Case 5 - Motor cars supplied and resold (I)

Summary

(Protection of bona fide purchaser – retention of title and resale – consignment – special legislation)

A is a producer (or importer) of cars. He sells five cars to B, a licensed distributor. The contract allows B a period of forty-five days before payment has to be made. It also contains the following clause: ‘The seller hereby retains title to the cars delivered under this contract. The buyer, however, is entitled to resell the cars in the ordinary course of business.’ Two weeks after delivery of the cars, B has managed to sell all of them to various customers (C1–C5) who have paid for them and taken them away immediately. Before paying A, B goes bankrupt.

Questions

1. (a) Can A still claim ownership of, or any other real right in, the cars? To what extent, if at all, does the answer depend on B's entitlement to resell the cars?

2. (b) Who is entitled to the monies that have been paid by the customers (C1–C5) to B? Is it A? Or is it B's insolvency administrator/insolvency creditors?

3. (c) Could A improve his position in some way? If so, on what further circumstances would such an improved position depend? Are such arrangements commonly used? Is there a typical arrangement (perhaps for specific goods, whether cars or otherwise), the use of which would grant to A a security that would survive resale?