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RETENTION OF TITLE CLAUSE

Q3 June 2014 Zone A

Discuss the remedies available to a seller of goods to whom the price has not been paid.

Q8 Zone A June 2013

Kingsway Ltd supplies paper to Holborn Ltd. Holborn uses only some of this paper to
print books and sell the rest to other printing firms. Kingsway is aware of both aspects of
Holborns business. The normal terms upon which Holborn buys paper allows for 30 days
for payment. Kingsway wants to insert a retention of title clause into the sale contract.

Discuss how this may be achieved.

Q5 June 2012 Zone B

Why might a seller be better advised to include a retention-of-title clause in a sale


contract rather than simply relying on the unpaid sellers remedies for breach of the
duty to pay?

June 2012 Zone A

4. Since the parties to a commercial sale contract normally intend that the buyer should
be able to resell the goods and should, therefore, be able to pass title to a new buyer, a
retention-of-title clause will provide almost no protection to the unpaid seller.

Discuss.

Introduction.

In commercial transactions it is generally understood that buyers will purchase consignments


for the purpose of sub selling them. This occurs when the buyers purchase goods in the course
of business for resale.

There are also major concerns when the buyer takes goods on credit from the seller. The
possibility of insolvency on the part of the buyer before payment is made in full is a genuine
concern.

For that reason the seller will inert a reservation of title clause into the contract. The contract
will now be conditional. The issue is whether then buyer will be restricted from then reselling
the goods? And how then does the seller protect his interest in the goods if it is resold?

On the premise that the goods are specified to the contract or ascertained before
delivery-S16 SGA then property only passes once it is intended to pass.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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When does property pass?- S17(1) and (2) SGA- Re Anchorline and RV Ward v
Bignall per L Diplock
How do the terms of the contract effect the passing of property-see S19(1) SGA 1979
and AIV v Romalpa Aluminium (1976) Mocatta J- what is the objective of a
ROT ?
Fairfax Gerrard Holding Ltd v Capital Bank Plc(2007) CA- ROT not designed to
prevent the buyers from sub selling goods.
In the event the buyer sub sells the goods, the seller cannot rely on the ROT to trace
an interest and seek recovery of the goods that are in the hands of the third party.
Although it is possible to claim an interest into the proceeds of sale.
The TP will be able to rely on S25 SGA 1979 ie sale by a buyer in possession with
the consent of the true owner to acquire title in the goods.
What is essentially important is that:

1. the buyer must have bought or agreed to buy the goods from the seller-Helby
v Matthew(1965)
2. the sub buyer must have acted in good faith- especially where the buyer has
acted in his capacity as a mercantile agent and sold the goods in the ordinary
course of business as a mercantile agent.(Newton of Wembley v Williams
1965)
3. the buyer was in possession of the goods at the time. Marten v Whale 1917-
having bought or agreed to buy.

However the seller may seek to protect his interest contractually by inserting a
ROT clause but what is essentially important is to determine:

1. the nature of ROT based on its construction


2. the need for registration of the ROT

Limitation of the Reservation Clause- before the goods are resold

Technically the ROT clause will work effectively where it seeks to claim
recovery for unpaid goods in the possession of the buyer.
Usually this occurs where the buyer is insolvent-S61(4) and where the seller
remains unpaid-S38(1)
The seller can claim goods from the trustee of bankruptcy provided that the
goods remain unmixed, unused and has not lost their identity. Observe
the case of AIV v Romalpa Aluminium (1976)- where the court had no
problems giving effect to the clear intentions of the parties (and no
requirement for registration was deemed necessary).
This position has been later affirmed in cases such as Clough Mills v
Martin(1985)and Re Peachdart Ltd(1984).
In Re Bondworth Ltd (1980) Slade J-referred to AIV v Romalpa
Aluninium(1976) where the ROT had the effect of making the buyers bailees
of goods until payment is made in full.
However if it appears that the buyer has subjected the goods to a
manufacturing process, then the courts will appear strained to give effect to
the sellers intentions.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Consideration for mixed/manufactured goods.

