Chapter 10Contracts for the supply of goods and servicesthe ship Icebreaker. In the past, if 500 tonnes were not
ascertained for a particular buyer, property in the goods
did not pass to the buyer. If the seller became insolvent,
the buyer would have no claim on the goods, even
though he may have made some payment for them. He
could usually only make a claim as an unsecured creditor
in the insolvency proceedings. Under the new provisions,
if the buyer has made whole or partial pre-payment, he
will become a co-owner with any other buyers who might
have a claim on the goods. The legal consequences of
co-ownership are modified in a new s 20B to allow trad-
ing in the bulk goods in the normal way.
Reserving a right of disposal
The seller’s overriding concern is to ensure that he
receives payment in full for his goods. Clearly, this pre-
sents no problem to a retailer: he can insist on payment
in cash or near cash (i.e. by a cheque guaranteed with a
cheque card, or by a recognised credit card) before he
releases the goods. In the business world, however, sell-
ers are expected to do business on credit terms. If own-
ership of the goods passes to the buyer before he pays for
them and he subsequently becomes bankrupt or, in the
case of a company, goes into liquidation, the seller will
be treated as an ordinary trade creditor. As such, the
seller is unlikely to recover what he is owed. He can pro-
tect himself from these considerable risks, by stating that
the property in the goods shall not pass to the buyer
until the contract price has been paid. Section 19 pro-
vides that where the seller has reserved the right of
disposal of the goods until some condition is fulfilled,
ownership of the goods will not pass to the buyer until
that condition is met. The inclusion of such a reserva-
tion of title clause in the contract of sale will enable a
seller to retrieve his goods and resell them if the buyer
becomes bankrupt or goes into receivership or liquida-
tion before paying for them.
The position becomes much more complicated in the
following situations:
■where the buyer has resold the goods; and
■where the buyer has mixed them with other goods
during a manufacturing process and then sold the
manufactured product.
Clearly, the seller cannot simply reclaim ‘his’ goods.
However, he may be able to protect himself in relation
to point 1 by including a carefully worded clause in the
contract, allowing him to trace the goods and claim the
proceeds of sale. These terms are known as Romalpa
clauses, after the name of the case in which they
achieved prominence.311
Aluminium Industrie Vaassan BVv
Romalpa Aluminium Ltd(1976)
AIV, a Dutch company, sold aluminium foil to RA, an
English company. A clause in the contract provided that:
(1) ownership of the foil would not pass to RA until it
was paid for; (2) if the foil became mixed with other items
during a manufacturing process, AIV would become the
owner of the finished product and property would not
pass until RA had paid for the foil; (3) unmixed foil and
finished products should be stored separately; (4) RA
was authorised to sell the finished product on condition
that AIV was entitled to the proceeds of the sale. RA
became insolvent and a receiver was appointed. The
Court of Appeal held that AIV was entitled to recover a
quantity of unmixed foil and the proceeds of resale of
some unmixed foil.The seller in the Romalpacase limited its claim to
unmixed goods and so the Court of Appeal did not give
a decision as to the position in relation to mixed goods.
Later cases suggest that a Romalpaclause will be effective
in respect of mixed goods only if it is registered with the
Registrar of Companies as a charge over the assets of
the buying company. The effect on retention clauses
of the appointment of an administrator to an insolvent
company was examined in Chapter 6.Transfer of risk
The general rule is that risk of accidental loss or destruc-
tion passes with ownership. Thus, s 20 provides that,
unless otherwise agreed, the goods remain at the seller’s
risk until the property in them is transferred to the
buyer, but when the property in them is transferred to
the buyer the goods are at the buyer’s risk whether deliv-
ery has been made or not. Suppose you buy a painting
from an art gallery during an exhibition and it is agreed
that you will take delivery at the end of the exhibition.
If the gallery is destroyed by fire before the end of the
exhibition, you must bear the risk of loss.
Where delivery has been delayed through the fault of
either the seller or buyer, the goods are at the risk of the
party at fault in respect of any loss which might not have
occurred but for the fault (s 20(2)).