INTERESTS IN GOODS Edited by PROFESSOR NORMAN PALMER Rowe and Maw Professor of Commercial Law, University College London AND PROFESSOR EWAN McKENDRICK Professor of English Law, University College, London SECOND EDITION LONDON LLP HONG KONG 1998
CONTENTS Foreword Preface Contributors Table of Cases Table of Legislation, International Conventions, etc. PARTI DEFINING PROPERTY CHAPTER 1 INFORMATION AS PROPERTY PAUL KOHLER and v ix xxv xxvii lxxiii NORMAN PALMER 3 Introduction 3 Authority favouring the proprietary analysis 6 Qualifications upon the proprietary analysis 7 Authority rejecting a proprietary analysis 9 The commercial significance of a proprietary analysis 10 Priorities, bona fide acquisitions and the nemo dat rule 11 Bailments of information 15 Software as goods 17 Industrial espionage 19 Criteria for a proprietary analysis 21 Conclusion 22 CHAPTER2 PROPRIETARYRIGHTSINHUMANTISSUE ROGERS. MAGNUSSON 25 1. Introduction 25 2. Proprietary rights in human corpses 27 2.1 English authorities 27 2.2 Australian decisions 31 2.3 The American position 32 2.4 The nature of an executor's rights in Anglo-Australian law 34 2.5 The "proprietary" quality of an executor's rights 35 3. Proprietary rights in cadaveric specimens 38 3.1 Why the issue is relevant 38 3.2 The theoretical basis for protection 39 4. Transplants and proprietary rights in living tissue samples 41 4.1 Human tissue legislation 42 4.2 Anglo-Australian authorities 44 4.3 The application of "sales of goods" conditions to donated human tissue 46 5. Proprietary rights in the products of biotechnological engineering 48 5.1 The broader context 49 5.2 Biotechnology and human tissue 50 5.3 Moore v. Regents of the University of California 52 xi
xil CONTENTS 5.4 The Anglo-Australian context 53 6. Proprietary rights in foetal and embryonic tissue 55 6.1 Advisory reports dealing with the status of embryonic tissue 56 6.2 Legislation regulating human reproductive technology 58 6.3 Implications for human foetal tissue transplantation 61 7. Conclusion 62 CHAPTER 3 POSSESSORY TITLE NORMAN PALMER 63 1. Ambit of the inquiry 63 2. Some questions about possessory title 64 2.1 What does it mean? 64 2.2 How far does it go? 65 3. Damages for wrongs to chattels 66 3.1 When possession counts as title 66 3.2 Does an immediate right of possession count as title? 68 3.3 Does a deferred right of possession count as title? 71 4. The threshold requirement: standing to sue 71 4.1 Immediate right to possession as the qualification to sue in conversion 71 4.2 Pedigree and scope of the "proprietary right" rule 74 4.3 Proprietary right and the bailee's estoppel 77 4.4 Possessory title in negligence claims 78 5. Enforcing a right of possession against third parties 81 6. The possessory title holder as bailor 82 7. Deferred rights of possession 85 8. Conclusions 88 CHAPTER 4 INSURABLE INTERESTS JOHN BIRDS 91 The nature of insurable interest 91 More than one interest in goods 96 The third party's claim 97 The third party responsible for a loss 101 Further co-insurance problems 107 CHAPTER 5 THE LEGAL NATURE OF A SHARE GLEN BARTON 111 Introduction 111 Shares and company assets 113 The legal nature of a share 114 CHAPTER 6 GLOBAL CUSTODY A TENTATIVE ANALYSIS OF PROPERTY AND CONTRACT ANTONY W. BEAVES 117 1. Global custody service 117 2. Operational features of global custody 118 3. Traditional analysis of custody 120 4. Bailment and global custody 121 5. A new approach to bailment 123 6. The search for guiding principles 126 7. Conclusion 135 Annexes 139 CHAPTER 7 INTERESTS IN WRECK SARAH DROMGOOLE andnicholas GASKELL 141 1. Introduction 141 1.1 Definitions of "wreck" 141 1.2 International law and wrecks 143
