Lecture # 13 Passing of title under void and voidable contracts General rule Transfer of title/ownership in goods By: Salik Aziz Vaince [0313-7575311] The phrase transfer of title means transferring of proprietary rights from one person to the other. The basic difference between the property in goods and possession of goods is the former relates to ownership and the later refers to the custody or control of goods. Transfer is subject to the following rules: Parties intention to pass the ownership Intention is necessary to pass the ownership of goods. Intention is the state of mind and actions are considered the best interpreters of intention. Transfer in unascertained goods Transfer in ascertained goods takes place when the goods are ascertained. Ascertained goods are those that have been identified and separated from the bulk. Unconditional contract for the sale of specific goods available in deliverable state Transfer of ownership of specific goods in deliverable state takes place in an unconditional contract at the time the contract is made whether the payment time, the price or delivery time is postponed or not. Specific goods to be put in to deliverable state Where there is an unconditional contract for the sale of specific goods and the seller is bound to do something to the goods for the purpose of putting them in to deliverable state, the ownership does not pass until the process is done and the buyer has notice thereof. Goods to be measured or tested In a contract for the sale of specific goods in a deliverable state, the ownership does not pass to the buyer unless the goods are weighed or measured or tested. Delivery to carrier of goods When a seller hands over the goods to the carrier for delivery, the ownership transfers to the buyer. Transfer of ownership on approval of goods Transfer of ownership takes place when the buyer approves the goods. The ownership passes to the buyer under the following circumstances: 1. When the buyer gives his acceptance to the goods or does something that amounts to approval 2. Where the buyer does not give rejection of the goods and retains them in his possession. VLC Publishers www.vlc.com.pk Page 1
Romalpa Clause Retention of title clauses, commonly called Romalpa clauses are often included in contracts for the sale of goods in a bid to prevent the buyer claiming title before full payment has been received. Such clause would allow the seller to retain goods in the event of the buyer failing to pay due to becoming bankrupt or insolvent. Aluminium Industries Vassen v Romalpa Aluminium Ltd (1976) Facts: Aluminium Industry Vaasen BV was a Dutch supplier of aluminium foil. Romalpa Aluminium Ltd processed it in their factory. In the contract of sale, it said that ownership of the foil would only be transferred to Romalpa when the purchase price had been paid in full and products made from the foil should be kept by the buyers as bailees (the contract referring to the Dutch expression fiduciary owners ) separately from other stock on AIV s behalf as surety for the rest of the price. But it also said Romalpa had the power to sell the manufactured articles in the course of business. When such sales took place, this would be deemed to be as an agent for AIV. Romalpa went insolvent, and the receiver and manager of Romalpa's bank, Hume Corporation Ltd, wanted the aluminium to be caught by its floating charge. AlV contended that its contract was effective to retain title to the goods, and so it did not need to share them with other creditors in the liquidation. Held: High Court; Mocatta J held the retention of title clause was effective. Aluminium Industry Vaasen was still the owner of the aluminium foil, and could trace the price due to them into the proceeds of sale of the finished goods, ahead of Romalpa s unsecured and secured creditors. He said the following. The preservation of ownership clause contains unusual and fairly elaborate provisions departing substantially from the debtor/creditor relationship and shows, in my view, the intention to create a fiduciary relationship to which the principle stated in In re Hallett's Estate, applies. A further point made by Mr. Pickering was that if the plaintiffs were to succeed in their tracing claim this would, in effect, be a method available against a liquidator to a creditor of avoiding the provisions establishing the need to register charges on book debts: see section 95(1)(2)(e) of the Companies Act 1948 [now CA 2006 section 860(7)(g)]. He used this only as an argument against the effect of clause 13 contended for by Mr. Lincoln As to this, I think Mr. Lincoln's answer was well founded, namely, that if property in the foil never passed to the defendants with the result that the proceeds of sub-sales belonged in equity to the plaintiffs, section 95(1) [now CA 2006 section 860] had no application. Court of Appeal Roskill LJ, Goff LJ and Megaw LJ upheld the decision, and that Aluminium Industry Vaassen retained title to the unused aluminium foil. The Maxim Nemo Dat Quod Non Habet Means No One Can Transfer Better Title than That He Himself Has General rule of transfer of ownership The maxim Nemo dat quod non habet means no one can transfer better title than he himself has. A non owner of goods cannot pass good title to the buyer. Even though, he has bought them in good faith for the price. VLC Publishers www.vlc.com.pk Page 2
