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Summary:
ROT to the original goods ok
All monies ROT Clause ok
Proceeds of sale ROT clause May be ok for proceeds from unmixed goods, not from
proceeds from sale of products
New Products ROT Clause Not ok
Before S has any chance of enforcing a ROT, The liquidator will require strict proof of:
Issue: Can we identify that (good) is from S, distinguish goods from other suppliers? If not,
ROT would not function to protect S.
Here, we assume that there is Marking/ packaging/ Coloured to distinguish S’s goods
from other suppliers.
2. Has the ROT clause been incorporated into the contract? (Burden on S to prove)
Here, the ROT clause has been incorporated into the contract.
3. Whether there is provision to allow S to enter premise to recover property?
Unless contract provides for this, court order maybe needed
Issue: Whether the ROT clauses are effective?
1. Retention Clause allows S to retain title over the goods sold until the price is paid
Of Title to the even though they have been delivered to the Buyer
original goods Allowable under SOGO:
Clauses S19 property passes when the parties intend it to pass.
S21 S can reserve the right to the goods until conditions
are met, notwithstanding delivery of goods to B
Property never passed as it was the intention of parties
ROT to the original goods clauses have been consistently upheld
by the courts as long as it is well-worded (Re Five Oceans Supply
Services Ltd) (Romulpa)
Not the auto suspension of the right to sell – simply gave S the right to
require the B not to sell
H: ROT did not give S priority over the stock that had already been sold,
but simply a right to recover value of stock that has not been sold.
Effect: Not an effective ROT Clause
An effective ROT clause should ensure goods are either not sold or you
can recover the proceeds from the sale of goods
Note: decided on case by case basis – construe not only particular clause
will be considered but also its relationship with the K as a whole
3. Proceeds whereby seller is entitled to trace proceeds of resale of goods which are
Of Sale Clause sold-on by buyer to a third party
BAILMENT?
B is (until title passes) in possession of goods as bailee of Seller
or
TRUST?
Issue: whether intention of party to create genuine trust arrangement
(Fiduciary relationship) (under which B resell as an agent for S and
account for all sale proceeds) or it is merely a security arrangement
(under which B resell for profit and account for enough sales to cover
debt owed to S) – normal debtor/creditor relationship, in which case void
for non-registration.
2) seller should have full control over the way the funds are used i.e.
contract must restrict the withdrawal of proceeds or use of proceeds for
all purposes (other than to be remitted to seller) Andrabell(credit sale of
travel bags – credit extended for 45 days – B had 45 days to pay – nt a
trustee of the funds – the money was B’s – for whatever purpose – Q of
RoT – must be void for non-registration) (term: shall not passed to the
company until the co has paid the total purchase $ - not selling as agent
on S’s behalf – no need to segregate the proceeds – no fiduciary
relationship – just normal debtor and creditor – charge – void for non-
reg)
4) buyer has to hold ALL proceeds from resale for seller (c.f. where
buyer’s duty to account to Seller for proceeds of sub-sale is limited to
Buyer’s outstanding indebtedness to Seller)
Arbuthnot Factors Ltd. (S kept title in the goods up to the amt of the debt
– charge – not registered – void – proceeds of sale clause failed)
[ TITLE: Notwithstanding delivery and the passing of risk in the products, title shall
not pass to Buyer until Seller has received payment in full for the products and all
other goods or services agreed to be sold by Seller to Buyer for which payment is
then due.
Until such time as title passes, Buyer shall hold the products as Seller’s fiduciary
agent and shall keep them separate from Buyer’s other goods. Prior to title passing
Buyer shall be entitled to resell or use the products in the ordinary course of
business and shall account to the Seller for the proceeds of sale ... .”
The terms and conditions also included another clause which read as follows:
“RELATIONSHIP OF THE PARTIES: Nothing herein contained shall be deemed to
create an agency, joint venture, partnership or fiduciary relationship between the
parties hereto ...”]
or
AGENCY?
Alternatively, the contract can clearly appoint buyer as seller's agent, i.e.
selling on behalf of, and under a fiduciary duty to, the seller. As the
goods and proceeds would be deemed all along belong to seller, title has
never passed and seller could assert title in the event of buyer’s
insolvency.
NOTE: under this approach, original seller may attract potential liability
arising from on-selling B2.
Effective 1. Reserve S’s title to goods themselves until:
Proceeds of Buyer has paid [for all goods]; or
sale clause Goods are sold by Buyer
Goods lose their identity in Buyer’s
manufacturing process. (cannot be reversed engineered –
good itself no longer exists – proceeds of sale of products
deemed to fail)
2. Expressly state one or more of the following:
B is (until title passes) in possession
of goods as bailee of Seller
B, in having possession of goods and
in selling them, is in a “fiduciary” relationship with Seller
B in selling them, does so on
account of, and as agent for, the Seller.
3. DO NOT provide that Buyer’s duty to account to Seller for the
proceeds of sub-sales is limited to the Buyer’s outstanding indebtedness
to Seller.