Question 1: Does the buyer resell goods as an agent of a seller?

Commercial practices often allow buyers to obtain possession from the seller when he tenders
the price or the seller agrees to supply the goods on credit. If the buyer has actually possessed the
goods but before the payment is made, he becomes bankrupt. The seller will become an
unsecured creditor if the property has passed to the buyer. However, if property has not passed,
seller is entitled to assert his rights in rem (proprietary rights) and reclaim his goods. This can be
done with a prerequisite that the seller reserves the title and property and is only to pass on
payment the seller is then able to recover the goods in the event of buyer’s insolvency. Does the
buyer resell goods as an agent of a seller? Whilst the question is a reasonable one given the
various arrangements which arise between buyer, sellers, and agents, confusingly the answer
from a number of reported judgments appears to be no but, no but, yes! The starting point is the
definition of who is a commercial agent which is found in the Commercial Agents Regulations.
As such a commercial agent is a self-employed intermediary who has continuing authority to:
negotiate the sale or purchase of goods on behalf of another person (the “principal”); or negotiate
and conclude the sale or purchase of goods on behalf of and in the name of that principal. But
what does this definition mean in practice? The answer is to be found in three key cases.

The first case concerned the sale of plastic packaging materials: In this case the courts decided
that the party claiming to be a commercial agent was not. But why?

The main reason was that the relationship between the two parties consisted of a simple
arrangement of sale and re-sale of goods.

Certainly the lack of a written contract between the parties made matters uncertain. Although the
claimant had been prepared to do business with the defendant acting as either a distributor or an
agent, the defendant chose to carry on business on the basis of the sale of goods to it by the
claimant. These goods were then resold by the defendant to third party consumers. The defendant
charged a markup on the goods and determined the value of the mark up independently.

In the absence of any contractual documentation, the court decided that an arrangement by which
an agent is entitled to choose its own mark up on resale of goods to customers is unlikely to
constitute a relationship of commercial agency. It followed that the defendant could not be a
commercial agent because it negotiated the sale and purchase of goods in its own interest. It did
not act or negotiate on behalf of the principal as required by the above definition.

The most recent case of the three concerned jewelry: In this case the courts decided again that
the party claiming to be a commercial agent was not. But why? Essentially, the facts of this case
brought it under the second limb of the definition for a commercial agent. Whilst to be a
commercial agent, a party must act or negotiate on behalf of the principal, this does not
necessarily mean that every agent acting on behalf of a principal is a commercial agent. This is
especially the case if they opt to contract with end customers in their own name.

In this case it was concluded that the claimant could not be a commercial agent because agents
with the authority to contract will only be commercial agents if they have the authority to
contract (and do contract) in the name of the principal as well as on their behalf. The claimant
simply did not do so.

The final case concerned the sale of timber window frames: In this case the courts decided that
the party claiming to be a commercial agent was a commercial agent. So what makes this case
different? This case can be distinguished from the previous two cases. In those prior cases, the
fact that there had been no contractual documentation evidencing the relationship between seller,
purported ‘agent’ and end customer was key. In contrast the defining feature of this last case was
that there was written and contractual evidence of the relationship between the two parties.

The written agreements between the parties used the language of agency. Critically, all contracts
with the end customer named the defendant as the seller and the customer as the buyer. The
claimant signed the contract on behalf of the defendant, expressly acting as their agent. The
claimant therefore contracted on behalf of and in the name of the principal, in addition to acting
on their behalf. The fact that the claimant was remunerated with a mark up instead of
commission on sales was not conclusive evidence which disproved commercial agency. The
picture painted by the documents was clear and reflected the substance and reality of the
relationship. In the absence of any argument that the documents were a sham, the courts decided
that their evidential weight could not be ignored.
Question 2: What is the significance of the seller giving the buyer a period of credit?

We cannot answer this question without understand of what Closing cost credits is. Closing cost
credits are given to a buyer from a seller to credit home repairs. In other words, the seller of the
property will give you, the buyer, credit towards potential repairs at closing. This means that you
will ultimately pay less at closing time.
Sometimes the seller will offer these credits as an incentive for buyers to make a purchase. If the
buyer is on the fence about making the purchase when it comes close to the end, the credits make
the house more appealing.
Closing cost credits are also known as a seller concession. The credits are negotiable and need to
be agreed upon in writing by both the buyer and the seller. This is something that should be done
before the amount is credited to the buyer’s final amount at closing.

