Ws4 - Retention Of Title Consolidated

WS4 – SALES OF GOODS – RETENTION OF TITLE Sale of Goods Retention of title Consumer Credit

Chapter 2 Chapter 2 Chapter 6

SALES OF GOODS ACT 1979 – GENERAL CHECKLIST 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 (section 2(1) SGA 1979). CREATE A TIME LINE WITH ALL IMPORTANT DATES What are the relevant terms? - which terms impose liability on the seller and buyer? Look for: • Express – from contract ⇒ ⇒ ⇒ ⇒ 1. •

Delivery (date is expressed anywhere is a term) Payment Price Time of essence – look out for very vague essence terms. If not relating to anything in particular then it will be considered too ambiguous. IF SO, in exam ok to ignore the express essence term, but see implied below.

Implied – from SGA ‘79

⇒ Late payment - S.27 – It is the duty of the seller to deliver and of the buyer to accept and pay ⇒ Time of essence – Hartley v Hymans – if agreed in commercial contract then time if of essence. S.10(2) If time of essence buyer can reject goods if delivered late. S.29(3)If no time specified for delivery, must be within a reasonable time S.13 Sale by description? Implied term goods correspond to description

⇒ ⇒ S.14(2) Implied term that goods are of satisfactory quality (taking into account description of goods, price and other relevant circumstances) S.14(3) Implied term that goods are reasonably fit for their purpose

⇒ ⇒ S.28 Unless agreed otherwise, delivery and payment are concurrent conditions, i.e. the buyer must pay when goods are delivered. Have they been breached? Explain how the term has been breached and by how much – relate to the facts.

2.

Look for: • Anticipatory repudiatory breach o Where the buyer refuses to pay/accept the goods before the deadline for payment. o The Seller has two options:  Accept the breach now – sue immediately  Affirm the contract and wait until deadline – risky! NB – can be breached by both parties.

3.

Lay out: 1. What remedies are sought?? ⇒ Repudiate contract – reject goods and terminate contract 2. What remedies are available??

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⇒ Condition – termination and damages ⇒ Warranty – damages •

S.49 – action for price of goods ⇒ S.49(1) – ownership passed to buyer ⇒ S.49(2) – ownership still with seller

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Damages from following sections: s.50

Damages for non-acceptance

s.50(2) Measured according to the estimated loss resulting from B’s breach directly and naturally flowing from breach s.50(3) If ready market for goods, is difference between contract price and market value of goods at time of acceptance(measure) s.51

Damages for non-delivery

s.51(2) Measured according to the estimated loss resulting from S’s breach directly and naturally flowing from breach s.51(3) If ready market for goods, is difference between contract price and market value of goods at time of delivery (measure) Defences:

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4.

S.35(4) Deemed acceptance of goods if B intimates acceptance or acts in a way inconsistent with ownership by S – IE – where the Buyer tries to reject goods after having them for several days. Cannot be done as they have impliedly accepted the goods in their conduct.

ROT Structure – seller retaining ownership

1.

What are the relevant terms? (have they been incorporated?) • If at any point a delivery date has been stated, this will constitute an express term. Breach of contract? Or

2.

3.

Trigger for ROT? • Non-payment • Insolvency of buyer Remedies (essential) • S49 – action for the price – non payment o S.49(1) – ownership has passed to the buyer o S.49(2) – ownership still with seller •

4.

NB – often no point trying to sue for damages because the company is in financial difficulty. So go onto discuss the ROT clause.

Is there an ROT clause and does it work? Go through following points:

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1. Section 17(1) SGA says that property passes when the parties intend it to pass. 2. Section 19(1) allows the seller to reserve title to the goods until certain conditions are fulfilled and property does not pas until the conditions are fulfilled.

3. Pull apart the clause into following (see below for details) •

Essentials i. Reserving title ii. Rights of entry, seizure and resale

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Optional but useful i. Separate storage ii. Passing of risk iii. Insurance iv. All monies clause v. Detachable goods

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Bluff value i. Tracing into the proceeds of sale ii. Claiming ownership of mixed goods iii. Tracing into mixed / manufactured goods

4. How does the ROT clause apply to the facts? • Does the seller have the ability to claim ownership of the goods? NB – if one of the following has taken place then ownership has passed to the buyer: • Full payment

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Resale to a 3rd party (s.25) Mixing

RETENTION OF TITLE:

See attached ROT clause from I-tut handout. Introduction

Essential elements

A clause in a contract for the sale of goods by which a seller seeks to retain ownership of the goods, despite delivery to the buyer, usually against payment in full. i. Reserving title The seller should make it clear that he will remain the owner of the goods, and that (legal) ownership will not pass to the buyer until one of the two events described takes place. Cannot reserve equitable title, creates a charge which must be registered. See Re Bond Worth.

ii. Rights of entry, seizure and resale A right of entry onto B’s premises for purposes of seizure of goods and subsequent re-sale Avoids trespass

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Optional but useful

iii. Separate storage Separate storage of S’s goods while in B’s possession If they remain identifiable, a retention of tile clause is more likely to be effective. Unused identifiable yarn in Clough Mill v Martin was subject to an effective retention of title clause Only useful if the goods can remain identifiable. Ie no good for a tonne of sand.

iv. Passing of risk on delivery Section 20 SGA 1979 says that risk passes on ownership, this clause is added to displace s20 by contrary agreement. eg, seller will often stipulate that risk passes on delivery. Passing of the risk protects the seller from accidental loss of, or damage to, the goods.

v. Insurance As B has the risk, can include an obligation on him to insure the goods and, if necessary, hold the insurance proceeds on trust for S in separate bank account.

vi. All monies clause Reserve title until B pays S for all goods supplies under sale of goods contract. If a regular long-term contract paid by instalments, B will probably always owe S a sum of money

NB – This clause is often contained in reserving title clause above.

