The Gazette 1978

MARCH 1978 Sale and Retain — A Worm's-eye View By FERGUS

GAZETTE

GOODBODY original purchase price, but also to cover any sum which at the time of his insolvency was then due to the seller. This perhaps gives a false impression of an equitable right over and above the original sale. PROBLEMS Many problems have arisen as a result of the introduction of such clauses. These arise principally in the spheres of banking, accountancy and taxation. Thanks to the Factors Act and to the Sale of Goods Act the problems are greatly mitigated in business, although such respite may prove to be brief as we shall later see. Business must also deal with the problems inherent in the concept of implied agency as introduced by the Courts in an effort to come to a logical conclusion as to the rights as between the parties. Thus, although the Courts have expressly stated that warranties (perhaps extravagant) of buyers will not bind sellers and render them liable, this is by no means the last word cm the matter. Problems may also be encountered with reference to V.A.T. In order to explain the rationale behind the effect of these clauses it is necessary to distinguish not only between possession and ownership, but also between the different types of ownership. The significance here is that "title" is not synonymous with ownership, but relates solely to the legal ownership of the goods which may be either inclusive or exclusive of the equitable or beneficial ownership. Such an exclusive situation may arise where A buys goods from C and has them invoiced to B. Here B has no equitable claim, and may only have beneficial "ownership" so long as A allows him to exercise it. Thus, contrary to a commonly held opinion, there is no distinction between equitable or beneficial ownership unless one chooses to equate "beneficial" with a state of possession, which being a mere fact cannot amount to a form of ownership. For the purposes of explaining the rationale behind retention clauses we will assume that the three parties involved are as follows: (i) a Manufacturer of the goods (hereinafter called "No. 1") (ii) a Wholesaler of the goods (hereinafter called "No. 2") and (in) a Sub-purchaser from the Wholesaler (hereinafter called "No. 3"). There are two limbs to the average true blooded retention clause. First, ownership in goods "sold" to No. 2 remains in No. 1 despite possession changing hands until all monies due by No. 2 to No. 1 have been paid. This does not, however, prevent No. 3 from obtaining title to the goods under section 9 of the Factors Act, 1889 and Section 25 (2) of the Sale of Goods Act, 1893. Thus, so that No. 1 may rest better assured of receiving payment, the second limb of the clause may provide that No. 2 will assign all debts due to him by No. 3 to No. 1. This may be done by way of charge of book-debts and if so done then it must be registered under section 99 of the Companies Act, 1963. But to do so is unnecessary as it may be done by way of assignment simpliciter where legal title has been retained. Where equitable title has been retained the Seller may claim it as beneficiary as of right. The legal effect of the first limb of the retention of title clause is as follows: No. 1 retains the title and sometimes the beneficial ownership in the goods until all monies due

We are by now all familiar with the dreaded phrase "Retention of Title". We are not by any means all clear about what the phrase means. This is not surprising as the clause, like the weather, is ever-changing; like the dread sea reflecting the subtle nuances of the sky, so the fickle clause responds to hapless circumstance. There are many different types of these clauses, which most people, erroneously, appear to accept as "Retention of Title Clauses" and call them such. This has served in no small way to cloud the issues. An examination of some of these clauses reveals that they differ enormously both in wording and legal effect. One may, broadly speaking, put such clauses into two large categories: 1. Those clauses which are effective immediately upon the sale of goods; and 2. Those which have a "springing" effect in that they only operate upon the insolvency of the buyer of the goods. This appears to be a fundamental distinction because the implications are that the property passes upon the sale in the second category; this is important for reasons we shall see later. Both these large categories may be sub-divided into almost as many types as the English language and the law of contract will allow. One can, however, discern several species. As for the first category. These are indeed the true blooded retention clauses. Most, indeed, retain title (that is to say legal ownership). Some of these retain beneficial and equitable ownership also; others do not. Others do neither, but retain beneficial or equitable ownership only. As for the second category. These are not really retention clauses at all in die strict sense because the clause does not prevent title or beneficial ownership passing. They are, however, retention clauses insofar as they universally seek to claw back or "retain" from the buyer something which normally could not be retrieved. Such intentions are always directed to the proceeds of sub-sales in an effort to recover a sum equal to the original selling price. This can only be done by a charge on the book-debts of the buyer and as we shall see requires registration. The distinction between the two large categories, however, has been clouded in several ways. Firstly some sellers using clauses in the first category stipulate that no consequences shall follow until and unless the buyer becomes insolvent, and that when he becomes so he will "assign" all proceeds of sub-sales to the seller. As we shall see, this assignment is really a fiction as the entitlement to the proceeds never vested in the buyer because he was never, in the first place, entitled to the goods he sold. Secondly, the distinction has been clouded by the fact that sellers under the second category have stipulated in their clauses that they shall have the right to "trace" into the hands of buyers to recover sums received on sub-sales equal to the amount due on the original purchase. We can now say that no such right is conferred by such a clause and that the only rights such a seller may rely on are his rights under the registered charge on the buyer's book debts. The distinction has been further clouded by the buyer contractually agreeing with the seller that he will charge sufficient of his book debts not only to cover the

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