General presumption- Re Peachdart Ltd(1984) per Vinlott J

The sellers claims over the manufactured goods will take the form of a charge
or mortgage over the goods.
The rationale for this is- the value of the new goods, the windfall doctrine and
that the seller cannot be said to be the absolute owner of the new goods but
may have a proprietary claim over the new goods.
The Courts in Re Peachdart Ltd and Re Bondworth Ltd suggested that the
sellers interest is in the form of a charge and ought to be registered under the
S 860 CA 2006.
However the right to trace an interest into the finished goods or manufactured
goods will also depend on the nature of the goods and circumstances
involved.
For example where goods are used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers (1981) CA per Buckley LJ
For example where the goods( leather) remained the predominant aspect of the
finished product-Re Peachdart Ltd(1980)

Naturally the right to make such claims over proceeds of sale and book debts
appear also to have to meet same high expectation-of CONSTRUCTION
AND REGISTRATION [cf AIV v Romalpa Aluminium 1976]

Where the goods are resold.

As mentioned S25 will prevail to protect the interest of the buyer. However it is
possible for the seller to protect his interest in respect of the proceeds of resale or
in the book debts.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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June 2012 Zone B

5. Why might a seller be better advised to include a retention-of-title clause in a sale


contract rather than simply relying on the unpaid sellers remedies for breach of the
duty to pay?

Introduction

It might make sense to agree with the statement- as a means of protecting the unpaid
sellers rights in relation to the goods supplied to the buyer who might have become
insolvent without having paid for the goods. However the remedies available to the
seller may differ in its application based on the circumstances that may prevail at the
time of insolvency of the buyer. Incorporating a reservation of title clause may also have
its benefits.

The seller has the right to claim the price of the goods when property passes-S49(1)
SGA but this becomes a problem when the goods are sold on credit. It is possible that
the buyer may become insolvent before the debt is fully paid.

Seller an unpaid seller-S38(1)- when does this occur?

When is the seller an unpaid seller?

S38(1)(a) where the whole price has not been paid or tendered

(b) When the bill of exchange or other negotiable instrument has been received as
conditional paymentdishonour of instrument or otherwise.

What are the unpaid sellers remedies?

S39(1)notwithstanding that property in the goods may have passed to the buyer, the
unpaid seller

(a)Lien on the goods or right to retain them for the price while he is in possession of
them

(b)in the case of insolvency of the buyer, a right of stoppage of goods in transit after he
had parted with possession of them;

(c) a right of resale as limited by this Act.

The above remedies are logical if the goods remain with the unpaid seller or is in transit
to the buyer. However the above remedies will become ineffective if the goods have
already fallen into the hands of the insolvent buyer.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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In these circumstances, it would be advisable for the seller to secure himself by


incorporating a reservation of title clause. This will have the effect of protecting the
seller even if the goods are in the hands of the buyer who has become insolvent without
having to have paid the seller.

Incorporating a reservation of title clause.

What the seller hopes to do is to retake possession of his goods that are now in the hands of
the trustees of bankruptcy by relying on the contractual term that they had not intended that
property should pass until payment is made in full- that would have been the intention of
the seller at the time of the contract-S17(1) and (2) SGA- in a contract for sale of goods
between the parties- S2(1) SGA 1979

Section 19 Reservation of title

(1) Where there is a contract for the sale of specific goods or where goods are
subsequently appropriated to the contract, the seller may by the terms of the
contract or appropriation, reserve the right of disposal of the goods until certain
conditions are fulfilled; and in such a case, notwithstanding delivery of the goods to
the buyer or to a carrier or other bailee or custodier for the purpose of transmission
to the buyer, the property in the goods does not pass to the buyer until the condition
imposed by the seller are fulfilled.

(2) Where goods are shipped, and by the bill of lading the goods are delivered to the
order of the sellerthe seller is prima facie to be taken to reserve the right of
disposal.

What is the purpose of a reservation of title clause?

AIV v Romalpa Aluminium (1976)- to protect the interest of the seller in circumstances
of insolvency of the buyer. Where the goods are in the hands of the buyer/agent.

Buyer-insolvent S61(4)

Seller becomes an unpaid seller- S38(1)

Reliance on the reservation of title clause- by the seller

Effect under S19(1) and (2) SGA 1979- Classic case Aluminium Industrie
Vaassen BV v Romalpa Aluminium(1976)CA-per Mocatta J.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Simple Romalpa Clauses

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per Mocatta


J. a display of the parties intention-S17(1) and (2) SGA.

Effects of a simple romalpa clause-circumstances?

unused

unmixed and not lost its identity

Still in the buyers possession

Effect of a reservation of title clause on the sub-buyer-S25 SOGA

Rationale: Re Bond worth Ltd(1980) per Slade J- referring to AIV v Romalpa


Aluminium(1976) indicated that a ROT clause had the effect of making, the
buyers bailees of the relevant goods until payment is made in full.

