Case 4: Jackets for resale

that the jackets found in the possession of the buyer are the same jackets that were sold under reservation of title. This may be problematical if no sign identifies them as such.

The power of sale could be held to be invalid if coupled with a reservation of title clause which extended to the new thing produced out of, for example, raw materials, even if the raw materials are still found in specie in the buyer’s possession. A reservation of title clause over raw materials that are sold and transformed into new things has indeed been held to be inconsistent with the intention to sell, and therefore null and void, by an old Court of Appeal case.6 Some commentators have criticised this as being a dogmatic approach, because the inconsistency of the parties’ will, which is assumed by the Court, is far from being crystal clear. No case so far has, however, established that the power to resell the goods is by itself inconsistent with a title retention clause in respect of goods that the buyer is not going to transform into new things. Such a power to sell the goods may spring from a mandate without representation to sell, or from an authorisation to sell. Neither are expressly regulated by the Italian Civil Code, but this does not mean they are invalid (although, especially in the past, some commentators have argued against the validity of such an authorisation).7 This means

6 App. Napoli 5 July 1955, Foro it., 1956, I, 101.

7The contract of mandate is regulated by articles 1703--1730 c.c. (mandate), articles 1731--1736 c.c. (contract of commission, which is also considered a mandate). Under Italian law, the contract of mandate can be coupled with a power of representation, or may be concluded without conferring that power to the intermediary (cf. articles

1704--1707, 1731 c.c.). The Code does mention the commissione a vendere (article 1731 c.c.), thereby implicitly affirming its validity. But the validity of contracts of mandate to sell has never been seriously questioned anyhow. The doubts raised with respect to them were mainly doctrinal. The question was whether or not the intermediary could transfer title to the goods sold directly, without acquiring it for a scintilla temporis (Luminoso, in: Trattato di diritto civile e commerciale XXXII 241 ff., 295 ff.; Costanza, Digesto sez. comm. III 167, 169--171; Montalenti, in: Contratti commerciali 633, 638 ff.). On the other hand, the issue of whether an authorisation to sell, like the German Ermächtigung (cf. § 185 BGB), was admissible in Italian law has been lively debated. On this academic controversy: see Carraro, Novissimo digesto italiano, I, 2, 1577; Auricchio, Enc. dir. IV 502; Mengoni, Gli acquisti ‘a non domino’ 3--5; Santagata, in: Commentario del Codice Civile Scialoja-Branca 232 ff.; Luminoso, Il mandato 81 ff. The controversy arose because the Italian Civil Code does not contain any provision matching that of § 185 BGB. Nevertheless, despite the silence of the Italian Code on the point, there are no strong reasons to hold that Italian law should turn its back on the operative solution enacted by § 185 BGB (cf. Graziadei, Resp. civ. prev. 1985, 23). There are opinions to the effect that the law of mandate in Italy plays the same function which in Germany is performed by the notion of Ermächtigung: Jaeger, La separazione del patrimonio fiduciario nel fallimento 266 ff.; Jaeger, Giur. comm. 1979, I, 181, 199 ff.; Graziadei, Digesto sez. civ. XI, 154 ff. For an instructive presentation of this debate in German see: Greving, Der Treuhandgedanke bei Sicherungsübertragungen im italienischen und deutschen Recht 46--47.

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that a clause such as that mentioned in case 4 will be valid and the buyer will be able to transfer title to a sub-purchaser.

The combination of the power to resell the jackets with the stipulation that ownership of the jackets shall not pass to the buyer before the price is paid to the seller makes the sale resemble, to some extent, a consignment contract (contratto estimatorio), regulated by articles 1556-- 1558 c.c.8 Under these provisions goods delivered to a consignee are held at his risk (article 1557 c.c.). Dispositions of the goods by the consignee to third parties are valid, but the consignee’s creditors cannot execute against the goods until the price has been paid to the consignor (article 1558 c.c.). The main differences between the consignment contract and a sale under reservation of title coupled with a power to resell the goods are as follows. The buyer under retention of title cannot return the goods to the seller and is obliged to pay the purchase price. The consignee of goods may return them to the consignor at will, and is obliged to pay the price only if he does not return them to the consignor within a stipulated time. Consignment contracts are fairly common in certain trades, such as those concerning magazines and newspapers. On the other hand, reservation of title clauses granting the buyer the power to resell, such as that in the present case, are unknown in Italian commercial practice, despite their theoretical validity. The difficulty is that they are no more effective than simple reservation of title clauses, unless the owner of the goods can gain priority to the proceeds arising from the sale to the third party. How to secure such priority is a difficult point in Italy. The Civil Code rules on assignment of claims are not very helpful in this respect (for a discussion of these rules, see case 10). Nor is it likely that a sale transaction will be interpreted as a mandate just to let the owner under reservation of title get priority over other creditors. True, the principal’s rights will be protected vis-à-vis the intermediary’s executing creditors, or his insolvency administrator, even when the mandate was undisclosed, provided that it had a certain date prior to the execution or the agent’s insolvency (article 1707 c.c.).9 But if the contract between the parties was a genuine sale, it is unlikely that it will be treated like a mandate,