CONTENTS 1.3 The receiver of wreck service 149 2. Proprietary interests 152 2.1 Ownership 152 2.1.1 Methods of acquiring ownership 152 2.1.2 Establishing owner's identity 153 2.1.3 Government ownership 155 2.1.4 Buyers' rights 158 2.1.5 Personal possessions and human remains 159 2.2 Abandonment of rights 162 2.3 Insurers' interests 168 2.3.1 Notice of abandonment 168 2.3.2 Title of underwriter to sue 170 2.3.3 Loss of right to take over property 173 2.3.4 Reinsurance and war risks 176 3. State rights in relation to wreck 178 3.1 Crown rights to unclaimed wreck 178 3.1.1 History and development 178 3.1.2 Statutory basis 180 3.2 State rights of intervention 183 4. Salvors' rights 187 4.1 Salvage principles 187 4.2 The salvors' maritime lien 188 4.3 Salvors' possessory interests 189 4.3.1 Possession against owner 190 4.3.2 Competing salvors 190 4.4 Interests under salvage or raising contracts 194 4.5 Salvage conventions and wreck 195 4.6 Salvage and funding 196 5. Conclusions 202 PART II ORIGINATING AND TRANSFORMING PROPERTY CHAPTER 8 BONAVACANTIA ANDREW BELL 207 I. The general law relating to bona vacantia 207 1. The specific instances of the Crown's right to bona vacantia 207 (a) Intestacy 207 (b) Dissolution of a company 207 (c) Failure of a trust 208 (d) Contested heads of bona vacantia 208 2. The rationale of bona vacantia 210 3. General principles 211 (a) The meaning of "ownerless" property 211 (b) Not all ownerless property belongs to the Crown 211 (c) The distinction between ownerless property and property whose owner is unknown 212 (d) The extent to which real property can be claimed as bona vacantia 213 (e) The extent to which intangible property can be claimed as bona vacantia 214 (f) Third party rights 215 II. The main heads of bona vacantia 216 1. Intestacy 216 (a) Prior claims under the Administration of Estates Act 1925 216 (b) Orders under the Inheritance (Provision for Family and Dependants) Act 1975 219 xiii
xiv CONTENTS (c) Ex gratia payments 220 2. Dissolution of a company or other corporation 221 (a) Registered companies 221 (b) Unregistered companies 223 (c) Building societies and friendly societies 223 3. Failure of a trust 223 (a) In general 223 (b) Charitable trusts 224 (c) Pension funds 225 (d) Unincorporated associations 225 III. Conclusions 226 CHAPTER 9 MIXTURES PETER BIRKS 227 1. Mixtures distinguished from other events 227 (1) Accession 227 (2) Specification 228 (3) Executory division 228 (4) Substitution 230 2. Mixtures: main issues 232 3. An outline of the Roman solutions 232 4. English law and the Roman distinctions 234 5. Consensual mixtures in English law 235 (1) Consensual mixing in an irregular deposit 235 6. Fluid mixtures in English law 236 7. Granular mixtures in English law 238 8. Evidential problems 246 9. Conclusion 248 CHAPTER 10 JOINT OWNERSHIP OF CHATTELS JUDITH HILL and ELIZABETH BOWES-SMITH 251 1. Types of joint ownership 251 1.1 Joint tenancy 251 1.2 Tenancy in common 251 1.3 Particular cases 252 2. Possession of jointly-owed chattels 254 3. Death of a joint owner 255 4. Bankruptcy of a joint owner 255 5. Disposal of an interest in a jointly-owned chattel 256 6. Disposal of a jointly-owned chattel 256 7. Rights and remedies between joint owners 256 7.1 Conversion 256 7.2 Trespass 258 7.3 Other torts 259 7.4 Remedies 259 7.5 Criminal liability 261 8. Rights and remedies against third parties 261 9. Section 188 of the Law of Property Act 1925 262 10. Taxation 262 10.1 Inheritance Tax 262 10.2 Capital Gains Tax 263 10.3 Value Added Tax 264
