UK: Bona Fide Purchaser Does Not Always Obtain Title

Last Updated: 26 November 2013
Article by Mark Alsop

Another case involving the sale of diesel generators to Nigeria and retention of title.

Mr Pollak agreed to buy from Eagle Power five generating sets which were then being held at the Bournemouth premises of J P Morgan. The generating sets were duly paid for and transferred under the supervision of Mr Pollak to Eagle Power's premises in West Bromwich. Eagle Power agreed to sell two of those generating sets to Mr Fadallah in Nigeria. Mr Fadallah paid for them by 17 August 2001; it was agreed that property passed to Mr Fadallah, constructive delivery of the generating sets having taken place. Only on 30 August 2011 did Mr Pollak raise an invoice selling the two generators to Eagle, but doing so under a reservation of title clause. In due course Eagle went into liquidation without having paid Mr Pollak and without having actually delivered the generating sets to Mr Fadallah. The question arose as to whether the goods belonged to Mr Fadallah or to Mr Pollak. Mr Fadallah raised many arguments based on the Sale of Goods Act.

The High Court (Richard Seymour QC) rejected all the arguments:

1. Eagle was not the owner of the generating sets when it sold them to Mr Fadallah, and therefore Section 21(1) of the SGA prima facie applied – the buyer acquires no better title to goods than the seller where goods are sold by a person who is not their owner and who does not sell them under the authority or with the consent of the owner. At the time of the sale to Mr Fadallah, Mr Pollak had given no consent. Mr Fadallah therefore had to find other provisions of the SGA which might provide that title passed to him.

2. Intention to pass title and retention of title. Mr Fadallah argued that under Sections 17 & 18 of the SGA, title passes when the contract said it does, and that when title passed from Mr Pollak to Eagle, that "fed" the title of Mr Fadallah. The complete answer to that was that the contract for the purchase back of the two generators by Eagle from Pollak was subject to Pollak's terms, and they contained a retention of title clause. So, Eagle never received title and could not therefore pass title, even belatedly, to Mr Fadallah.

3. Mercantile agent. Mr Fadallah argued that Eagle was a mercantile agent of Mr Pollak – Section 2(1) of the Factors Act provides that where a mercantile agent is, with the consent of the owner, in possession of goods, any sale made by him and acting in the ordinary course of business as a mercantile agent will be valid ... provided that the buyer acted in good faith etc. Unfortunately, for Mr Fadallah, there was no evidence that Eagle had been a mercantile agent. Rather, the evidence of the business was that Eagle had been a buyer and seller of power generation equipment. Mr Pollak never retained Eagle to act as his agent for the sale of any goods.

4. Seller in possession. Mr Fadallah argued under Section 24 of the SGA which provides that where a person having sold goods continues in possession of them, a delivery by that person of the goods under any sale ... to any person receiving the same in good faith ... shall have effect as if the person making the delivery were expressly authorised to make the sale. The problem for Mr Fadallah here was that, on the initial sale to Mr Pollak, the goods were in the possession of J P Morgan, rather than Eagle. When Eagle took physical possession of them, it did so merely as a gratuitous bailee and not as a seller in possession. The position would have been different if the goods in question had remained throughout in the physical possession of the party which was the seller in both sales. The judge acknowledged that distinction was not satisfactory, but the position was clearly established by case law. It was also fatal to Mr Fadallah's case that there was no actual delivery as required by Section 24, even if there had been a constructive delivery.

5. Buyer in possession. Finally Mr Fadallah sought to rely on Section 25(1) of the SGA which states that where a person has bought goods and obtains, with the consent of the seller possession of the goods, the delivery by the buyer of the goods to a person receiving them in good faith etc has effect as if the person making the delivery were a mercantile agent etc. The problem for Mr Fadallah here was that Mr Pollak did not agree to resell the generating sets to Eagle until after Eagle had sold the generating sets to Mr Fadallah. So Eagle had possession of them considerably earlier than the date of sale by Mr Pollak.

Comment. In any case like this, one party will feel hard done by. It is interesting to have a case which considers all the assorted and perhaps slightly confusing buyer/seller in possession /mercantile agent provisions of the SGA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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