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per


MocattaJ.

RePeachdart Ltd(1984) per Vinlott J

Clough Mills Ltd. V Martin (1985)

Conclusion:

The courts will treat such terms as no more than an indication of the parties
intention with regards to the passing of property at the time of sale and they will
give effect to such an intention under S17(1) and S19(1).

The clause will not be treated as a charge/ mortgage within S860 CA 2006 and
will not require registration.

But the courts attitude and interpretation of a Romalpa Clause will change in circumstances
where the seller in his effort to protect his interest seeks to stake a claim over

Mixed /manufactured goods

Proceeds of sale and book debts.

The courts will take a more stringent attitude towards the interest of the parties, who profess
to suggest that they are now rightful owners of the above. The courts are very reluctant to
provide the seller such a right to stake a claim for a number of reason, which will be
explored.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
7|Page

Mixed goods

What are mixed goods?

The general presumption- RePeachdart Ltd(1984) per Vinlott J- where the sellers interest
is relinquished once the goods are supplied to the manufacturer(buyer) and the good
undergo the manufacture process.

Can the seller argue that the goods belong to him?

mixed goods- increase commercial value- windfall doctrine

Fiduciary obligation to account cf bailor- bailee relationship

Interest of the seller must now be in the form of a charge or mortgage

( interest)

Interest in the form of a charge or mortgage- this will require registration under the
CA 1985

Cases to consider:

Re Peachdart Ltd (1984)

Re Bond worth Ltd (1980)

AIV v Romalpa Aluminum(1976)

The right to trace an interest into the mixed goods has its limitation

1. Where the goods supplied have been used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers(1981) CA per Buckley LJ

2. Re Bondworth Ltd (1980)- FIBRE

Consider this against cases such as

Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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PROCEEDS OF SALE-What are proceeds of sale?

Book debts- what are book debts?

Can the seller seek to reclaim goods that are in the hands of the sub- buyer?

How can a seller claim entitlements onto proceeds of sale?

1. Construction-term suggesting an interest

2. Registration of that charge-CA 2006

Cases to be considered:

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per MocattaJ.

Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

Conclusion.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Q8 Zone A 2011

Kennington Ltd supplies cloth on credit to various firms: one firm resells the cloth and
another makes the cloth into dresses, which are then sold to shops. Each of the buyers
receives fresh supplies of cloth on the first day of each month.

Advise Kennington Ltd how it might draft a retention of title clause to protect its
interest until payment is received from the buyers.

Introduction

When KL decides to supply cloth on credit, it is important for them to protect


their financial interest by incorporating a reservation of title clause in this
contract that would be defined as a conditional sale of goods under S2(1)
SGA1979.
What is the purpose of a ROT?
Protect the interest of the seller in circumstances of insolvency of the buyer.
Classic case Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-
per Mocatta J.

Buyer-insolvent S61(4)
Seller becomes an unpaid seller- S38(1) and remedies under S39 SOGA
What sections can the Seller(KL) rely on under SOGA1979- refer to S19(1) SGA.
How does this reflected under S 17(1) and (2) SGA.

Diplock LJ in Ward v Bignall(1967)called S17 the governing rule in the


passing of property.

Re Anchorline(1937)-sale of a dock-crane where the buyer had to pay


depreciation value and a ROT existed in contract.
Effect of a reservation of title clause on the sub-buyer-S25 SOGA

When and how does the Reservation of title take effect- to the benefit of the seller. Can
the seller seek to recover property in the goods from the buyer who has failed to pay
him?

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per Mocatta


J.- objective of a ROT.

Effects of a simple romalpa clause-circumstances?


unused
unmixed and not lost its identity
Still in the buyers possession

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
10 | P a g e

Rationale: Re Bond worth Ltd(1980) per Slade J- referring to AIV v Romalpa


Aluminium(1976) indicated that a ROT clause had the effect of making, the
buyers bailees of the relevant goods until payment is made in full.

RePeachdart Ltd(1984) per Vinlott J


Clough Mills Ltd. V Martin (1985)

Conclusion:
The courts will treat such terms as no more than an indication of the parties
intention with regards to the passing of property at the time of sale and they will
give effect to such an intention under S17 and S19.
The clause will not be treated as a charge/ mortgage within S395 CA 1985 @
1989 and will not require registration.[ currently S860 CA 2006]

Is it also possible for the seller to further protect himself, knowing that the
buyer(manufacturer) will be in the business of putting the goods into the manufacturing
process?