CONTENTS XV CHAPTER 11 ATTACHMENT OF CHATTELS TO LAND HOWARD N. BENNETT 267 I. What is a fixture? 267 A. Permanent annexation to the land 267 B. Attachment as a fixture 268 C. Attachment so as to leave chattel status unchanged 273 II. Fixtures in selected areas of the law 274 A. Fixtures in the law of landlord and tenant 274 B. Fixtures and the law of succession 278 C. Retention of title to fixtures 281 D. Dispositions of fixtures 291 E. Levying execution of judgment upon fixtures 296 F. Distress and fixtures 297 PART III TRANSMITTING AND DISTRIBUTING PROPERTY CHAPTER 12 THE TITLE OBLIGATIONS OF THE SELLER OF GOODS MICHAEL G. BRIDGE 303 1. Introduction 303 2. The enquiry 308 The right to sell and the nemo dat rule 308 The scope of quiet possession 310 Limited title sales and exclusions 314 The Rowland v. Divall problem 318 CHAPTER 13 SELLER AND BUYER IN POSSESSION MICHAEL KERSHAW 329 Introduction 329 Section 48 rescission 329 Resale to second buyer by unpaid seller who has exercised right of lien, etc 333 Appendix Sale of Goods Act 1979 335 CHAPTER 14 MARKET OVERT BRIAN DAVENPORT and ANTHONY ROSS 337 Introduction 337 A brief history of market overt 338 The rationale of the rule of market overt when it was a living rule of the common law 341 The rule, as stated by Coke 342 The exceptions, as stated by Coke 343 Sales in statutory markets 349 Outstanding questions 351 Sales to shopkeepers 351 Sales by individuals who are not traders 351 The abolition of the rule 352 Conclusion 352 CHAPTER 15 TITLE TO GOODS, MATERIALS AND PLANT UNDER CONSTRUCTION CONTRACTS PETER BARBER 353 1. Introduction 353
xvi CONTENTS 2. Fixed goods and materials 354 (a) General rule as to passing of property 354 (b) Retention of title by third parties 356 3. Unfixed goods and materials 359 (a) General rule as to passing of property 359 (b) Effect of retention of title clauses 360 (c) Vesting clauses general analysis 363 (d) Vesting clauses standard forms 369 (e) Effect of interim payments 371 4. Plant 374 (a) General rule as to passing of property 374 (b) Vesting and forfeiture clauses general 376 (c) Vesting and forfeiture clauses standard forms 378 5. Effect of privity of contract 380 CHAPTER 16 THE PASSING OF PROPERTY IN PART OF A BULK EWAN McKENDRICK 385 1. Introduction 385 2. The general rule property cannot pass 386 3. The exceptions 387 4. Why was the law thought to be unsatisfactory? 393 5. The Sale of Goods (Amendment) Act 1995 395 6. Conclusion 400 CHAPTER 17 GOOD FAITH AND DUE DILIGENCE JANET ULPH 403 1. Introduction 403 2. The common law and statute 404 Nemo dat quod non habet 404 Onus of proof in relation to nemo dat 406 The development of the good faith concept 407 Relationship between good faith and ordinary course of business 409 Relationship between good faith and without notice 410 Constructive notice from documents 412 Notice and registration of an interest 413 Commercial loans and guarantees 415 Agency 418 Payment to an agent 419 Imputed knowledge 419 3. In equity 420 4. Defences and the burden of proof 424 5. Conclusions 426 CHAPTER 18 CONDITIONAL GIFTS ROBERT CHAMBERS 429 1. Property interests created by conditional gifts 429 Conditional ownership 430 Bailment 431 Money had and received 432 Conditional gifts in equity 433 2. Construction of conditions 433 Motive or condition 433 Condition precedent or subsequent 437
CONTENTS 3. Limits on conditional giving 439 Perpetuities 440 Restraint on alienation 440 Interference with donees' lives 441 Other illegal conditions 441 4. Conditions on the use of the gift 442 Trust or gift 443 Quistclose trust 445 5. Conditions unrelated to the use of the gift 446 Benefits to third parties 447 Performance within a specified time 448 Mode of living 451 Engagement presents 451 Donationes mortis causa 452 Other events 457 6. Failure of conditions 458 xvii CHAPTER 19 THE PLACE OF BAILMENT IN THE MODERN LAW OF OBLIGATIONS ANDREW BELL 461 A. Definition 461 1. The consensual model of bailment 462 2. Assimilation to contract? 462 3. The deficiencies of the consensual model 464 4. The modern definition: The Pioneer Container 465 5. Assimilation to tort? 471 B. Bailment as an independent source of obligations 471 1. The meaning of the claim 472 2. The obligations of the bailee 473 3. The obligations of the bailor 485 C. Conclusions 488 CHAPTER 20 THE PROPRIETARY EFFECT OF A HIRE OF GOODS WILLIAM SWADLING 491 I. Introduction 491 II. Covenants generally 492 (a) Non-possessory covenants over land 492 (b) Non-possessory covenants over chattels 495 III. The relevance of specific enforceability 504 IV. Possessory covenants 509 (a) Possessory covenants over land 509 (b) Possessory covenants over chattels 514 (c) The possessory covenantee's remedies in tort 518 V. Conclusion 524 CHAPTER 21 ART LOANS NORMAN PALMER 527 1. Introduction 527 2. The legal character of art loans 531 3. Universality of the loan concept 533 4. Matters of common provision 534 (i) Security and the duty of care 534
