The Gazette 1978

GAZEITE

MARCH 1978

cases. One may conclude from the Rompalpa case that where the words "as fiduciary owner" are used and the book debts of the fiduciary are not charged with monies owing to No. 1 then No.2 holds the proceeds of sub-sales "as a quasi trustee, bailee or agent" - more about this later. On the other hand, if one uses the formula in the Interview case where the clause was accompanied by a charge on the book debts i.e. where the proceeds of sale vested in No.2 (which did not happen in Romalpa) and were then charged in favour of No.1 the nature of the relationship between No.1 and No.2 wholly lacks this element of fiduciary duty and the concept of Trustee, bailee or agent does not apply. In other words, in this situation there has been a normal sale of the goods to No. 2 by No. 1 with the differences that (1) legal title does not vest in No.2 with the result that the goods cannot be charged in favour of No. "I with the purchase price in the normal way because he already has legal title. (ii) the proceeds of sub-sales which do vest in No.2 (where he has had beneficial ownership) are thus the only chargeable asset he (No.2) has. The proceeds are then charged in favour of No. 1 and this is a charge of book– debts which must be registered. Here, if we may repeat, there is no question of fiduciary relationship; there is no duty to account based on legal theory; instead there is a legal obligation based on the charge to pay over the proceeds in event of default. There can be no question of agency because: (a) there is no agency agreement express or implied (b) the proceeds vest in No.2 (which is not the case between Principal and Agent). (c) the obligation to account is based on the charge and not on any normal agency law. Consider now the situation where No. 2 is selling to sub– purchasers "as fiduciary owner" of the goods. As already stated such was the position in the Rompalpa case. Here, "ownership" of the goods delivered was reserved to No.1 under the clause. Unfortunately, the exact legal relationship of the parties was not fully explored in that case because the parties admitted for the purpose of the porceedings that the clause had the etTect of making the defendants bailees of the goods whilst in their possession until all monies owing had been paid. As a result of this the Plaintiffs (No.1) were obliged to argue that it was not necessary to find, as a pre-requisite to the right to trace, an express or constructive trust, and much argument was directed against the finding of an express or constructive trust. This was unfortunate, for in my opinion the difficulties encountered in resolving the various legal principles involved would have been much less if the concept of trust had been adopted. Instead the Court was forced to find a solution using the concepts of Bailment and Agency. Thus the Court was not concerned to ditTerentiate between the legal title in the goods and the beneficial ownership, and the etTect of the clause was held to confer a right of possession (Bailment) with the power of sale and the right to deliver them to subpurchasers (Agency). But as we have already seen neither of these concepts are satisfactory; and the Court recognised this by admitting that the agency relationship operated solely as between No. 1 and No. 2 and that as regards No.3, No.2 was not an agent but a principal. This point is of immediate importance to Sellers as it was expressly stated in one of the judgments that the sub-purchasers could not have sued No.1 as undisclosed principals on the sub-contracts for breach of warranty of

to it are paid. This does not per se operate as a charge on the assets of No.2 because the goods, although in his possession, never vested in him and therefore never formed part of his assets. However, it is good security for debts owing to No. 1 by No. 2 so long as the goods remain part of the stock of No. 2 or the stock of companies associated with him, i.e. so long as neither section 9 of the Factors Act or section 25 (2) of the Sale of Goods Act applies, for the goods may be reclaimed by No. 1 despite the fact that they may have been transformed and!or mixed with the property of others because where beneficial ownership is retained the beneficial owner of goods has the right to trace them and to an equitable charge over any goods in which his goods may have been mixed with goods of another. Where legal ownership is retained as we shall see the Courts have held the Seller capable of tracing as principal against the Buyer as agent. But is this latter conclusion correct? The vital question is what is the nature of the relationship between No.1 and No.2? The mere fact that "ownership" has been retained does not constitute a fiduciary relationship between them. If we are precluded from looking further at the nature of the agreement between the parties this would be almost an impossible question to answer. We have a situation where "ownership" sometimes both legal and beneficial is vested in one party while possession and undoubted authority to deal or trade with the goods is vested in the other. Such a situation is not compatible with the concept of Bailment because there is no intention that the goods will be restored to the Bailor, or that they shall be dispo~ of according to his directions. Neither is the situation entirely compaoDle with the normal relationship between Principal and Agent because N9. 2 has a contractual right to the possession of the goods even as against No. 1 (which may only be taken from him by the service of a notice of rescission by No.1). He has also got a contractual right to deal in the goods with any sub– purchaser he may choose, even in the face of the direct opposition of No.1, whereas an agent, in the absence of an express clause in his contract of agency permittins him so to act, must usually defer to the instructions of his Principal. Perhaps of most relevance is the fact that there is no agreement, whether express or implied, that No.2 will act as the agent of No. 1. The next question is what has No. 2 contracted for under the sale which includes this clause? It is clear that he gets no form of ownership beyond the fact that he has a right to possess the goods as against all comers, including No.1. But he has also the right to deal in the goods; "deal" in this case includes the right to transfer both legal and equitable ownership in the goods to sub– purchasers, for this is a situation which both parties to the original sale (No. 1 and No.2) expect to occur in the normal course of business. As such, it could be said that No. 2 has contracted for a chose in action; namely the right to deal in the goods including the right to transfer the ownership by operation of law. Happily, in determining the rights and obligations of the parties under the clause we are not restricted solely to the provision retaining ownership. We must look to the agreement as a whole and in particular at the provisions of the second limb of the clause. That this second limb and the wording used therein determines the nature of the relationship between the parties is clear from both the Romalpa and Interview cases. One may conclude from the Romalpa and Interview

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