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JUNE/JULY 1976
Ownership of Goods belongs legally to
Vendors although in physical possession
of purchasers
In the early part of 1975 two very important decisions
were made quite independently by English and Irish
courts which have had a considerable effect and,
assuming that the cases are followed at a later date,
may cause a radical change in one particular aspect of
the law as it now stands.
The two cases in question are commonly known
as the Romalpa case (the English case) and the Inter-
view case (the Irish case). Dealing first with the former,
the facts of the case were as follows: Between 1971
and 1973, the English importers, who were a partner-
ship, obtained from the plaintiffs, a Dutch company,
supplies of aluminium foil under agreed terms of sale.
On 1 September 1973, the defendants, a limited com-
pany, took over the partnership. Although two of the
partners became controlling directors the company got
into financial difficulties, and a receiver was appointed.
The plaintiffs sought declarations that aluminium foil
in defendant's possession valued at over £50,000 was
their property, and that the proceeds of subsales of
aluminium by the defendants held by the receiver
amounting to £35,000 was held in trust for them.
Mocatta J. held that the terms of sale did apply. Ac-
cordingly a term must be implied that the material sold
by the defendants was sold on the account of the plain-
tiffs. In view of
Hallett's Estate
(1880) 13 Ch. 6, the
plaintiffs were entitled to trace the proceeds of the
subsales. A Dutch supplier brought an action against
an English company which had had a receiver appoint-
ed to it. The supplier was claiming for the return of
the goods which the receiver had in his possession and,
more importantly, for the amount of the proceeds of
sale by the English company of the balance of the
goods in question.
In the sale contract there was a
clause stating that the title in the goods
(aluminium
foil) did not pass to the English company until such
time as any debt due to the supplier by the English
defendant
company
had been discharged.
The debt
included any sum which might not be directly
connected
with the present
transaction.
The question of paramount importance was "Did
the term in the contract give the Dutch supplier the
right to claim not only the goods which were in the
possession of the receiver but also the proceeds of sale
from that portion of the goods previously s o l d?" The
Court held in favour of the Dutch company.
The defendants appealed unsuccessfully to the Court
of Appeal (Megaw, Roskill and Goff L.J J.). The Court
held that the crucial facts were that the defendants
were selling goods which the plaintiffs owned, and the
relevant clause was designed to protect the plaintiffs
against non-payment by the defendants. The defendants
were selling goods as agents for the plaintiffs and so
stood in a fiduciary capacity. Accordingly
Hailett's
Estate
(1880) applied. Appeal heard on Í6 January
1976 (Solicitors Journal, p. 95).
The consequences of this case are clearly of con-
siderable significance. First, it will undoubtedly be-
come common practice for suppliers to include in their
conditions of sale a similar provision to that contained
in the conditions used by the Dutch company. Secondly,
any seller of goods who includes such a condition and
who does not receive payment, will, apparently, have
a good cause of action based upon a claim on the
goods supplied. Thus, the supplier can rank in priority
to a debenture holder and, in effect, has a first fixed
charge over the goods and also a charge over the pro-
ceeds of sale of the balance of the goods, if some have
already been sold on.
The latter means that a Bank who would normally
be prepared to advance finance on the security of the
goods in question will no longer be able to do so as
the security might be subject to a prior charge in favour
of the supplier. Further, the value of a floating charge
must seriously be diminished and the consequences of
the case may go so far as to affect accounting prin-
ciples when valuing the worth of a company.
This latter point is of particular significance when
one remembers that the right of action which a sup-
plier might have refers not only to monies due for the
goods in question
but also for any other monies which
might be due to it from the buyer.
The Irish case, to be summarised at page 17
of Irish cases, was decided on rather different
grounds. The matter in this instance was a rather com-
plicated one whereby a German company supplied
goods to an Irish company which was associated with
Interview Limited. As in the Romalpa case, there was a
provision in the conditions of sale to the effect
that
the supplier remained the owner of the goods although
possession had passed to the purchaser.
Due to the fact that the contract was subject to Ger-
man law, the Irish courts were prepared to accept the
effect of this clause, but the argument was put forward
that the importing company which was associated with
Interview Limited had sold the goods on to Interview
Limited and thus Interview Limited could avail of
Section 25 of the Sale of Goods Act to be considered
hereafter.
In essence, this meant that the person to whom
goods are transferred will get good title to them if the
original buyer acted in the ordinary course of business
as a mercantile agent. The latter phrase is rather con-
fusing but probably means that the sale must have
taken place at a business premises and during business
hours. Kenny J. held that the Irish importing company
could not have transferred the property in the goods
delivered by the German companies because they them-
selves never had it.
Consequently, Interview Limited was unable to rely
on the Sale of Goods Act because they did not receive
the goods in good faith and they had notice of the
rights of the original sellers contained in their con-
ditions of sale. It was further held that due to the
application of the conditions of sale, the goods were
merely in the possession of Interview Limited and, as
they were not owners of them, the debenture holder
was not entitled to rank in priority to the German
suppliers who were owed money for the goods.
Further,
had the receiver sold the goods, then the amount real-
ised by the sale would in effect rank prior to the claim
of the debenture
holder.
The effect of this case, although complicated by the
existence of the Irish importing company, seems similar
to that of the Romalpa case and, this being so, it may
be that a considerable change in interpretation and
application of the law in this area is under way.
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