xviii CONTENTS (ii) Insurance 535 (iii) State indemnities 536 (iv) General subjects of express provision 537 5. Matters not commonly provided for 537 (i) Title 537 (ii) Duty to exhibit 540 (iii) Authenticity and attribution 541 (iv) Choice of governing law 542 6. Further incentives to art loans: should lawyers interfere? 544 CHAPTER 22 THE BILL OF LADING AS A DOCUMENT OF TITLE SARAH DROMGOOLE and YVONNE BAATZ 547 Introduction 547 1. Why, and how, does the bill of lading give control? 548 1.1 Recognition of the bill of lading as a document of title 548 1.2 The bill of lading distinguished from other documents 558 2. What are the benefits of the control provided? 569 2.1 The sale contract 569 2.2 Financing the sale contract 571 2.3 The carriage contract 574 3. How can the control be undermined? 577 3.1 Holder vis-d-vis true owner 577 3.2 Right of stoppage in transitu 578 3.3 Delivery without production of the bill of lading 580 3.4 Bills of lading given gratuitously 590 4. When does the control function come to an end? 591 5. Conclusion 593 CHAPTER 23 ABANDONMENT ANTHONY HUDSON 595 Divesting abandonment 596 Criminal law 602 Wreck 606 Trespass to goods and trover or conversion 612 Miscellaneous cases of abandonment 614 Maritime law 615 Waifs 616 Estrays or strays 617 Property in an abandoned state 617 An open question 617 Conclusions 618 CHAPTER 24 PLEDGE NORMAN PALMER and ANTHONY HUDSON 621 Introduction 621 Disadvantages of pledges 623 Basic incidents of pledge 624 The central role of possession 625 Subject matter of pledge 625 Further functions and aspects of possession in pledge 628 Identifying the change of possession 629 Elasticity of the modern requirement of possession 629 Special property 631 Problems and implications 631 Registration 634 Pledge of intangibles 635
CONTENTS Pledge distinguished from other forms of security 635 Some problems 635 Redemption 637 Sale 638 Survival of the debt 639 Right to surplus 639 Implied terms as to title, quality andfitnessfor purpose 639 Deviation, delegation, detention and misuse 640 Contractual designations 641 The role of equity and conscience 642 Conclusion 646 CHAPTER 25 SOLICITORS'LIENS ANTHONY HUDSON 649 The retaining lien 649 The particular liens or charges 653 The common law lien 653 The statutory lien or charging order 656 PART IV SECURITY AND PAYMENT CHAPTER 26 SHIP MORTGAGES ALISON CLARKE 663 Introduction 663 I. Nature of the ship mortgage 665 Property interests in British ships 665 The present registration system 667 Fully registered ships 670 Effect of full registration on the nature of property interests 671 Effect of full registration on ship mortgages 672 Ship mortgages: the traditional view 673 Questioning the traditional view 674 Evolution of the mortgage 675 The modern statutory provisions 681 Priority mortgages of fully registered ships 684 Property in unregistered ships 684 Property in ships registered with simple registration 686 II. Rights and remedies of the mortgagee 687 Possession and freight 688 Control and management 688 Sale 689 Foreclosure 690 III Exercise of the mortgagee's rights and remedies 690 Effect of paragraph 10 on exercise of rights and remedies 690 Action by charterer to restrain exercise of the mortgagee's rights and remedies 693 IV. Conclusion 695 CHAPTER 27 AIRCRAFT MORTGAGES PETER THORNE 697 Introduction 697 Types of security interest in aircraft 698 (a) Mortgage 698 (b) Charge 699 (c) Pledge 699 (d) Liens, statutory liens and statutory charges 700 xix
