The appellant agreed to supply yarn on credit terms to the buyer, a company which intended to use it for the manufacture of fabrics. The contract provided that the risk in the goods was to pass to the buyer on delivery but stipulated, by cl 12,
'(i) that 'the ownership' of the yarn was to remain with the appellant, who reserved the right to dispose of the yarn 'until payment in full for all the [yarn] has been received . . . in accordance with the terms of this contract or until such time as the Buyer sells the [yarn] to its customers by way of bona-fide sale', (ii) that if payment became overdue in whole or in part the appellants could recover or resell the yarn and enter the buyer's premises for that purpose, (iii) that payment would become immediately due if there was any act or proceeding involving the buyer's solvency and (iv) that if any of the yarn was incorporated in, or used as material for, other goods before such payment 'the property in the whole of such goods shall be and remain with [the appellant] until such payment has been made or the other goods shall have been sold . . . and all [the appellant's] rights . . . in the [yarn] shall extend to those other goods'.
The buyer became insolvent before they had paid for or used all the yarn and a receiver was appointed by the company's debenture holders. The appellant therefore notified the receiver that they wished to repossess the unused yarn in the exercise of their rights under cl 12. However, the receiver refused to recognise that the appellant had any rights in the yarn under cl 12 because, he claimed, cl 12 was a 'charge created . . . by a company' in favour of the appellant to secure payment of the purchase price of the yarn and as such was void under s.95 of the Companies Act 1948 for non registration. The receiver accordingly permitted the buyer to use the yarn without paying the appellant, who thereupon brought an action against the receiver claiming damages for wrongfully depriving them of possession of the yarn and converting it to his own use. The receiver contended that the power which the contract conferred on the buyer not merely to sell the yarn but to mix it with other materials in the manufacture of goods was inconsistent with unqualified ownership of the yarn by the appellant and that because the contract had by way of security conferred on the appellant an interest in the yarn defeasible on the buyer paying the debt so secured a charge had thereby been created in the appellant's favour, that charge being nevertheless void for non registration. The judge held that the sole purpose of cl 12 was to provide security for the payment of the purchase price, that the rights conferred on the appellant by the clause were for that limited purpose only and that therefore the contract took effect as a contract for the sale of goods whereby the property in the goods passed to the buyer on delivery and a charge was created over the yarn by the buyer in favour of the appellants by way of security for the payment for the purchase price. The judge further held that the charge so created was void as against the receiver under s.95 of the 1948 Act for non registration. The appellant appealed.
Held On the true construction of the parties' contract the appellant, as they were fully entitled to do under s.19(1) of the Sale of Goods Act 1979, had retained title in the yarn after delivery of it to the buyer until they were paid for it or the buyer resold the material to their customers, the purpose of the appellant's retention of title being to provide themselves with security. Since the yarn claimed by the appellant was at the time of their claim identifiable, unused and unpaid for, the appellant retained legal title to it and since the buyer had never acquired any title to it they were never in a position to confer a charge over the yarn in favour of the appellant. Accordingly, the question of whether any such charge was void under the 1948 Act for non registration did not arise. The appellant were therefore entitled to damages and the appeal would be allowed.
Per curiam If a seller in the exercise of his rights under a retention of title clause repossesses goods and resells them while the contract still subsists he is only entitled to resell that amount needed to discharge the balance of the outstanding purchase price and if he sells more he is accountable to the buyer for the surplus. However, if the contract has been terminated, eg by an accepted repudiation, the seller can resell the goods as the owner uninhibited by any contractual restrictions and therefore while he would have to refund any part of the purchase price paid by the buyer, which would be recoverable on the ground of failure of consideration, he is entitled to retain any profit on the resale.