8 Sarale, in: Contratti commerciali 161 ff.; Graziadei, Digesto sez. comm. IV, 1989, 103.

9Article 1707 c.c.: ‘The creditors of a mandatory cannot enforce their rights on property which the mandatory has acquired in his own name in carrying out the mandate, provided that in the purchase of movable property or claims, the mandate be evidenced by a writing bearing a certain date prior to the attachment of the property or, in the case of immovable property or movable property inscribed in public registers, the transcription of the transaction effecting the transfer of ownership or of the judicial petition for the purpose of obtaining said transfer be prior to such attachment.’

even though the buyer was granted the power to resell the goods. Note also that under a consignment contract, the consignor does not obtain priority to the claims that the third party owes to the consignee, or over the monies the third party paid to the consignee.

t h e n e t h e r l a n d s

Parties are free to agree that the buyer will have a power to resell the goods.10 Such a contractual entitlement to resell the goods does not invalidate the reservation of title clause but leads to what is called ‘conditional retention of title’.11 Where the contract of sale itself is silent, an entitlement to resell may be implied. It is important to note, however, that the mere fact that it is evident that the goods are intended to be resold is not of itself sufficient reason to conclude the existence of ‘conditional retention of title’.12

The general view appears to be that a power to resell should be regarded as a resolutive condition of the ownership of the seller, in addition to payment of the purchase price. In other words, when the first buyer makes use of his or her power to resell, the condition is fulfilled with the effect of transferring ownership to B a logical second before ownership is then transferred to the second buyer.13

As B has not paid the price, nor made use of the power to resell, A has remained the owner and may, after the termination of the contract, rely on rei vindicatio and claim the jackets.

e n g l a n d

This is no different from any other reservation of title where the buyer retains possession for personal use. The seller’s reservation of title remains effective for reasons stated in case 3. There is no principle of

10This is acknowledged by the Dutch Supreme Court (see Hoge Raad 8 June 1973, NJ 1974, 346 (Nationaal Grondbezit/Kamphuis) 14 Feb. 1992, NJ 1993, 623) and fully accepted in the literature. It should be noted that the power to resell is to be understood to be a power to dispose; a mere selling of someone else’s property (car) does not invalidate the contract of sale.

11Geclausuleerd eigendomsvoorbehoud.

12Hoge Raad 14 Feb. 1992, NJ 1993, 623 (Hinck/Van der Werf ).

13This is why it leads to what in Germany is called Durchgangserwerb. See Reehuis, Eigendomsvoorbehoud n. 38 and literature there cited as well as Fesevur, Goederenrechtelijke colleges 107. Sometimes Direkterwerb is argued by which the reseller is entitled to dispose ‘directly’ of the original seller’s right, Pitlo/Reehuis/Heisterkamp, Het Nederlands burgerlijk recht III nr. 968. The key issue is whether ownership passes to B at all.

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reputed ownership in English insolvency law which would subordinate A’s reservation of title to the claims of B’s creditors enforced on their behalf by B’s insolvency administrator (either the liquidator or the trustee- in-bankruptcy).

i r e l a n d

In this case we have a ‘simple’ retention of title clause coupled with an express entitlement on the part of the buyer to resell the goods. The entitlement to resell does not affect the validity of the retention of title clause. There is a decision of the Court of Appeal -- Clough Mill Ltd v Martin14 -- to that effect in England and it is virtually certain that the same view would prevail in Ireland.

s c o t l a n d

The fact that B is authorised by the contract to resell the jackets makes no difference. Nor does it make any difference that B has been allowed a credit period. The jackets still belong to A. Therefore if B becomes bankrupt, the jackets do not form part of the insolvency estate.

s o u t h a f r i c a

The fact that the buyer is entitled to resell the jackets does not affect the validity or enforceability of the reservation of title clause. If the buyer resells the jackets and then defaults on payment, the original seller (A) will still be able to reclaim his property.15 South African law does not recognise the bona fide acquisition of ownership by bona fide third parties. The only limitation in this respect on the rei vindicatio of the original owner is the English doctrine of estoppel, which has been adopted in

14[1985] 1 WLR 111.

