rule and its exceptions When will an estoppel arise? When may a Mercantile Agent confer good title? When may a seller with a voidable title confer good title? When may a seller in possession confer good title? When may a buyer in possession confer good title? What if an HP purchaser sells a motor vehicle?

s s s s s s s

SELLER IS NOT THE OWNER

GENERAL RULESomeone who does not have title to the goods, or is not authorised by the owner to sell them, cannot pass on good title to these goods to a later buyer. Nemo dat quod non habet no one can give something he has not got. If I take your property and then try to sell it to a third person, as I do not own the property I cannot give or sell its title to another person. Thus the property still belongs to you and not to the third person. EXCEPTIONS TO NEMO DAT When one of the following exceptions applies, despite the nemo dat rule above, someone without title or without authority from the true owner can confer good title upon a later buyer/third party.

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GENERAL RULE

Estoppel The true/original owner may be estopped (that is, stopped) from asserting that good title has not been passed on if the following requirements are all satised: s The true owner represented that the seller was the owner or had the owners authority to sell. (Note that merely letting someone have possession of your goods does not amount to such a representation. That is still the case, even if it is a motor vehicle and you leave him in possession of its registration book as well Central Newbury Car Auctions v Unity Finance [1957].) s The true owners representation was made negligently or intentionally. s The innocent purchaser relied on the representation and bought (not merely agreed to buy) the goods.

CENTRAL NEWBURY CAR AUCTIONS v UNITY FINANCE [1957] Basic facts A rogue tricked a dealer into parting with a car and registration document on HP. The rogue then pretended to be the person named as the owner of the car on the registration document and sold it to another dealer, who sold it to Unity Finance. When the original dealer sought its return the question arose, Was the original dealer estopped from denying the rogues right to sell because it let him have both car and registration document? The court said No. Relevance Simple possession of property and title documents is not a representation leading to an estoppel.

Mercantile agent A mercantile agent is an agent having in the customary course of his business as such agent authority either to sell goods or to consign goods for the purpose of sale, or to buy goods, or to raise money on the security of goods (s 1(1) of the Factors Act 1889; see now s 26 of the Sale of Goods Act 1979). 39


In addition, in order to be a mercantile agent, the person must be: s independent from the person for whom he or she is agent; s acting as agent by way of business; and s authorised to deal with goods in his or her own name without disclosing the agency. Before a mercantile agent can pass on good title to someone elses goods (under s 2 of the Factors Act 1889), the following requirements must all be satised: s the mercantile agent must be in possession of the goods (or documents of title); s he must have that possession in his capacity as mercantile agent; s he must have that possession with the consent of the owner; s in selling the goods, he must have been acting in the normal course of business of a mercantile agent; and s the purchaser must buy them in good faith, without knowledge of the agents lack of authority. A car dealer who has possession of a car for the purpose of repair or servicing would not be in possession in his capacity as mercantile agent. He would be, however, if he had possession for the purpose of seeing what offers he could secure from potential buyers of the car. Note that, in the case of a motor vehicle, the agent must be in possession not only of the vehicle but also of the registration document; the possession of these items must be with the consent of the owner (Pearson v Rose and Young [1951]). Apparently, the same requirement extends also to the possession of the ignition key (Stadium Finance v Robbins [1962]). The requirement is that the mercantile agent is in possession with the consent of the owner. This requirement is not satised where the mercantile agent obtains possession by means of a trick but without the owners consent. It would, however, paradoxically be satised where the consent of the owner was secured by a deception or fraud.

40

GENERAL RULE

Seller with voidable title s 23 of the Sale of Goods Act 1979 A number of cases learnt in the law of contract illustrate situations where a buyer (usually a rogue) has bought goods under a voidable contract, for example, Phillips v Brooks [1919] and Lewis v Averay [1971]. The contract is voidable, usually, because of the fraud of the buyer. The buyer can nevertheless pass on good title provided: s the contract has not been avoided (made void by an act by the owner) at the time the goods are resold; and s they are sold to someone who innocently takes it in good faith and without notice of the rogues defect in title.