Benefits of the seller giving the buyer a period of credit?

Giving the buyer a period of credit is also beneficial to sellers too. Although it might seem as
though they are paying out money to the buyer, what they’re actually doing is giving the buyer
the opportunity to make a purchase.
If the seller has a house that needs a lot of upgrades then the advantages are even more apparent.
In order to get the home up to date and pass inspection, the buyer will want an incentive.
Offering them credits at closing is a great way to achieve this.

Question 3: Does the purported retention of tittle amount to the creation of mere charge in favour
of the seller?

In some cases the courts have interpreted the seller’s attempt to retahq rifle as nothing but an
attempt to secure payment for its goods so that, although expressed as a retention of the seller’s
title, the clause would be construed as creating a floating charge over the goods in favour of the
sellero Since the parties in fact never intended to create a charge, the charge so artificially
found to exist would invariably not have been registered, with the consequence that it would be
void against the buyer’s liquidator or official manager. Pioneering this radical reconstruction of
the retention of title clause is the decision of Slade J in In re Bond Worth Ltd. There the buyer

was a manufacturer of carpets and the seller supplied fibre to it. The fibre was supplied to the
buyer on condition that unN each order had been fully paid for, the fibre therein was to remain in
the ’equitable and beneficial ownership’ of the seller, and the proceeds of any resale of the fibre
or of the sale of any compound of which the fibre was a constituent were to belong to the seller
until the buyer had made the relevant payments. S lade J held that because ’the whole purpose of
the retention of title clause was to afford Monsanto security for the payment of purchase price
under each relevant order’ the seller’s ’rights must necessarily have been rights by way of
mortgage or charge’. Slade J declared that the clause purporting to retain tide in the seller merely
created in favour of the latter floating charges over the fibre supplied, and that, as these company
charges had not been registered, they were relevantly void. It is suggested that Slade J adopted a
circumlocutory and unconvincing approach. To say that the parties intended to create charges
where they had expressly purported to retain title in the seller was to rewrite the contract for the
parties. Slade J would not have needed to rewrite the contract if he had ruled that the buyer’s
right to use the fibre for its own purposes was inconsistent with the seller’s purported retention of
title thereto so that the seller’s title would cease as soon as the fibre had become part of the
carpet. The buyer was a manufacturer and seller of carpets It did not carry on its business as the
seller’s agent. There was no necessity for Slade J to make the parties intend to create floating
charges when their contractual language showed that nothing was further from their minds than
the creation of such charges. However, the reasoning of Slade J in In re Bond Worth Ltd was
followed in Re Peachdart. In the latter case, the seller sold leather to the buyer (a manufacturer of
handbags) on condition that property in the leather was to remain in the seller until all leather
delivered for sale to the buyer had been fully paid for. The buyer was contractually permitted to
resell the leather and to sell any handbags made therefrom on condition that the proceeds of any
such resales and sales were to belong to the seller until all the leather delivered for sale to the
buyer had been fully paid for. It might be thought that if Romalpa clauses were generally
judicially acceptable, then this would have been a clear case to exemplify such acceptance. But it
was not to be so. The buyer in this case, as did the buyer in the Romalpa case, admitted that title
to the unused goods on its premises remained in the seller. However, the buyer in this case,
unlike the buyer in Romalpa, succeeded in refuting the seller’s claim to the proceeds from the
sales of the handbags. Rejecting the seller’s reliance on Romalpa, Vinelott J said that he found it
’impossible to suppose’ that the buyer was obligated to place all the proceeds from the sales of
the handbags into a separate trust account for the seller, thus disabling itself from using the
money from the sales to operate its own business. If the buyer did have such an obligation, then
the commercially impossible situation would arise where the buyer could make and sell
handbags but could not use the money from the sales of these handbags. Vinelott J decided that
this impossible supposition was to be avoided and therefore ’the parties must have intended’ that
as soon as work began on the raw leather to make it into a handbag the title to that leather would
be transferred from the seller to the buyer. Whereupon, despite the clearly contrary language
used by the parties, the seller’s ownership of the leather would be transformed into a mere charge
over the handbag that was being made. When the handbag was sold, the charge would then be
transferred onto the proceeds of its sale. The judge admitted that this construction of the relevant
clause would do ’some violence’ to its actual wording but he supported what he considered to be
the evident purpose of the clause (to provide security to the seller for the buyer’s payments)
against its literal object (to retain title in the seller until all the leather had been paid for). As soon
as Vinelott J concluded that there was only the intention to create charges over the handbags, the
seller’s submission was doomed because the charges never in fact having been intended by the
parties to be charges, were not registered as company charges so that they were relevantly void.
Perhaps, instead of rewriting the parties’ contract, Vinelott J might have held only that the parties
clearly intended the buyer to sell the handbags for its own account, without taking the additional
and unnecessary step of asserting that the parties intended to transform the seller’s title into a
mere charge. Nonetheless, Peachdart and Bond Worth do serve to emphasise that the courts are
sometimes prepared to exhibit inordinate ingenuity in their determination to avoid the possibly
unjust commercial result of the Romalpa clause, namely, giving the seller the benefit, but not the
burden, of the resales made by the buyer.

