Scope and effect of sale of goods act - Essay Example

?Contents Contents 1. Scope and Effect of Sale of Goods Act 2 (a) The passing of property 2 (b) The rights of an unpaid seller against the buyer 2 2. Romalpa Clause 3 3. Rights of unpaid seller on mixed goods. 4 Works Cited 7 1. Scope and Effect of Sale of Goods Act (a) The passing of property The Sales of Goods Act of 1979 s19 deals specifically with respect to this subject. The passing of property from the seller to buyer gained significance in the context of the buyer placing an order with the seller and then becoming insolvent. Had the product ordered for by the buyer already been shipped, there arose a discrepancy in regard to the rights of the seller since he would unwillingly provide credit. The act clearly states that until all of the terms of the contract of the sale of goods, mainly the payment for the product, are met by the buyer, the seller has the right of disposal over the product. The clause “notwithstanding the delivery of the goods to the buyer” (Sales of Goods Act 1979, s19 (1)) gives a right to the seller to claim possession of the goods in question if the buyer has not fulfilled the terms of the contract. This clause is unlike those of international contracts which make property pass effective at a particular physical point or time such as during payment or at the loading port of ships (Ziegler, 139). (b) The rights of an unpaid seller against the buyer The rights of an unpaid seller are treated in section 19 of the act by allowing the seller, the title of retention of the goods to be sold to the buyer unless all the terms of the contract for the sale of the goods is fulfilled by the buyer. The rights of an insolvent or bankrupt buyer are superseded by the title of retention clause of the act whereby the seller has the right to repossess the goods even in case it has already been shipped to the buyer. The unpaid seller is thus given the Right of Disposal of the goods, as it is called in the act (Sales of Goods Act 1979, s19 (2)). In addition, an unpaid seller has the right to the bill of lading in case the goods have already been shipped to the buyer that is the buyer will need to return the bill of lading and cannot claim possession of the goods on the basis of this bill. This clause in unlike retention laws in some countries wherein the effect of returning the goods from a buyer to an unpaid seller is taken into account. In such cases, it is argued that it would upset the administration of the buyer’s business and hence the seller must not be given the right to disposal (Tomasic, 199). 2. Romalpa Clause Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd Section 19 of the Act clearly states the rights of the unpaid seller; however a unique situation arose in 1974 when a Dutch manufacturer, Aluminium Industrie Vaassen BV brought out an action against an English company, Romalpa Aluminium Ltd. The plaintiffs claimed that they were entitled to the aluminium foil that was at the premises of the defendant since they had not paid for the goods and to the proceeds of the foil that had been sold to third parties by the defendant. The contract made between the plaintiff and the defendant reiterated the right of the seller over the goods until payment was made by the buyer, it also did not provide any stated power to the defendant to sell the foil; however it was agreed by both the parties subsequently that the defendant had an implied power to sell the foil. This agreement did not help either of the parties by any margin. While the defendant argued that it had sold the foil on its own account and was not an agent of the plaintiff’s, the plaintiff on the other hand chose to exercise the right of the seller as put forward by the Sales of Goods Act. . The case had become complex on two accounts: a part of the foil delivered to the defendant had been sub sold and this foil that was sub sold was in the same form as that delivered to the defendant. The court had to decide whether the defendant was acting merely as an agent of the plaintiff while sub selling the foil or if the defendant was exercising its right to sell and therefore acting on its own even though it had not fulfilled the agreements of the contract of the sale of goods. The decision upheld the claims of the plaintiff and decided to award both the foil at the premises of the defendant and the proceeds of the sale of the foil to third parties. In addition to deciding that the defendant had acted only as an agent of the plaintiff, it was also decided that there was no implied agreement between the plaintiff and the third parties. However, the judgement was challenged in the Court of Appeal. The Court of Appeal also upheld the earlier decision and confirmed that the defendant was merely acting on account of the plaintiff and was not entitled to the proceeds of the sub sold foil. This decision extended the scope of the right of the unpaid seller not only to the possession of the goods in question to the premises of the buyer, but to its value after it has been sub sold. Hence, it was a landmark case upholding the right of the unpaid seller (Ong, 32-34). 3. Rights of unpaid seller on mixed goods. No matter how detailed legislations are, it is not possible to account for every circumstance that arises in businesses. The application of these laws by courts determines the practical effectiveness of the laws. Therefore, let us look at some of the interpretations of the Romalpa clause with respect to mixed goods. Hendy Lennox (Industrial Engines) Limited v Grahame Puttick Limited [1984] 2 All ER 152 Hendy Lennox Ltd, the plaintiff, manufactured diesel engines which were used by Grahame Puttick Ltd to assemble generators. When the defendant became insolvent and was not able to pay the cost of the engines to the seller, the plaintiff initiated action against the defendant. The plaintiff argued that its right to disposal over the engines still existed even though they had been incorporated into the generators. In agreement with the claims of the plaintiff, it was ruled that the goods were clearly distinguishable from the mixed product, although they had been used by the defendant, and that they should be removed from the generators and returned to the plaintiff. Therefore, the right of the unpaid seller was extended to goods that could be clearly isolated from the mixed goods manufactured by the buyer. Borden (UK) Ltd v Scottish Timber Products Ltd [1979] 3 All ER 961 CA. The case was regarding the resin sold by the plaintiff to the defendant to manufacture chipboards. The plaintiff held that it still had a right over the resin in the chipboards although it was modified in such a way that it was untraceable. It was decided that since the chipboards did not contain resin in its original form, the seller had no right over it and that it was within the interest of the manufacturer. Therefore, as long as the mixed goods did not contain the seller’s material in isolation, the courts held that the right of the seller over the product had ceased. Re Peachdart Ltd [1984] Ch 131 In this case, the seller sold leather to the buyer who made leather handbags. After the buyer filed for bankruptcy, the seller attempted to regain the value of the leather through the handbags sold. It is interesting to note the written agreement between the buyer and the seller prior to the dispute. The contract states that “the relationship of the buyer to the seller shall be fiduciary” and “the seller shall have the right to trace the proceeds of the goods”. However, the court ruled that the seller did not have a right over the completed or uncompleted bags which incorporated the leather of the seller. This was made with the view that the fiduciary clause was not relevant in this case and that allowing the right of the goods to the seller would negate the efforts of labour of the buyer. Although decisions on previous cases emphasized the need for the existence of a fiduciary relationship between the parties concerned, the courts had made it clear that the right of the unpaid seller would not be extended to goods that had been untraceably modified. However, if the goods were in their original form, the courts decided to allow the seller to exercise his right of disposal over the goods in question even if the buyer had sub sold it to a third party. In such a case, the seller has a right to claim the proceeds of the sold goods. Works Cited Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd, 2 All ER 552. 1976. Print. Borden (UK) Ltd v Scottish Timber Products Ltd 3 All ER 961 CA. 1979. Print. Hendy Lennox (Industrial Engines) Limited v Grahame Puttick Limited 2 All ER 152. 1984. Print. Ong, S.K. Trusts law in Australia. N.S.W. Federation Press. 2007. Print. Re Peachdart Ltd Ch 131. 1984. Print. The Sale of Goods Act 1979 (c 54). Print. Tomasic, R. Insolvency law in East Asia. U.K. Ashgate Publishing, Ltd., 2006. Print. Ziegler, A. Transfer of ownership in international trade. The Netherlands. Kluwer Law International. 1999. Print. Read More