LEWIS v AVERAY [1971] Basic facts A rogue pretended to be a well-known actor and thereby induced Lewis to allow him to take possession of his car in exchange for a worthless cheque. The rogue sold to Averay, who bought in good faith. Lewis claimed the contract with the rogue was void for mistake. The court disagreed, nding the contract voidable for misrepresentation. As Lewis had not acted to avoid the contract, Averay got a good title. Relevance As in Phillips v Brooks [1919] the mistake made by the owner was not as to the identity of the rogue but merely as to his creditworthiness.

Where the contract is voidable, the rule in s 23 does not apply once the contract has been avoided. It will be avoided once the original seller (that is, the person who sold the goods to the rogue) has shown a denite intention to avoid the contract; he will normally be regarded as doing that when he informs the police (Car and Universal Finance v Caldwell [1965]). Where, after the original seller has done this, the rogue subsequently sells the item to an innocent purchaser, the latter will not get good title by virtue of s 23. The innocent purchaser, may however, get a good title under s 25, which deals with the situation where goods are sold by a buyer in possession (see below). 41


Section 23 does not apply to the situation where the rogue has acquired the goods under a contract which is void for mistake (Cundy v Lindsay [1878]).

CUNDY v LINDSAY [1878] Basic facts A rogue set up premises in the same street as an established and reputable trader. He ordered goods on credit by post and under a name designedly similar to that of the reputable trader. The rogue purported to sell the goods to an innocent party. The owner of the goods sought recovery from the innocent party arguing that the contract with the rogue was void from the beginning for mistake at common law. The court agreed, the contract was void for mistake from the beginning. Thus the rogue never had title to the goods which he could pass on to the innocent party. Relevance The evidence showed that the supplier was genuinely confused and believed itself to be contracting with the reputable trader.

Seller in possession s 24 of the Sale of Goods Act 1979 A buyer, especially a buyer who has paid for the goods, takes a risk if the goods are left with the seller. The risk is that the seller will sell the goods again to another buyer. The rst buyer may well nd that his title is lost to the second buyer.

In this example, B1 has bought from S and obtained good title. Nevertheless, S may well have later passed good title to B2, thereby depriving B1 of his title. 42

GENERAL RULE

A seller will pass on good title under s 24 if the following requirements are satised: s the seller, having sold to the rst buyer, continues or is in possession of the goods (or documents of title); s the seller makes an agreement to sell, pledge or otherwise dispose of the goods or actually sells, etc, the goods to another buyer B2; s the seller delivers the goods to B2 under this latter transaction; and s the person taking the goods (B2) under this transaction receives the goods in good faith and without notice of the previous sale. If these requirements are satised, B2 gets a title as good as that of the seller. The original buyer loses the title which had passed to him. The original buyer can sue the seller for breach of contract. Buyer in possession s 25 of the Sale of Goods Act 1979 see also Retention of Title Clauses in Chapter 3 A seller who agrees to sell goods and parts with them to the buyer without rst getting paid takes a risk. The risk is that the buyer will dispose of them without having paid the seller. Even if property (that is, title) has not passed from the seller to the buyer, the buyer is able to pass on good title by virtue of s 25 (also s 9 of the Factors Act 1889). The seller will be able to sue the buyer for the price, but will be unable to recover the goods (see Retention of Title clauses above). In the example overleaf, M is a buyer in possession and, if the requirements of the section are met, will pass on good title to N, thereby depriving L of the title. The buyer will pass on good title provided the following requirements are satised: s the buyer is a buyer in possession of the goods (or documents of title). A buyer is someone who has bought or agreed to buy. Someone who has obtained the goods under a hire purchase agreement is not a buyer (Helby v Matthews [1895]), nor is someone who has obtained the goods under a conditional sale agreement which is a regulated agreement within the meaning of the Consumer Credit Act 1974 (s 25(2) of the Sale of Goods Act 1979); 43


s the buyer obtained possession of the goods (or documents of title) with the consent of the seller; s the buyer makes a transaction actually selling, pledging or otherwise disposing of the goods. In Re Highway Foods International Ltd [1995] it was held that no title will be passed if the buyer in possession merely agrees to sell the goods to the second buyer; s the buyer delivers the goods (or documents of title) under that transaction; s the person taking them receives them in good faith without notice of the rights of the original seller; and s (possibly) the buyer in possession, in disposing of the goods, acted in the way he would have acted if he was a mercantile agent selling in the ordinary course of business (Newtons of Wembley v Williams [1965]). The title conferred by this provision is a title only as good as that of the seller who entrusted possession of the goods to the buyer in possession (National Mutual General Insurance Association v Jones [1990]).