Question 4: What is the nature of the seller’s right to repossess and resell the goods where the
buyer defaults on its payments?
The House of Lords has ruled in Armour v Thyssen Edelstahlwerke AG that if a selter reserves
title to itself, and also the fight to repossess and resell the goods it has supplied in the event of
the buyer’s payment becoming overdue then, despite the contract of sale with the buyer, the
seller may retain the proceeds of any resale made by it pursuant to its power to repossess and
resell. However, the actual decision of the House was restricted to the situation where the buyer
had not paid any part of the purchase price for the goods liable to repossession and resale.
Presumably the buyer’s obligation to pay the original purchase price is discharged if the proceeds
of the seller’s resale equal or exceed the original purchase price plus the seller’s expenses.

Importantly, the House of Lords in Armour v Thyssen Edelstahlwerke AG expressly left open
the question of what the position would have been if the buyer, unlike the buyer in that case, had
already partially paid for the goods purportedly made liable to repossession and resale by the
seller. The House adverted to the ’interesting discussions’ of this issue by the Court of Appeal in
Clough Mill Ltd v Martin. In that case Robert Goff LJ said that the outcome of the issue would
depend on whether, at the time of the seller’s repossession, the contract had been terminated by
the repudiation of the buyer which had been accepted by the seller? If the contract had not so
terminated, then the repossession and resale of the goods by the seller would be done pursuant to
that contract, if the contract remained in force, then there would be an implied term therein that
the seller would be entitled to repossess and resell only so much of the goods as would recoup to
it the debt owed to it by the buyer, If the seller resold more goods than were necessary to
discharge the buyer’s indebtedness to it, then the seller would have to account to the buyer for
the surplus.

On the other hand, if the buyer had, for example, repudiated the contract through its insolvency,
and that repudiation had been accepted by the seller, then the contract would have been
terminated. In that event, according to Robert Goff LJ in Clough Mill Ltd v Martin, the seller
would be freed from the contract and therefore from the implied term so that it would, by virtue
of its continuing ownership of the goods, be entitled to repossess the goods, reset1 them, and
retain all title proceeds of the resale, and not be restricted to reselling only so much of the goods
as would recoup to it the money owed to it by the buyer. However, even though the seller in this
situation would be uninhibited by contract, it would still have to repay to the buyer the amount of
money which it had received from the buyer as part of the original purchase price for the goods.
This obligation of the seller to repay the buyer would be based, not upon the terminated contract,
but upon the total failure of consideration on the part of the seller, the latter having repossessed
the goods.

Question 5: What is the position where the seller’s goods are mixed with other goods in the
course of manufacture by the buyer?