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vii. Detachable goods A clause allowing the seller to separate and remove detachable goods is likely to be upheld by the court. If the goods supplied to the buyer are readily detachable without damage to the buyer’s products, the seller’s goods can be recovered..

Bluff value (worth putting in because still a term of contract if agreed. Enforceable against parties who stupid enough to agree. Except some third parties eg liquidator s.395)

viii. Tracing into the proceeds of sale This was successfully done in Romalpa yet only as the court could find a fiduciary relationship. The general approach of the courts is to find a charge yet bluff value? Hasn’t worked since Romalpa. Buyer will want to buy for himself NOT on behalf of the Seller.

ix. Tracing into mixed / manufactured goods Are generally treated as charges yet are still included for bluff value. Creates an interest that cannot be registered. Seller is unable to create a charge on mixture of different materials. Clough Mill – retention of title into fabric, from yarn, was unsuccessful Borden Case – couldn’t retain title, of resin, into chipboard Re Peachdart – leather into handbags Yet: Hendy Lennox – could retain title to diesel engines incorporates. They were easily identifiable and removable. Were recoverable as detachable. “Where the Goods are attached to or incorporated in other goods or are altered by the Buyer, ownership of the Goods shall not pass to the Buyer by virtue of the attachment, incorporation or alteration if the Goods remain

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identifiable and, where attached to or incorporated in other goods, can be detached or removed from them”

Problems with ROT’s Goods are mixed with or used to make other goods

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Buyer re-sells the goods

Some ROT clauses purport to retain title to the mixed product. The problem is that the mixture includes items from other sellers. There can only be a charge of the mixture or new product. Not likely to be useful as the seller must register the charge. No problem if simply attached and doesn’t damage anything else (see clause 6.2)

Generally clauses are drafted so that title passes to buyer when he sells it (see 6.1.2). S25 implies that title passes but always put in express clause.

PRACTICALITIES OF ROT Clauses All monies clause

Legally effective, not essential but desirable for the clause to work well

Mixed goods clause

Allows Seller to retain title until the Buyer pays the seller in full ROT clause will work without it but all monies clause makes it much more probable that all goods at the buyer’s premises will belong to the seller. Easier for seller to work out what belongs to him. May occasionally be effective and have BLUFF value.

Cl allowing buyer to give good title when selling goods Cl overriding S20 SGA79

Manufactures goods clause Clause reserving legal title Store goods separately

Not legally effective against a 3rd party unless registered as a charge. Effective against the buyer and have bluff others Legally effective, not essential but desirable. Legally effective, not essential but desirable for clause to work well. Passes risk to buyer even though ownership remains with the seller. ROT are still legally effective without them but seller will not want to remain on risk when it has no control over what is happening to the goods. Occasionally effective and have bluff value Not legally effective against a third party unless registered as a charge Effective against the buyer Legally effective and ESSENTIAL for the clause to be of any use Lack of this only means that the ROT creates a charge which is ineffective against 3rd parties unless registered. Legally effective but not essential Helps seller ID his goods if he has to recover If breached, only remedy is damages

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May help seller in negotiations if buyer does not comply Legally effective and ESSENTIAL

Right to enter and seize Tracing clause

May occasionally be effective and have BLUFF value Allows seller to trace proceeds of sale Need to claim proceeds of sale (see 6.5.1 hold in separate a/c and 6.5.2 buyer can trace the payment if it goes to any a/c). Creates charge.

Insurance clause

Legally effective and not essential Obliges buyer to insure the goods Only remedy is damages

Ways to protect the Seller

Main concerns of seller:

Ways to protect seller:

1.

Getting paid

2.

Minimising his liability to the buyer

1.

Exclusion clauses

2.

Retention of title clause

3.

Run a tight system of credit control

4.

Regularly check status of buyer, to:    

5.

reduce credit period if falls behind demand cash on delivery if falls behind remove goods if still not paid know not to deal with him in future

Credit risk insurance Insure against risk of buyer not paying.

6.

Sell debt to someone-else and ensure payment of part. Assignment under section 136 LPA 1925 – must tell debtor.

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8.

Consumer Credit Why

Provide for interest in the contract for late payment Seek interest under the Late Payment of Commercial Debts (Interest) Act 1998.

If Seller can find 3rd party to provide money to seller to pay in full it will avoid lots of problems. Money can pass direct from 3rd pty to seller. Regulates consumer credit industry by ensuring that providers of credit are licensed Controls individual agreements

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