Exceptions to the rule No one can transfer better title than that he himself has Following are the exceptions: Authority of non owner to sell the goods Where the owner of goods expressly or impliedly or by act or omission causes the buyer to believe that the person has the authority to sell the goods on his behalf. He cannot deny the seller s authority to sell the goods. And the buyer gets better title than that of the seller. Example: A, B and C are sitting together and A offers B to buy the car of C. C keeps quiet and B accepts the offer. There is valid contract of sale of car between B and C. Sale by mercantile or commercial agent Commercial agent is the person who sells goods on behalf of his principal. Sale by such agent is valid, provided, he is in possession of the goods or documents of title and the buyer has acted in good faith. Sale by joint owner Where jointly owned goods are in possession of one of the owners and he sells them to the buyer. The buyer gets good title provided he has acted in good faith. Example: X, Y and Z, three friends, jointly own a horse. Z in possession of the horse sells it to Mr. H. Mr. H acquires good title, provided, he has acted in good faith. Person in possession of goods under Void-able contract Void-able contract is an agreement which is enforceable by law at the option of one or more of thr parties thereto but not at the option of the other or others is a void-able contract. Where a person under void-able contract has obtained the possession of the goods before the cancellation of the contract and sells the same to the third party, the third party gets good title, provided, he has acted in good faith. Example: Asif by fraud gets the possession of a car from Rimsha and sells it to Sajawal. Sajawal gets good title, provided, he has acted in good faith. Buyer in possession of goods before sale When a buyer, before obtaining the ownership of goods gets the possession thereof and sells it to the third party. The third party acquires good title, provided, he has acted in good faith and without notice of any lien (The right to take another's property if an obligation is not discharged) of the original seller. Seller in possession of goods after sale A person in possession of sold goods transfers good title to the third party, provided, the third party gets delivery of the goods and has acted in good faith and without the notice that the goods have already sold. Unpaid seller in possession of goods Unpaid seller, in possession of goods, can transfer good title to the new buyer, even though; no notice of resale has been given to the original buyer. Finder of lost goods Under certain circumstances, a finder of lost goods can sell the goods and the buyer gets good title. VLC Publishers www.vlc.com.pk Page 3
Rules of delivery of goods Rules regarding the delivery of goods are as under: Duty It is the duty of seller to deliver the goods and of the buyer to receive and pay for goods Duty to perform obligations concurrently It states unless otherwise agreed, the parties to the contract shall at the same time take delivery and pay for the goods. Mode of delivery of goods The parties to contract are free to decide terms and conditions of delivery of goods. Following are the modes of delivery: 1. Actual delivery Actual delivery takes place when goods are physically handed over to the buyer. 2. Symbolic delivery Symbolic delivery does not require actual delivery of goods. Delivery of an article that represents the delivery is handed over to the buyer for example the handing over the keys of a ware house. Legal effects of partial delivery Where the seller sells goods in bulk and delivers possession thereof in multiple phases, the acceptance of part delivery is treated as delivery of the whole bulk. Seller s duty to deliver the goods The seller is not bound to deliver the goods unless the buyer requests for the delivery. However, where in a contract of sale the terms and conditions regarding delivery of goods have been expressly settled, the seller will deliver the goods without the request. Place of delivery of goods Following rules apply where the contract of sale silent as to the delivery of goods: 1. Goods of that the ownership has been transferred would be delivered at the place where they were stored at the time of transfer of ownership. 2. Goods of that the ownership has not been transferred would be delivered at the place where they were stored at the time of agreement to sell. 3. Future goods are delivered at the manufacturing or producing place. Time of delivery Following rules are applied with regard to time of delivery of goods: 1. Time of delivery strictly observed when provision regarding time of delivery is mentioned in the contract of sale of goods. 2. Where no time of delivery is mentioned in the contract the goods are delivered within reasonable time. Delivery of goods that are not in possession of seller Delivery of goods that are not in possession of the seller takes place when the third party in possession of goods acknowledges that now onward it holds the possession on behalf of the new buyer. VLC Publishers www.vlc.com.pk Page 4
Delivery expenses of goods Unless otherwise agreed, the delivery expenses will be borne by the seller. Delivery of wrong goods The seller is bound to deliver the goods according to the given specifications. In case the goods supplied do not correspond with the specification, the buyer can refuse to accept the delivery. Delivery of goods in installments Unless otherwise agreed, the buyer is not bound to accept the delivery of goods in installments. Delivery of goods to carrier Delivery of goods takes place when the seller intentionally conveys the goods to a carrier for the purpose of delivery to the buyer. Inspection of goods At the time of delivery of goods, buyer has right to inspect the goods in accordance with the terms and conditions of the contract. Deemed acceptance of delivery Deemed acceptance takes place when: 1. The seller informs the buyer that he has accepted the delivery of goods. 2. The buyer does something that amounts to taking delivery of goods. 3. The buyer retains the goods and does not intimate the seller about rejection of goods within reasonable time. Class activity Teacher-led introduction. Learner research learners research the nemo dat rule using websites and texts. Using the website opposite, learners can make a list of examples when voidable title can be passed under the SGA 1979. Extended research using the website opposite learners write a digest of the main points raised in the article and their impact on the law of modern trade. Questions from past papers No question from this lecture but it s important regarding the other lectures. VLC Publishers www.vlc.com.pk Page 5