WS 9c Trusts and Insolvency - Goods Supplied on Credit

Question 1

s.18 SGA 1979

Answer 1

When ownership of the goods (title) passes to the buyer, notwithstanding the fact that the buyer has not yet paid for them. The timing varies depending on the type of contract but basically the title passes by the time the buyer gets possession.

Question 2

s.19 SGA 1979

Answer 2

. Parties can decide when title to the goods passes from the seller to the buyer
. Sellers can protect themselves with a retention of title clause (ROT). This means the seller holds the title in the goods until some future event (usually full payment)

Question 3

What if the buyer becomes insolvent and there is not ROT?

Answer 3

The supplier will rank as an unsecured creditor and will be unlikely to recover any outstanding debt owed by the buyer.

Question 4

With ROT?

Answer 4

A successful ROT clause gives the seller a proprietary right, affording him priority status over all other (secured and unsecured) creditors (Aluminium Industrie Vaassen v Romalpa Aluminium)

Question 5

Romalpa facts

Answer 5

AIV supplied aluminium foil to Romalpa. Romalpa went into liquidation owing AIV £122,239; the case concerned AIV’s attempts to recover this debt from two potential sources:

• 50,000 of unsold aluminium foil
• 35,152 in proceeds from subsales to third parties

AIV relied on clause: “The ownership of the material to be delivered by AIV will only be transferred to the purchaser when he has met all that is owing to AIV. No matter on what grounds.”

Question 6

Decision in Romalpa

Answer 6

• The claimant was successful in its claim over the 50,000 of unsold foil. It was held tha this clause enabled AIV to recover the unprocessed foil because the claimant had effectively retained title to it
• The Court of Appeal argued that as the parties were fiduciaries AIV was entitled to the proceeds of subsales, on the basis of the equitable doctrine of tracing established in Re Hallett’s Estate.

Question 7

Borden v Scottish Timber Products

Answer 7

Seller supplied resin to the buyer. Buyer used resin to make chipboard. HELD: resin ceased to exist once used in making chipboard; therefore fell outside ROT and seller lost title

Question 8

Re Peachdart

Answer 8

Seller supplied leather; buyer cut leather into shop to make handbags. HELD: cutting the leather is irreversible manufacturing process therefore lost identity and ROT didn’t work.