The seller may chose to draft a ROT clause with the effect of allowing him to trace an
interest into:
o mixed goods
o Proceeds of sale
o Book debts

Mixed goods

What are mixed goods?


The general presumption- RePeachdart Ltd(1984) per Vinlott J- where the sellers interest
is relinquished once the goods are supplied to the manufacturer(buyer) and the good
undergo the manufacture process.
Can the seller argue that the goods belong to him?
mixed goods- increase commercial value- windfall doctrine
Fiduciary obligation to account cf bailor- bailee relationship
Interest of the seller must now be in the form of a charge or mortgage
( interest in the goods)

Interest in the form of a charge or mortgage- this will require registration under the CA
1985
Cases to consider:
Re Peachdart Ltd (1984)
Re Bond worth Ltd (1980)
AIV v Romalpa Aluminum(1976)

The right to trace an interest into the mixed goods has its limitation
1. Where the goods supplied have been used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers(1981) CA per Buckley LJ
2. Re Bondworth Ltd (1980)- FIBRE
Consider this against cases such as
Re Peachdart Ltd (1984)
# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Hendy Lennox v Graham Puttick(1984)

PROCEEDS OF SALE
What are proceeds of sale?
Can the seller seek to reclaim goods that are in the hands of the sub- buyer?
How can a seller claim entitlements onto proceeds of sale?
1. Construction-term suggesting an interest
2. Registration of that charge-CA 1985
Cases to be considered:
Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per MocattaJ.
Re Peachdart Ltd (1984)
Hendy Lennox v Graham Puttick(1984)

BOOKDEBTS
What are book debts?
Can the seller claim an interest into existing book debts?

1. Construction-term suggesting an interest


2. Registration of that charge-CA 2006
Cases to be considered:
Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per MocattaJ.

Conclusion.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Q4 Zone B 2010

4. Retention of title clauses often called Romalpa clauses have not proved a particularly
effective method of protecting the seller in the event of the buyer becoming insolvent before
payment. Discuss.

Introduction

Basis of a contract of sale of goods-S2(1) SGA is for property to pass from the seller to the
buyer.
Once this has occurred the seller has the right to claim for the price of the goods-S49(1) SGA.
RV Ward v Bignall(1969)
However- S2(1) covers a sale and an agreement to sell. Conditional sale agreements are also
considered when the seller sells on credit terms and the sellers needs to protect his commercial
interest before property passes and he is paid in full. The seller has other forms of security- see
sS8 and s39 SGA but once the goods are in the buyers possession, the sellers only option is
to rely on S19(1) and (2) to protect his interest.

Section 19 Reservation of title

(3) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the
contract, the seller may by the terms of the contract or appropriation, reserve the right of disposal of the goods
until certain conditions are fulfilled; and in such a case, notwithstanding delivery of the goods to the buyer or to
a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does
not pass to the buyer until the condition imposed by the seller are fulfilled.

(4) Where goods are shipped, and by the bill of lading the goods are delivered to the order of the sellerthe seller
is prima facie to be taken to reserve the right of disposal.

What is the purpose of a reservation of title clause?

AIV v Romalpa Aluminium (1976)- to protect the interest of the seller in circumstances
of insolvency of the buyer. Where the goods are in the hands of the buyer/agent.

Buyer-insolvent S61(4)

Seller becomes an unpaid seller- S38(1) and remedies under S39 SOGA

Reliance on the reservation of title clause- by the seller

Effect under S19(1) and (2) SGA 1979

Classic case Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-


per Mocatta J.

Simple Romalpa Clauses

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per Mocatta


J. a display of the parties intention-S17(1) and (2) SGA

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
13 | P a g e

Effects of a simple romalpa clause-circumstances?

unused

unmixed and not lost its identity

Still in the buyers possession

Effect of a reservation of title clause on the sub-buyer-S25 SOGA-


LIMITATION OF RESERVATION OF TITLE-WHY?

Rationale: Re Bond worth Ltd(1980) per Slade J- referring to AIV v Romalpa


Aluminium(1976) indicated that a ROT clause had the effect of making, the
buyers bailees of the relevant goods until payment is made in full.

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per


MocattaJ.

RePeachdart Ltd(1984) per Vinlott J

Clough Mills Ltd. V Martin (1985)

Conclusion:

The courts will treat such terms as no more than an indication of the parties
intention with regards to the passing of property at the time of sale and they will
give effect to such an intention under S17(1) and S19(1).

The clause will not be treated as a charge/ mortgage within S395 CA 1985 @
1989 and will not require registration.

