Chapter 4 Interactive flashcards of key cases

Chapter 4 Interactive flashcards of key cases

The sellers sold quantities of aluminium foil to the buyer. Amongst the terms of the retention of title clause was that property in the goods would not pass to the buyer until all monies owing had been paid. When the buyer later went into receivership, they still had in their possession about £50,000 worth of foil and the receiver recovered from sub-buyers about £35,000, representing the price of finished goods made from the foil and resold to them.

The £50,000 worth of foil still belonged to the sellers by virtue of the retention of title clause. That part of the claim was uncontroversial. However, the Court of Appeal also held that the sellers could claim the £35,000 proceeds of sale on the ground that the buyer was a mere bailee of the seller’s foil, which they had sold with the seller’s implied authority, and therefore had to account to them in equity. Mocatta J held (at first instance) that no registrable charge arose in these circumstances. Unfortunately, this was not further argued on appeal.

The sellers sold steel to the buyer for use in its manufacturing process. The contract of sale contained a condition that the steel remained the property of the sellers after delivery until all debts were paid. Receivers were appointed to the buyer’s business and a dispute arose as to the ownership of the steel.

The House of Lords held that a condition in a contract reserving title in the seller after delivery until all debts whatsoever are paid is valid, enforceable, and does not create a charge.

The seller supplied resin to the buyer to be used in the manufacture of chipboard. The sale contract stated that property in the resin was to pass when all goods supplied to the buyer had been paid for. The manufacturing process was such that the resin could no longer be recovered. After manufacturing the chipboard, the buyer became insolvent without having paid for the resin. The seller claimed against the buyer’s receiver a sum in respect of the unpaid resin.

The Court of Appeal held that where a product, such as resin, is used in a manufacturing process pursuant to the intention of the parties, and on such use becomes irreversibly part of a new product, it ceases to exist as such and so does the owner’s title to it. As a consequence, the initial product is no longer identifiable and an interest in it cannot be traced into the new product. Further, if a charge had arisen, then it would have been void as against the liquidator and the buyer’s creditors.

Wilson was a manufacturer and seller of generators and parts. Wilson’s standard terms included a retention of title clause providing that title to the purchased goods did not pass until Holt had paid in full. When Holt failed to pay a number of invoices, Wilson brought proceedings for the price.

The Court of Appeal held that a claim for the price under the contract meant a claim falling within s 49 SGA. Wilson could not have a claim for the price independently of that section. Wilson’s claim had to comply with the condition in s 49(1) that property in the goods had to have passed to Holt. The court observed that if an action for the price could be maintained whenever the obligation to pay had arisen, s 49 would be largely otiose, which indicated that the section was intended to specify the only circumstances in which a seller could maintain an action for the price. Thus, unless Wilson could establish that property in the goods had passed to Holt, it would have no claim for the price. That was an inherent result of a retention of title clause, and it showed the dangers, as well as the benefits, of such clauses. As title in the goods had not passed to Holt, Wilson did not have a valid action for the price. This could have been avoided by the seller stipulating that the price is payable on a day certain irrespective of delivery, thereby bringing it within the scope of s 49(2) and giving it an entitlement to bring an action for the price. Section 49(2) applies irrespective of whether or not delivery has been made or title has passed.

The sellers sold a diesel engine to the buyer, who used it in the manufacture of a generating set. The sellers had reserved title in the engine until it had been paid for. When the buyer went into receivership, the sellers sought to recover the engine. The receiver argued that property in the engine had passed to the buyer when they incorporated it into the generating set.

Staughton J held that the engine could be reclaimed by the sellers. This was because it had remained an engine throughout, could be easily identified by its serial number as belonging to the sellers, and could be dismantled with relative ease from the finished generating set. If the goods sold have merely been incorporated by the buyer into other goods, then a seller with an appropriate retention of title clause will be entitled to recover the goods sold provided they can still be identified and dismantled from the finished goods without damaging those goods.