44

GENERAL RULE

In the example below, K steals the item from J and sells it to L. L agrees to sell it to M subject to a term that property is not to pass to M until M has paid L the price. Before paying the price, M sells and delivers the car to N, an innocent purchaser. By pointing to the fact that he bought from a buyer in possession, N cannot defeat the rights of J.

MOTOR VEHICLE SOLD BY HIRE PURCHASER Someone who has goods under a hire purchase agreement or a conditional sale agreement will not normally have good title until his payments have been completed under the agreement. He thus has no title to pass on. However, Pt III of the Hire Purchase Act 1964 has made an exception to nemo dat. Thus, in the case of a motor vehicle, the hire purchase (or conditional sale) customer can pass on good title to a private purchaser, even though it is not his to pass on. The following requirements must be satised for this to happen: s the person selling must be someone who has the vehicle under a hire purchase or conditional sale agreement (it makes no difference whether or not the agreement is one which is regulated by the Consumer Credit Act 1974); s the goods must be a motor vehicle; 45


s the purchaser must be a private purchaser, not a trader (or nance house) currently carrying on business in the motor trade, or intending to do so in the future (though presently a private purchaser) GE Capital Bank Ltd v Rushton [2006]; s the private purchaser must be bona de and unaware of any relevant hire purchase or conditional sale agreement; and s the transaction by which the private purchaser acquires the vehicle must be a contract of sale or of hire purchase. If the hire purchaser sells the car to a trade (not a private) purchaser, then the rst private purchaser thereafter can obtain good title. In the example below, O has sold the car to P, a nance company which has supplied the car on hire purchase terms to Q. Q, before completing his hire purchase payments, has sold the car to R who has in turn sold it to S. Until R sold the car to S, it belonged to P. However, S gets Ps title because S is the rst private purchaser and buys in good faith. The private purchaser will, however, secure only as good a title as that possessed by whomsoever supplied the vehicle to the hire purchase customer under the hire purchase agreement.

46

GENERAL RULE

The example below is the same as the last except that, before O, we now know that O bought the car from N who had stolen it from M. That being so, O and, therefore, P never had good title to the car. Under the Hire Purchase Act 1964, S can get a title only as good as Ps. Thus, M retains the title to the car.

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Seller is not the owner why not visit the companion website and take the Multiple Choice Question test. Check your understanding of the terms and vocabulary used in this chapter with the ashcard glossary.

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6Implied contract terms as to title under the Sale of Goods Act 1979

What does s 12 mean to buyer and seller? What conditions and warranties does s 12 imply? Can a defective title later be cured? Can you exclude s 12 by an express contract term?

s s s s

CONTRACT TERMS AS TO TITLE

IMPLIED CONDITION AS TO TITLE s 12 OF THE SALE OF GOODS ACT 1979It is an implied condition of a contract of sale of goods that the seller has the right to sell the goods. If he does not, the buyer has the right to reject the goods, recover the purchase price, and receive damages for losses arising from the breach of the implied term. He is entitled to do this even if he has had possession and substantially enjoyed the use of the goods before discovering that the seller had no title to sell (Rowland v Divall [1923]).

ROWLAND v DIVALL [1923] Basic facts Claimant motor dealer bought a car from the defendant motor dealer. Unknown to either, the car was stolen. Claimant dealer sold to a third party. After two months of use the Police recovered the car from the third party who was refunded by Claimant. Claimant dealer then sued Defendant dealer for the price he had paid arguing total failure of consideration arising from the breach of s 12 of Act. The court agreed that all of the purchase price should be returned and made no allowance for the depreciation in the value of the car caused by months of use by the refunded third party. Relevance Section 12 strictly requires the seller to have the right to sell.

FEEDING THE TITLE It may happen that the seller does not have title at the time the goods are sold and delivered, but that title is acquired at some later stage.