Two situations have to be distinguished: the first situation is where the seller contractually
purports to retain title to the goods but does not contractually purport to acquire exclusive
ownership of any compound of which those goods are a constituent; the second situation is
where the seller purports to claim contractually exclusive ownership of both the original goods
and any compound of which those goods are a constituent.

Where the seller purports to retain title to the goods delivered but omits to claim contractually
the exclusive ownership of any subsequently manufactured compound of which those goods are
only a constituent, then the position appears to be settled: the seller’s title to the goods is lost by
being used in the manufacture of the compound, the latter belonging to the buyer° The authority
for this proposition is Borden (UK) Ltd v Scottish Timber Products Ltd and Others, a decision of
the English Court of Appeal There the seller purported to retain title to its resin which it sold to
the buyer, a manufacturer of chipboard. The seller, when the buyer went into receivership,
claimed a declaration that it owned the chipboard to the extent that the latter consisted of the
seller’s resin." The seller’s claim was rejected by the Court of Appeal which held that once the
resin had been used to manufacture the chipboard, the resin ceased to exist as resin, so that the
seller’s title thereto ’simply disappeared’. It should be reiterated that the Court of Appeal was
dealing with a case where the contract did not purport to give the seller exclusive ownership of
the compound, and the seller’s claim to a proportionate part of the chipboard was purportedly
founded on the principles of equitable tracing.

But suppose the different case of the seller and the buyer agreeing to a contractual provision
giving the seller the exclusive ownership of the compound. Would such a provision be effective?
This question was also discussed in Clough Mill Ltd v Martin2! Where the manufactured
compound merely comprised goods respectively owned by the seller and the buyer, both Robert
Goff LJ and Oliver LJ could see no reason in principle why the respective owners of the original
goods could not effectively agree to give the seller exclusive title to the new product. Having
made this concession, Robert Goff LJ then proceeded to impair its effect by requiring the parties
to express this intention in extraordinarily unmistakable language. Despite the parties in the case
having used very clear language to express their intention that ownership of the compound would
vest in the seller, Robert Goff LJ nevertheless declared, obiter, that he found it ’impossible to
believe’ that, in the event of the termination of the contract, the parties would have intended the
setter to obtain ’the windfall’ of the full value of the new product upon resale by the seller,
without any accounting to the buyer for any surplus over the balance of the original purchase
price that remained unpaid by the buyer. With respect, this line of reasoning is not compelling
for the simple reason that a court should not refuse to believe that the parties intended an
extraordinary result if such a result was clearly agreed to between them. In any event, if the seller
should purport to retain, on resale, any surplus over the unpaid balance of the original purchase
price, equity may well regard the retention of this surplus as a forfeiture of the buyer’s property
(for the seller would be purporting to obtain more than the original purchase price plus its
expenses) and compel the seller to recoup the sin-plus to the buyer.

Question 6: What is the position where there are several sellers whose goods are used in the
buyer’s manufacture, and each one of those sellers claims the exclusive ownership of the
manufactured compounds pursuant to their respective contracts with the common buyer?

In Clough Mill Ltd v Martin, Robert Goff LJ, with Oliver LJ concurring, simply described such a
scenario as ’not at all sensible’, and that, to avoid such a situation, he would ’do violence to the
language’ used by the parties to deem them to have merely created a charge in favour of the
seller.6’ Such a charge would then be relevantly void for lack of registration. It is suggested that
this approach serves only to defeat the clear intention of the parties by forcing them to intend
what they never intended. It avoids the question instead of answering it. It is suggested that, as
the buyer has agreed that the sellers should each have exclusive ownership of the manufactured
compounds, any material or labour contributed by the buyer to their manufacture would not give
the buyer any share in such compounds. But what are the rights of the sellers whose goods have
been used to produce the compounds? Obviously, although their contracts with the buyer would
retain for them title to their respective goods immediately before the manufacture of the
compounds, the contracts would not be able to give to each seller the exclusive ownership of the
compounds. It is suggested that the sellers would own each compound in the proportion that the
value of their respective materials bears in relation to the total value of that compound. This
result is achieved by applying the equitable principle of tracing various individually owned
assets into the compound formed by an admixture of those assets. This principle of proportionate
ownership was established by the decision of the House of Lords in Sinclair v Brougham.