PST Energy and another, the owners and managers of the vessel Res Cogitans (the ‘Owners’), ordered a quantity of marine fuel (known as ‘bunkers’) from OW Bunker. The contract provided for payment 60 days after delivery and included a clause under which property was not to pass to the Owners until payment for the bunkers had been made. It also entitled the Owners to use the bunkers for the propulsion of the vessel from the moment of delivery. In a series of transactions, OWB obtained the bunkers from its parent company, OWBAS, which in turn obtained the bunkers from Rosneft, which obtained them from RNB. OWBAS subsequently became insolvent. ING Bank became the assignee of OWB’s rights against the Owners. The Owners used all of the bunkers for the vessel’s propulsion without making payment to OWB, which did not make payment to OWBAS, which in turn did not make payment to Rosneft. Rosneft paid RNB and demanded payment from the Owners, asserting that it remained the owner of the bunkers. The Owners commenced arbitration against OWB and ING, seeking a declaration that they were not bound to pay for the bunkers, or damages for breach of contract, on the grounds that OWB had been unable to pass title to them, owing to the application of ss 2(1) and 49 SGA.

Three key issues had to be determined by the Supreme Court:
1. Was the contract a contract of sale within the meaning of s 2(1) SGA 1979? Section 2(1) SGA defines a contract of sale of goods as one ‘by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration called the price’. However, as bunkers are typically used prior to payment being made, OWB’s contract with the Owners could not be regarded as a straightforward agreement to transfer the property in the bunkers to the Owners for a price. It was a sui generis agreement, with two aspects: first, to permit consumption prior to any payment being made and without any property ever passing in the bunkers consumed; and second, if and so far as bunkers remained unconsumed, to transfer the property in the bunkers remaining to the Owners in return for the Owners paying the price for all of the bunkers, whether consumed before or remaining at the time of payment. Lord Mance explained that even if the contract were to be analysed as a contract of sale, in that it contemplated the transfer of property in any bunkers unused at the date of payment, OWB could not owe any obligation to transfer property in bunkers consumed before payment. It would cease to be a contract of sale if and when all such bunkers were consumed before payment.
2. If the contract was not a contract of sale within the meaning of s 2(1) SGA, was it subject to any implied term that OWB would perform or had performed its obligations to its supplier, in particular by paying for the bunkers timeously? Lord Mance held that OWB’s only implied undertaking as regards the bunkers which it permitted to be used, and which were used by the Owners in propulsion prior to payment, was that OWB had the legal entitlement to give such permission. No other implied undertaking was necessary.
3. Should the Court of Appeal decision FG Wilson (2014) be overruled?
It will be recalled that in FG Wilson, the Court of Appeal held that where goods are delivered under a contract of sale but title is reserved pending payment of the price, the seller cannot enforce payment by an action for the price. Section 49(1) SGA enables an action for the price where the seller has transferred property, with or without delivery, and the buyer has failed to pay the price due. The question here is whether s 49 excludes any claim to recovery of a price outside its express terms. Lord Mance stated that courts should be cautious about recognising claims to the price of goods in cases not falling within s 49, although this leaves at least some room for claims for the price in other circumstances. For example, the price may be recovered in respect of goods undelivered which remain the seller’s property but are at the buyer’s risk and are destroyed by perils of the seas or by fire. His Lordship declined to set the precise limits for the circumstances in which the price may be recoverable outside of s 49. He stated that had the contract between OWB and the Owners been one of sale, he would have overruled FG Wilson on this point, holding that s 49 is not a complete code of situations in which the price may be recoverable under a contract of sale. In Res Cogitans, however, the price was recoverable by virtue of its express terms in the event which had occurred, namely, the complete consumption of the bunkers supplied.

The buyer, a carpet manufacturing company, purchased man-made fibre from the sellers, which they used in the manufacture of carpets. The conditions of sale included a retention of title clause. The buyer went into receivership when a large sum of money was owing to the sellers under various contracts containing the retention of title clause.

A retention of title clause, where property passes to the buyer only on payment and which refers to ‘equitable and beneficial ownership’, creates a floating equitable charge granted by the buyer in favour of the seller, which, as such, was registrable and was void for non-registration.

The sellers (S) sold leather to P, who used it in the manufacture of handbags. S’s sale contract stated that ownership of the leather and of any mixed goods using this leather would remain with S until full payment had been received. P went into receivership owing S money for the leather bought.

Vinelott J held that although S could reserve title over the leather they sold, they could not do so over the finished goods, as by then the leather sold had changed its identity once it had been made into handbags. The judge also held that the parties must be presumed to have intended that once P had appropriated the leather so that it became unrecognisable, a charge over the finished goods or their proceeds should arise. In this case, such a charge arose in relation to the manufactured handbags and the proceeds of the handbags which had been sold. However, as the charge had not been registered, it was void under s 95 of the Companies Act 1948.

Back to top