In the above example, P, who has not completed the hire purchase payments to O, sells the goods to Q who then sells them to R. P is liable to Q for breach of the implied condition as to title. Equally, Q is liable to R for the same reason. If, at some later stage, P completes the hire purchase payments to O, P will acquire 50

IMPLIED CONDITION AS TO TITLE s 12 OF THE SALE OF GOODS ACT 1979

good title which will immediately be fed down the line of purchasers to R (Butterworth v Kingsway Motors [1954]). Until this happens, R is entitled to reject the goods and reclaim the full purchase price from Q. If the goods have not already been rejected, then, after the title has been fed, R loses the right to reject the goods but may still claim damages. The damages will be the difference between the value of the goods when he should have got good title (when he bought them) and when he actually got title (when it was fed). Of course, if R rejected the car (before the last HP payment was made and the title was thus fed (as happened in Butterworth)) then Q could, if he acted quickly enough to beat the nal HP payment, have also rejected the car and reclaimed the purchase price from P. It may be that the goods were a motor vehicle and that Q was an innocent private purchaser. In that case, Q will have obtained good title when the car was purchased from P (that is, by virtue of Pt III of the Hire Purchase Act 1964). In that case, Q would not be liable to R for breach of the implied condition as to title. Nevertheless, Q could still have a claim against P for breach of other terms as to title (Barber v NWS Bank [1996]). Alternatively, it could happen that Q was a trade purchaser and that R was an innocent private purchaser. In that case, R would have obtained good title when the car was bought (by virtue of the Hire Purchase Act 1964). Again, however, that would not affect his right to reject the car and recover the price or to claim damages from Q.

BARBER v NWS BANK [1996] Basic facts Claimant took car on a conditional sale agreement from Defendant bank. Unknown to either, the car was subject to an earlier hire purchase (HP) agreement: Claimant discovered this after 18 months and wished to reject and reclaim payments. No breach of s 12 of the Sale of Goods Act 1979 here as the property was stated to remain with the seller until payment of the last instalment. However the contractual term which made this clear was treated as an express condition that the seller actually had the property. Because of the unknown HP agreement this was untrue and represented a breach of51

CONTRACT TERMS AS TO TITLE

contract: the Claimant was therefore allowed to reject the car and to recover all payments. Relevance Claimant chose to reject, rather than keep the car. He also recovered all of his payments. He obtained the use of the car, a depreciating asset, for no cost to himself for 18 months.

IMPLIED WARRANTIES s 12 OF THE SALE OF GOODS ACT 1979As well as the express condition, mentioned above, there are two implied warranties in s 12 that: s the goods are free from encumbrances not disclosed to or known by the buyer before the contract is made; and s the buyer will enjoy quiet possession of the goods, apart from disturbance by virtue of any charge or encumbrance disclosed to or known by the buyer when the contract was made. If one of these terms is broken, the buyer cannot reject the goods but may sue for damages. They could be broken if, for example, the labelling of the goods infringed a trade mark (Niblett v Confectioners Materials [1921]) or if the use of the goods would infringe someones patent. This is the case even if the patent was taken out after the goods were sold (Microbeads v Vinhurst Road Markings [1975]).

EXCLUSION OF TERMS IN s 12 OF THE SALE OF GOODS ACT 1979It is, in principle, not possible to exclude the provisions of s 12. Any exclusion is rendered ineffective by the Unfair Contract Terms Act 1977. However, s 12 itself permits a situation where the parties intend that the seller should transfer only such title as he has (see s 12(3)). This allows a seller, who has reason to doubt whether his title is good, to sell the goods. He will not be in breach of any of the terms of s 12 provided he discloses all charges and encumbrances known to him and, presumably, discloses his reasons for doubting that he has 52

OTHER TYPES OF CONTRACT

good title. This could arise, for example, if the claim to the goods is only by virtue of having found them.

OTHER TYPES OF CONTRACTThe implied terms explained above, in contracts of sale of goods, have their counterparts in other types of contract, such as contracts of hire purchase, barter, hire, etc. For the relevant legislation, see the table on p 2.

You should now be condent that you would be able to tick all of the boxes on the checklist at the beginning of this chapter. To check your knowledge of Implied contract terms as to title u

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