But the courts attitude and interpretation of a Romalpa Clause will change in circumstances
where the seller in his effort to protect his interest seeks to stake a claim over

Mixed /manufactured goods

Proceeds of sale and book debts.

The courts will take a more stringent attitude towards the interest of the parties, who profess
to suggest that they are now rightful owners of the above. The courts are very reluctant to
provide the seller such a right to stake a claim for a number of reason, which will be
explored.

Mixed goods

What are mixed goods?

The general presumption- RePeachdart Ltd(1984) per Vinlott J- where the sellers interest
is relinquished once the goods are supplied to the manufacturer(buyer) and the good
undergo the manufacture process.

Can the seller argue that the goods belong to him?

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
14 | P a g e

mixed goods- increase commercial value- windfall doctrine

Fiduciary obligation to account cf bailor- bailee relationship

Interest of the seller must now be in the form of a charge or mortgage

( interest)

Interest in the form of a charge or mortgage- this will require registration under the
CA 1985

Cases to consider:

Re Peachdart Ltd (1984)

Re Bond worth Ltd (1980)

AIV v Romalpa Aluminum(1976)- consider the circumstance that has allowed for
this case not to require registration. How will this case be viewed today and will it
be effective?

The right to trace an interest into the mixed goods has its limitation

3. Where the goods supplied have been used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers(1981) CA per Buckley LJ

4. Re Bondworth Ltd (1980)- FIBRE

Consider this against cases such as

Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

PROCEEDS OF SALE-What are proceeds of sale?

Book debts- what are book debts?

Can the seller seek to reclaim goods that are in the hands of the sub- buyer?

How can a seller claim entitlements onto proceeds of sale?

3. Construction-term suggesting an interest

4. Registration of that charge-S860 CA 2006

Cases to be considered:

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per MocattaJ.


# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

Conclusion.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
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Question5 Zone A 2009

The judicial interpretation of Romalpa clauses means they are not effective in
protecting the seller in the event of the buyer becoming insolvent before payment.
Discuss.

Judicial interpretation of Romalpa Clauses- may defer depending on the nature of


circumstance before the courts when the buyer becomes insolvent and the seller
attempts to protect himself in reliance on reservation of title clauses that they may have
inserted into the contract with the buyer.

What the seller hopes to do is to retake possession of his goods that are now in the hands of
the trustees of bankruptcy by relying on the idea that they had not intended that property
should pass until payment is made in full- S17(1) and (2) SGA- in a contract for sale of
goods between the parties-S2(1) SGA 1979
Section 19 Reservation of title

(5) Where there is a contract for the sale of specific goods or where goods are subsequently appropriated to the
contract, the seller may by the terms of the contract or appropriation, reserve the right of disposal of the goods
until certain conditions are fulfilled; and in such a case, notwithstanding delivery of the goods to the buyer or to
a carrier or other bailee or custodier for the purpose of transmission to the buyer, the property in the goods does
not pass to the buyer until the condition imposed by the seller are fulfilled.

(6) Where goods are shipped, and by the bill of lading the goods are delivered to the order of the sellerthe seller
is prima facie to be taken to reserve the right of disposal.

What is the purpose of a reservation of title clause?

AIV v Romalpa Aluminium (1976)- to protect the interest of the seller in circumstances
of insolvency of the buyer. Where the goods are in the hands of the buyer/agent.

Buyer-insolvent S61(4)

Seller becomes an unpaid seller- S38(1) and remedies under S39 SOGA

Reliance on the reservation of title clause- by the seller

Effect under S19(1) and (2) SGA 1979

Classic case Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-


per Mocatta J.

Simple Romalpa Clauses

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per Mocatta


J. a display of the parties intention-S17(1) and (2) SGA

Effects of a simple romalpa clause-circumstances?

unused

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
17 | P a g e

unmixed and not lost its identity

Still in the buyers possession

Effect of a reservation of title clause on the sub-buyer-S25 SOGA

Rationale: Re Bond worth Ltd(1980) per Slade J- referring to AIV v Romalpa


Aluminium(1976) indicated that a ROT clause had the effect of making, the
buyers bailees of the relevant goods until payment is made in full.

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per


MocattaJ.

RePeachdart Ltd(1984) per Vinlott J

Clough Mills Ltd. V Martin (1985)

Conclusion:

The courts will treat such terms as no more than an indication of the parties
intention with regards to the passing of property at the time of sale and they will
give effect to such an intention under S17 and S19.

