212 Chapter 7The Sale of Goods Act 1979
the goods sold Claims to goods manufactured out of
A simple reservation of title clause cannot be effective once the goods sold have been
manufactured into other goods, because the goods sold no longer exist. So some clauses
state that if the goods are manufactured into other goods the seller can claim the manu-
factured goods.The position where the goods are sold on
Section 25 SGA 1979 gives a buyer who has possession of the goods, but who has not yet
acquired ownership, the power (but not the right) to pass ownership to a sub-buyer who
buys the goods in good faith, and who takes possession of the goods.Example
Stasia sells 200 tonnes of wheat to B1. The wheat is delivered to B1. A reservation of title
clause states that B1 is not to own the wheat until the full price has been paid. B1 sells the
wheat to B2, who does not know of the reservation of title clause. B2 takes possession of
the wheat. B1 becomes insolvent without having paid any of the price to S. Stasia cannot
recover the wheat from B2 or make any claim against B2. Stasia can make a claim against
B1’s liquidator for the price of the wheat.Section 25 is considered in slightly more detail in the final part of this chapter.Claims to proceeds of sale
In the Romalpa Case (1976)the Court of Appeal held that the seller could validly claim the
proceeds of sale when the buyer sold the goods to a second buyer. The ROT clause said that
the buyer had to hold the goods as a fiduciary. The liquidator in the case acknowledged that
the goods were held as a fiduciary and paid the proceeds of sale into a separate bank
account. Subsequent cases have doubted that a buyer and a seller are in a fiduciary relation-
ship and so it is thought that the case is most unlikely to be followed.Re Peachdart Ltd (1983)Leather was sold to B Ltd. The contract contained a reservation of title clause which gave
the seller ownership of any goods made from the leather until the price of the leather was
paid in full. B Ltd manufactured the leather into handbags. B Ltd then became insolvent.
HeldThe seller could not reclaim the leather or the handbags, even though the reservation
of title clause said that the seller could do either of these things. The clause was void as an
unregistered charge. The parties intended that once the leather was made into handbags
it would belong to B Ltd, even if the seller could identify the leather as the leather he had
supplied. So the seller was claiming B Ltd’s property as security for a debt, and would
cease to make such a claim if the debt was paid. As the clause was a charge, the seller
could make a claim against B Ltd’s liquidator only as an unsecured creditor.