xx CONTENTS Contents of an aircraft mortgage 700 (a) Description of an aircraft 700 (b) Security 700 (c) Covenants and undertakings (general) 701 (d) Engines and parts 701 (e) Registration 703 (f) Maintenance 703 (g) Encumbrances 703 (h) Sub-leasing etc 704 (i) Nameplates 704 (j) Total loss and insurances 705 (k) Indemnities 707 (1) Enforcement 708 (m) Governing law and jurisdiction 708 Choice of law 708 Practical steps to ensure validity/priority of mortgage security interest 710 Perfection of security and priority 711 Recognition of rights 713 Enforcement 717 (a) Will there be a "political" problem in repossessing, etc. the aircraft and/or in obtaining remittance of enforcement proceeds? 717 (b) Is self-help available? If it is not, how can a mortgagee enforce its security? 719 (c) What is the impact upon enforcement of a mortgagee's security interest if a lien exists over a mortgaged aircraft? 720 (d) Will a lessee of a mortgaged aircraft be entitled to continue to lease that aircraft notwithstanding enforcement by a mortgagee? 724 (e) How will a mortgagor's insolvency impact upon the enforcement of a mortgagee's rights 725 Conclusion 725 CHAPTER 28 TITLE RETENTION AND THE COMPANY CHARGE REGISTRATION SYSTEM GERARD M.CORMACK 727 Terminology 727 Types of reservation of title clause 728 Reasons for the use of reservation of title clauses 728 Company charge registration some general observations 729 Part IV of the Companies Act 1989 and the Diamond Report 731 Defects in the existing registration scheme 734 "Simple" clauses 735 Current account clauses 738 Proceeds of sale clauses 742 Some conclusions on tracing clauses 749 Aggregation clauses 751 Mixture or "manufacture" of goods without loss of physical identity 757 Conclusion a brief resume 759 CHAPTER 29 RETENTION MONIES IN UK BUILDING CON- TRACTS A. J. M. BLACKLER 761 1. Introduction 761 2. The present position 762
CONTENTS 3. Deficiencies in the standard contracts? 773 (a) Retention too vulnerable? 773 (b) Employer's rights of deduction uncertain 774 (c) Rights of deduction under JCT 81 denied 775 (d) Dangers of amending the standard forms 776 (e) The fundamental flaw the defective trust 776 4. Are there any alternatives to the retention trust? 778 (a) Retention bonds 778 (b) Statutory reform? 780 (c) The way forward? 783 Appendix 1 Form of guarantee 784 Appendix 2 Trust fund 784 CHAPTER 30 GOODS LEASING AND INSOLVENCY NIGEL FUREY 787 Terminology relevant to insolvency procedures 787 Effect of insolvency on the continuation of goods leases 787 Disclaimer of leases in liquidation and bankruptcy 789 Termination of leases on the insolvency of lessee 791 Recovering rentals and/or repossession during insolvency 792 Liquidation or bankruptcy 792 Administrative receivership 793 Administration 793 Voluntary arrangements 797 Power of administrator to dispose of leased goods 798 Automatic termination on administration 799 Effect of a charge over sub-rentals 800 Registration requirements 800 Fixed or floating charge 800 Enforcement of security during insolvency procedures 802 Recovery of insurance proceeds where leased goods are lost or damaged 803 Goods insured against loss or damage 803 Lessee insured against liability for loss or damage 804 xxi PART V CLAIMS, INDEMNITIES, REMEDIES AND WRONGS CHAPTER 31 TRESPASS TO GOODS ANTHONY HUDSON 809 Introduction 809 Elements of trespass to goods 809 Possession 811 Actionability per se 813 Reconciliations and possible developments 818 Defences and justifications 819 Remedies 819 Torts (Interference with Goods) Act 1977 820 Conclusion 820 CHAPTER 32 CONVERSION, TORT AND RESTITUTION ANDREW TETTENBORN 825 Tort 826 (a) The level of fault 826 (b) The measure of damages 831 Restitution 833 Conclusion 836