However, it should be noted that if these compounds are subsequently sold by the sellers to other
buyers, then a number of situations will have to be distinguished. First, if the sales of these
compounds are made pursuant to the original contracts, then any surplus obtained by the sellers
from these sales over the original contract prices (plus the sellers’ expenses) will have to be
returned to the original buyer. Secondly, if the sales of these compounds to other buyers are
made after the termination of the original contracts by the sellers’ acceptance of the common
buyer’s fundamental breach of those contracts, then two possibilities within this situation will
have to be considered. The first possibility is that the original common buyer has not paid any
part of the respective original purchase prices. In this situation, because the original contracts
have been terminated, the common buyer cannot claim any surplus produced by the sales but the
sellers because of the total failure of the consideration respectively promised by them, will have
to return to the original common buyer the value of any components contributed by that buyer to
the manufacture of the compounds. The second possibility that may arise in the event of the
sellers’ selling the compounds to other buyers after the termination of the original contracts, is
that the original common buyer has partially paid the respective original purchase prices. In this
situation, again because the original contracts have been terminated, the common buyer cannot
claim any surplus produced by the sales but the sellers, because of the total failure of the
consideration respectively promised by them and because the buyer has partially paid the
original purchase prices, will have to return to the original common buyer not only the value of
any components contributed by that buyer to the manufacture of the compounds but also the
partial payments that have been made by the original common buyer.

Q7
The buyer had the right - unhindered by the seller - to fix the price at which the goods were to be
resold. If, as the court appeared to think, the buyer was merely reselling as the seller’s agent,
then why did the seller not have the right to determine the price of the goods it was supposed to
be selling through the agency of the buy

A buyer’s insolvency caused problems for the seller if the seller had not been paid and/or granted
a period of credit. The seller lost his goods and the money due in respect of them, the liquidator
having first call on any assets. If that buyer had subsequently sold the goods and had been paid
for them, then title to the goods passed to that new “Bona Fide Purchaser for Value” unless of
course the buyer had notice of the seller’s interest.

Although it was, and still is possible to create a charge over a buyer’s Limited Company and
assets, the practicality of doing this meant that few sellers ever protected themselves in this way.
Any seller trading with a sole proprietor or a partnership could not even create a charge in that
way. It is true that a charge could be registered against such a person’s personal assets, typically
their home, but once again, few sellers did this. The result was that in the event of a buyer’s
insolvency the seller usually lost his money and retention of title to his goods.

Q8

If “A” sells goods to “B” and “B” sells to “C”, then “B” does not always act as agent for “A” as
a fiduciary. Indeed the English Courts have not found a fiduciary relationship in respect of any
subsequent reported decisions. Not every agent or bailee occupies a fiduciary position and even
an express intention may not lead to the Courts finding one. In using the Romalpa clause,
lawyers have unwisely relied on the Courts finding or agreeing that a fiduciary relationship exists
between buyer and seller and when it came Court, their Lordships failed to find one.

