Retention of Title clauses in Supply Contracts (including Conditions of Sale) serve the useful purpose that if a customer fails to pay, particularly in case of insolvency, the supplier can get his goods back, provided the contract makes it clear that title is not to pass until payment is made and the other requirements for an effective Retention of Title clause are in place.
But what if the customer is solvent, has a claim against the supplier and has on-sold the goods? Obviously, it might be possible for the supplier to counterclaim, but at the risk that progress of the overall action would lie in the control of the customer.
In principle, section 49 of UK’s Sale of Goods Act 1979 (the relevant sub-sections of the Manx 1983 Act are the same) would seem to provide an attractive solution by enabling the supplier to take proceedings independently for the price of the goods. The difficulty is that this remedy is available only if title in the goods has passed to the customer (or where title is to pass on a particular date irrespective of delivery).
It is the next question which was the subject of an appeal in Caterpillar (NI) Ltd v John Holt & Co (Liverpool) Ltd (2013). If the customer in possession of goods under a Retention of Title clause resells them, at the moment the resale takes place does the customer have title in the goods so as to transfer the same to his purchaser? The answer in the High Court was “Yes” but the Court of Appeal disagreed by a majority of 2:1, with the result that the claimant’s action to recover the price of the goods failed.
Read the full article here: Sale of Goods and Retention of Title – the Downside