15Note that most sales by instalments fall under a consumer protection statute, the Credit Agreements Act 75 of 1980. Under s. 11 of this Act the hire-purchase seller (A) must notify the hire-purchaser (B) of his breach of contract and must grant him thirty days to remedy his breach. Thereafter he can recover his property (the jackets) from B. The notification must be by letter either personally delivered or sent by registered post. However, if the property is returned to the creditor within a month before the sequestration of the purchaser’s (B’s) estate, s. 84 (2) of the Insolvency Act 24 of 1936 applies. Pursuant to this section, the insolvency administrator may demand that the seller deliver to him the property or the value thereof, taking into account the part payments already made.

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Initially, the reason for this invalidity was that such reservations of title were not intended seriously, but were only made in fraudem creditorum, since the buyer was entitled himself to dispose of the goods as an owner.19 Today, this argument has been discarded. Instead, the question put is whether the law should allow securities of this unreliable kind. The goods will often have been sold (or transformed in the manufacturing process) when the buyer goes bankrupt, without the seller having security in any substitute. Recognition of such a security would not, therefore, say the defenders of the present position, lead to an expansion of low-cost credit. The cost of credit from other sources, especially the banks, would increase by a comparable amount, since they normally, at present, have priority over the assets by virtue of an enterprise charge. Hence debtors’ aggregate credit bills would not be lowered. A reform, giving sellers the option of reserving a right also to the proceeds (claims and new products), would provide them with a more effective security. It would, however, cause technical problems and it would undermine the registered enterprise charge. Despite the arguments for reform, for example, that producers and wholesalers are usually unable to compete with the banks for the enterprise charge, and that their risks are less diversified, the legislature has not so far been convinced that security in sold goods should be extended. An alternative proposal is that the enterprise charge should extend to all assets, but be restricted to 50 per cent of their value.20

To the extent that the reservation of title clause is invalid, a subpurchaser will become owner without any need to rely on the rules governing bona fide acquisitions.

The limitations on reservation of title may to some degree be circumvented if the goods are handed over to the retailer, B, on a commission (undisclosed agency, kommission) basis, i.e. without transferring ownership to B but providing B with the right to sell the goods on A’s behalf; or as a consignment, i.e. which would provide B with an option to become the owner and sell on his own behalf, when he has found a third party willing to buy. In both cases A would have in principle a right of separation in respect of the unsold goods. However, agreements are not regarded as being concluded on a commission or consignment

19Almén/Eklund, Lagen om köp och byte av lös egendom § 28 fn. 129 and Almén, SvJT 1918, 5 (21).

20See e.g. Helander, Kreditsäkerhet i lös egendom 649 ff. and 723 ff.; Håstad, Sakrätt rörande lös egendom 189 ff.; SOU 1988:63 and 1999:1.

basis unless the agent/consignee has a right to return the goods, without excessive penalties or charges, should he not find a buyer. Without such a right, the transaction would be, in reality, by way of sale. However, it seems to be permissible for A to charge a fixed price from B (instead of a percentage). In some judgments, courts have made mention of the fact that the principal (consignor) had ensured that a fast settlement took place, but that seems not to have been the ratio decidendi.21

f i n l a n d

According to the settled case law, a retention of title clause is invalid as against the creditors of the buyer if the buyer has the right to resell the goods before full payment of the purchase price to the seller.22 The position may be different if the buyer’s right to resell the goods has been so restricted that it does not jeopardise the security interest of the seller.23 It is unlikely that this requirement would be met in the present case, however, as the buyer had the right to sell the jackets in the ordinary course of business.

The rules concerning commission or consignments can sometimes protect the seller.24 The description of case 4 does not, however, indicate that these rules would apply.

21See s. 53 of the Commission Agency (Undisclosed Agency) Act (Kommissionslagen, 1914), Håstad, Sakrätt rörande lös egendom 147 ff. and SOU 1988:63. It appears that, from preparatory material to the Commission Agency Act, the legislature assumed that commission agency contracts would have commission fixed as a percentage for the agent (NJA II 1914, 272 ff.). This is not observed in practice, however, and the courts would now find it difficult to impose such a requirement.

22See e.g. KKO 1986 I 2 and KKO 1995:128.

23See e.g. Tuomisto, Omistuksenpidätys ja leasing 331 ff.

24The term ‘consignment’ signifies a type of agreement different from the ‘commission’. In both cases the goods are delivered to the ‘middleman’ who is under no obligation to buy them. It is, however, typical in the case of a consignment that the ‘middleman’ has an option to buy the goods. In such a case, the intention of the parties is that goods are bought by the ‘middleman’ and resold on his own account. On the other hand, it is typical under the commission that the goods are sold on the account of the principal and that the principal receives money from the proceeds that the

agent has collected from his own customers. See e.g. Tepora, Defensor Legis 1991, 623 ff. and Tepora, Lakimies 1992, 1043 ff. However, the borderline between commissions and consignments is unclear. Even under a commission, the ‘middleman’ sometimes has an option to buy the goods for himself, and it is not easy to decide whether the goods are sold on the account of the ‘middleman’

or the principal.