The clause will not be treated as a charge/ mortgage within S395 CA 1985 @
1989 and will not require registration.

But the courts attitude and interpretation of a Romalpa Clause will change in circumstances
where the seller in his effort to protect his interest seeks to stake a claim over

Mixed /manufactured goods

Proceeds of sale and book debts.

The courts will take a more stringent attitude towards the interest of the parties, who profess
to suggest that they are now rightful owners of the above. The courts are very reluctant to
provide the seller such a right to stake a claim for a number of reason, which will be
explored.

Mixed goods

What are mixed goods?

The general presumption- RePeachdart Ltd(1984) per Vinlott J- where the sellers interest
is relinquished once the goods are supplied to the manufacturer(buyer) and the good
undergo the manufacture process.

Can the seller argue that the goods belong to him?

mixed goods- increase commercial value- windfall doctrine

Fiduciary obligation to account cf bailor- bailee relationship


# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)
18 | P a g e

Interest of the seller must now be in the form of a charge or mortgage

Interest in the form of a charge or mortgage- this will require registration under the
CA 1985

Cases to consider:

Re Peachdart Ltd (1984)

Re Bond worth Ltd (1980)

AIV v Romalpa Aluminum(1976)

The right to trace an interest into the mixed goods has its limitation

5. Where the goods supplied have been used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers(1981) CA per Buckley LJ

6. Re Bondworth Ltd (1980)- FIBRE

Consider this against cases such as

Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

PROCEEDS OF SALE-What are proceeds of sale?

Book debts- what are book debts?

Can the seller seek to reclaim goods that are in the hands of the sub- buyer?

How can a seller claim entitlements onto proceeds of sale?

5. Construction-term suggesting an interest

6. Registration of that charge-CA 1985

Cases to be considered:

Aluminium Industrie Vaassen BV v Romalpa Aluminium(1976)CA-per MocattaJ.

Re Peachdart Ltd (1984)

Hendy Lennox v Graham Puttick(1984)

Conclusion.

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Q7 Zone B June 2006

7. Heidi plc sells leather hide to various companies on terms that require payment
30 days after delivery. Some of the buyers resell the leather hide, while other
buyers use it in the manufacture of leather goods, which are then stored or sold.

Advise Heidi on why it might wish to protect itself by including a retention of title
clause in future sale contracts and what protection such a clause might provide.

In advising H

When H enters into a contract of sale with the buyer [under S2(1) SGA 1979] the
basis of the contract is for property to pass in the goods. This is especially so where
the goods have been specified to the contract, thus property is capable of passing
under the contract[S16 SGA 1979 and Re London Wine (Shippers) Co Ltd].
OTF it is unlikely for the buyers to successfully argue that property has passed under
S18r1 for it is natural for the sellers to insert a reservation of title clause in the
contract of sale, this being especially so where the contract is one for sale by
credit(ie conditional sale)
When does property pass- S17(1) and (2) SGA- Re Anchorline and RV Ward v
Bignall per L Diplock
How do the terms of the contract effect the passing of property-see S19(1) SGA 1979
and AIV v Romalpa Aluminium (1976) Mocatta J- what is the objective of a
ROT ?
Fairfax Gerrard Holding Ltd v Capital Bank Plc(2007) CA- ROT not designed to
prevent the buyers from sub selling goods.
In the event the buyer sub sells the goods, the seller cannot rely on the ROT to trace
an interest and seek recovery of the goods that are in the hands of the third party.
The TP will be able to rely on S25 SGA 1979 ie sale by a seller in possession with the
consent of the true owner to acquire title in the goods.
What is essentially important is that:

1. the buyer must have bought or agreed to buy the goods from the seller-Helby
v Matthew(1965)
2. the sub buyer must have acted in good faith- especially where the buyer has
acted in his capacity as a mercantile agent and sold the goods in the ordinary
course of business as a mercantile agent.(Newton of Wembley v Williams
1965)
3. the buyer was in possession of the goods at the time. Marten v Whale 1917-
having bought or agreed to buy.

However the seller may seek to protect his interest contractually by inserting a
ROT clause but what is essentially important is to determine if:
3. the nature of ROT based on its construction
4. the need for registration of the ROT

Technically the ROT clause will work effectively where it seeks to claim

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recovery of unpaid goods in the possession of the buyer.