The retention of title clause in Romalpa was elaborate and complicated but showing the
imbalance of two parts, namely between the all-monies part and the manufactured part. In the
first all-monies part, there was an additional obligation imposing on the buyer to keep the goods
ascertained as the property of the seller. This part expressly stipulated neither the authority of the
buyer to sell the goods nor the seller’s entitlement to the proceeds of sub–sale. Meanwhile, the
manufactured part allowed the buyer to manufacture new products from the goods and sell them
to a third party. Then, the seller was explicitly called as a fiduciary owner of new products and
entitled to any claim that the buyer had against the sub–purchaser arising from the sub–sale
transaction. The imbalance between two parts was explained that the problem dealt in the second
part was more complicated than that of the first part. Ironically, the dispute came into being
within the framework of the first part when the plaintiff tried to submit the proprietary claim on
the proceeds of sub–sale of the goods. It is astonishing that the seller was entitled to the proceeds
without any agreement on the sub-sale of the original goods and the proceeds thereof, and the
tracing right is applied to an authorized sale. The second part contained the wording indicating
somewhat a fiduciary relationship between parties with regard to the manufactured products
from the original goods. The Court of Appeal concluded that the second part implied the same
relationship between the seller and the buyer with regard to the proceeds of sale. The main
authority cited in Romalpa is Re Hallett’s Estate providing for the establishment of the fiduciary
relationship as a prerequisite for the right of tracing. That the buyer had an authority to sell was
the common ground in this case. Thus, the question presented was whether there was a fiduciary
relationship entitling the seller to trace the proceeds of sub-sale. The judge of first instance and
the judges of the Court of Appeal, in this case, had different findings on the fiduciary
relationship. The judge of first instance relied heavily on the bailment created between the
defendant and the plaintiff to conclude that it should be the fiduciary relationship beyond the
plain creditor/debtor one between the seller and the buyer at hand. Roskill LJ in the Court of
Appeal complemented the agency relationship that required the defendant to be bound by the
fiduciary obligation towards the plaintiff. Meanwhile, Goff LJ and Megaw LJ did not make any
effort to label the fiduciary relationship between the plaintiff and the defendant as sources of
fiduciary obligations. Although they inevitably had different constructions of the retention of
title clause in hand, they came up with the same holding that a fiduciary relationship was
established between the plaintiff and the defendant to uphold the tracing remedy in favour of the
former.

Therefore, it raises a question about the nature of the fiduciary relationship between the seller
and the buyer found in Romalpa. So far, the fiduciary relationship does not have a general
definition and categories of this relationship is not exhaustive. Categories of fiduciary
relationships are also suggested not to have the same rules.

The holding in Romalpa is striking because the argument on the fiduciary relationship between
the seller and the buyer is formidable. It is supposedly an importation of equitable doctrines into
commercial law that enables a title retaining seller to bring a super–ranked proprietary claim in
the buyer’s insolvency. However, a new notion is not easy to accept since it significantly
opposes the commercial practice and the parties’ intent in a sale and purchase transaction. More
importantly, it considerably affects other interests, like those of secured, preferential and
unsecured creditors. Upholding the validity of the retention of title clause, in this case, has
brought up a demanding consideration upon competing interests in insolvency and the need for
transparency in retention of title transaction. As discussed later, the Romalpa approach does not
merit the application of subsequent line of cases with regard to the title retention claim for the
sub-sale proceeds, but this case has never been reversed or overruled. The Irish experience and
the recent case Caterpillar demonstrate the survival of Romalpa rule and the effort to draft a
perfect “fiduciary” title retention clause leading to inconsistency in the interpretation of title
retention.

Q9

Constructive trust, a credit period in the contract has been held to imply that the buyer could use
proceeds of sub-sales for his own business purposes and therefore the Courts have been
unwilling to imply that a constructive trust is created

In Peachdart (post), the title to leather was deemed to have passed to the buyer. The Retention
clause was in respect of the finished product. The Court held this to create a charge that was void
(for lack of registration) against the receiver’s claim. In all cases sited, the relevant clauses
regarding new goods have never taken into account the fact that the buyer may have used goods
of his own or goods belonging to someone else in the process which maybe subject to a
Retention clause themselves and that the buyer has also contributed labour. It is hardly surprising
therefore that Courts have been reluctant to transfer ownership of new goods to a seller. Such a
transfer would clearly give a seller an unjust enrichment if the seller did not return any surplus.
A hypothetical case explains; “A” sells fabrication materials to “B” (a fabricator). The
fabrication materials are subject to a Romalpa clause. The fabrication materials are not paid for.
The clause states that ownership of the new goods passes to A if B defaults. If effect was given
to the clause, title to the end products would transfer to A, yet it has lots of materials belonging
to other suppliers and labour provided by B, a grossly unfair result would be achieved.

A further problem that faced claimants was that it was only possible to claim monies in respect
of goods that hadn’t been paid for. Thus it was necessary for a claimant to identify the actual
items supplied and which had not been paid for even though they may be physically identical to
other goods supplied and had been paid for. The “All monies” clause allowed for just this
scenario purporting to allow “A” to recover any monies owed by “B” in respect of any goods.
Courts were reluctant to accept this but agreed that a seller could recover in the case of Thyssen