38 / 264
GAZEITE
to
it are paid. This
does
not
per
se operate as a charge on
the assets of No.2 because the goods, although
in his
possession, never vested in
him
and therefore never
formed part of his assets. However, it is good security for
debts owing
to
No. 1
by
No. 2 so long as the goods
remain part of the stock of No. 2 or the stock of
companies associated with
him,
i.e. so long as neither
section 9 of the Factors
Act
or section 25 (2) of the Sale
of Goods Act applies, for the goods may
be
reclaimed by
No. 1 despite the fact that they may have
been
transformed and!or mixed with the property of others
because where beneficial ownership is retained the
beneficial owner of goods has the right
to
trace them and
to
an equitable charge over any goods
in
which his goods
may have
been
mixed with goods of another. Where legal
ownership is retained as we shall see the Courts have held
the Seller capable of tracing as principal against the Buyer
as agent. But is this latter conclusion correct?
The vital question is what is the nature of the
relationship between No.1 and No.2? The mere fact that
"ownership" has
been
retained does not constitute a
fiduciary relationship between them.
If
we are precluded
from looking further at the nature of the agreement
between the parties this would
be
almost an impossible
question to answer. We have a situation where
"ownership" sometimes both legal and beneficial is vested
in
one party while possession and undoubted authority
to
deal or trade with the goods is vested
in
the other. Such a
situation
is
not compatible with the concept of Bailment
because there is no intention that the goods
will
be
restored
to
the Bailor, or that they shall
be
dispo~
of
according
to
his directions. Neither is the situation
entirely compaoDle with the normal relationship between
Principal and Agent because N9. 2 has a contractual
right
to
the possession of the goods even as against No. 1
(which may only be taken from
him
by the service of a
notice of rescission by No.1). He has
also
got a
contractual right
to
deal in the goods with any sub–
purchaser he may choose, even in the face of the direct
opposition of No.1, whereas an agent, in the absence of
an express clause in
his
contract of agency
permittins
him
so
to
act, must usually defer
to
the instructions of his
Principal. Perhaps of most relevance is the fact that there
is no agreement, whether express or implied, that No.2
will
act as the agent of No. 1.
The next question is what has No. 2 contracted for
under the sale which includes this clause? It is clear that
he gets no form of ownership beyond the fact that he has
a right
to
possess the goods as against all comers,
including No.1. But he has
also
the right
to
deal in the
goods; "deal"
in
this case includes the right
to
transfer
both legal and equitable ownership in the goods
to
sub–
purchasers, for this
is
a situation which both parties
to
the
original sale (No. 1 and No.2) expect to occur in the
normal course of business. As such, it could be said that
No. 2 has contracted for a chose in action; namely the
right
to
deal
in
the goods including the right
to
transfer
the ownership by operation of law.
Happily, in determining the rights and obligations of
the parties under the clause we are not restricted solely
to
the provision retaining ownership. We must look to the
agreement as a whole and in particular at the provisions
of the second limb of the clause. That this second limb
and the wording used therein determines the nature of the
relationship between the parties is clear from both the
Romalpa and Interview cases.
One may conclude from the Romalpa and Interview
38
MARCH 1978
cases.
One may conclude from the Rompalpa case that where
the words "as fiduciary owner" are used and the book
debts of the fiduciary are not charged with monies owing
to
No. 1 then No.2 holds the proceeds of sub-sales "as a
quasi trustee, bailee or agent" - more about this later.
On the other hand,
if
one uses the formula in the
Interview case where the clause was accompanied by a
charge on the book debts i.e. where the proceeds of sale
vested in No.2 (which did not happen in Romalpa) and
were then charged in favour of No.1 the nature of the
relationship between No.1 and No.2 wholly lacks this
element of fiduciary duty and the concept of Trustee,
bailee or agent does not apply.
In
other words, in this
situation there has
been
a normal sale of the goods
to
No.
2 by No. 1 with the differences that (1) legal title does not
vest in No.2 with the result that the goods cannot be
charged in favour of No.
"I
with the purchase price in the
normal way because he already has legal title.
(ii)
the
proceeds of sub-sales which do vest in No.2 (where he
has had beneficial ownership) are thus the only
chargeable asset he (No.2) has. The proceeds are then
charged in favour of No. 1 and this is a charge of book–
debts which must be registered. Here,
if
we may repeat,
there
is
no question of fiduciary relationship; there is no
duty
to
account based on legal theory; instead there is a
legal obligation based on the charge
to
pay over the
proceeds in event of default. There can
be
no question of
agency because:
(a) there is no agency agreement express or implied
(b)
the proceeds vest in No.2 (which is not the case
between Principal and Agent).
(c) the obligation
to
account is based on the charge
and not on any normal agency law.
Consider now the situation where No. 2 is selling
to
sub–
purchasers "as fiduciary owner" of the goods.
As
already
stated such was the position in the Rompalpa case. Here,
"ownership" of the goods delivered was reserved to No.1
under the clause. Unfortunately, the exact legal
relationship of the parties was not fully explored in that
case because the parties
admitted
for the purpose of the
porceedings that the clause had the etTect of making the
defendants bailees of the goods whilst in their possession
until all monies owing had
been
paid. As a result of this
the Plaintiffs (No.1) were obliged
to
argue that it was not
necessary to find, as a pre-requisite
to
the right
to
trace,
an express or constructive trust, and much argument was
directed against the finding of an express or constructive
trust. This was unfortunate, for in my opinion the
difficulties encountered in resolving the various legal
principles involved would have been much less if the
concept of trust had been adopted.
Instead the Court was forced to find a solution using
the concepts of Bailment and Agency. Thus the Court
was not concerned to ditTerentiate between the legal title
in the goods and the beneficial ownership, and the etTect
of the clause was held
to
confer a right of possession
(Bailment) with the power of sale and the right to deliver
them to subpurchasers (Agency). But as we have already
seen neither of these concepts are satisfactory; and the
Court recognised this by admitting that the agency
relationship operated solely as between No. 1 and No. 2
and that as regards No.3, No.2 was not an agent but a
principal. This point is of immediate importance
to
Sellers
as it was expressly stated in one of the judgments that the
sub-purchasers could not have sued No.1 as undisclosed
principals on the sub-contracts for breach of warranty of