Usually this occurs where the buyer is insolvent-S61(4) and where the seller
remains unpaid-S38(1)
The seller can claim goods from the trustee of bankruptcy provided that the
goods remain unmixed, unused and has not lost their identity. Observe
the case of AIV v Romalpa Aluminium (1976)- where the court had no
problems giving effect to the clear intentions of the parties ( and no
requirement for registration was deemed necessary).
This position has been later affirmed in cases such as Clough Mills v
Martin(1985)and Re Peachdart Ltd(1984).
In Re Bondworth Ltd (1980) Slade J-referred to AIV v Romalpa
Aluninium(1976) where the ROT had the effect of making the buyers bailees
of goods until payment is made in full.
However if it appears that the buyer has subjected the goods to a
manufacturing process, then the courts will appear strained to give effect to
the sellers intentions.

Consideration for mixed/manufactured goods.

General presumption- Re Peachdart Ltd(1984) per Vinlott J

The sellers claims over the manufactured goods will take the form of a charge
or mortgage over the goods.
The rationale for this is- the value of the new goods, the windfall doctrine and
that the seller cannot be said to be the absolute owner of the new goods but
may have a proprietary claim over the new goods.
The Courts in Re Peachdart Ltd and Re Bondworth Ltd suggested that the
sellers interest is in the form of a charge and ought to be registered under the
CA 1985.
However the right to trace an interest into the finished goods or manufactured
goods will also depend on the nature of the goods and circumstances
involved.
For example where goods are used in an irreversible process- RESIN in
Borden (UK) v Scottish Timbers (1981) CA per Buckley LJ
For example where the goods( leather) remained the predominant aspect of the
finished product-Re Peachdart Ltd(1980)
Naturally the right to make such claims over proceeds of sale and book debts
appear also to have to meet same high expectation-of CONSTRUCTION
AND REGISTRATION [cf AIV v Romalpa Aluminium 1976]

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Q4 June 1999 Zone B- Commercial Law sample answer.

Alpha Ltd were furniture makers. Wood was supplied to them by Beta Ltd under a
contract which contained the following clause:

"All wood supplied by Beta Ltd remains the property of Beta until it has been paid for.
Any product in which the wood is subsequently incorporated shall remain the property
of Beta until all wood supplied has been paid for in full. Should the wood be sold by the
customers before it has been paid for, the customer must pay all the proceeds of the
sale into a separate bank account and then account to Beta within 30 days for the whole
of the proceeds of the sale provided that sum does not exceed the amount of the debt
owed by the customers to Beta".

Alpha is now in liquidation and it owes Beta 50,000 in respect of wood supplied by Beta.
All the wood supplied has been used in the manufacture of furniture. Wood to the value
of 5,000 has been cut and treated but has not otherwise been used by Alpha. Most of
the wood has been used to make tables. 50 tables worth 35,000 have been found in
Alpha's factory. A bank account opened by Alpha, called its "suppliers' account''' has
15,000 deposited in it. The money appears to be the proceeds the sale of some furniture.

Cain Furniture plc claims that it is entitled to 40 of the tables in the factory on the ground
that it has paid a 50% deposit for each table. Cain has produced an invoice which
demonstrates that it has paid the deposits for the tables. 20 of the tables have labels on
them which state that they are to be delivered to Cain but there is no other indication of
which tables were to be delivered to Cain.

Advise Beta Ltd and Cain Furniture plc.

Contract between B Ltd and A Plc is defined under S2 (1) SOGA 1979.
B Ltd is now an unpaid seller within S38(1)
A plc is said to have committed an act of insolvency under S61(4) SGA.
Since the goods are already in the hands of the buyer(Aplc) then B Ltd only option is
to rely on the reservation of title clause that exist in the contract between them- see
S19(1) and S17(1) and (2) SGA
What is the objective of S19(1) SGA?
AIV v Romalpa Aluminium(1976) per Mocatta J

Can B Ltd claim an interest in the L 5,000 of treated and cut wood supplied to the A
Plc?
What is the courts view of a ROT clause?
What is the effect of a simple romalpa clause and what circumstances is it effective?
Is registration of such a clause necessary?
Re Bondworth Ltd (1980)
AIV v Romalpa Aluminium(1976)
Clough Mills Ltd v Martin(1985)
Conclusion.

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Can B Ltd stake a claim on the L 35,000 worth of tables in A Plc warehouse?

What is the effect of an extended ROT clause?


