Sally agrees to sell 1,000 tons of polyester fiber to Barry at $10 a ton. She delivers 500 tons under a contract which expressly provides:
“…the ownership of the goods shall remain with the Seller which reserves the right to dispose of the goods until payment in full for all goods supplied has been received by it or until such time as the buyer sells the goods to its customers by way of bona fide sale at full market value.”
The buyer pays $2500 but subsequently becomes insolvent and unable further to perform the contract. Of the 500 tons delivered, 300 tons is still at Barry’s premises unsold and unused but is now worth $4,000, instead of $3,000 as it was at the time of the contract of sale. Sally repossesses the whole 300 tons and re-sells at the new market price.
This case study is mainly concerned about issues in the retention of title contracts. And the purpose of this essay is to discuss the extent to which sellers can retain the title of the property they sold. I will approach this problem by, firstly, defining the basis rules and clauses in relation to the retention of title. Then, I will examine the legal effects which would arise from the clauses by looking at the leading case Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd. And apply these effects into the case study in the question. In contract, I will introduce the Re Bond Worth Ltd case in order to demonstrate the effects of a floating charge on the retention of title case. In addition, I will outline some other possible outcomes which might be concluded depending on different situations based on precedent cases. And suggest some other clauses which the seller may want to include in their contracts in order to prevent themselves from exposing to more risks. Finally, I will come with an evaluation by discussing the significance of remedies analyzed.
To start with, it is important that we understand the definition of the retention of title clause and some implications of this kind of contract. Retention of title clause is defined as a provision in a contract for the sale of goods that the title of the goods remains vested in the seller until certain obligations (usually payment of the purchase price) are fulfilled by the buyer. The main purposes of retention of title clauses are to ensure that where goods are supplied on credit, if the buyer subsequently goes into bankruptcy, the seller can repossess the goods.
In a typical ‘retention of title’ contract, the buyer is likely to be either a company engaged in the manufacturing or construction industry which buys raw materials or components for the purposes of its business, or a company which acquires the goods with the view to reselling them or letting them on hire or lease to its own customers. In practice, the goods are normally durables of some type which are to be paid for by installments; and one of the main risks which the seller wishes to guard against is that the buyer will resell the goods before he has paid the whole of the price. In contract, the Romalpa cases are concerned with consumable goods, which both parties contemplate may be used up or disposed of in some way before the price is paid, and the main risk for the seller is the buyer’s insolvency.
The case in the question is concerned about consumable goods---polyester fibre. And the main fact of this case is very similar to the Romalpa case where the seller sells and delivers goods under a contract with retention of title clause. However, the buyer then becomes insolvent before paying the full amount that is owing to the seller. In order to decide to what extent the seller could sue the buyer, we should first of all take a look at the Romalpa case.
In Romalpa, after Romalpa went into receivership owning AIV $122,239, the court held that (1) AIV claim to the unprocessed foil prevailed because AIV had effectively retained title to it; (2) And that AIV was entitled to the...