xxn CONTENTS CHAPTER 33 MONEY CLAIMS FOR MISUSE OF CHATTELS ANTHONY HUDSON 837 Tort 838 Destruction and damage 838 Misappropriation 843 Special cases 853 Improvement of goods 853 Double liability 854 Jus tertii or competing claims to goods 856 Co-ownership 857 Uncollected goods 857 Redelivery 858 Consequential losses 858 Trespass to goods 859 Miscellaneous torts 860 Wrongful distress 860 Replevin 860 Rescous (rescue) and pound breach 860 Distress damage feasant 861 Damage to reversionary interest 861 Breach of bailment 862 Breach of contract 862 Conclusion 865 CHAPTER 34 DAMAGES FOR DISTRESS AND LOSS OF ENJOYMENT IN CLAIMS INVOLVING CHATTELS NORMAN PALMER and ANTHONY HUDSON 867 Introduction 867 (a) New Zealand 869 (b) Australia 872 (c) Conclusion 874 (d) Causes of action 875 (e) Insurance 879 Specific categories of wrongdoing 880 (a) Deliberate theft or destruction 880 (b) Breach of bailment 883 (c) Wrongful repossession by bailor 886 (d) Supply of defective goods 887 (e) Negligent damage 889 Damages 891 Conclusions 894 CHAPTER 35 RESTITUTION AND THE MISUSE OF CHATTELS THE NEED FOR A PRINCIPLED APPROACH EWAN MCKENDRICK 897 1. Introduction 897 2. The structure of an independent restitutionary claim 897 3. The case of the mistaken improver 898 (a) Was Mr Bennett enriched? 900 (b) At the expense of 904 (c) The unjust factor 904
CONTENTS (d) Defences 905 (e) Some further arguments 905 4. A more controversial distinction 908 (a) An exercise in classification 909 (b) Does the classification matter? 914 5. Conclusion 916 xxiii CHAPTER 36 IMPROVING STOLEN CHATTELS NORMAN PALMER and ANTHONY HUDSON 919 General matters 919 Dividing the benefit 919 The concept of uniqueness in relation to chattels 920 Drawing the distinction 921 The equivalent question on sales 921 The practical difference for improvers 922 The position regarding ordinary articles of commerce 922 Where conversion precedes improvement 922 Where conversion either follows improvement or (exceptionally) precedes improvement but damages fall to be assessed at the date of judgment or at some other post-conversion date 923 Special articles repossessed by or judicially restored to their owner 929 Accession, specification, mixtures and fixtures 931 Accession 931 Specification 934 Mixtures 935 Fixtures 936 CHAPTER 37 TIME LIMITS IN ACTIONS TO RECOVER CHATTELS RUTH REDMOND-COOPER 937 Introduction 937 The English law of limitations 938 Protection of the possessor at the expense of the owner 942 Protection of the owner at the expense of the possessor 944 Balancing the relative merits of the parties 949 Adverse possession 949 Due diligence 950 Rejection of due diligence in New York 951 Legal nature of the due diligence rule 952 Fraud, concealment and mistake 952 Actions in contract or bailment 953 CHAPTER38 LIQUIDATED DAMAGES AND RELATED CLAUSES IN CLAIMS INVOLVING CHATTELS EWAN M.KENDRICK 955 Distinguishing between a liquidated damages clause and a penalty clause 956 The importance of the label used by the parties 956 A genuine covenanted pre-estimate of damage 957 Assessment at the date of formation 959 Guides in the process of construction 960 Evading the penalty clause rule 963 Acceleration clauses 964
xxiv CONTENTS Sums payable other than on breach 966 Creation of conditions 968 Relief against forfeiture 970 Forfeiture of instalments 970 Forfeiture of chattels 972 CHAPTER 39 EQUITABLE LIENS A SEARCH FOR A UNIFYING PRINCIPLE JOHN PHILLIPS 975 (1) Some general characteristics 975 (2) Problems of classification 977 (3) Hewett v. Court 980 (4) Special performance a necessary requirement? 983 (5) Is the equitable lien applicable to all types of contract? 984 (6) The relationship between the indebtedness and property 986 (7) The issue of identification 987 (8) Unconscientious or unfair dealing 989 (9) "Equitable" liens or are they? 991 Index 995