The courts attitude- general presumption: Re Peachdart Ltd (1984) per Vinlott J
The courts not willing to imply any intention without a clear term to that effect.
The courts not willing to give effect to the sellers intention unless it is clear that he
seeks to claim an interest into the manufactured goods, proceed of sale or book-debts.
The courts being willing to recognise that parties may have joint ownership in goods
although this will depend on the merit of each circumstance- The Matter of CKE
Engineering Ltd( In Administration) 2007- allowing for co-ownership to exist.
What is the basis for this reasoning?
1. mixed/ manufactured goods may involve competing interest.
2. the goods may now possess a much higher commercial value to it.
3. The Windfall doctrine- the seller cannot be said to have acquired an interest
greater than what is owing to him.
4. it is now more difficult to interpret the position of the buyer a bailee of the
goods or alternatively trustees of the goods- without a clear indication by the
seller to that effect.
5. therefore the courts are inclined to treat the sellers interst to be in the form of a
charge or mortgage which will require the seller to have registered the charge-
S395-396 CA 1985 @ 1989 Act.

In AIV v Romalpa Aluminium Ltd(1976)- no registration was required which created


an artificial result that appears to suggest that the seller has interest in the entire goods /
proceeds of sale. The courts have begun to realise the danger of allowing the creation of
secret, unregistrable and unnotifiable form of security. Further criticism suggest that this has
allowed the principles of equity to make its way into commercial law.

However today, the law requires that the sellers interest in the goods by evidenced by a
charge that is registered.- see Re Bondworth Ltd (1980), Borden (UK) v Scottish Timbers
Products Ltd(1981).

Conclusion- determine if there was proper construction of the intention and the fact that this
was evidenced by registration of charge.

Can B Ltd claim an interest in the L 15,000 of proceeds of sale in the clients account?

A ROT clause- not designed to prevent the buyer from dealing with the goods-
which includes selling them-Fairfax Gerrard Holding Ltd v capital Bank Plc
(2007)- always an implied right to resell the goods.

Yet the ROT clause is capable of transferring the sellers preferential right into the
proceeds of sale or book debts as the case maybe.

Again- what is the courts attitude in respect of the unpaid sellers rights?

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The courts will find it difficult to construe a bailor- bailee relationship here and a duty
to automatically account on the proceeds in favour of the seller due to the
complexities that this may cause. The courts are still in favour of the creditor debtor
relationship that has arisen out of the seller- buyer relationship that exists. [ Compaq
Computers Ltd v Abercorn Group 1993]

Again the courts will have to interpret the position of the seller based on the
construction and registration of the clause- S395/396 CA

What right does Cain furniture have over the 40 tables?

CF will be advised to argue that property had passed to them before the
insolvency of A Plc.
See S 16 SGA and S17 SGA- Re Anchorline, wait and James v Midland Bank.
OTF- CF had paid for of the 40 tables that existed as part of the sellers stock
of 50 tables.
Only 20 were labelled.
The question is whether the tables were appropriated to the contract at the time
of sale? OTF has S16 been satisfied?
CF may choose to rely on S18r5 SGA- Carlos Federspiel v Charles Twigg(1957)
per Pearson J
1. Ear marking of goods to the contract- Healy v Howlett and Sons.
2. Unconditional appropriation of goods to the contract.
3. Consent of the parties
4. Irrevocable attachment of goods to the contract.

Alternatively CF may argue- reliance on the act of separation/ segregation of


goods to the contract.
1. Re Stapylton Fletcher Ltd(1994)
2. Re Goldcorp Exchange Ltd (1994)
3. Indian Oil Corporation Ltd v Greenstone Shipping co Ltd(1988)
per Staughton J- where tenancy in common may arise.
Therefore the need to identify the goods remains an essential aspect of satisfying
S16. This remains so since- Re Wait(1927).
Thus NO EQUITABLE ASSIGNMENT allowing for a trust to exist in favour
of the buyer may exist giving the buyer beneficial interest despite having:
1. paid for goods
2. been given a certificate of title
3. having bought a particular stock of goods in entirety
4. where storage and insurance charges had been paid.
See Re London Wine Shippers Co Ltd

It now appears that CF only option will be to rely on S20A and S20B SGA.-
Undivided share in goods forming part of a bulk.
Bulk-S61(1)
Buyers portion being identifiable
Buyer having paid part or whole of the price
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S20A(2) ) (a) and (b) property in undivided share will now pass to the buyer and
the buyers may now become owners in common of the bulk.
S20A(3)- the buyers interest will be in proportion to the payment made.

Conclusion.

# prepared by reuben de rozario for the Commercial Law Department. This is only a guide
produced to facilitate the learning process. RESERVATION OF TITLE CLAUSE (BAC2017)